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, 2003 - November 30, 2004
ITEM 1. REPORT TO STOCKHOLDERS.
College and University
Facility Loan Trust Two
Financial Statements
November 30,2004
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, 2004, 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 three 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 each of the two years in the period 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, 2004, 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 $21,022,000 and $27,486,000 in the recorded value of the
investments and an increase in unrealized appreciation of investments of
approximately $21,022,000 and $27,486,000 as of November 30, 2004 and November
30, 2003, respectively.
In our opinion, except for the effect on the 2004 and 2003 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, 2004, 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
three 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 28, 2005
COLLEGE AND UNIVERSITY
FACILITY LOAN TRUST TWO
STATEMENT OF ASSETS AND LIABILITIES
November 30, 2004
- -----------------------------------------------------------------------------------
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) $ 80,522,042
CASH 24,608
INTEREST RECEIVABLE 765,587
DEFERRED BOND ISSUANCE COSTS (Note 2) 234,840
- -----------------------------------------------------------------------------------
Total assets 81,547,077
- -----------------------------------------------------------------------------------
LIABILITIES:
BONDS PAYABLE, net of unamortized discount (Notes 3 and 8) 66,845,094
INTEREST PAYABLE (Note 3) 1,654,732
ACCRUED EXPENSES AND OTHER LIABILITIES 203,097
DISTRIBUTION PAYABLE TO CLASS B CERTIFICATEHOLDERS (Note 5) 2,318,735
- -----------------------------------------------------------------------------------
Total liabilities 71,021,658
- -----------------------------------------------------------------------------------
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 (Notes 2 and 5) (2,525,071)
ADDITIONAL PAID-IN CAPITAL (Note 2) 11,286,690
- -----------------------------------------------------------------------------------
Total net assets $ 10,525,419
===================================================================================
Net asset value per Class B certificate
(based on 1,763,800 certificates outstanding) $ 5.97
===================================================================================
The accompanying notes are an integral part of these financial statements.
3
COLLEGE AND UNIVERSITY
FACILITY LOAN TRUST TWO
STATEMENT OF OPERATIONS
Year ended November 30, 2004
- --------------------------------------------------------------------
INVESTMENT INCOME:
Interest income (Note 2) $ 10,170,933
- --------------------------------------------------------------------
EXPENSES:
Interest expense (Notes 2 and 3) 7,617,733
Servicer fees (Note 4) 79,125
Trustee fees (Note 4) 49,782
Other trust and bond administration expenses 311,077
- --------------------------------------------------------------------
Total expenses 8,057,717
- --------------------------------------------------------------------
Net investment income 2,113,216
- --------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 2,113,216
====================================================================
The accompanying notes are an integral part of these financial statements.
4
COLLEGE AND UNIVERSITY
FACILITY LOAN TRUST TWO
STATEMENT OF CASH FLOWS
Year ended November 30, 2004
- ---------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 3,980,727
Interest paid (3,768,759)
Operating expenses paid (498,388)
- ---------------------------------------------------------------------------
Net cash used in operating activities (286,420)
- ---------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in funds held under investment agreements (348,622)
Principal payments on Loans 20,292,295
- ---------------------------------------------------------------------------
Net cash provided by investing activities 19,943,673
- ---------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments on Bonds (16,023,164)
Distributions to Class B certificateholders (3,659,481)
- ---------------------------------------------------------------------------
Net cash used in financing activities (19,682,645)
- ---------------------------------------------------------------------------
NET DECREASE IN CASH (25,392)
CASH, beginning of year 50,000
- ---------------------------------------------------------------------------
CASH, end of year $ 24,608
===========================================================================
RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH USED FOR OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 2,113,216
Decrease in interest receivable 120,123
Decrease in accrued expenses and other liabilities (58,404)
Decrease in Bond interest payable (320,463)
Amortization of original issue discount on Bonds 4,106,181
Amortization of purchase discount on Loans (6,310,329)
Amortization of deferred Bond issuance costs 63,256
- ---------------------------------------------------------------------------
Net cash used in operating activities $ (286,420)
===========================================================================
The accompanying notes are an integral part of these financial statements.
