<PAGE>   1
                                    FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                   QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997

                         COMMISSION FILE NUMBER 0-14458



                  NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
                        (A MARYLAND LIMITED PARTNERSHIP)
             (Exact name of registrant as specified in its charter)



            MARYLAND                                           52-1365317
  (State or other jurisdiction                              (I.R.S. Employer
of incorporation or organization)                          Identification No.)



                          8065 LEESBURG PIKE, SUITE 400
                             VIENNA, VIRGINIA 22182
                    (Address of principal executive offices)
                                   (Zip Code)


                                 (703) 394-2400
              (Registrant's telephone number, including area code)

                                 NOT APPLICABLE
              (Former name, former address and former fiscal year,
                         if changed since last report.)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes   X         No
    -----           -----

<PAGE>   2



PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS

                  NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
                        (A MARYLAND LIMITED PARTNERSHIP)
                        STATEMENTS OF FINANCIAL POSITION


<TABLE>
<CAPTION>
                                                                             September 30,
                                                                                 1997                   December 31,
                                                                              (Unaudited)                   1996
                                                                             -----------                -----------

<S>                                                                          <C>                        <C>
                                     ASSETS
                                     ------

Cash and cash equivalents                                                    $    30,294                $    37,396
Investments in and advances to Local Limited Partnerships (Note 2)             4,286,430                  4,241,127
                                                                             -----------                -----------

                                                                             $ 4,316,724                $ 4,278,523
                                                                             ===========                ===========

                        LIABILITIES AND PARTNERS' DEFICIT
                        ---------------------------------

Liabilities:
     Deferred acquisition notes payable to General Partner                   $ 2,414,468                $ 2,414,468
     Accrued interest on deferred acquisition notes payable to
       General Partner                                                         2,999,073                  2,817,988
     Administrative and reporting fee payable to General Partner (Note 3)      1,040,519                  1,018,803
     Other accrued expenses                                                       28,500                     39,445
                                                                             -----------                -----------

                                                                               6,482,560                  6,290,704
                                                                             -----------                -----------

Partners' deficit:
     General Partner -- The National Housing Partnership (NHP)                  (176,748)                  (175,211)
     Original Limited Partner -- 1133 Fifteenth Street Two Associates           (181,648)                  (180,111)
     Other Limited Partners -- 18,300 investment units                        (1,807,440)                (1,656,859)
                                                                             -----------                -----------

                                                                              (2,165,836)                (2,012,181)
                                                                             -----------                -----------

                                                                             $ 4,316,724                $ 4,278,523
                                                                             ===========                ===========
</TABLE>

                       See notes to financial statements.

                                       -1-



<PAGE>   3


                  NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
                        (A MARYLAND LIMITED PARTNERSHIP)
                            STATEMENTS OF OPERATIONS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                              Three Months Ended                Nine Months Ended
                                                                 September 30,                    September 30,
                                                           ------------------------         -----------------------
                                                              1997           1996              1997           1996
                                                           ---------       --------         ---------      --------

<S>                                                        <C>             <C>              <C>            <C>
           REVENUES:
               Share of income from Local Limited
                 Partnerships                              $   4,826       $  1,337         $  66,277      $151,686
               Distributions and repayments received in
                 excess of investment in Local Limited
                 Partnerships                                    -          120,914           103,994       145,914
               Interest income                                   426          1,012             1,199         2,624
                                                           ---------       --------         ---------      --------

                                                               5,252        123,263           171,470       300,224
                                                           ---------       --------         ---------      --------

           COSTS AND EXPENSES:
               Administrative and reporting fees to
                 General Partner (Note 3)                     34,312         34,312           102,936       102,936
               Interest on deferred acquisition notes
                 to General Partner                           60,362         60,362           181,085       181,085
               Interest on due to General Partner                -               68               -           1,587
               Other operating expenses                       13,219         14,297            41,104        40,354
                                                           ---------       --------         ---------      --------

                                                             107,893        109,039           325,125       325,962
                                                           ---------       --------         ---------      --------

           NET (LOSS) PROFIT                               $(102,641)      $ 14,224         $(153,655)     $(25,738)
                                                           =========       ========         =========      ========

           NET (LOSS) PROFIT ASSIGNABLE TO
             LIMITED PARTNERS                              $(100,587)      $ 13,938         $(150,581)     $(25,224)
                                                           =========       ========         =========      ========

           NET (LOSS) PROFIT PER LIMITED
             PARTNERSHIP INTEREST                          $      (5)      $      1         $      (8)     $     (1)
                                                           =========       ========         =========      ========
</TABLE>


                       See notes to financial statements.

