College & University Facility Loan Trust Two N-CSR Certified annual shareholder report (management investment company)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number			811-05506
College and University Facility Loan Trust Two
(Exact name of registrant as specified in charter)
c/o U.S. Bank One Federal Street Boston, MA					02110
(Address of principal executive offices)					(Zip code)
Diana J. Kenneally U.S. Bank Corporate Trust Services One Federal Street Boston, MA 02110
(Name and address of agent for service)
Registrant’s telephone number, including area code:				(617) 603-6406
Date of fiscal year end:	November 30
Date of reporting period:		December 1, 2004 – November 30, 2005

ITEM 1.  REPORT TO STOCKHOLDERS.

College and University

Facility Loan Trust Two

Financial Statements

November 30, 2005

INDEPENDENT AUDITORS’ REPORT

To U.S. Bank, Owner Trustee

of College and University Facility Loan Trust Two:

We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of College and University Facility Loan Trust Two (the Trust) as of November 30, 2005, the related statements of operations and cash flows for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the four years in the period then ended. These financial statements and financial highlights are the responsibility of the Trust’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.  The financial highlights of the Trust for the year ended November 30, 2001 were audited by other auditors who have ceased operations and whose report, dated January 4, 2002, expressed an unqualified opinion on those financial highlights.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of November 30, 2005, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.

As described in Note 2 to the financial statements, the Trust is accounting for its investments under the amortized cost method of accounting, adjusted by an allowance for loan loss. In our opinion, accounting principles generally accepted in the United States of America require that the investments be accounted for under the fair value method of accounting. Accounting for the investments under the fair value method of accounting, based on management’s estimate of fair value as described in Note 8, would result in an increase of approximately $14,767,000 and $21,022,000 in the recorded value of the investments and an increase in unrealized appreciation of investments of approximately $14,767,000 and $21,022,000 as of November 30, 2005 and November 30, 2004, respectively.

In our opinion, except for the effect on the 2005 and 2004 financial statements of accounting for investments under the amortized cost method of accounting as discussed in the preceding paragraph, such financial statements and financial highlights present fairly, in all material respects, the financial position of the Trust as of November 30, 2005, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the four years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Boston, Massachusetts

January 30, 2006

College and University

Facility Loan Trust Two

Statement of Assets and Liabilities

November 30,	2005
Assets:
Investments, at amortized cost, net of allowance for loan losses of $1,432,376 (Notes 1, 2, 6, 7 and 8, and Schedule of Investments)	$	66,659,682
Cash	88,251
Interest receivable	706,804
Loans receivable (Note 2)	191,000
Deferred bond issuance costs (Note 2)	194,193
Total assets	67,839,930
Liabilities:
Bonds payable, net of unamortized discount (Notes 3 and 8)	55,301,867
Interest payable (Note 3)	1,371,452
Accrued expenses and other liabilities	176,659
Total liabilities	56,849,978
Net Assets:
Class B certificates, par value $1 - authorized, issued and outstanding - 1,763,800 certificates (Note 5)	1,763,800
Distributions in excess of tax earnings (Note 2)	(2,354,817		)
Additional paid-in capital (Note 2)	11,580,969
Total net assets	$	10,989,952
Net asset value per Class B certificate (based on 1,763,800 certificates outstanding)	$	6.23

The accompanying notes are an integral part of these financial statements.

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College and University

Facility Loan Trust Two

Statement of Operations

Year ended November 30,	2005
Investment income:
Interest income (Note 2)	$	7,114,681
Expenses:
Interest expense (Notes 2 and 3)	5,488,786
Servicer fees (Note 4)	73,578
Trustee fees (Note 4)	40,102
Other trust and bond administration expenses	270,985
Total expenses	5,873,451
Net investment income	1,241,230
Net increase in net assets resulting from operations	$	1,241,230

The accompanying notes are an integral part of these financial statements.

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College and University

Facility Loan Trust Two

Statement of Cash Flows

Year ended November 30,	2005
Cash flows from operating activities:
Interest received	$	3,185,691
Interest paid	(3,110,669		)
Operating expenses paid	(411,103		)
Net cash used in operating activities	(336,081		)
Cash flows from investing activities:
Net decrease in funds held under investment agreements	5,670,380
Principal payments on Loans	11,988,753
Net cash provided by investing activities	17,659,133
Cash flows from financing activities:
Principal repayments on Bonds	(14,163,977		)
Distributions to Class B certificateholders	(3,095,432		)
Net cash used in financing activities	(17,259,409		)
Net increase in cash	63,643
Cash, beginning of year	24,608
Cash, end of year	$	88,251
Reconciliation of net increase in net assets resulting from operations to net cash used in operating activities:
Net increase in net assets resulting from operations	$	1,241,230
Decrease in interest receivable	58,783
Decrease in accrued expenses and other liabilities	(26,438		)
Decrease in Bond interest payable	(283,280		)
Amortization of original issue discount on Bonds	2,620,750
Amortization of purchase discount on Loans	(3,987,773		)
Amortization of deferred Bond issuance costs	40,647
Net cash used in operating activities	$	(336,081	)

The accompanying notes are an integral part of these financial statements.

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College and University

Facility Loan Trust Two

Statement of Changes in Net Assets

(Note 2(f))

Years ended November 30,	2005			2004
From operations:
Net investment income	$	1,241,230		$	2,113,216
Net increase in net assets applicable to Class B certificateholders resulting from operations	1,241,230			2,113,216
Capital certificate transactions:
Distributions to Class B certificateholders (Note 5)	(776,697		)	(3,699,863		)
Net increase (decrease) in net assets	464,533			(1,586,647		)
Net assets:
Beginning of year	10,525,419			12,112,066
End of year	$	10,989,952		$	10,525,419

The accompanying notes are an integral part of these financial statements.

