College & University Facility Loan Trust Two N-CSRS Certified semi-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)
James Byrnes 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) 603-6442
Date of fiscal year end:	November 30
Date of reporting period:		December 1, 2007 — May 31, 2009

ITEM 1.  REPORT TO STOCKHOLDERS.

College and University

Facility Loan Trust Two

Statement of Assets and Liabilities

May 31,	2009
Assets:
Investments, at amortized cost, net of allowance for loan losses of $832,376 (Notes 1, 2, 6, 7 and 8, and Schedule of Investments)	$	41,727,642
Cash	45,196
Interest receivable	382,145
Loans receivable	131,000
Deferred bond issuance costs (Note 2)	88,389
Prepaids	13,750
Total assets	42,388,122
Liabilities:
Bonds payable, net of unamortized discount (Notes 3 and 8)	32,728,341
Interest payable (Note 3)	780,490
Accrued expenses and other liabilities	246,787
Distribution payable to Class B certificateholders (Note 5)	246,438
Total liabilities	34,002,056
Net Assets:
Class B certificates, par value $1 - authorized, issued and outstanding — 1,763,800 certificates (Note 5)	1,736,800
Accumulated deficit (Notes 2 and 5)	(1,308,710		)
Additional paid-in capital (Note 2)	7,930,976
Total net assets	$	8,386,066
Net asset value per Class B certificate (based on 1,763,800 certificates outstanding)	$	4.75

See accompanying accountant’s compilation report and notes to financial statements.

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College and University

Facility Loan Trust Two

Statement of Operations

Six months ended May 31,	2009
Investment income:
Interest income (Note 2)	$	2,104,899
Expenses:
Interest expense (Notes 2 and 3)	1,548,912
Servicer fees (Note 4)	39,162
Trustee fees (Note 4)	18,252
Other trust and bond administration expenses	218,637
Total expenses	1,824,963
Net investment income	279,936
Net increase in net assets resulting from operations	$	279,936

See accompanying accountant’s compilation report and notes to financial statements.

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College and University

Facility Loan Trust Two

Statement of Cash Flows

Six months ended May 31,	2009
Cash flows from operating activities:
Interest received	$	919,873
Interest paid	(865,636		)
Operating expenses paid	(227,179		)
Net decrease in funds held under investment agreements	2,714,066
Principal payments on Loans	2,531,145
Net cash provided by operating activities	5,072,269
Cash flows from financing activities:
Principal repayments on Bonds	(4,257,330		)
Distributions to Class B certificateholders	(813,969		)
Net cash used in financing activities	(5,071,299		)
Net increase in cash	970
Cash, beginning of period	44,226
Cash, end of period	$	45,196
Reconciliation of net increase in net assets resulting from operations to net cash provided by operating activities:
Net increase in net assets resulting from operations	$	279,935
Decrease in interest receivable	12,223
Increase in prepaid assets	(13,750		)
Increase in accrued expenses and other liabilities	62,623
Decrease in Bond interest payable	(85,146		)
Decrease in investment contracts	2,714,066
Decrease in loan principal balance	2,531,145
Amortization of original issue discount on Bonds	757,152
Amortization of purchase discount on Loans	(1,197,249		)
Amortization of deferred Bond issuance costs	11,270
Net cash provided by operating activities	$	5,072,269

See accompanying accountant’s compilation report and notes to financial statements.

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College and University

Facility Loan Trust Two

Statement of Changes in Net Assets

(Note 2(f))

	Six Months
	Ended			Year Ended
	May 31,			November 30,
	2008			2008
From operations:
Net investment income	$	279,935		$	852,829
Reduction in reserve for loan loss	—			—
Net increase in net assets applicable to Class B certificateholders resulting from operations	279,935			852,829
Distributions to Class B certificateholders from:
Tax return of capital (Note 5)	(313,434		)	(1,233,825		)
Net decrease in net assets	33,499			(380,996		)
Net assets:
Beginning of period	8,352,567			8,733,563
End of period	$	8,386,066		$	8,352,567

See accompanying accountant’s compilation report and notes to financial statements.