5
COLLEGE AND UNIVERSITY
FACILITY LOAN TRUST TWO
STATEMENT OF CHANGES IN NET ASSETS
(NOTE 2(f))
Years ended November 30, 2004 2003
- ----------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $ 2,113,216 $ 1,838,312
- ----------------------------------------------------------------------------------------
Net increase in net assets applicable to Class B
certificateholders resulting from operations 2,113,216 1,838,312
CAPITAL CERTIFICATE TRANSACTIONS:
Distributions to Class B certificateholders (Note 5) (3,699,863) (3,204,355)
- ----------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS (1,586,647) (1,366,043)
NET ASSETS:
Beginning of year 12,112,066 13,478,109
- ----------------------------------------------------------------------------------------
End of year $ 10,525,419 $ 12,112,066
========================================================================================
The accompanying notes are an integral part of these financial statements.
6
COLLEGE AND UNIVERSITY
FACILITY LOAN TRUST TWO
FINANCIAL HIGHLIGHTS
(NOTES 1 AND 5)
Years ended November 30, 2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, beginning of year $ 6.87 $ 7.64 $ 8.53 $ 9.01 $ 10.05
- --------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 1.20 1.04 1.37 1.15 1.34
PROVISION FOR LOAN LOSSES - - - - (.17)
DISTRIBUTION TO CLASS B
CERTIFICATEHOLDERS:
As tax return of capital (2.10) (1.81) (2.26) (1.63) (2.21)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, end of year $ 5.97 $ 6.87 $ 7.64 $ 8.53 $ 9.01
================================================================================================================================
TOTAL INVESTMENT RETURN(a) N/A N/A N/A N/A N/A
NET ASSETS APPLICABLE TO CLASS B
CERTIFICATES, end of year $ 10,525,419 $ 12,112,066 $ 13,478,109 $ 15,039,698 $ 15,898,314
================================================================================================================================
RATIOS AND SUPPLEMENTAL DATA:
Ratio of operating expenses to average
net assets applicable to
Class B certificates 71.19%(b) 66.77%(b) 70.03%(b) 69.21%(b) 73.02%(b)
Ratio of net investment income
to average net assets applicable
to Class B certificates 18.67% 14.37% 16.97% 13.05% 14.10%
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 3.89%, 3.26%, 2.76%, 2.72%
and 2.53% in 2003, 2003, 2002, 2001 and 2000, respectively.
The accompanying notes are an integral part of these financial statements.
7
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.
8
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. 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,
2004 was approximately $27,382,000. As a result of prepayments of Loans in the
year ended November 30, 2004, additional interest income of approximately
$1,256,549 was recognized.
9
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 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, 2004, 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.
10
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.
(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.
11
COLLEGE AND UNIVERSITY
FACILITY LOAN TRUST TWO
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(e) Accounting for Impairment of a Loan and Allowance for Loan Losses
(Continued)
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.
12
COLLEGE AND UNIVERSITY
FACILITY LOAN TRUST TWO
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(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 $1,856,073 as of November 30, 2004. 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, 2003 and June 1, 2004, distributions of $1.29 and $0.78 per
certificate were declared and paid to certificateholders of record on November
20, 2003 and May 20, 2004, respectively.
13
COLLEGE AND UNIVERSITY
FACILITY LOAN TRUST TWO
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(f) Presentation of Capital Distributions (Continued)
The tax character of distributions paid during the year ended November 30, 2004
were as follows:
Distributions paid from:
Ordinary income $ -
Long-term capital gain -
Return of capital 3,659,481
- ------------------------------------------------------------------------------------
Total distributions $ 3,659,481
====================================================================================
As of November 30, 2004, the components of distributable earnings on a tax basis
were as follows:
Undistributed ordinary loss $ (2,525,071)
Undistributed long-term gain -
Unrealized appreciation -
- ------------------------------------------------------------------------------------
$ (2,525,071)
====================================================================================
The undistributed ordinary loss consists of allowance for loan losses of
$1,432,376 and accretion of purchase discount on the Loans of $1,092,695 which
will reverse in future years causing a reduction in taxable ordinary income.
14
COLLEGE AND UNIVERSITY
FACILITY LOAN TRUST TWO
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(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.