                                       -2-



<PAGE>   4


                  NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
                        (A MARYLAND LIMITED PARTNERSHIP)
                         STATEMENT OF PARTNERS' DEFICIT
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                             The National       1133
                                Housing      Fifteenth         Other
                              Partnership    Street Two       Limited
                                 (NHP)       Associates       Partners          Total
                               ---------     ---------      -----------      -----------

<S>                            <C>           <C>            <C>              <C>
Deficit at January 1, 1997     $(175,211)    $(180,111)     $(1,656,859)     $(2,012,181)

Net loss -- nine months ended
   September 30, 1997             (1,537)       (1,537)        (150,581)        (153,655)
                               ---------     ---------      -----------      -----------

Deficit at September 30, 1997  $(176,748)    $(181,648)     $(1,807,440)     $(2,165,836)
                               =========     =========      ===========      ===========

Percentage interest at
 September 30, 1997                    1%            1%              98%             100%
                               =========     =========      ===========      ===========
                                     (A)           (B)              (C)
</TABLE>

(A)   General Partner
(B)   Original Limited Partner
(C)   Consists of 18,300 investment units of 0.0085% held by 1,297 investors



                       See notes to financial statements.

                                       -3-



<PAGE>   5


                  NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
                        (A MARYLAND LIMITED PARTNERSHIP)
                            STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                   Nine Months Ended September 30,
                                                                   -------------------------------
                                                                        1997                1996
                                                                     ---------         ---------

<S>                                                                  <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Distributions from Local Limited Partnerships                   $  20,974         $  21,849
     Distributions received in excess of investment in
       Local Limited Partnerships                                      103,794           142,476
     Payment of administrative and reporting fees to
       General Partner                                                 (81,220)          (79,179)
     Interest received                                                   1,199             2,624
     Payment of interest on partner loans                                  -              (2,447)
     Operating expenses paid                                           (52,049)          (52,064)
                                                                     ---------         ---------

     Net cash (used in) provided by operating activities                (7,302)           33,259

CASH FLOWS FROM INVESTING ACTIVITIES:
     Repayment of advances from Local Limited Partnerships                 200             3,438
                                                                     ---------         ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Repayment of advances from General Partner                            -             (27,700)
                                                                     ---------         ---------

NET (DECREASE) INCREASE IN CASH AND CASH
   EQUIVALENTS                                                          (7,102)            8,997

CASH AND CASH EQUIVALENTS, BEGINNING OF
   PERIOD                                                               37,396            30,173
                                                                     ---------         ---------

CASH AND CASH EQUIVALENTS, END OF PERIOD                             $  30,294         $  39,170
                                                                     =========         =========

RECONCILIATION OF NET LOSS TO NET CASH
   (USED IN) PROVIDED BY OPERATING ACTIVITIES:
      Net loss                                                       $(153,655)        $ (25,738)
                                                                     ---------         ---------
      Adjustments to reconcile net loss to net cash (used in)
        provided by operating activities:
           Repayment of advances to Local Limited Partnerships            (200)           (3,438)
           Distributions from Local Limited Partnerships                20,974            21,849
           Share of income from Local Limited Partnerships             (66,277)         (151,686)
           Increase in accrued interest on deferred
             acquisition notes                                         181,085           181,085
           Decrease in accrued interest on due to General Partner          -                (860)
           Increase in administrative and reporting fees payable        21,716            23,757
           Decrease in accrued expenses                                (10,945)          (11,710)
                                                                     ---------         ---------

           Total adjustments                                           146,353            58,997
                                                                     ---------         ---------

     Net cash (used in) provided by operating activities             $  (7,302)        $  33,259
                                                                     =========         =========
</TABLE>


                       See notes to financial statements.