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College and University

Facility Loan Trust Two

Financial Highlights

(Notes 1 and 5)

	For the
	Six Months
	Ended
	May 31,			Years Ended November 30,
	2009			2008			2007			2006			2005			2004
Net asset value, beginning of period	$	4.74		$	4.95		$	5.23		$	6.23		$	5.97		$	6.87
Net investment income	.16			.49			.61			.75			.70			1.20
Provision for loan losses	—			—			.05			.28			—			—
Distribution to Class B certificateholders	(0.14		)	(0.70		)	(0.94		)	(2.03		)	(.44		)	(2.10		)
Net asset value, end of period	$	4.75		$	4.74		$	4.95		$	5.23		$	6.23		$	5.97
Total investment return (a)	N/A			N/A			N/A			N/A			N/A			N/A
Net assets applicable to Class B certificates, end of period	$	8,386,066		$	8,352,567		$	8,733,563		$	9,217,465		$	10,989,952		$	10,525,419
Ratios and Supplemental Data:
Ratio of operating expenses to average net assets applicable to Class B certificates	21.81%		(b)(c)	45.87		%(b)	49.51		%(b)	52.81		%(b)	54.60		%(b)	71.19		%(b)
Ratio of net investment income to average net assets applicable to Class B certificates	3.34		%(c)	9.98		%	11.94		%	13.09		%	11.54		%	18.67		%
Number of Class B certificates outstanding, end of period	1,763,800			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.

(b)Excluding interest expense, the ratio of operating expenses to average net assets applicable to Class B Certificates was 6.60%(c), 4.44%, 4.07%, 3.76%, 3.58% and 3.89% in 2009, 2008, 2007, 2006, 2005 and 2004, respectively.

(c)Annualized.

See accompanying accountant’s compilation report and notes to 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 The Bank of New York, National Association, as successor in interest 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.

See accompanying accountants’ compilation report.

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College and University

Facility Loan Trust Two

Notes to Financial Statements

1.Organization and Business (Continued)

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, net of any allowance for loan loss.  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 in the same accounting period.  No additional interest income was recognized during the period ended May 31, 2009.  The remaining balance of the purchase discount on the Loans as of May 31, 2009 was approximately $12,451,435.

See accompanying accountants’ compilation report.

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College and University

Facility Loan Trust Two

Notes to Financial Statements

2.Summary of Significant Accounting Policies (Continued)

(a)College and University Facility Loans (Continued)

The Trust’s policy is to generally 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 May 31, 2009, one Loan has been placed on nonaccrual status, as discussed in Note 6.

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.

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.

See accompanying accountants’ compilation report.

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College and University

Facility Loan Trust Two

Notes to Financial Statements

2.Summary of Significant Accounting Policies (Continued)

(a)College and University Facility Loans (Continued)

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.

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 net of any allowance for loan loss 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.

See accompanying accountants’ compilation report.

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College and University

Facility Loan Trust Two

Notes to Financial Statements

2.Summary of Significant Accounting Policies (Continued)

(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.

The Trust adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109 (“FIN 48”) effective December 1, 2007. FIN 48 requires the Trust to determine whether a tax position of the Trust is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. FIN 48 was applied to all existing tax positions upon initial adoption.  The Trust has evaluated the known implications of FIN 48 on its computation of net assets for the Trust. As a result of this evaluation, the Trust has concluded that FIN 48 did not have any effect on the Trust’s financial statements and no cumulative effect adjustments were recorded.

The Trust’s federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service.

(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.

See accompanying accountants’ compilation report.

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College and University

Facility Loan Trust Two

Notes to Financial Statements

2.Summary of Significant Accounting Policies (Continued)

(e)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.

As of November 30, 2008, all tax earnings and profits have been distributed.  Accordingly, all accumulated undistributed net investment income has been reclassified to additional paid-in capital.  This reclassification results from permanent book and tax differences such as the receipt of tax-exempt interest income on certain Loans, the related interest expense on the Bonds, and the accretion of purchase discount on the Loans. Amounts deducted for the loan loss reserve are not currently deductible for tax purposes and have been reclassified as an accumulated deficit. These reclassifications had no impact on the net investment income or net assets of the Trust.

The Trust expects to have a tax return of capital for the fiscal year ending November 30, 2009; however, the amount cannot be reasonably estimated at May 31, 2009.

See accompanying accountants’ compilation report.

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College and University

Facility Loan Trust Two

Notes to Financial Statements

2.Summary of Significant Accounting Policies (Continued)

(f)Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Trust 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.

(g)Loans Receivable

On the Statement of Assets and Liabilities, the investment balances in three loans, that have matured, were reclassified from Investments to Loans receivable as the final principal payments were not received as of May 31, 2009.

See accompanying accountants’ compilation report.