15
COLLEGE AND UNIVERSITY
FACILITY LOAN TRUST TWO
NOTES TO FINANCIAL STATEMENTS
3. BONDS
The Bonds outstanding at November 30, 2004 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 $ 82,737 $ 15,892 $ 66,845
Interest on the Bonds is payable semiannually. On December 1, 2004, the Trust
made a principal payment of $9,939,736 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.
16
COLLEGE AND UNIVERSITY
FACILITY LOAN TRUST TWO
NOTES TO FINANCIAL STATEMENTS
3. BONDS (Continued)
The estimated aggregate principal payments on the Bonds at
November 30, 2004 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)
- ------------------------------------------------------------------------
2005 $ 13,709
2006 8,981
2007 7,953
2008 6,992
2009 6,537
Thereafter 38,565
- ------------------------------------------------------------------------
Total $ 82,737
========================================================================
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.
17
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, 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, 2004,
this fee totaled $74,460. 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, 2004, out-of-pocket expenses totaled $4,665.
(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, 2004. In addition, the Owner Trustee incurred $1,000 of
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,
2004, total Bond Trustee fees and out-of-pocket expenses amounted to
$21,282.
18
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 December 2,
2004, a distribution of $2,318,735 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 year ended November 30,
2004 is summarized as follows:
Balance, beginning of year $ 1,432,376
Reduction in reserve for loan losses -
Charge-offs -
- ----------------------------------------------------------------------------------
Balance, end of year $ 1,432,376
==================================================================================
At November 30, 2004, 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.
19
COLLEGE AND UNIVERSITY
FACILITY LOAN TRUST TWO
NOTES TO FINANCIAL STATEMENTS
7. LOANS
Scheduled principal and interest payments on the Loans as of November 30, 2004,
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)
- ----------------------------------------------------------------------------------
2005 $ 11,204 $ 2,915 $ 14,119
2006 9,646 2,513 12,159
2007 8,811 2,219 11,030
2008 7,867 1,953 9,820
2009 7,486 1,710 9,196
Thereafter 48,256 7,264 55,520
- ----------------------------------------------------------------------------------
Total $ 93,270 $ 18,574 $ 111,844
==================================================================================
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, 2004, there were no Loans in Default.
20
COLLEGE AND UNIVERSITY
FACILITY LOAN TRUST TWO
NOTES TO FINANCIAL STATEMENTS
7. LOANS (Continued)
The following analysis summarize the stratification of the Loan portfolio by
type of collateral and institution as of November 30, 2004:
Amortized
Number Cost
Type of Collateral of Loans (000's) %
- -------------------------------------------------------------------------------
Loans secured by a
first mortgage 134 $ 40,897 62.1%
Loans not secured by
a first mortgage 60 24,991 37.9
- -------------------------------------------------------------------------------
Total Loans 194 $ 65,888 100.0%
===============================================================================
Amortized
Number Cost
Type of Institution of Loans (000's) %
- -------------------------------------------------------------------------------
Private 138 $ 41,203 62.5%
Public 56 24,685 37.5
- -------------------------------------------------------------------------------
Total Loans 194 $ 65,888 100.0%
===============================================================================
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.
21
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.
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.
22
COLLEGE AND UNIVERSITY
FACILITY LOAN TRUST TWO
NOTES TO FINANCIAL STATEMENTS
8. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
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, 2004 is as follows:
Amortized
Cost Fair Value
(000's) (000's)
- ------------------------------------------------------------------------------------
Loans $ 64,456* $ 84,452
Investment Agreements:
Revenue Fund 14,214 14,915
Liquidity Fund 1,852 2,177
- ------------------------------------------------------------------------------------
$ 80,522 $ 101,544
====================================================================================
Bonds $ 66,845 $ 81,196
====================================================================================
*Net of allowance for loan losses of $1,432,376.
