<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 MARCH 31, 1998

                         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.)

                        9200 KEYSTONE CROSSING, SUITE 500
                        INDIANAPOLIS, INDIANA 46240-7602
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (317) 817-7500
              (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>
                                                                                 March 31,
                                                                                   1998             December 31,
                                                                                (Unaudited)             1997
                                                                                -----------         -----------
<S>                                                                             <C>                 <C>
                                     ASSETS
Cash and cash equivalents                                                       $    23,071         $    23,409
Investments in and advances to Local Limited Partnerships (Note 2)                4,213,062           4,193,204
                                                                                -----------         -----------

                                                                                $ 4,236,133         $ 4,216,613
                                                                                ===========         ===========

                        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                                                             3,119,797           3,059,435
    Administrative and reporting fee payable to General Partner (Note 3)          1,109,143           1,074,831
    Other accrued expenses                                                           54,495              40,745
                                                                                -----------         -----------

                                                                                  6,697,903           6,589,479
                                                                                -----------         -----------

Partners' deficit:
    General Partner -- The National Housing Partnership (NHP)                      (179,707)           (178,818)
    Original Limited Partner -- 1133 Fifteenth Street Two Associates               (184,607)           (183,718)
    Other Limited Partners -- 18,300 investment units                            (2,097,456)         (2,010,330)
                                                                                -----------         -----------

                                                                                 (2,461,770)         (2,372,866)
                                                                                -----------         -----------

                                                                                $ 4,236,133         $ 4,216,613
                                                                                ===========         ===========
</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 March 31,
                                                           ----------------------------
                                                             1998              1997
                                                           ---------         ---------
<S>                                                        <C>               <C>
         REVENUES:
             Share of profits from Local Limited
               Partnerships (Note 2)                       $  19,858         $   1,968
             Interest income                                     138               332
                                                           ---------         ---------

                                                              19,996             2,300
                                                           ---------         ---------

         COSTS AND EXPENSES:
             Administrative and reporting fees to
               General Partner (Note 3)                       34,312            34,312
             Interest on deferred acquisition notes
               to General Partner                             60,362            60,362
             Other operating expenses                         14,226            13,122
                                                           ---------         ---------

                                                             108,900           107,796
                                                           ---------         ---------

         NET LOSS                                          $ (88,904)        $(105,496)
                                                           =========         =========
         NET LOSS ASSIGNABLE TO
           LIMITED PARTNERS                                $ (87,126)        $(103,386)
                                                           =========         =========

         NET LOSS PER LIMITED
           PARTNERSHIP INTEREST                            $      (5)        $      (6)
                                                           =========         =========
</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, 1998          $(178,818)         $(183,718)         $(2,010,330)         $(2,372,866)

Net loss -- three months ended

  March 31, 1998                         (889)              (889)             (87,126)             (88,904)
                                    ---------          ---------          -----------          -----------

Deficit at March 31, 1998           $(179,707)         $(184,607)         $(2,097,456)         $(2,461,770)
                                    =========          =========          ===========          ===========

Percentage interest at

 March 31, 1998                             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 1,305 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>
                                                                     Three Months Ended March 31,
                                                                     ----------------------------
                                                                        1998             1997
                                                                      --------         ---------
<S>                                                                   <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Interest received                                                 $    138         $     332
    Operating expenses paid                                               (476)           (1,122)
                                                                      --------         ---------

    Net cash used in operating activities                                 (338)             (790)

CASH AND CASH EQUIVALENTS, BEGINNING OF
   PERIOD                                                               23,409            37,396
                                                                      --------         ---------

CASH AND CASH EQUIVALENTS, END OF PERIOD                              $ 23,071         $  36,606
                                                                      ========         =========

RECONCILIATION OF NET LOSS TO NET CASH
   USED IN OPERATING ACTIVITIES:
     Net loss                                                         $(88,904)        $(105,496)
                                                                      --------         ---------
     Adjustments to reconcile net loss to net cash used in
       operating activities:
         Share of profits from Local Limited Partnerships              (19,858)           (1,968)
         Increase in accrued interest on deferred
           acquisition notes                                            60,362            60,362
         Increase in administrative and reporting fees payable          34,312            34,312
         Increase in accrued expenses                                   13,750            12,000
                                                                      --------         ---------

         Total adjustments                                              88,566           104,706
                                                                      --------         ---------

    Net cash used in operating activities                             $   (338)        $    (790)
                                                                      ========         =========
</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 ("NHP"). Together, NCHP and NHP Partners
         Two own all of the outstanding partnership interests in NHP. NHP 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.