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College and University

Facility Loan Trust Two

Notes to Financial Statements

2.Summary of Significant Accounting Policies (Continued)

(h)Recent Accounting Pronouncements

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS 162).  The current hierarchy of generally accepted accounting principles is set forth in the American Institute of Certified Public Accountants (AICPA) Statement on Auditing Standards (SAS) No. 69, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. SFAS 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles for nongovernmental entities. This Statement was effective November 15, 2008. The adoption of this statement did not have a material effect on the Trusts financial condition or results of operations, as the Statement does not directly impact the accounting principles applied in the preparation of the Trusts financial statements.

3.Bonds

The Bonds outstanding at May 31, 2009 consist of the following:

				Outstanding		Unamortized		Carrying
	Interest		Stated	Principal		Discount		Amount
Type	Rate		Maturity	(000’s)		(000’s)		(000’s)
Sequential	4.00	%	June 1, 2018	$	39,024	$	6,296	$	32,728

Interest on the Bonds is payable semiannually.  On June 1, 2009, the Trust made a principal payment of $2,228,762 on the Bonds.

See accompanying accountants’ compilation report.

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College and University

Facility Loan Trust Two

Notes to Financial Statements

3.Bonds (Continued)

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.

The estimated aggregate principal payments on the Bonds at May 31, 2009 after taking into consideration actual Loan prepayments, Defaulted Loans and the Maximum Principal Distribution Amount, as defined in the Indenture, are as follows:

	Amount
Fiscal Year	(000’s)
2009	$	3,653
2010	5,396
2011	5,241
2012	4,913
2013	4,263
Thereafter	15,558
Total	$	39,024

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.

See accompanying accountants’ compilation report.

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College and University

Facility Loan Trust Two

Notes to Financial Statements

3.Bonds (Continued)

In the event the Trust realizes 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.

See accompanying accountants’ compilation report.

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College and University

Facility Loan Trust Two

Notes to Financial Statements

4.Administrative Agreements

(a)Servicer

As compensation for the services provided under the servicing agreement, Capmark Finance, Inc., formerly 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 six months ended May 31, 2009, this fee totaled $39,162.

(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 is entitled to annual fees of $12,500 and $15,000, respectively, under the Declaration of Trust agreement.  The expected future minimum payments to the Owner Trustee under such agreement will be $27,500 in fiscal years 2009, 2010, 2011, 2012, 2013, and will total $275,000 thereafter.

·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 six months ended May 31, 2009, total Bond Trustee fees and related expenses amounted to $4,502.

See accompanying accountants’ compilation report.

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College and University

Facility Loan Trust Two

Notes to Financial Statements

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 June 1, 2009, a distribution of $246,438 was made to the Class B certificateholders.  This payment is reflected as a liability in the accompanying statement of assets and liabilities.

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 six months ended May 31, 2009 is summarized as follows:

Balance, beginning of year	$	832,376
Reduction in reserve for loan losses	—
Charge-offs	—
Balance, end of year	$	832,376

As discussed in Note 2(a), at May 31, 2009, there was one Loan placed on nonaccrual status, with an unpaid principal balance of approximately $51,000.  The recorded investment in that loan was approximately $38,000 with a related allowance for loan loss of $3,000.  This loan is not considered impaired, as we expect collection of future principal and interest payments.

See accompanying accountants’ compilation report.

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College and University

Facility Loan Trust Two

Notes to Financial Statements

7.Loans

Scheduled principal and interest payments on the Loans as of May 31, 2009, excluding payments for Loans in Default, as defined in the Indenture, are as follows:

	Principal		Interest
	Payments		Payments		Total
Fiscal year	(000’s)		(000’s)		(000’s)
2009	$	4,446	$	796	$	5,242
2010	6,424		1,415		7,839
2011	6,250		1,214		7,464
2012	5,871		1,017		6,888
2013	5,082		836		5,918
Thereafter	22,429		2,509		24,938
Total	$	50,502	$	7,787	$	58,289

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.

See accompanying accountants’ compilation report.

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College and University

Facility Loan Trust Two

Notes to Financial Statements

7.Loans (Continued)

The following analysis summarizes the stratification of the Loan portfolio by type of collateral and institution as of May 31, 2009.

		Amortized
	Number	Cost
Type of Collateral	of Loans	(000’s)		%
Loans secured by a first mortgage	87	$	25,480	66.97	%
Loans not secured by a first mortgage	24	12,569		33.03
Total Loans	111	$	38,049	100.0	%

		Amortized
	Number	Cost
Type of Institution	of Loans	(000’s)		%
Private	89	$	24,814	65.22	%
Public	22	13,235		34.78
Total Loans	111	$	38,049	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.