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College and University

Facility Loan Trust Two

Financial Highlights

(Note 1)

Years ended November 30,	2005			2004			2003			2002			2001
Net asset value, beginning of year	$	5.97		$	6.87		$	7.64		$	8.53		$	9.01
Net investment income	.70			1.20			1.04			1.37			1.15
Distribution to Class B certificateholders:
As tax return of capital	(.44		)	(2.10		)	(1.81		)	(2.26		)	(1.63		)
Net asset value, end of year	$	6.23		$	5.97		$	6.87		$	7.64		$	8.53
Total investment return(a)	N/A			N/A			N/A			N/A			N/A
Net assets applicable to Class B certificates, end of year	$	10,989,952		$	10,525,419		$	12,112,066		$	13,478,109		$	15,039,698
Ratios and Supplemental Data:
Ratio of operating expenses to average net assets applicable to Class B certificates	54.60		%(b)	71.19		%(b)	66.77		%(b)	70.03		%(b)	69.21		%(b)
Ratio of net investment income to average net assets applicable to Class B certificates	11.54		%	18.67		%	14.37		%	16.97		%	13.05		%
Number of Class B certificates outstanding, end of year	1,763,800			1,763,800			1,763,800			1,763,800			1,763,800

(a)The Trust’s investments are recorded at amortized cost as discussed in Note 2.  Accordingly, the financial statements do not reflect the market value of such investments.  For this reason, management believes that no meaningful information can be provided regarding “Total investment return” and has not included information under that heading.  In addition, as the Trust’s investments are not traded, management believes that no meaningful information can be provided regarding portfolio turnover.

(b)Excluding interest expense, the ratio of operating expenses to average net assets applicable to Class B certificates was 3.58%, 3.89%, 3.26%, 2.76%, and 2.72% in 2005, 2004, 2003, 2002 and 2001, respectively.

The accompanying notes are an integral part of these financial statements.

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College and University

Facility Loan Trust Two

Notes to Financial Statements

1.Organization and Business College and University Facility Loan Trust Two (the Trust) was formed on March 11, 1988 as a business trust under the laws of the Commonwealth of Massachusetts by a declaration of trust by the Bank of Boston (the Owner Trustee), succeeded by State Street Bank and Trust Company, succeeded by US Bank (successor Owner Trustee), not in its individual capacity, but solely as Owner Trustee. The Trust is registered under the Investment Company Act of 1940 (as amended) as a diversified, closed-end, management investment company.

The Trust was formed for the sole purpose of raising funds through the issuance and sale of bonds (the Bonds). The Trust commenced operations on May 12, 1988 (the Closing Date) and issued Bonds in four tranches in the aggregate principal amount (at maturity) of $450,922,000. The Bonds constitute full recourse obligations of the Trust. The collateral securing the Bonds consists primarily of a pool of college and university facility loans (the Loans) to various postsecondary educational institutions and funds held under the indenture (the Indenture) and the investment agreements. The Loans were originated by, or previously assigned to, the United States Department of Education (ED) under the College Housing Loan Program or the Academic Facilities Loan Program. The Loans, which have been assigned to J.P. Morgan Trust Company, National Association, as successor in interest to Bank One Trust Company, NA, formerly The First National Bank of Chicago (the Bond Trustee), are secured by various types of collateral, including mortgages on real estate, general recourse obligations of the borrowers, pledges of securities and pledges of revenues. As of the Closing Date, the Loans had a weighted average stated interest rate of approximately 3.18% and a weighted average remaining term to maturity of approximately 18.77 years. Payments on the Loans are managed by the Bond Trustee in various fund accounts and are invested under investment contracts (Note 2) as specified in the Indenture.

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All payments on the Loans and earnings under the investment agreements and any required transfers from the Expense and Liquidity Funds are deposited to the credit of the Revenue Fund held by the Bond Trustee, as defined within, and in accordance with the Indenture. On each bond payment date, amounts on deposit in the Revenue Fund are applied in the following order of priority: to pay amounts due on the Bonds, to pay administrative expenses not previously paid from the Expense Fund, to fund the Expense Fund to the Expense Fund Requirement and to fund the Liquidity Fund to the Liquidity Fund Requirement. Any funds remaining in the Revenue Fund on such payment date will be used to further pay down the Bonds to the extent of the maximum principal distribution amount, after which any residual amounts are paid to the certificateholders, as discussed in Note 5. On the Closing Date, certificates were issued by the Trust to ED as partial payments for the Loans. In December 1989, ED sold, through a private placement, all of its ownership interest in the Trust.

2.Summary of Significant Accounting Policies

(a)           College and University Facility Loans The Loans were purchased and recorded at a discount below par. Pursuant to a “no-action letter” that the Trust received from the Securities and Exchange Commission, the Loans, included in investments in the accompanying statement of assets and liabilities, are being accounted for under the amortized cost method of accounting. Under this method, the difference between the cost of each Loan to the Trust and the scheduled principal and interest payments is amortized, assuming no prepayments of principal, and included in the Trust’s income by applying the Loan’s effective interest rate to the amortized cost of that Loan. When a Loan prepays, the remaining discount is recognized as interest income. The remaining balance of the purchase discount on the Loans as of November 30, 2005 was approximately $23,394,000. As a result of prepayments of Loans in the year ended November 30, 2005, additional interest income of approximately $199,000 was recognized.

