<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 JUNE 30, 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)



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



                       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>
                                                                           June 30,
                                                                             1998              December 31,
                                                                         (Unaudited)               1997
                                                                        -------------       ------------------

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

Cash and cash equivalents                                                $    16,653           $    23,409
Investments in and advances to Local Limited Partnerships (Note 2)         4,290,814             4,193,204
                                                                         -----------           -----------

                                                                         $ 4,307,467           $ 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                                                       3,180,158             3,059,435
   Administrative and reporting fee payable to General Partner (Note 3)    1,143,455             1,074,831
   Other accrued expenses                                                     62,014                40,745
                                                                         -----------           -----------

                                                                           6,800,095             6,589,479
                                                                         -----------           -----------

Partners' deficit:
   General Partner -- The National Housing Partnership (NHP)                (180,016)             (178,818)
   Original Limited Partner -- 1133 Fifteenth Street Two Associates         (184,916)             (183,718)
   Other Limited Partners -- 18,300 investment units                      (2,127,696)           (2,010,330)
                                                                         -----------           -----------

                                                                          (2,492,628)           (2,372,866)
                                                                         -----------           -----------

                                                                         $ 4,307,467           $ 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            Six Months Ended
                                                                  June 30,                      June 30,
                                                             ---------------------      --------------------
                                                               1998         1997          1998          1997
                                                             ---------- ----------      ---------- ----------

         <S>                                               <C>            <C>          <C>            <C>
         REVENUES:
            Share of profits from Local Limited
              Partnerships (Note 2)                        $ 77,752       $ 59,483     $  97,610      $ 61,451
            Distributions received in excess of investment
              in Local Limited Partnerships                    -           103,994          -          103,994
            Interest income                                     182            441           320           773
                                                           --------       --------     ---------      --------
                                                             77,934        163,918        97,930       166,218
                                                           --------       --------     ---------      --------

         COSTS AND EXPENSES:
            Administrative and reporting fees to
              General Partner (Note 3)                       34,312         34,312        68,624        68,624
            Interest on deferred acquisition notes
              to General Partner                             60,361         60,361       120,723       120,723
            Other operating expenses                         14,119         14,763        28,345        27,885
                                                           --------       --------     ---------      --------

                                                            108,792        109,436       217,692       217,232
                                                           --------       --------     ---------      --------

         NET (LOSS) PROFIT                                 $(30,858)      $ 54,482     $(119,762)     $(51,014)
                                                           ========       ========     =========      ========

         NET (LOSS) PROFIT ASSIGNABLE TO
           LIMITED PARTNERS                                $(30,240)      $ 53,392     $(117,366)     $(49,994)
                                                           ========       ========     =========      ========

         NET (LOSS) PROFIT PER LIMITED
           PARTNERSHIP INTEREST                            $     (2)      $      3     $      (6)     $     (3)
                                                           ========       ========     =========      ========
</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 -- six months ended
  June 30, 1998                             (1,198)          (1,198)        (117,366)        (119,762)
                                         ---------        ---------      -----------      -----------

Deficit at June 30, 1998                 $(180,016)       $(184,916)     $(2,127,696)     $(2,492,628)
                                         =========        =========      ===========      ===========

Percentage interest at
 June 30, 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>
                                                                        Six Months Ended June 30,
                                                                 --------------------------------------
                                                                      1998                     1997
                                                                 --------------           -------------

<S>                                                            <C>                        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Distributions from Local Limited Partnerships                    $     -                 $ 20,974
   Distribution received in excess of investment in
     Local Limited Partnerships                                           -                  103,994
   Payment of administrative and reporting fees to
     General Partner                                                      -                  (81,220)
   Interest received                                                      320                    773
   Operating expenses paid                                             (7,076)               (47,830)
                                                                    ---------               --------

   Net cash used in operating activities                               (6,756)                (3,309)

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

CASH AND CASH EQUIVALENTS, END OF PERIOD                            $  16,653               $ 34,087
                                                                    =========               ========

RECONCILIATION OF NET LOSS TO NET CASH
  USED IN OPERATING ACTIVITIES:
    Net loss                                                        $(119,762)              $(51,014)
                                                                    ---------               --------
    Adjustments to reconcile net loss to net cash used in
      operating activities:
         Distributions from Local Limited Partnerships                    -                   20,974
         Share of profits from Local Limited Partnerships             (97,610)               (61,451)
         Increase in accrued interest on deferred
           acquisition notes                                          120,723                120,723
         Increase (decrease) in administrative and reporting
           fees payable                                                68,624                (12,596)
         Increase (decrease) in accrued expenses                       21,269                (19,945)
                                                                    ---------               --------