See accompanying accountants’ compilation report.

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College and University

Facility Loan Trust Two

Notes to Financial Statements

7.Loans (Continued)

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.

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 both Loans and Bonds 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.

The fair values of these long-term fixed-maturity investments are determined by adding a market rate adjustment to the carrying value of the investment. This market rate adjustment is calculated using the net present value of the difference between future interest income to the Trust at the issue rate and the future interest income at the current market rate through the maturity of the investment. The current market rate at November 30, 2008, is based upon bonds with similar characteristics and maturity dates of the investment agreements.

See accompanying accountants’ compilation report.

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College and University

Facility Loan Trust Two

Notes to Financial Statements

8.Fair Value of Financial Instruments (Continued)

The estimated fair value of the Trust’s financial instruments and the related book value presented in the accompanying statement of assets and liabilities as of May 31, 2009 is as follows:

	Amortized
	Cost			Fair Value
	(000’s)			(000’s)
Loans	$	37,218	*	$	45,165
Investment Agreements:
Revenue Fund	3,553			3,557
Liquidity Fund	957			977
	$	41,728		$	49,699
Bonds payable	$	32,728		$	42,800

*Net of allowance for loan losses of $832,376.

See accompanying accountants’ compilation report.

23

College and University

Facility Loan Trust Two

Compiled Financial Statements

Six Months Ended May 31, 2009

COLLEGE AND UNIVERSITY FACILITY LOAN TRUST TWO

SCHEDULE OF INVESTMENTS

May 31, 2009

(Dollar Amounts in Thousands)

(continued)

					Internal
Outstanding			Stated		Rate of	Amortized
Principal			Interest	Maturity	Return % (A)	Cost (Notes
Balance		Description	Rate %	Date	(Unaudited)	1 and 2)
		COLLEGE AND UNIVERSITY LOANS (89.2%)
		ALABAMA
$	995	Alabama Agricultural and Mechanical University	3.000	05/01/2018	10.27	$	730
1,245		Auburn University	3.000	12/01/2018	9.16	914
		CALIFORNIA
94		Azusa Pacific University	3.750	04/01/2015	10.88	75
485		California State University	3.000	11/01/2013	8.93	421
1,603		California State University	3.000	11/01/2019	8.99	1,199
279		Lassen Junior College District	3.000	04/01/2020	10.27	194
171		Occidental College	3.000	10/01/2019	10.41	120
900		University Student Co-Operative Association	3.000	04/01/2019	10.70	623
		COLORADO
180		Regis College (Denver)	3.000	11/01/2012	10.47	156
		DELAWARE
62		Wesley College	3.375	05/01/2013	10.88	53
399		University of Delaware	3.000	12/01/2018	8.81	301
		FLORIDA
41		Florida Institute of Technology	3.000	11/01/2009	10.53	40
1,005		University of Florida	3.000	07/01/2014	10.15	817
		GEORGIA
67		Emmanuel College	3.000	11/01/2013	10.45	56
187		Mercer University	3.000	05/01/2014	10.58	154
220		Morehouse College	3.000	07/01/2010	10.50	202
490		Paine College	3.000	10/01/2016	10.45	374
		ILLINOIS
420		Concordia College	3.000	05/01/2019	10.65	291
660		Sangamon State University	3.000	11/01/2018	10.12	493
		INDIANA
326		Taylor University	3.000	10/01/2013	10.49	274
2,660		Vincennes University	3.000	06/01/2023	9.02	1,804
		IOWA
168		Simpson College	3.000	07/01/2016	10.58	127
		KENTUCKY
90		Georgetown College	3.000	12/01/2009	10.05	83
93		Transylvania University	3.000	11/01/2010	10.51	86
		MARYLAND
127		Hood College	3.625	11/01/2014	10.54	106
934		Morgan State University	3.000	11/01/2014	10.56	757

The accompanying notes are an integral part of this schedule.