23
COLLEGE AND UNIVERSITY FACILITY LOAN TRUST TWO
SCHEDULE OF INVESTMENTS
November 30, 2004
(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 (80.0%)
---------- ALABAMA --------
$ 75 Alabama Agricultural and Mechanical University 3.000-3.750 07/01/2005 10.25 $ 69
1,465 Alabama Agricultural and Mechanical University 3.000 05/01/2018 10.27 967
1,745 Auburn University 3.000 12/01/2018 9.16 1,174
120 Huntingdon College 3.000 10/01/2008 10.60 100
280 Talladega College 3.000 12/01/2012 10.24 208
850 University of Alabama in Birmingham 3.000 11/01/2008 7.97 755
---------- ARKANSAS --------
78 University of Central Arkansas 3.000 04/01/2005 10.69 75
---------- CALIFORNIA --------
158 Azusa Pacific University 3.750 04/01/2015 10.88 113
370 California Polytechnic State University 3.000 11/01/2007 10.05 324
95 California State University 3.000 11/01/2006 8.75 87
825 California State University 3.000 11/01/2013 8.93 633
2,068 California State University 3.000 11/01/2019 8.99 1,385
385 Chapman College 3.000 10/01/2013 10.65 277
54 Chapman College 3.000 11/01/2005 10.63 50
85 Chapman College 3.000 11/01/2007 10.57 74
24 Gavilan College 3.000 04/01/2006 10.59 22
379 Lassen Junior College District 3.000 04/01/2020 10.27 238
220 Occidental College 3.000 10/01/2019 10.41 135
245 San Diego State University 3.000 11/01/2006 10.04 221
1,325 University Student Co-Operative Association 3.000 04/01/2019 10.70 850
250 West Valley College 3.000 04/01/2009 10.50 210
---------- COLORADO --------
155 Fort Lewis College 3.000 10/01/2006 10.09 139
340 Regis College (Denver) 3.000 11/01/2012 10.47 252
---------- DELAWARE --------
150 Wesley College 3.375 05/01/2013 10.88 114
340 University of Delaware 3.000 11/01/2006 9.08 311
534 University of Delaware 3.000 12/01/2018 8.81 365
---------- FLORIDA --------
185 Embry-Riddle Aeronautical University 3.000 09/01/2007 10.64 159
100 Florida Atlantic University 3.000 07/01/2006 10.18 89
98 Florida Institute of Technology 3.000 11/01/2009 10.53 79
355 Florida State University 3.000 01/01/2009 9.40 308
180 Nova University 3.000 12/01/2007 10.04 156
58 Stetson University 3.000 01/01/2006 11.25 53
195 University of Central Florida 3.000 10/01/2007 10.08 170
1,590 University of Florida 3.000 07/01/2014 10.15 1,120
140 University of South Florida 3.750 07/01/2005 10.30 130
The accompanying notes are an integral part of this schedule. 24
COLLEGE AND UNIVERSITY FACILITY LOAN TRUST TWO
SCHEDULE OF INVESTMENTS
November 30, 2004
(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)
- ----------- ----------------------------------------------- ----------- ---------- ----------- -----------
---------- GEORGIA --------
$ 111 Emmanuel College 3.000 11/01/2013 10.45 $ 79
103 Georgia Education Authority Board of Regents
of the University System of Georgia 3.375 01/01/2003 10.60 103
165 LaGrange College 3.000 03/01/2009 11.06 136
333 Mercer University 3.000 05/01/2014 10.58 239
510 Morehouse College 3.000 07/01/2010 10.50 389
81 Morris Brown College 3.750 05/01/2007 11.12 73
1,205 Morris Brown College 2.750-3.750 05/01/2018 10.89 806
695 Paine College 3.000 10/01/2016 10.45 460
---------- ILLINOIS --------
585 Concordia College 3.000 05/01/2019 10.65 365
100 Knox College 3.000 04/01/2006 11.15 92
930 Sangamon State University 3.000 11/01/2018 10.12 615
---------- INDIANA --------
70 Anderson University 3.000 03/01/2006 11.19 64
23 Purdue University 3.000 07/01/2005 9.26 21
178 Taylor University 3.000 10/01/2012 10.50 131