         The Original Limited Partner of the Partnership is 1133 Fifteenth
         Street Two Associates, whose limited partners were key employees of
         NCHP at the time the Partnership was formed and whose general partner
         is NHP.

         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, 1997.


                                      -5-
<PAGE>   7
(2)      INVESTMENTS IN AND ADVANCES TO LOCAL LIMITED PARTNERSHIPS

         At December 31, 1997, the Partnership owned 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 plus
         the Partnership's share of the Local Limited Partnerships' profits 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 December 31, 1997, investments in nineteen
         of the twenty-one Local Limited Partnerships had been reduced to zero.
         On January 5, 1998, due to a default and pursuant to the security
         agreement of the deferred acquisition note on Menlo Limited
         Partnership, the Partnership lost its interest in Menlo Limited
         Partnership. Total losses not taken from Menlo Limited Partnership were
         $1,835,050 at December 31, 1997. Accordingly, as of March 31, 1998, the
         Partnership now owns a 94.5% limited partnership interest in twenty
         Local Limited Partnerships. As a result, the Partnership did not
         recognize $466,915 and $377,016 of losses from these eighteen and
         nineteen Local Limited Partnerships, respectively, during the three
         months ended March 31, 1998 and 1997, respectively. As of March 31,
         1998 and December 31, 1997, the Partnership has not recognized a total
         of $25,282,679 and $26,650,844, respectively, of its allocated share of
         cumulative losses from the eighteen and nineteen Local Limited
         Partnerships, respectively, 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 eighteen and
         nineteen of the Local Limited Partnerships, the aggregate balance of
         investments in and advances to Local Limited Partnerships, for these
         eighteen and nineteen Local Limited Partnerships, has been reduced to
         zero at March 31, 1998 and December 31, 1997, respectively. 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 or repayments were made between the
         Partnership and the Local Limited Partnerships during the three months
         ended March 31, 1998 and 1997. The combined amount carried as due to
         the Partnership by the Local Limited Partnerships was $592,727 at March
         31, 1998.

         The following are combined statements of operations for the three
         months ended March 31, 1998 and 1997, 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


                        COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                     Three Months Ended March 31,
                                                    ----------------------------
                                                       1998                1997
                                                    -----------         -----------
<S>                                                 <C>                 <C>
Rental income                                       $ 3,488,423         $ 3,620,595
Other income                                            141,445             154,860
                                                    -----------         -----------

    Total income                                      3,629,868           3,775,455
                                                    -----------         -----------

Operating expenses                                    2,461,452           2,452,912
Interest, taxes and insurance                         1,064,340           1,094,658
Depreciation                                            558,294             608,976
                                                    -----------         -----------

    Total expenses                                    4,084,086           4,156,546
                                                    -----------         -----------

Net loss                                            $  (454,218)        $  (381,091)
                                                    ===========         ===========

National Housing Partnership Realty Fund Two
   share of losses                                  $  (447,057)        $  (375,048)
                                                    ===========         ===========
</TABLE>

(3)      TRANSACTIONS WITH THE GENERAL PARTNER

         During the three month periods ended March 31, 1998 and 1997, the
         Partnership accrued administrative and reporting fees payable to the
         General Partner in the amount of $34,312 for services provided to the
         Partnership. The Partnership did not make any payments to the General
         Partner for these fees during the three months ended March 31, 1998 and
         1997. The amount of fees due to the General Partner by the Partnership
         was $1,109,143 and $1,074,831 at March 31, 1998 and December 31, 1997,
         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 2,180 units,
82 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 adjusting subsidized rents
to market levels, thereby potentially 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.

Net cash used in operations for the three months ended March 31, 1998 was $338
as compared to net cash used in operations of $790 for the three months ended
March 31, 1997. The decrease in cash used in operations resulted from a


                                      -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


decrease in operating expenses paid partially offset by a decrease in interest
income during the three months ended March 31, 1998, compared to the three
months ended March 31, 1997.

No working capital advances or repayments were made between the Partnership and
the Local Limited Partnerships during the three months ended March 31, 1998 and
1997. The combined amount carried as due to the Partnership by the Local Limited
Partnerships was $592,727 at March 31, 1998.