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The Trust’s policy is to discontinue the accrual of interest on Loans for which payment of principal or interest is 180 days or more past due or for other such Loans that management believes the collection of interest and principal is doubtful.  When a Loan is placed on nonaccrual status, all previously accrued, but uncollected interest is reversed against the current period’s interest income. Subsequently, interest income is generally recognized when received.  Payments are generally applied to interest first, with the balance, if any, applied to principal.  At November 30, 2005, no loans have been placed on nonaccrual status.

Accounting principles generally accepted in the United States of America (GAAP), requires that the Loans be accounted for under the fair value method of accounting.  However, management believes that the amortized cost method of accounting best serves the informational needs of the users of the Trust’s financial statements.

(b)           Other Investments

Other investments, which are included in investments in the accompanying statement of assets and liabilities, consist of two investment agreements issued by JP Morgan Chase Bank, bearing fixed rates of interest of 7.05% and 7.75%.  These investments may take the form of repurchase agreements (the underlying collateral of which shall be as to form and substance acceptable to each nationally recognized statistical rating agency that rates the Bonds), time deposits or other lawful investments at JP Morgan Chase Bank’s option.  These investments are carried at amortized cost.  These investment agreements terminate on the earlier of June 1, 2018 or the date on which the Bonds are paid-in-full.

GAAP requires that the investments be accounted for under the fair value method of accounting.  However, management believes that the amortized cost method of accounting best serves the informational needs of the users of the Trust’s financial statements.

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(c)           Federal Income Taxes

It is the Trust’s policy to comply with the requirements applicable to a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and to distribute substantially all of its investment company taxable income to its certificateholders each year.  Accordingly, no federal or state income tax provision is required.

For tax purposes, the Loans were transferred to the Trust at their face values.  Accordingly, the accretion of the purchase discount creates a permanent book-tax difference.

(d)           Deferred Bond Issuance Costs

Deferred bond issuance costs are being amortized using the effective interest rate method over the estimated lives of the Bonds, which are based on the scheduled payments of the Loans.  When Loan prepayments occur, an additional portion of the deferred issuance costs is expensed in the year the prepayment occurred, so that the future effective interest rate remains unchanged.

(e)       Accounting for Impairment of a Loan and Allowance for Loan Losses

The allowance for loan losses is based on the Trust’s evaluation of the level of the allowance required to reflect the risks in the loan portfolio, based on circumstances and conditions known or anticipated at each reporting date.

The methodology for assessing the appropriateness of the allowance consists of a review of the following three key elements:

(1)a valuation allowance for loans identified as impaired,

(2)a formula-based general allowance for the various loan portfolio classifications, and

(3)an unallocated allowance.

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A loan is impaired when, based on current information and events, it is probable that the Trust will be unable to collect all amounts due in accordance with the contractual terms of the loan agreement.  Loans identified as impaired are further evaluated to determine the estimated extent of impairment.

The formula-based general allowance is derived primarily from a risk-rating model that grades loans based on general characteristics of credit quality and relative risk.  As credit quality for individual loans deteriorates, the risk rating and the allowance allocation percentage increases.  The sum of these allocations comprise the Trust’s formula-based general allowance.

In addition to the valuation and formula-based general allowance, there is an unallocated allowance.  This element recognizes the estimation risks associated with the valuation and formula-based models.  It is further adjusted for qualitative factors including, among others, general economic and business conditions, credit quality trends, and specific industry conditions.

There are inherent uncertainties with respect to the final outcome of loans and as such, actual losses may differ from the amounts reflected in the financial statements.

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(f)            Presentation of Capital Distributions

Capital distributions are accounted for in accordance with the American Institute of Certified Public Accountants Statement of Position (SOP) 93-2, “Determination, Disclosure and Financial Statement Presentation of Income, Capital Gain and Return of Capital Distributions by Investment Companies.”  SOP 93-2 requires the Trust to report distributions that are in excess of tax-basis earnings and profits as a tax return of capital and to present the capital accounts on a basis that approximates the amounts that are available for future distributions on a tax basis.

In accordance with SOP 93-2, the Trust reclassifies certain amounts from distributions in excess of tax earnings to paid-in-capital.  The total reclassification was $294,279 as of November 30, 2005.  This reclassification has no impact on the net investment income or net assets of the Trust.

The reclassifications are a result of permanent differences between GAAP and tax accounting for such items as net operating losses and the accretion of purchase discount on the Loans.  Additionally, the amount deducted for the allowance for loan losses is not currently deductible for tax purposes and creates a temporary deficit reflected as distributions in excess of tax earnings in the accompanying statement of assets and liabilities.

On December 1, 2004 and June 1, 2005, distributions of $1.31 and $0.44 per certificate were declared and paid to certificateholders of record on November 20, 2004 and May 20, 2005, respectively.

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The tax character of distributions paid during the year ended November 30, 2005 were as follows:
Distributions paid from:
Ordinary income	$	—
Long-term capital gain	—
Return of capital	3,095,432
Total distributions	$	3,095,432
As of November 30, 2005, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary loss	$	(2,354,817	)
Undistributed long-term gain	—
Unrealized appreciation	—
	$	(2,354,817	)
The undistributed ordinary loss consists of allowance for loan losses of $1,432,376 and accretion of purchase discount on the Loans of $922,441 which will reverse in future years causing a reduction in taxable ordinary income.

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(g)           Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements and for the period then ended.  On an on-going basis, the Trust evaluates the estimates used, including those related to the allowance for loan losses.  The Trust bases its estimates on historical experience, current conditions and various other assumptions that the Trust believes to be reasonable under the circumstances.  These estimates form the basis for making judgments about the carrying values of assets and liabilities and are not readily apparent from other sources.  These estimates are used to assist the Trust in the identification and assessment of the accounting treatment necessary with respect to commitments and contingencies.  Actual results may differ from these estimates under different assumptions or conditions.