556 Taylor University 3.000 10/01/2013 10.49 400
3,190 Vincennes University 3.000 06/01/2023 9.02 1,956
---------- IOWA --------
45 NIACC Dormitories, Inc. 3.000 10/01/2012 10.27 34
238 Simpson College 3.000 07/01/2016 10.58 155
37 Waldorf College 3.000 07/01/2005 10.77 34
100 Wartburg College 3.750 04/01/2011 11.00 79
---------- KANSAS --------
60 Fort Hays State University 3.000 10/01/2007 10.08 52
45 Hesston College 3.000 04/01/2006 11.14 42
---------- KENTUCKY --------
269 Georgetown College 3.000 12/01/2008 10.04 226
520 Georgetown College 3.000 12/01/2009 10.05 423
111 Spalding University 3.000 09/01/2007 10.66 97
263 Transylvania University 3.000 11/01/2010 10.51 207
---------- LOUISIANA --------
100 Dillard University 3.000 04/01/2008 11.09 88
38 Louisiana State University 3.000 07/01/2005 8.84 35
65 Louisiana State University 3.000 07/01/2006 8.87 60
---------- MARYLAND --------
203 Hood College 3.625 11/01/2014 10.54 148
1,592 Morgan State University 3.000 11/01/2014 10.56 1,126
The accompanying notes are an integral part of this schedule. 25
COLLEGE AND UNIVERSITY FACILITY LOAN TRUST TWO
SCHEDULE OF INVESTMENTS
November 30, 2004
(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 --------
$ 265 Hampshire College 3.000 07/01/2013 10.75 $ 190
970 Hampshire College 3.000 02/01/2014 10.70 688
32 Becker Junior College 3.000 04/01/2005 11.21 31
177 Brandeis University 3.000 11/01/2011 10.64 136
680 College of the Holy Cross 3.625 10/01/2013 10.60 508
220 College of the Holy Cross 3.000 10/01/2006 10.63 197
2,366 Northeastern University 3.000 05/01/2018 10.53 1,524
318 Springfield College 3.500 05/01/2013 10.67 245
7 Springfield College 3.000 05/15/2005 10.11 7
1,900 Tufts University 3.000 10/01/2021 10.39 1,116
580 Wheaton College 3.500 04/01/2013 10.70 435
16 Wheelock College 3.000 05/01/2011 10.23 13
---------- MICHIGAN --------
62 Albion College 3.000 10/01/2009 10.56 48
66 Concordia College 3.000 04/01/2009 11.05 56
120 Harper Grace Hospital 3.625 04/01/2005 11.26 115
375 University of Michigan 3.750 10/01/2005 9.51 353
---------- MINNESOTA --------
274 College of Saint Thomas 3.000 11/01/2009 10.53 222
29 College of Santa Fe 3.000 10/01/2005 10.66 27
463 College of Santa Fe 3.000 10/01/2018 10.43 295
358 MacAlester College 3.000 05/01/2020 10.46 222
---------- MISSISSIPPI --------
1,309 Hinds Junior College 3.000 04/01/2013 10.42 994
476 Millsaps College 3.000 11/01/2021 10.34 281
1,290 Mississippi State University 3.000 12/01/2020 9.64 809
---------- MISSOURI --------
360 Central Missouri State University 3.000 07/01/2007 10.18 311
201 Drury College 3.000 04/01/2015 10.63 141
282 Drury College 3.000 10/01/2010 10.75 224
391 Southeast Missouri State University 3.000 04/01/2007 10.58 355
---------- MONTANA --------
250 Carroll College 3.750 06/01/2014 10.46 179
131 Carroll College 3.000 06/01/2018 10.15 84
---------- NEBRASKA --------
16 Midland Lutheran College 3.000 04/01/2005 11.20 15
---------- NEW HAMPSHIRE --------
119 New England College 3.000 04/01/2016 10.77 80
---------- NEW JERSEY --------
The accompanying notes are an integral part of this schedule. 26
COLLEGE AND UNIVERSITY FACILITY LOAN TRUST TWO
SCHEDULE OF INVESTMENTS
November 30, 2004
(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)
- ----------- ----------------------------------------------- ----------- ---------- ----------- -----------
$ 1,270 Fairleigh Dickinson University 3.000 11/01/2017 10.39 $ 822