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 March 31, 1998,
investments in eighteen 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. There were no cash
distributions during the three months ended March 31, 1998 and 1997,
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 $23,071 at March 31, 1998. The ability of
the Partnership to meet its on-going cash requirements, in excess of cash on
hand at March 31, 1998, 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 March 31, 1998, 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 $1,109,143 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 had 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, with the
exception of West Oak Village which was refinanced during 1997, these notes
either matured during 1997 or will mature by December, 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 Menlo Limited Partnership had a deferred acquisition note which was due on
October 31, 1997. On November 10, 1997, the note holder notified Menlo Limited
Partnership that the note was in default and demanded immediate payment. The
Local Limited Partnership did not have the resources to pay amounts due on the
deferred acquisition note. On January 5, 1998, pursuant to the security
agreement of the deferred acquisition note, the note holder was substituted as
sole limited partner of the Local Limited Partnership in place of NHP Realty
Fund Two and the note holder's assignee was substituted as the general partner.
With the loss of the Partnership's interest in Menlo Limited Partnership to 
the note holder, the Partnership will not receive any future benefits from this
Local Limited Partnership and taxable income will be generated and flow to the
Partnership's investors without any distributable cash. The specific impact of
the tax consequence is dependent upon each partner's individual tax situation.

Mayfair Manor and Esbro Limited Partnerships have deferred acquisition notes
which matured on October 25, 1997. Effective February 16, 1998, both Mayfair
Manor and Esbro Limited Partnerships executed Amended and


                                      -9-
<PAGE>   11
Restated Promissory Notes ("ARPN") for each of their deferred acquisition notes.
The general terms of the ARPN's require payment of the following upon the
earlier of the sale, transfer or refinancing of the underlying property, or
October 25, 1999:

                  a)  the original principal sum of the deferred
                      acquisition note, plus

                  b)  interest which accrued on such principal at the rate
                      of 9% per annum from the original date to October 25,
                      1997, plus

                  c)  interest on the foregoing sums of principal and
                      interest from October 25, 1997 at the rate of 5.54%
                      per annum, compounded annually.

The ARPN's are collateralized by a security interest in the general and limited
partnership interests of the Local Limited Partnerships. The note holders were
paid an extension fee of $90,000 and $70,000 for Mayfair Manor and Esbro,
respectively, which was paid from the proceeds of loans from the General
Partner.

Tinker Creek Limited Partnership has a deferred acquisition note payable due on
June 30, 1998. During February 1998, Tinker Creek Limited Partnership entered
into a sales agreement with Artcraft Investment, L.C. for the sale of Tinker
Creek Apartments. The purchase price for the proposed sale is $1,785,000. Net
proceeds of the difference between the $1,785,000 and the mortgage note payable,
which was $984,614 at December 31, 1997, will be divided between the holders of
the Tinker Creek deferred acquisition note and Tinker Creek Limited Partnership,
with the note holders receiving 80% of the net proceeds and Tinker Creek Limited
Partnership receiving 20%. The closing is scheduled to occur no later than June
30, 1998. The sale may generate taxable income to the Partnership's investors.
The specific impact of the tax consequences is dependent upon each specific
partner's individual tax situation.

The deferred acquisition note with respect to Rodeo Drive Limited Partnership
has matured. The Local Limited Partnership does not have the resources to pay
amounts due on the deferred acquisition note. The holders of the note commenced
a civil action seeking to gain control of the general and limited partnership
interests of the Rodeo Drive Limited Partnership. With the loss of the
Partnership's interest in Rodeo Drive Limited Partnership to the note holder,
the Partnership will not receive any future benefits from this Local Limited
Partnership and taxable income will be generated and flow to the Partnership's
investors without any distributable cash. The specific impact of the tax
consequence is dependent upon each partner's individual tax situation.

Additionally, four of the Local Limited Partnerships continued existence as a
going concern is dependent on the Local Limited Partnerships' ability to pay
principal and interest obligations under their deferred acquisition notes or
negotiate further amendments of the terms of the notes. Should no agreement be
reached and absent a 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 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. Eighteen of the twenty 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 eighteen partnerships. The Partnership has recorded its share of profits
in the remaining two Local Limited Partnerships which amounted to $19,858 and
$1,968 for the three months ended March 31, 1998 and 1997, 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 decreased to $88,904 for the three months ended March
31, 1998 from a net loss of $105,496 for the three months ended March 31, 1997.
Net loss per unit of limited partnership decreased from $6 to $5 for the 18,300
units outstanding throughout both periods. The decrease in net loss was
primarily due to an increase in the Partnership's share of profits from the
Local Limited Partnerships. The Partnership did not recognize $466,915 of its
allocated share of losses from eighteen Local Limited Partnerships for the three
months ended March 31, 1998, 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 $72,009 between periods, primarily due to
a decrease in rental income partially offset by a decrease in operating
expenses.

PART II - OTHER INFORMATION

ITEM 6  -  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits

                  Exhibit No.
                  -----------

                  27       Financial Data Schedule.


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<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

May 14, 1998            By: /s/
------------                ----------------------------------------------------
                            Troy D. Butts
                            As Senior Vice President and Chief Financial Officer


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