The allowance for loan losses is a critical accounting policy that requires estimates and assumptions to be made in the preparation of the Trust’s financial statements.  The allowance for loan losses is based on the Trust’s evaluation of the level of the allowance required in relation to the estimated loss exposure in the loan portfolio.  The allowance for loan losses is a significant estimate and is therefore regularly evaluated for adequacy by taking into consideration factors such as prior loan loss experience, the character and size of the loan portfolio, business and economic conditions and the Trust’s estimation of future losses.  The use of different estimates or assumptions could produce different provisions for loan losses.  See Note 2(e) for a detailed description of the Trust’s estimation process and methodology related to the allowance for loan losses.

(h)           Loans Receivable

On the Statement of Assets and Liabilities, the investment balances in three loans, that were recently scheduled to mature, were reclassified from Investments to Loans receivable as the final principal payments were not received as of November 30, 2005.

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3.Bonds The Bonds outstanding at November 30, 2005 consist of the following:

	Interest		Stated	Outstanding		Unamortized		Carrying
Type	Rate		Maturity	Principal		Discount		Amount
				(000’s)		(000’s)		(000’s)
Sequential	4.00	%	June 1, 2018	$	68,573	$	13,271	$	55,302

Interest on the Bonds is payable semiannually.  On December 1, 2005, the Trust made a principal payment of $5,853,678 on the Bonds.

Principal payments on the Bonds will be made prior to the respective stated maturities on each bond payment date in an amount equal to the lesser of either (1) amounts available in the Revenue Fund after certain required payments of interest and principal (at the stated maturity of the Bonds) and administrative expenses after required transfers to the Expense Fund and the Liquidity Fund (such that the amounts on deposit are equal to the Expense Fund Requirement and the Liquidity Fund Requirement, respectively), or (2) the Maximum Principal Distribution Amount, as defined within the Indenture.  These principal payments will be applied to each class of Bonds in the order of their stated maturities, so that no payment of principal will be made on the Bonds of any class until all Bonds having an earlier stated maturity have been paid in full.

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The estimated aggregate principal payments on the Bonds at November 30, 2005 after taking into consideration actual Loan prepayments, Defaulted Loans and the Maximum Principal Distribution Amount, as defined in the Indenture, are as follows:
Fiscal Year	Amount
	(000’s)
2006	$	9,343
2007	7,601
2008	6,823
2009	6,442
2010	6,093
Thereafter	32,271
Total	$	68,573
Actual Bond principal payments may differ from estimated payments because borrowers may prepay or default on their obligations.  The Bonds are not subject to optional redemption by either the Trust or the bondholders.
In the event of negative cash flows, a Liquidity Fund has been established and maintained such that, on or before such payment date, the Liquidity Fund may be used by the Bond Trustee to make any required payments on the Bonds and to pay operating expenses of the Trust.  The original issue discount is being amortized using the effective interest rate method over the estimated lives of the Bonds, which are based on the scheduled payments of the Loans.  Accordingly, loan prepayments have the effect of accelerating bond payments.  When Bond payments occur sooner than estimated payments, a portion of the original issue discount is expensed in the year of prepayment, so that the future effective interest rate on the Bonds remains unchanged.

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4.Administrative Agreements

(a)           Servicer As compensation for the services provided under the servicing agreement, GMAC Commercial Mortgage receives a servicing fee.  The fee is earned each date payments are received on each Loan and is equal to 0.075 of 1% of the outstanding principal balance of each Loan divided by the number of payments of principal and interest in a calendar year.  For the year ended November 30, 2005, this fee totaled $68,363.  GMAC Commercial Mortgage is reimbursed by the Trust for out-of-pocket expenses incurred in connection with the inspection of buildings and property used as collateral for the loans.  For the year ended November 30, 2005, out-of-pocket expenses totaled $5,215.

(b)           Trustees As compensation for services provided, the Owner and Bond Trustees are entitled under the Declaration of Trust and the Indenture to receive the following fees: •The Owner Trustee, in its capacities as manager of the Trust and as Owner Trustee, earned fees of $15,000 and $12,500, respectively, for the year ended November 30, 2005.  In addition, the Owner Trustee incurred $1,000 in out-of-pocket expenses. •The Bond Trustee is entitled to an annual fee equal to 0.015 of 1% of the aggregate outstanding principal of the Bonds on the bond payment date immediately preceding the date of payment of such fee.  The Bond Trustee is also reimbursed for out-of-pocket expenses in an amount not to exceed 4% of the applicable annual fee.  In addition, the Bond Trustee is reimbursed for other agreed-upon related expenses.  For the year ended November 30, 2005, total Bond Trustee fees and out-of-pocket expenses amounted to $11,602.

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5.Certificates	Holders of each of the Class B certificates receive amounts paid to the Owner Trustee pursuant to the Declaration of Trust on a pro rata basis.  On December 1, 2005, no distribution was made to the Class B certificateholders, as the amount available in the Revenue Fund after required payments of interest and administrative expenses and required transfers to the Expense Fund and Liquidity Fund was less than the Maximum Principal Distribution amount.  See Note 3. While the Bonds are outstanding, distributions to the Class B certificateholders are made on the second business day in each June and December (the Distribution Date) and, after the Bonds are paid in full, on the first business day of each calendar month.  The certificateholders shall each be entitled to one vote per certificate.
6.Allowance For Loan Losses	An analysis of the allowance for loan losses for the year ended November 30, 2005 is summarized as follows:
	Balance, beginning of year	$	1,432,376
	Provision for reserve for loan losses	—
	Charge-offs	—
	Balance, end of year	$	1,432,376
	At November 30, 2005, there were no recorded investments in loans that are considered to be impaired.  See Note 2(e) for a discussion of the Trust’s impaired loan accounting policy.