23

COLLEGE AND UNIVERSITY FACILITY LOAN TRUST TWO

SCHEDULE OF INVESTMENTS

May 31, 2009

(Dollar Amounts in Thousands)

(continued)

					Internal
Outstanding			Stated		Rate of	Amortized
Principal			Interest	Maturity	Return % (A)	Cost (Notes
Balance		Description	Rate %	Date	(Unaudited)	1 and 2)
		MASSACHUSETTS
$	141	Hampshire College	3.000	07/01/2013	10.75	$	117
545		Hampshire College	3.000	02/01/2014	10.70	444
67		Brandeis University	3.000	11/01/2011	10.64	60
380		College of the Holy Cross	3.625	10/01/2013	10.60	327
1,680		Northeastern University	3.000	05/01/2018	10.53	1,226
133		Springfield College	3.500	05/01/2013	10.67	115
1,535		Tufts University	3.000	10/01/2021	10.39	1,022
		MICHIGAN
1		Albion College	3.000	10/01/2009	10.56	3
		MINNESOTA
58		College of Saint Thomas	3.000	11/01/2009	10.53	56
269		MacAlester College	3.000	05/01/2020	10.46	187
		MISSISSIPPI
549		Hinds Junior College	3.000	04/01/2013	10.42	472
384		Millsaps College	3.000	11/01/2021	10.34	257
970		Mississippi State University	3.000	12/01/2020	9.64	662
		MISSOURI
119		Drury College	3.000	04/01/2015	10.63	95
74		Drury College	3.000	10/01/2010	10.75	68
		MONTANA
162		Carroll College	3.750	06/01/2014	10.46	133
94		Carroll College	3.000	06/01/2018	10.15	68
		NEW HAMPSHIRE
75		New England College	3.000	04/01/2016	10.77	57
		NEW JERSEY
930		Fairleigh Dickinson University	3.000	11/01/2017	10.39	691
260		Newark Beth Israel Hospital	3.625	01/01/2014	11.06	210
730		Rider College	3.625	11/01/2013	10.42	622
222		Rider College	3.000	05/01/2017	10.70	163
330		Rutgers, The State University	3.750	05/01/2016	9.19	270
		NEW Mexico
343		College of Santa Fe	3.000	10/01/2018	10.43	250
		NEW YORK
295		Daemen College	3.000	04/01/2016	10.77	223
584		D’Youville College	3.000	04/01/2018	10.90	414
613		Hofstra University	3.000	11/01/2012	10.61	530
42		Long Island University	3.000	11/01/2009	10.69	40
255		Long Island University	3.625	06/01/2014	10.49	208
244		Memorial Hospital for Cancer and Allied Diseases	3.375	04/01/2012	10.68	214
55		Utica College	3.000	11/01/2009	10.53	53

The accompanying notes are an integral part of this schedule.

24

COLLEGE AND UNIVERSITY FACILITY LOAN TRUST TWO

SCHEDULE OF INVESTMENTS

May 31, 2009

(Dollar Amounts in Thousands)

(continued)

					Internal
Outstanding			Stated		Rate of	Amortized
Principal			Interest	Maturity	Return % (A)	Cost (Notes
Balance		Description	Rate %	Date	(Unaudited)	1 and 2)
		NORTH CAROLINA
$	23	Catawba College	3.000	12/01/2009	10.27	$	22
210		Elizabeth City State University	3.000	10/01/2017	10.02	158
258		Saint Mary’s College	3.000	06/01/2020	10.14	178
		OHIO
35		University of Steubenville	3.125	04/01/2010	10.98	32
335		Wittenberg University	3.000	05/01/2015	10.76	261
133		Wittenberg University	3.000	11/01/2017	10.39	99
		OREGON
438		George Fox College	3.000	07/01/2018	10.64	316
51		Linfield College	3.000	10/01/2017	10.44	39
		PENNSYLVANIA
243		Albright College	3.000	11/01/2015	10.23	197
532		Carnegie-Mellon University	3.000	11/01/2017	10.51	394
460		Drexel University	3.500	05/01/2014	10.53	382
200		Gannon University	3.000	11/01/2011	10.49	179
139		Gannon University	3.000	12/01/2022	10.13	89
95		Lycoming College	3.625	05/01/2014	10.64	78
145		Lycoming College	3.750	05/01/2015	10.62	117
78		Moravian College	3.375	11/01/2012	10.52	68
1,582		Philadelphia College of Art	3.000	01/01/2022	10.62	1,019
215		Saint Vincent College	3.500	05/01/2013	10.86	181
153		Seton Hill College	3.625	11/01/2014	10.53	126
670		Villanova University	3.000	04/01/2019	10.70	464
213		York Hospital	3.000	05/01/2020	10.64	145
		SOUTH CAROLINA
1,158		Benedict College	3.000	11/01/2020	10.36	794
66		Morris College	3.000	11/01/2009	10.53	63
		TENNESSEE
183		Cumberland University	3.000	08/01/2017	10.52	134
113		Hiwassee College	3.000	09/15/2018	10.58	81
		TEXAS
150		Houston Tillotson College	3.500	04/01/2014	10.90	122
1,150		Southwest Texas State University	3.000	10/01/2015	9.51	931
672		Stephen F. Austin State University	3.375-3.500	10/01/2012	9.57	596
71		Texas A & I University	3.000	07/01/2009	9.57	68
170		Texas Southern University	3.500	04/01/2013	10.45	144
404		University of Saint Thomas	3.000	10/01/2019	10.41	284

The accompanying notes are an integral part of this schedule.