                                       -4-



<PAGE>   6


                  NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
                        (A MARYLAND LIMITED PARTNERSHIP)
                          NOTES TO FINANCIAL STATEMENTS




(1)        ACCOUNTING POLICIES

           ORGANIZATION

           National Housing Partnership Realty Fund Two (the "Partnership") is a
           limited partnership organized under the laws of the State of Maryland
           under the Maryland Revised Uniform Limited Partnership Act on January
           22, 1985. The Partnership was formed for the purpose of raising
           capital by offering and selling limited partnership interests and
           then investing in limited partnerships ("Local Limited
           Partnerships"), each of which owns and operates an existing rental
           housing project which is financed and/or operated with one or more
           forms of rental assistance or financial assistance from the U.S.
           Department of Housing and Urban Development ("HUD").

           The General Partner raised capital for the Partnership by offering
           and selling to additional limited partners 18,300 investment units at
           a price of $1,000 per unit. The Partnership acquired limited
           partnership interests of 94.5% (98% with respect to allocation of
           losses) in twenty-one Local Limited Partnerships, nineteen of which
           were organized to acquire and operate an existing rental housing
           project. The remaining two Local Limited Partnerships were formed to
           construct and operate rental housing projects.

           On June 3, 1997, Apartment Investment and Management Company, a
           Maryland corporation ("AIMCO" and, together with its subsidiaries and
           other controlled entities, the "AIMCO Group"), acquired all of the
           issued and outstanding capital stock of NHP Partners, Inc., a
           Delaware corporation ("NHP Partners"), and the AIMCO Group acquired
           all of the outstanding interests in NHP Partners Two Limited
           Partnership, a Delaware limited partnership ("NHP Partners Two"). The
           Acquisition was made pursuant to a Real Estate Acquisition Agreement,
           dated as of May 22, 1997 (the "Agreement"), by and among AIMCO, AIMCO
           Properties, L.P., a Delaware limited partnership (the "Operating
           Partnership"), Demeter Holdings Corporation, a Massachusetts
           corporation ("Demeter"), Phemus Corporation, a Massachusetts
           corporation ("Phemus"), Capricorn Investors, L.P., a Delaware limited
           partnership ("Capricorn"), J. Roderick Heller, III and NHP Partners
           Two LLC, a Delaware limited liability company ("NHP Partners Two
           LLC"). NHP Partners owns all of the outstanding capital stock of the
           National Corporation for Housing Partnerships, a District of Columbia
           corporation ("NCHP"), which is the general partner of The National
           Housing Partnership, a District of Columbia limited partnership (the
           "NHP Partnership"). Together, NCHP and NHP Partners Two own all of
           the outstanding partnership interests in the NHP Partnership. The NHP
           Partnership is the general partner of National Housing Partnership
           Realty Fund Two (a Maryland Limited Partnership) (the "Registrant").
           As a result of these transactions, the AIMCO Group has acquired
           control of the general partner of the Registrant and, therefore, may
           be deemed to have acquired control of the Registrant.

           BASIS OF PRESENTATION

           The accompanying unaudited interim financial statements reflect all
           adjustments which are, in the opinion of management, necessary to a
           fair statement of the financial condition and results of operations
           for the interim periods presented. All such adjustments are of a
           normal and recurring nature.

           While the General Partner believes that the disclosures presented are
           adequate to make the information not misleading, it is suggested that
           these financial statements be read in conjunction with the financial
           statements and notes included in NHP Realty Fund Two's Annual Report
           filed in Form 10-K for the year ended December 31, 1996.



                                      -5-

<PAGE>   7


                  NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
                        (A MARYLAND LIMITED PARTNERSHIP)
                          NOTES TO FINANCIAL STATEMENTS