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7.Loans	Scheduled principal and interest payments on the Loans as of November 30, 2005, excluding payments for Loans in Default, as defined in the Indenture, are as follows:
		Principal		Interest
	Fiscal year	Payments		Payments		Total
		(000’s)		(000’s)		(000’s)
	2006	$	9,436	$	2,598	$	12,034
	2007	8,498		2,199		10,697
	2008	7,723		1,942		9,665
	2009	7,401		1,701		9,102
	2010	6,809		1,472		8,281
	Thereafter	41,223		5,778		47,001
	Total	$	81,090	$	15,690	$	96,780
	Expected payments may differ from contractual payments because borrowers may prepay or default on their obligations.  Accordingly, actual principal and interest on the Loans may vary significantly from the scheduled payments.  As of November 30, 2005, there were no Loans in Default.

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The following analysis summarize the stratification of the Loan portfolio by type of collateral and institution as of November 30, 2005:
	Number	Amortized
Type of Collateral	of Loans	Cost		%
		(000’s)
Loans secured by a first mortgage	119	$	37,203	64.5	%
Loans not secured by a first mortgage	45	20,493		35.5
Total Loans	164	$	57,696	100.0	%
	Number	Amortized
Type of Institution	of Loans	Cost		%
		(000’s)
Private	124	$	37,323	64.7	%
Public	40	20,573		35.3
Total Loans	164	$	57,696	100.0	%
The ability of a borrower to meet future debt service payments on a Loan will depend on a number of factors relevant to the financial condition of such borrower, including, among others, the size and diversity of the borrower’s sources of revenues; enrollment trends; reputation; management expertise; the availability and restrictions on the use of endowments and other funds; the quality and maintenance costs of the borrower’s facilities and, in the case of some Loans to public institutions, which are obligations of a state, the financial condition of the relevant state or other governmental entity and its policies with respect to education.  The ability of a borrower to maintain enrollment levels will depend on such factors as tuition costs, geographical location, geographic diversity, quality of the student body, quality of the faculty and the diversity of program offerings.

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The collateral for Loans that are secured by a mortgage on real estate generally consists of special purpose facilities, such as dormitories, dining halls and gymnasiums, which are integral components of the overall educational setting.  As a result, in the event of borrower default on a Loan, the Trust’s ability to realize the outstanding balance of the Loan through the sale of the underlying collateral may be negatively impacted by the special purpose nature and location of such collateral.

8.Fair Value of Financial Instruments

Statement of Financial Accounting Standards No. 107, “Disclosures about Fair Value of Financial Instruments,” allows for the use of a wide range of valuation techniques; therefore, it may be difficult to compare the Trust’s fair value information to independent markets or to other fair value information.  Accordingly, the fair value information presented below does not purport to represent, and should not be construed to represent, the underlying market value of the Trust’s net assets or the amounts that would result from the sale or settlement of the related financial instruments.  Further, as the assumptions inherent in fair value estimates change, the fair value estimates will change. Current market prices are not available for most of the Trust’s financial instruments since an active market generally does not exist for such instruments.  In accordance with the terms of the Indenture, the Trust is required to hold all of the Loans to maturity and to use the cash flows therefrom to retire the Bonds.  Accordingly, the Trust has estimated the fair values of its financial instruments using a discounted cash flow methodology.  This methodology is similar to the approach used at the formation of the Trust to determine the carrying amounts of these items for financial reporting purposes.  In applying the methodology, the calculations have been adjusted for the change in the relevant market rates of interest, the estimated duration of the instruments and an internally developed credit risk rating of the instruments.  All calculations are based on the scheduled principal and interest payments on the Loans because the prepayment rate on these Loans is not subject to estimate.

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The estimated fair value of each category of the Trust’s financial instruments and the related book value presented in the accompanying statement of assets and liabilities as of November 30, 2005 is as follows:
	Amortized
	Cost			Fair Value
	(000’s)			(000’s)
Loans	$	56,264	*	$	70,069
Investment Agreements:
Revenue Fund	8,893			9,562
Liquidity Fund	1,503			1,796
	$	66,660		$	81,427
Bonds	$	55,302		$	65,570
*Net of allowance for loan losses of $1,432,376.

23

COLLEGE AND UNIVERSITY FACILITY LOAN TRUST TWO

SCHEDULE OF INVESTMENTS

November 30, 2005

(Dollar Amounts in Thousands)