         Total adjustments                                            113,006                 47,705
                                                                    ---------               --------

   Net cash used in operating activities                            $  (6,756)              $ (3,309)
                                                                    =========               ========
</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
                  NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
                        (A MARYLAND LIMITED PARTNERSHIP)
                         NOTES TO FINANCIAL STATEMENTS




(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. In addition, on June 29,
         1998, due to a default and pursuant to the security agreements of the
         deferred acquisition notes on Gulfway Limited Partnership and Rockwell
         Limited Partnership, the Partnership lost its interest in Gulfway and
         Rockwell Limited Partnerships. Total losses not taken from Menlo
         Limited Partnership were $1,835,050 at December 31, 1997, and losses
         not taken from Gulfway and Rockwell Limited Partnerships were
         $1,947,780 and $1,325,162, respectively, at June 29, 1998.
         Accordingly, as of June 30, 1998, the Partnership now owns a 94.5%
         limited partnership interest in eighteen Local Limited Partnerships.
         During the six months ended June 30, 1998 Harold House Limited
         Partnership recorded sufficient profits to fully recover the $19,281
         of unrecognized losses at December 31, 1997 and therefore the
         Partnership has recognized $38,301 of its share of the profits of
         Harold House Limited Partnership for the six months ended June 30,
         1998.  As a result, the Partnership did not recognize $928,101 and
         $764,184 of losses from these seventeen and nineteen Local Limited
         Partnerships, respectively, during the six months ended June 30, 1998
         and 1997, respectively, and $19,281 of its share of profits of one
         Local Limited Partnership for the six months ended June 30, 1998. As
         of June 30, 1998 and December 31, 1997, the Partnership has not
         recognized a total of $22,451,672 and $26,650,844, respectively, of
         its allocated share of cumulative losses from the fifteen 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 June 30, 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 six months
         ended June 30, 1998 and 1997. The combined amount carried as due to
         the Partnership by the Local Limited Partnerships was $592,727 at June
         30, 1998.





                                      -6-
<PAGE>   8
                  NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
                        (A MARYLAND LIMITED PARTNERSHIP)
                         NOTES TO FINANCIAL STATEMENTS





         The following are combined statements of operations for the three and
         six months ended June 30, 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.


                       COMBINED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                            Three Months Ended                  Six Months Ended
                                                 June 30,                          June 30,
                                        ----------------------------      ---------------------------
                                            1998             1997             1998             1997
                                        -----------      -----------      ----------       ----------

<S>                                     <C>              <C>              <C>              <C>
Rental income                           $3,435,894       $3,652,344       $6,924,317       $7,272,939
Other income                                94,143           93,088          235,588          247,948
                                        ----------       ----------       ----------       ----------

   Total income                          3,530,037        3,745,432        7,159,905        7,520,887
                                        ----------       ----------       ----------       ----------

Operating expenses                       2,265,616        2,406,455        4,727,068        4,859,367
Interest, taxes and insurance            1,073,121        1,064,076        2,137,461        2,158,734
Depreciation                               560,428          608,414        1,118,722        1,217,390
                                        ----------       ----------       ----------       ----------

   Total expenses                        3,899,165        4,078,945        7,983,251        8,235,491
                                        ----------       ----------       ----------       ----------

Net loss                                $ (369,128)      $ (333,513)      $ (823,346)      $ (714,604)
                                        ==========       ==========       ==========       ==========

National Housing Partnership
  Realty Fund Two share of losses       $ (363,153)      $ (327,685)      $ (811,210)      $ (702,733)
                                        ==========       ==========       ==========       ==========
</TABLE>


(3)      TRANSACTIONS WITH THE GENERAL PARTNER

         During the six month periods ended June 30, 1998 and 1997, the
         Partnership accrued administrative and reporting fees payable to the
         General Partner in the amount of $68,624 for services provided to the
         Partnership. The Partnership did not make any payments to the General
         Partner for these fees during the six months ended June 30, 1998,
         while the Partnership paid the General Partner $81,220 during the six
         months ended June 30, 1997. The amount of fees due to the General
         Partner by the Partnership was $1,143,455 and $1,074,831 at June 30,
         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 six months ended June 30, 1998 was $6,756
as compared to net cash used in operations of $3,309 for the six months ended
June 30, 1997. The increase 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 RESULT OF OPERATOR

decrease in distributions received from Local Limited Partnerships offset by a
decrease in administrative and reporting fees paid to the General Partner and
in operating expenses paid during the six months ended June 30, 1998, compared
to the six months ended June 30, 1997.