(2)        INVESTMENTS IN AND ADVANCES TO LOCAL LIMITED PARTNERSHIPS

           The Partnership owns a 94.5% limited partnership interest (98% with
           respect to allocation of losses) in twenty-one Local Limited
           Partnerships. Because the Partnership, as a limited partner, does not
           exercise control over the activities of the Local Limited
           Partnerships in accordance with the partnership agreements, the
           investments in Local Limited Partnerships are accounted for using the
           equity method. Thus, the investments (and the advances made to the
           Local Limited Partnerships as discussed below) are carried at cost
           less the Partnership's share of the Local Limited Partnerships'
           losses and distributions. However, because the Partnership is not
           legally liable for the obligations of the Local Limited Partnerships,
           and is not otherwise committed to provide additional support to them,
           it does not recognize losses once its investments, reduced for its
           share of losses and cash distributions, reaches zero in each of the
           individual Local Limited Partnerships. As of September 30, 1997 and
           December 31, 1996, investments in nineteen of the twenty-one Local
           Limited Partnerships had been reduced to zero. As a result, the
           Partnership did not recognize $1,203,616 and $1,127,954 of losses
           from these nineteen Local Limited Partnerships during the nine months
           ended September 30, 1997 and 1996, respectively. As of September 30,
           1997 and December 31, 1996, the Partnership has not recognized a
           total of $22,168,885 and $20,965,269, respectively, of its allocated
           share of cumulative losses from the Local Limited Partnerships in
           which its investment is zero.

           Advances made by the Partnership to the individual Local Limited
           Partnerships are considered part of the Partnership's investment in
           Local Limited Partnerships. When advances are made to a Local Limited
           Partnership for which the Partnership carries its investment at zero,
           they are charged to operations as a loss on investment in the Local
           Limited Partnership using previously unrecognized cumulative losses.
           As discussed above, due to the cumulative losses incurred by nineteen
           of the Local Limited Partnerships, the aggregate balance of
           investments in and advances to Local Limited Partnerships, for these
           nineteen Local Limited Partnerships, has been reduced to zero at
           September 30, 1997 and December 31, 1996. To the extent these
           advances are repaid by the Local Limited Partnerships in the future,
           the repayments will be credited as distributions and repayments
           received in excess of investment in Local Limited Partnerships. These
           advances are carried as a payable to the Partnership by the Local
           Limited Partnerships.

           No working capital advances were made by the Partnership to the Local
           Limited Partnerships during the nine months ended September 30, 1997
           and 1996. Repayments of advances of $200 and $3,438 were made to the
           Partnership during the nine months ended September 30, 1997 and 1996,
           and were credited as income from operations. The combined amount
           carried as due to the Partnership by the Local Limited Partnerships
           was $592,727 at September 30, 1997.

           The following are combined statements of operations for the three and
           nine months ended September 30, 1997 and 1996, respectively, of the
           Local Limited Partnerships in which the Partnership has invested. The
           statements are compiled from financial statements of the Local
           Limited Partnerships, prepared on the accrual basis of accounting, as
           supplied by the management agents of the projects, and are unaudited.




                                      -6-

<PAGE>   8

                  NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
                        (A MARYLAND LIMITED PARTNERSHIP)
                          NOTES TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                      COMBINED STATEMENTS OF OPERATIONS
                                      ---------------------------------

                                         Three Months Ended                    Nine Months Ended
                                           September 30,                         September 30,
                                     ---------------------------        ------------------------------
                                        1997             1996               1997               1996
                                     ----------       ----------        -----------        -----------

<S>                                  <C>              <C>               <C>                <C>
Rental income                        $3,625,549       $3,638,898        $10,898,488        $10,887,452
Other income                            213,925          118,116            461,873            346,271
                                     ----------       ----------        -----------        -----------

     Total income                     3,839,474        3,757,014         11,360,361         11,233,723
                                     ----------       ----------        -----------        -----------

Operating expenses                    2,534,861        2,430,526          7,394,228          7,148,449
Interest, taxes and insurance         1,181,808        1,122,043          3,340,542          3,279,297
Depreciation                            562,617          615,546          1,780,007          1,793,119
                                     ----------       ----------        -----------        -----------

     Total expenses                   4,279,286        4,168,115         12,514,777         12,220,865
                                     ----------       ----------        -----------        -----------

Net loss                             $ (439,812)      $ (411,101)       $(1,154,416)       $  (987,142)
                                     ==========       ==========        ===========        ===========

National Housing Partnership
   Realty Fund Two share of losses   $ (434,606)      $ (402,145)       $(1,137,339)       $  (976,268)
                                     ==========       ==========        ===========        ===========
</TABLE>


(3)        TRANSACTIONS WITH THE GENERAL PARTNER

           During the nine month periods ended September 30, 1997 and 1996, the
           Partnership accrued administrative and reporting fees payable to the
           General Partner in the amount of $102,936 for services provided to
           the Partnership. The Partnership paid the General Partner $81,220 and
           $79,179 for these fees during the nine months ended September 30,
           1997 and 1996. The amount of fees due to the General Partner by the
           Partnership was $1,040,519 and $1,018,803 at September 30, 1997 and
           December 31, 1996, respectively.