Outstanding			Stated		Internal	Amortized
Principal			Interest	Maturity	Rate of	Cost (Notes
Balance		Description	Rate %	Date	Return % (A)	1 and 2)
					(Unaudited)
		COLLEGE AND UNIVERSITY LOANS (84.4%)
		ALABAMA
$	1,375	Alabama Agricultural and Mechanical University	3.000	05/01/2018	10.27	$	931
1,650		Auburn University	3.000	12/01/2018	9.16	1,133
90		Huntingdon College	3.000	10/01/2008	10.60	78
266		Talladega College	3.000	12/01/2012	10.24	207
645		University of Alabama in Birmingham	3.000	11/01/2008	7.97	586
		CALIFORNIA
146		Azusa Pacific University	3.750	04/01/2015	10.88	107
250		California Polytechnic State University	3.000	11/01/2007	10.05	226
50		California State University	3.000	11/01/2006	8.75	47
745		California State University	3.000	11/01/2013	8.93	585
1,958		California State University	3.000	11/01/2019	8.99	1,339
12		Gavilan College	3.000	04/01/2006	10.59	12
359		Lassen Junior College District	3.000	04/01/2020	10.27	230
208		Occidental College	3.000	10/01/2019	10.41	131
125		San Diego State University	3.000	11/01/2006	10.04	117
1,325		University Student Co-Operative Association	3.000	04/01/2019	10.70	895
200		West Valley College	3.000	04/01/2009	10.50	173
		COLORADO
300		Regis College (Denver)	3.000	11/01/2012	10.47	229
		DELAWARE
134		Wesley College	3.375	05/01/2013	10.88	105
170		University of Delaware	3.000	11/01/2006	9.08	160
504		University of Delaware	3.000	12/01/2018	8.81	351
		FLORIDA
125		Embry-Riddle Aeronautical University	3.000	09/01/2007	10.64	111
50		Florida Atlantic University	3.000	07/01/2006	10.18	46
80		Florida Institute of Technology	3.000	11/01/2009	10.53	67
135		Nova University	3.000	12/01/2007	10.04	121
28		Stetson University	3.000	01/01/2006	11.25	27
130		University of Central Florida	3.000	10/01/2007	10.08	117
1,450		University of Florida	3.000	07/01/2014	10.15	1,049
		GEORGIA
101		Emmanuel College	3.000	11/01/2013	10.45	75
135		LaGrange College	3.000	03/01/2009	11.06	115
302		Mercer University	3.000	05/01/2014	10.58	223
450		Morehouse College	3.000	07/01/2010	10.50	356
55		Morris Brown College	3.750	05/01/2007	11.12	51

The accompanying notes are an integral part of this schedule.

24

Outstanding			Stated		Internal	Amortized
Principal			Interest	Maturity	Rate of	Cost (Notes
Balance		Description	Rate %	Date	Return % (A)	1 and 2)
					(Unaudited)
$	1,110	Morris Brown College	2.750-3.750	05/01/2018	10.89	$	761
646		Paine College	3.000	10/01/2016	10.45	439
		ILLINOIS
555		Concordia College	3.000	05/01/2019	10.65	355
50		Knox College	3.000	04/01/2006	11.15	48
870		Sangamon State University	3.000	11/01/2018	10.12	590
		INDIANA
35		Anderson University	3.000	03/01/2006	11.19	33
158		Taylor University	3.000	10/01/2012	10.50	120
501		Taylor University	3.000	10/01/2013	10.49	371
3,060		Vincennes University	3.000	06/01/2023	9.02	1,911
		IOWA
222		Simpson College	3.000	07/01/2016	10.58	149
87		Wartburg College	3.750	04/01/2011	11.00	71
		KANSAS
40		Fort Hays State University	3.000	10/01/2007	10.08	36
23		Hesston College	3.000	04/01/2006	11.14	22
		KENTUCKY
218		Georgetown College	3.000	12/01/2008	10.04	189
440		Georgetown College	3.000	12/01/2009	10.05	369
66		Spalding University	3.000	09/01/2007	10.66	60
222		Transylvania University	3.000	11/01/2010	10.51	180
		LOUISIANA
69		Dillard University	3.000	04/01/2008	11.09	63
15		Louisiana State University	3.000	07/01/2006	8.87	14
		MARYLAND
185		Hood College	3.625	11/01/2014	10.54	138
1,453		Morgan State University	3.000	11/01/2014	10.56	1,058
		MASSACHUSETTS
239		Hampshire College	3.000	07/01/2013	10.75	177
881		Hampshire College	3.000	02/01/2014	10.70	643
154		Brandeis University	3.000	11/01/2011	10.64	122
610		College of the Holy Cross	3.625	10/01/2013	10.60	468
110		College of the Holy Cross	3.000	10/01/2006	10.63	102
2,221		Northeastern University	3.000	05/01/2018	10.53	1,468
283		Springfield College	3.500	05/01/2013	10.67	224
1,813		Tufts University	3.000	10/01/2021	10.39	1,089
525		Wheaton College	3.500	04/01/2013	10.70	405
14		Wheelock College	3.000	05/01/2011	10.23	11

The accompanying notes are an integral part of this schedule.

25

Outstanding			Stated		Internal	Amortized
Principal			Interest	Maturity	Rate of	Cost (Notes
Balance		Description	Rate %	Date	Return % (A)	1 and 2)
					(Unaudited)
		MICHIGAN
$	48	Albion College	3.000	10/01/2009	10.56	$	38
66		Concordia College	3.000	04/01/2009	11.05	60
		MINNESOTA
222		College of Saint Thomas	3.000	11/01/2009	10.53	186
435		College of Santa Fe	3.000	10/01/2018	10.43	284
339		MacAlester College	3.000	05/01/2020	10.46	215
		MISSISSIPPI
1,169		Hinds Junior College	3.000	04/01/2013	10.42	916
456		Millsaps College	3.000	11/01/2021	10.34	276
1,230		Mississippi State University	3.000	12/01/2020	9.64	788
		MISSOURI
245		Central Missouri State University	3.000	07/01/2007	10.18	218
185		Drury College	3.000	04/01/2015	10.63	134
238		Drury College	3.000	10/01/2010	10.75	195
236		Southeast Missouri State University	3.000	04/01/2007	10.58	222
		MONTANA
230		Carroll College	3.750	06/01/2014	10.46	169
123		Carroll College	3.000	06/01/2018	10.15	81
		NEW HAMPSHIRE
111		New England College	3.000	04/01/2016	10.77	77
		NEW JERSEY
1,190		Fairleigh Dickinson University	3.000	11/01/2017	10.39	790
435		Newark Beth Israel Hospital	3.625	01/01/2014	11.06	321
1,115		Rider College	3.625	11/01/2013	10.42	851
322		Rider College	3.000	05/01/2017	10.70	219
485		Rutgers, The State University	3.750	05/01/2016	9.19	373
		NEW YORK
723		College of Saint Rose	3.000	05/01/2022	10.43	435
435		Daemen College	3.000	04/01/2016	10.77	300
294		Dowling College	3.000	10/01/2010	10.75	241
801		D’Youville College	3.000	04/01/2018	10.90	522
1,164		Hofstra University	3.000	11/01/2012	10.61	899
91		Long Island University	3.000	11/01/2009	10.69	77
319		Long Island University	3.000	11/01/2009	10.69	271
360		Long Island University	3.625	06/01/2014	10.49	263
584		Memorial Hospital for Cancer and Allied Diseases	3.375	04/01/2012	10.68	467
212		Utica College	3.000	11/01/2009	10.53	178
		NORTH CAROLINA
101		Catawba College	3.000	12/01/2009	10.27	83