25

COLLEGE AND UNIVERSITY FACILITY LOAN TRUST TWO

SCHEDULE OF INVESTMENTS

May 31, 2009

(Dollar Amounts in Thousands)

(continued)

							Internal
Outstanding				Stated			Rate of	Amortized
Principal				Interest	Maturity		Return % (A)	Cost (Notes
Balance			Description	Rate %	Date		(Unaudited)	1 and 2)
			VERMONT
$	56		Champlain College	3.000	12/01/2013		10.19	$	45
650			Saint Michael’s College	3.000	05/01/2013		10.60	553
115			Vermont State College	3.000	07/01/2014		9.30	96
			VIRGINIA
185			James Madison University	3.000	06/01/2009		10.49	176
208			Lynchburg College	3.750	05/01/2015		10.64	169
345			Lynchburg College	3.000	05/01/2018		10.68	248
138			Mary Baldwin College	3.375	05/01/2012		10.68	126
335			Marymount University	3.000	05/01/2016		10.52	265
1,866			Norfolk State University	3.000	12/01/2021		9.77	1,254
30			Randolph-Macon College	3.000	05/01/2010		10.72	28
221			Saint Paul’s College	3.000	11/01/2014		10.56	182
717			Virginia Commonwealth University	3.000	06/01/2011		10.01	639
15			Virginia Wesleyan College	3.000	11/01/2009		10.54	14
39			Virginia Wesleyan College	3.000	11/01/2010		10.51	36
			WEST VIRGINIA
91			Bethany College	3.375	11/01/2012		10.54	81
155			Bethany College	3.000	11/01/2017		10.40	114
163			Bethany College	3.000	11/01/2012		10.40	141
			WISCONSIN
192			Carroll College	3.750	03/01/2015		10.93	152
285			Marian College	3.000	10/01/2016		10.45	217
			DISTRICT OF COLUMBIA
1,813			Georgetown University	3.000	11/01/2020		10.36	1,245
4,770			Georgetown University	4.000	11/01/2020		10.52	3,436
			PUERTO RICO
1,239			Inter American University of Puerto Rico	3.000	01/01/2017		10.94	924
489			University of Puerto Rico, Rio Piedras Campus	3.000	06/01/2011		9.39	440
50,502			Total College and University Loans					38,049
			Allowance for Loan Losses					832
			Net Loans of the Trust					37,217
			INVESTMENT AGREEMENTS (10.8%)
3,553			JPMorgan Chase Bank - Liquidity Fund	7.750	06/01/2018	(C)	7.750	3,553
957			JPMorgan Chase Bank - Revenue Fund	7.050	06/01/2018	(C)	7.050	957
4,510			Total Investment Agreements					4,510
$	55,012	(B)	Total Investments (100.0%)					$	41,727

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

(B)  The tax basis in the Loans is approximately $55,012

(C)  Terminates at the earlier of June 1, 2018 or the date on which the Bonds are paid-in-full. (Note 2)

The accompanying notes are an integral part of this schedule.

26

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 2008 - $90,000

Fiscal year ended 2007 - $90,000

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

Fiscal year ended 2008 - $0

Fiscal year ended 2007 - $0

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

Fiscal year ended 2008 - $0

Fiscal year ended 2007 - $0

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

Fiscal year ended 2008 - $65,400

-$44,000 in connection with Accountants’ Report 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 to relating to the Trust’s Servicing Agreement.

-$6,400 out of pocket expenses.

Fiscal year ended 2007 - $62,000

-$42,000 in connection with Accountants’ Report 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 to relating to the Trust’s Servicing Agreement.

-$5,000 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, Capmark Finance, is attached.

(4) Report on Compliance with minimum Master Servicing Standards is attached.

(5) Capmark 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/ Brian True, Vice President
Date	August 10, 2009

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/  Brian True, Vice President
Date	August 10, 2009