           The accrued administrative and reporting fees payable to the General
           Partner will be paid only as cash flow permits or from the sale or
           refinancing of one or more of the underlying properties of the Local
           Limited Partnerships.


                                      -7-

<PAGE>   9


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS



                  NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
                        (A MARYLAND LIMITED PARTNERSHIP)


The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements in certain circumstances. Certain information
included in this Report and other Partnership filings (collectively "SEC
Filings") under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended (as well as information communicated orally or
in writing between the dates of such SEC Filings) contains or may contain
information that is forward looking, including statements regarding the effect
of government regulations. Actual results may differ materially from those
described in the forward-looking statements and will be affected by a variety of
factors including national and local economic conditions, the general level of
interest rates, terms of governmental regulations that affect the Partnership
and interpretations of those regulations, the competitive environment in which
the properties owned by the Local Limited Partnerships operate, the availability
of working capital and dispositions of properties owned by the Partnership.

LIQUIDITY AND CAPITAL RESOURCES

The properties in which the Partnership has invested, through its investments in
the Local Limited Partnerships, receive one or more forms of assistance from
Federal, state or local governments or agencies. As a result, the Local Limited
Partnerships' ability to transfer funds either to the Partnership or among
themselves in the form of cash distributions, loans or advances is generally
restricted by these government-assistance programs. These restrictions, however,
are not expected to impact the Partnership's ability to meet its cash
obligations.

For the past several years, various proposals have been advanced by the United
States Department of Housing and Urban Development ("HUD"), Congress and others
proposing the restructuring of HUD's rental assistance programs under Section 8
of the United States Housing Act of 1937 ("Section 8"), under which 2,289 units,
84 percent of the total units owned by the properties in which the Partnership
has invested, receive rental subsidies. On October 27, 1997, the President
signed into law the Multifamily Assisted Housing Reform and Affordability Act of
1997 (the "1997 Housing Act"). Under the 1997 Housing Act, certain properties
assisted under Section 8, with rents above market levels and financed with
HUD-insured mortgage loans, will be restructured by reducing subsidized rents to
market levels, thereby reducing rent subsidies, and lowering required debt
service costs as needed to ensure financial viability at the reduced rents and
rent subsidies. The 1997 Housing Act retains project-based subsidies for most
properties (properties in rental markets with limited supply, properties serving
the elderly, and certain other properties). The 1997 Housing Act phases out
project-based subsidies on selected properties servicing families not located in
rental markets with limited supply, converting such subsidies to a tenant-based
subsidy. Under a tenant-based system, rent vouchers would be issued to qualified
tenants who then could elect to reside at properties of their choice, provided
such tenants have the financial ability to pay the difference between the
selected properties' monthly rent and the value of the vouchers, which would be
established based on HUD's regulated fair market rent for the relevant
geographical areas. The 1997 Housing Act provides that properties will begin the
restructuring process in federal fiscal year 1999 (beginning October 1, 1998),
and that HUD will issue final regulations implementing 1997 Housing Act on or
before October 27, 1998. With respect to Housing Assistance Payments Contracts
("HAP Contracts") expiring before October 1, 1998, Congress has elected to renew
them for one-year terms, generally at existing rents, so long as the properties
remain in compliance with the HAP Contracts. While the Partnership does not
expect the provisions of the 1997 Housing Act to result in a significant number
of tenants relocating from properties owned by the Local Limited Partnerships,
there can be no assurance that the provisions will not significantly affect the
operations of the properties of the Local Limited Partnerships. Furthermore,
there can be no assurance that other changes in Federal housing subsidy policy
will not occur. Any such changes could have an adverse effect on the operation
of the Partnership.


                                      -8-

<PAGE>   10


                  NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
                        (A MARYLAND LIMITED PARTNERSHIP)
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS


Net cash used in operations for the nine months ended September 30, 1997 was
$7,302 as compared to net cash provided by operations of $33,259 for the nine
months ended September 30, 1996. The change in cash used in/provided by
operations resulted from a decrease in distributions received in excess of
investment in and advances to Local Limited Partnerships during the nine months
ended September 30, 1997, compared to the nine months ended September 30, 1996.