The accompanying notes are an integral part of this schedule.

26

Outstanding			Stated		Internal	Amortized
Principal			Interest	Maturity	Rate of	Cost (Notes
Balance		Description	Rate %	Date	Return % (A)	1 and 2)
					(Unaudited)
$	270	Elizabeth City State University	3.000	10/01/2017	10.02	$	183
154		High Point College	3.000	12/01/2010	10.26	122
44		Lenoir Rhyne College	3.000	12/01/2006	10.04	41
324		Saint Mary’s College	3.000	06/01/2020	10.14	205
215		University of North Carolina	3.000	01/01/2008	9.50	194
13		University of North Carolina	3.000	01/01/2007	9.50	12
		OHIO
36		Rio Grande College	3.000	03/30/2009	10.93	31
164		University of Steubenville	3.125	04/01/2010	10.98	136
525		Wittenberg University	3.000	05/01/2015	10.76	374
170		Wittenberg University	3.000	11/01/2017	10.39	113
17		Wooster Business College	3.000	03/30/2009	10.88	15
		OKLAHOMA
610		Cameron University	3.000	04/01/2007	10.16	567
		OREGON
575		George Fox College	3.000	07/01/2018	10.64	375
59		Linfield College	3.000	10/01/2017	10.44	39
		PENNSYLVANIA
348		Albright College	3.000	11/01/2015	10.23	251
120		Carnegie-Mellon University	3.000	05/01/2009	10.73	104
720		Carnegie-Mellon University	3.000	11/01/2017	10.51	484
800		Drexel University	3.500	05/01/2014	10.53	610
380		Gannon University	3.000	11/01/2011	10.49	299
161		Gannon University	3.000	12/01/2022	10.13	94
160		Lycoming College	3.625	05/01/2014	10.64	121
225		Lycoming College	3.750	05/01/2015	10.62	167
130		Moravian College	3.375	11/01/2012	10.52	101
1,913		Philadelphia College of Art	3.000	01/01/2022	10.62	1,129
400		Saint Vincent College	3.500	05/01/2013	10.86	307
218		Seton Hill College	3.625	11/01/2014	10.53	161
885		Villanova University	3.000	04/01/2019	10.70	565
277		York Hospital	3.000	05/01/2020	10.64	175
		SOUTH CAROLINA
84		Benedict College	3.000	11/01/2006	10.61	78
1,389		Benedict College	3.000	11/01/2020	10.36	859
252		Morris College	3.000	11/01/2009	10.53	211
		SOUTH DAKOTA
145		Dakota Wesleyan University	3.000	10/01/2015	10.46	107
		TENNESSEE
228		Cumberland University	3.000	08/01/2017	10.52	148
148		Hiwassee College	3.000	09/15/2018	10.58	96

The accompanying notes are an integral part of this schedule.

27

Outstanding				Stated		Internal	Amortized
Principal				Interest	Maturity	Rate of	Cost (Notes
Balance		Description		Rate %	Date	Return % (A)	1 and 2)
						(Unaudited)
		TEXAS
$	255	Houston Tillotson College		3.500	04/01/2014	10.90	$	190
105		McLennan Community College		3.000	04/01/2006	10.49	101
138		Southern Methodist University		3.000	10/01/2007	10.61	123
1,570		Southwest Texas State University		3.000	10/01/2015	9.51	1,143
1,107		Stephen F. Austin State University		3.375-3.500	10/01/2012	9.57	881
281		Texas A & I University		3.000	07/01/2009	9.57	239
315		Texas Southern University		3.500	04/01/2013	10.45	244
491		University of Saint Thomas		3.000	10/01/2019	10.41	309
		VERMONT
101		Champlain College		3.000	12/01/2013	10.19	75
1,158		Saint Michael’s College		3.000	05/01/2013	10.60	881
160		Vermont State College		3.000	06/01/2008	9.02	141
165		Vermont State College		3.000	07/01/2014	9.30	123
		VIRGINIA
715		James Madison University		3.000	06/01/2009	10.49	593
338		Lynchburg College		3.750	05/01/2015	10.64	254
480		Lynchburg College		3.000	05/01/2018	10.68	319
243		Mary Baldwin College		3.375	05/01/2012	10.68	195
440		Marymount University		3.000	05/01/2016	10.52	308
2,256		Norfolk State University		3.000	12/01/2021	9.77	1,399
135		Randolph-Macon College		3.000	05/01/2010	10.72	113
318		Saint Paul’s College		3.000	11/01/2014	10.56	231
1,367		Virginia Commonwealth University		3.000	06/01/2011	10.01	1,078
126		Virginia Wesleyan College		3.000	11/01/2009	10.54	107
94		Virginia Wesleyan College		3.000	11/01/2010	10.51	76
		WASHINGTON
174		Seattle University		3.000	11/01/2008	10.55	151
		WEST VIRGINIA
166		Bethany College		3.375	11/01/2012	10.54	131
200		Bethany College		3.000	11/01/2017	10.40	133
305		Bethany College		3.000	11/01/2012	10.40	237
20		Wheeling College		3.000	11/01/2007	10.59	18
		WISCONSIN
324		Carroll College		3.750	03/01/2015	10.93	243
375		Marian College		3.000	10/01/2016	10.45	255
95		Saint Norbert College		3.000	04/01/2007	11.10	88
		DISTRICT OF COLUMBIA
2,175		Georgetown University		3.000	11/01/2020	10.36	1,344
5,665		Georgetown University		4.000	11/01/2020	10.52	3,736
		PUERTO RICO	��
24		Inter American University of Puerto Rico		3.000	09/01/2007	10.66	22