No working capital advances or repayments were made between the Partnership and
the Local Limited Partnerships during the six months ended June 30, 1998 and
1997. The combined amount carried as due to the Partnership by the Local
Limited Partnerships was $592,727 at June 30, 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 June 30, 1998,
investments in fifteen of the 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 six months ended June 30, 1998, while
cash distributions of $124,968 were received from six Local Limited
Partnerships during the six months ended June 30, 1997. 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 $16,653 at June 30, 1998. The ability of
the Partnership to meet its on-going cash requirements, in excess of cash on
hand at June 30, 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 June 30, 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 $1,143,455 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.



                                     - 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





Additionally, the Gulfway and Rockwell Limited Partnerships had a deferred
acquisition notes which were due on November 7, 1997. The Local Limited
Partnerships did not have the resources to pay amounts due on the deferred
acquisition notes. On June 29, 1998, pursuant to the security agreements of the
deferred acquisition notes, the note holders were substituted as sole limited
partner of the Local Limited Partnerships in place of NHP Realty Fund Two and
the note holders' assignee was substituted as the general partner. With the
loss of the Partnership's interest in Gulfway and Rockwell Limited Partnerships
to the note holders, the Partnership will not receive any future benefits from
these Local Limited Partnerships 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 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 occurred on July 2, 1998.
Tinker Creek Limited Partnership's share of the proceeds will be used to repay
advances from and partnership administrative fees to the General Partner. 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
matured on December 6, 1997. 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, Meadows Apartments and Meadows East Apartments Local Limited
Partnerships continued existence as a going concern is dependent on the Local
Limited Partnerships' ability to pay principal and interest





                                      -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




obligations under their deferred acquisition notes, which became due on
December 12, 1997, 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.

The notes related to the other eleven Local Limited Partnerships, in addition
to the extensions to the notes relating to Mayfair Manor and Esbro Local
Limited Partnerships discussed above, will reach final maturity during the
fourth quarter of 1999. These notes are secured by both the Partnership's and
the General Partner's interests in the Local Limited Partnerships. 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.
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.
There can be no assurance that the General Partner will be successful in
extending or restructuring the deferred acquisition notes as they mature.

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 remaining twenty
investments in Local Limited Partnerships had been reduced to zero at December
31, 1997. During the six months ended June 30, 1998, Harold House Limited
Partnership recorded sufficient profits to fully recover the $19,281 of
unrecognized losses which existed at December 31, 1997. As a result, the
Partnership's operations are no longer being affected by its share of the
operations from seventeen of the partnerships. The Partnership has recorded its
share of profits in the remaining three and two Local Limited Partnerships
which amounted to $97,610 and $61,451 for the six months ended June 30, 1998
and 1997, respectively.

The Partnership's net loss increased to $119,762 for the six months ended June
30, 1998 from a net loss of $51,014 for the six months ended June 30, 1997. Net
loss per unit of limited partnership increased from $3 to $6 for the 18,300
units outstanding throughout both periods. The increase in net loss was
primarily due to a decrease in distributions received in excess of investment
in Local Limited Partnerships, partially offset by an increase in the
Partnership's share of profits from the Local Limited Partnerships. The
Partnership did not recognize $928,101 of its allocated share of losses from
seventeen Local Limited Partnerships for the six months ended June 30, 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 $107,477 between periods, primarily due to a decrease in rental
income partially offset by a decrease in operating expenses.





                                      -11-
<PAGE>   13
                  NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
                        (A MARYLAND LIMITED PARTNERSHIP)
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS




PART II - OTHER INFORMATION

ITEM 6  - EXHIBITS AND REPORTS ON FORM 8-K

          (a)    Exhibits

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

                 27       Financial Data Schedule.





                                      -12-
<PAGE>   14



                                   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.



<TABLE>
<S>                               <C>
                                  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



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





                                      -13-