No working capital advances were made by the Partnership to the Local Limited
Partnerships during the nine months ended September 30, 1997 and 1996.
Repayments of advances of $200 and $3,438 were made to the Partnership during
the nine months ended September 30, 1997 and 1996. The combined amount carried
as due to the Partnership by the Local Limited Partnerships was $592,727 at
September 30, 1997. Future advances made to the nineteen Local Limited
Partnerships' properties whose investments have been reduced to zero, will be
charged to operations; likewise, future repayments from these properties will be
credited to operations.

Distributions received from Local Limited Partnerships represent the
Partnership's proportionate share of the excess cash available for distribution
from the Local Limited Partnerships. As a result of the use of the equity method
of accounting for the Partnership's investments, as of September 30, 1997,
investments in nineteen Local Limited Partnerships had been reduced to zero. For
these investments, cash distributions received are recorded in income as
distributions received in excess of investment in Local Limited Partnerships.
For those investments not reduced to zero, distributions received are recorded
as distributions from Local Limited Partnerships. Cash distributions of $124,768
and $164,325 were received from six Local Limited Partnerships during the nine
months ended September 30, 1997 and 1996, respectively. The receipt of
distributions in future quarters is dependent upon the operations of the
underlying properties of the Local Limited Partnerships to generate sufficient
cash for distribution in accordance with applicable HUD regulations.

Cash and cash equivalents amounted to $30,294 at September 30, 1997. The ability
of the Partnership to meet its on-going cash requirements, in excess of cash on
hand at September 30, 1997, is dependent upon the future receipt of
distributions from the Local Limited Partnerships or proceeds from sales or
refinancings of one or more of the underlying properties of the Local Limited
Partnerships. Cash on hand at September 30, 1997, plus any distributions from
the underlying operations of the combined Local Limited Partnerships is expected
to adequately fund the operations of the Partnership in the current year.
However, there can be no assurance that future distributions will be adequate to
fund the operations beyond the current year.

The Partnership currently owes the General Partner $1,040,519 for administrative
and reporting services performed. The payment of these unpaid administrative and
reporting fees will most likely result from the sale or refinancing of the
underlying properties of the Local Limited Partnerships, rather than through
recurring operations.

Nineteen of the Local Limited Partnerships in which the Partnership has invested
carry deferred acquisition notes due to the original owners of the Properties.
These notes are secured by both the Partnership's and the General Partner's
interests in the Local Limited Partnerships and, as discussed below, mature
between 1996 and 1999. In the event of a default on the notes, the note holders
would be able to assume the General Partner's and the Partnership's interests in
the Local Limited Partnerships.

The acquisition note related to West Oak Village matured November 30, 1996. On
August 20, 1997, the General Partner was successful in reaching an agreement
with the note holder to extend the note's maturity date through November 30,
2013. Under the terms of the extension agreement, the Local Limited Partnership
must make certain annual payments of interest to the note holder. The first
interest payment in the amount of $50,000 was made at the time the agreement to
extend the note was reached with the note holder. The General Partner made a
loan to the Local



                                      -9-

<PAGE>   11

                  NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
                        (A MARYLAND LIMITED PARTNERSHIP)
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS


Limited Partnership to cover the first interest payment of $50,000. The next
interest payment will be due on or before December 31, 1997, with future
interest payments due on December 31 of each successive year until note maturity
in 2013. Annual interest payments are calculated by increasing the previous
interest payment by the most recent consumer price index, but by no less than 2%
and no more than 5%. For example, assuming the most recent consumer price index
was 5%, the interest payment due December 31, 1997, would be calculated by
increasing the first interest payment of $50,000 by 5%, resulting in an interest
payment due of $52,500. The General Partner is under no obligation to make loans
to the Local Limited Partnership to cover future interest payments on the note.
Under the terms of the agreement, if an interest payment is not made when due,
the note holder may declare the note in default and the Local Limited
Partnership would have 30 days to cure the default. If the default is not cured,
the Local Limited Partnership agrees within 30 days to transfer its interest in
the property to the note holder in full satisfaction of amounts due under the
note, with the note holder being responsible for all costs related to the
transfer of the property. Should the Partnership lose its interest in West Oak
Village, partners in the Partnership may incur adverse tax consequences. The
impact of the tax consequences is dependent upon each partner's individual tax
situation.