The accompanying notes are an integral part of this schedule.

28

Outstanding			Stated		Internal	Amortized
Principal			Interest	Maturity	Rate of	Cost (Notes
Balance		Description	Rate %	Date	Return % (A)	1 and 2)
					(Unaudited)
$	1,729	Inter American University of Puerto Rico	3.000	01/01/2017	10.94	$	1,159
929		University of Puerto Rico, Rio Piedras Campus	3.000	06/01/2011	9.39	747
81,090		Total College and University Loans				57,696
		Allowance for Loan Losses				1,432
		Net Loans of the Trust				56,264		(B)
		INVESTMENT AGREEMENTS (15.6%)
1,503		JPMorgan Chase Bank - Liquidity Fund	7.750	06/01/2018	7.750	1,503
8,893		JPMorgan Chase Bank - Revenue Fund	7.050	06/01/2018	7.050	8,893
10,396		Total Investment Agreements				10,396
$	91,486	Total Investments (100.0%)				$	66,660

(A)  Represents the rate of return based on the contributed cost and the amortization to maturity.

(B)  The tax basis on the loans is approximately $58,618,000

The accompanying notes are an integral part of this schedule.

29

ITEM 2.  CODE OF ETHICS

Not applicable to the registrant.

ITEM 3.  AUDIT COMMITTEE FINANCIAL EXPERT

Not applicable to the registrant.

ITEM 4.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

(a) Audit Fees billed to the registrant for the two most recent fiscal years:

Fiscal year ended 2005 - $80,000

Fiscal year ended 2004 - $80,000

(b) Audit-Related Fees billed to the registrant for the two most recent fiscal years:

Fiscal year ended 2005 - $0

Fiscal year ended 2004 - $0

(c) Tax Fees billed to the registrant for the two most recent fiscal years:

Fiscal year ended 2005 - $0

Fiscal year ended 2004 - $0

(d) All Other Fees billed to the registrant for the two most recent fiscal years:

Fiscal year ended 2005 - $58,000

• $38,000 in connection with Accountants’ Reports on Applying Agreed-Upon Procedures to comply with the requirements of section 4.7 (c) of the Trust’s Indenture;

• $15,000 in connection with Accountants’ Report on Applying Agreed-Upon Procedures relating to the Trust’s Servicing Agreement;

• $5,000 out-of-pocket expenses;

Fiscal year ended 2004 - $57,700

• $38,000 in connection with Accountants’ Reports on Applying Agreed-Upon Procedures to comply with the requirements of section 4.7 (c) of the Trust’s Indenture;

• $15,000 in connection with Accountants’ Report on Applying Agreed-Upon Procedures relating to the Trust’s Servicing Agreement;

• $4,700 out-of-pocket expenses;

(e)

(1) Audit Committee Policies regarding Pre-approval of Services.

Not applicable to the registrant.

(2) Percentage of services identified in items 4(b) through 4(d) that were approved by the registrants audit committee pursuant to paragraph  (c)(7)(i)(C) of Rule 2-01 of Regulation S-X:

Not applicable to the registrant.

(f) Not applicable to the registrant.

(g) Not applicable to the registrant.

(h) Not applicable to the registrant.

ITEM 5.  AUDIT COMMITTEE OF LISTED REGISTRANTS

Not applicable to the registrant.

ITEM 6.  SCHEDULE OF INVESTMENTS

Schedule is included as part of the report to shareholders filed under Item 1.

ITEM 7.  DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES

Not applicable to the registrant.

ITEM 8.  PORTFOLIO MANAGER OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES

Not applicable to the registrant.

ITEM 9.  PURCHASE OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS

Not applicable to the registrant.

ITEM 10.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable to the registrant.

ITEM 11.  CONTROLS AND PROCEDURES

(a) Not applicable to the registrant.

(b) Not applicable to the registrant.

ITEM 12.  EXHIBITS

The following exhibits are attached to this Form N-CSR:

(a)

(1)  Code of ethics or amendments: not applicable to the registrant.

(2)  Certification by the registrant’s Owner Trustee, as required by Rule 30a-2(a) under the Investment Company Act of 1940, is attached.

(3)  Annual Compliance Statement of the Servicer, GMAC Commercial Mortgage Corporation, is attached.

(4)  Attestation Report of Independent Accountants, PricewaterhouseCoopers, LLP, is attached.

(5)  GMAC reports pursuant to section 1301, 1302, 1303, 1304, 1306 and 1307 of the servicer agreement.

(b) Certification by the registrant’s Owner Trustee, as required by Rule 30a-2(b) under the Investment Company Act of 1940, is attached.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

(Registrant)		College and University Facility Loan Trust Two
By (Signature and Title)			/s/ JAMES BYRNES, Vice President
Date	February 24, 2006

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By (Signature and Title)		/s/ JAMES BYRNES, Vice President
Date	February 24, 2006