The notes related to Mayfair Manor and Esbro (a.k.a. Shadow Pines) matured
October 25, 1997, while the note related to Menlo Park matured October 31, 1997.
The General Partner has been actively negotiating with the note holders to
achieve either an extension of each note's maturity date, a discounted pay-off
of the notes or a sale of the properties within the next 18 months to a third
party with sale proceeds being shared between the note holders and the Local
Limited Partnerships which own the properties. Negotiations are still underway
at this time. The notes related to Gulfway Manor, Rockwell Manor and Tinker
Creek mature during November 1997, and the notes related to Rodeo Drive, Meadows
and Meadows East mature during December 1997. It is the General Partner's
intention to negotiate with the note holders of these notes to achieve either an
extension of each note's maturity date, a discounted pay-off of the note, or a
sale of the property to a third party with sale proceeds being shared by the
note holder and the Local Limited Partnership which owns the property. The
General Partner has initiated discussions along these lines with respect to
Tinker Creek and Rodeo Drive, and is preparing to initiate these negotiations
with respect to the other properties. There can be no assurance that the General
Partner will be successful in its efforts to reach agreement with any of the
note holders. Should no agreement be reached and the notes mature, absent of
sale or refinancing which produces sufficient funds to repay the notes in full,
a default would occur on the notes. Such default could lead to a foreclosure by
the note holder of the security underlying the notes such that the Partnership
may lose its interest in these Local Limited Partnerships. Should the
Partnership lose its interest in a Local Limited Partnership, partners in the
Partnership may incur adverse tax consequences. The impact of the tax
consequence is dependent upon each partner's individual tax situation.

All other notes have final maturity dates in 1999.

RESULTS OF OPERATIONS

The Partnership has invested as a limited partner in Local Limited Partnerships
which operate twenty-one rental housing properties. In prior years, results of
operations of NHP Realty Fund Two were significantly impacted by the
Partnership's share of the losses of the Local Limited Partnerships. These
losses included depreciation and accrued deferred acquisition note interest
expense which are noncash in nature. Nineteen of the twenty-one investments in
Local Limited Partnerships have been reduced to zero. As a result, the
Partnership's operations are no longer being affected by its share of the
operations from these nineteen partnerships. The Partnership has recorded its
share of income in the remaining two Local Limited Partnerships which amounted
to $66,277 and $151,686 for the nine months ended September 30, 1997 and 1996,
respectively.



                                      -10-

<PAGE>   12


                  NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
                        (A MARYLAND LIMITED PARTNERSHIP)
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS


The Partnership's net loss increased to $153,655 for the nine months ended
September 30, 1997 from a net loss of $25,738 for the nine months ended
September 30, 1996. Net loss per unit of limited partnership increased from $1
to $8 for the 18,300 units outstanding throughout both periods. The increase in
net loss was primarily due to a decrease in the Partnership's share of income
from the Local Limited Partnerships, and a decrease in distributions received in
excess of investment in and advances to Local Limited Partnerships. The
Partnership did not recognize $1,203,616 of its allocated share of losses from
nineteen Local Limited Partnerships for the nine months ended September 30,
1997, as the Partnership's net carrying basis in these Local Limited
Partnerships had been reduced to zero. The Partnership's share of losses from
the Local Limited Partnerships, if not limited to its investment account
balance, would have increased $161,071 between periods, primarily due to an
increase in operating expenses and depreciation, partially offset by an increase
in other income.

PART II - OTHER INFORMATION

ITEM 6  -    EXHIBITS AND REPORTS ON FORM 8-K

           (a)       Exhibits

                     Exhibit No.

                     27         Financial Data Schedule.


                                      -11-

<PAGE>   13


                                   SIGNATURES



           Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                           NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
                           --------------------------------------------
                           (Registrant)


                           By:  The National Housing Partnership,
                                its sole General Partner


                           By:  National Corporation for Housing
                                Partnerships, its sole General Partner



November 10, 1997          By:                        /s/
-----------------               ----------------------------------------------
                                Jeffrey J. Ochs
                                As Vice President and Chief Accounting Officer





                                      -12-