475 Newark Beth Israel Hospital 3.625 01/01/2014 11.06 341
1,235 Rider College 3.625 11/01/2013 10.42 918
342 Rider College 3.000 05/01/2017 10.70 225
520 Rutgers, The State University 3.750 05/01/2016 9.19 392
238 Seton Hill College 3.625 11/01/2014 10.53 171
---------- NEW YORK --------
756 College of Saint Rose 3.000 05/01/2022 10.43 444
470 Daemen College 3.000 04/01/2016 10.77 316
349 Dowling College 3.000 10/01/2010 10.75 277
853 D'Youville College 3.000 04/01/2018 10.90 541
1,312 Hofstra University 3.000 11/01/2012 10.61 983
127 Long Island University 3.750 05/01/2005 11.22 122
112 Long Island University 3.000 11/01/2009 10.69 92
393 Long Island University 3.000 11/01/2009 10.69 323
395 Long Island University 3.625 06/01/2014 10.49 282
659 Memorial Hospital for Cancer and Allied Diseases 3.375 04/01/2012 10.68 511
85 SUNY, Mohawk Valley Community College 3.000 04/01/2005 10.26 82
261 Utica College 3.000 11/01/2009 10.53 212
---------- NORTH CAROLINA --------
125 Catawba College 3.000 12/01/2009 10.27 99
290 Elizabeth City State University 3.000 10/01/2017 10.02 192
182 High Point College 3.000 12/01/2010 10.26 140
69 Lenoir Rhyne College 3.000 12/01/2006 10.04 62
18 Saint Mary's College 3.000 03/01/2005 11.25 17
333 Saint Mary's College 3.000 06/01/2020 10.14 202
77 University of North Carolina 3.000 11/01/2005 8.81 73
280 University of North Carolina 3.000 01/01/2008 9.50 245
19 University of North Carolina 3.000 01/01/2007 9.50 17
---------- OHIO --------
46 Rio Grande College 3.000 03/30/2009 10.93 38
194 University of Steubenville 3.125 04/01/2010 10.98 156
570 Wittenberg University 3.000 05/01/2015 10.76 394
193 Wittenberg University 3.000 11/01/2017 10.39 129
22 Wooster Business College 3.000 03/30/2009 10.88 18
---------- OKLAHOMA --------
895 Cameron University 3.000 04/01/2007 10.16 805
400 Langston University 3.000 04/01/2007 10.56 357
40 Southern Nazarene University 3.750 04/01/2005 11.27 38
---------- OREGON --------
612 George Fox College 3.000 07/01/2018 10.64 389
63 Linfield College 3.000 10/01/2017 10.44 41
---------- PENNSYLVANIA --------
The accompanying notes are an integral part of this schedule. 27
COLLEGE AND UNIVERSITY FACILITY LOAN TRUST TWO
SCHEDULE OF INVESTMENTS
November 30, 2004
(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)
- ----------- ----------------------------------------------- ----------- ---------- ----------- -----------
$ 378 Albright College 3.000 11/01/2015 10.23 $ 265
145 Carnegie-Mellon University 3.000 05/01/2009 10.73 121
770 Carnegie-Mellon University 3.000 11/01/2017 10.51 504
880 Drexel University 3.500 05/01/2014 10.53 653
435 Gannon University 3.000 11/01/2011 10.49 331
169 Gannon University 3.000 12/01/2022 10.13 96
175 Lycoming College 3.625 05/01/2014 10.64 129
245 Lycoming College 3.750 05/01/2015 10.62 178
146 Moravian College 3.375 11/01/2012 10.52 110
2,001 Philadelphia College of Art 3.000 01/01/2022 10.62 1,154
445 Saint Vincent College 3.500 05/01/2013 10.86 333
935 Villanova University 3.000 04/01/2019 10.70 581
292 York Hospital 3.000 05/01/2020 10.64 179
---------- RHODE ISLAND --------
35 Rhode Island College 3.000 10/01/2005 10.09 33
---------- SOUTH CAROLINA --------
210 Benedict College 3.000 11/01/2006 10.61 189
1,462 Benedict College 3.000 11/01/2020 10.36 883
40 Clemson University 3.000 07/01/2005 9.51 37
85 Coker College 3.000 12/01/2009 10.04 69
311 Morris College 3.000 11/01/2009 10.53 252
---------- SOUTH DAKOTA --------
145 Dakota Wesleyan University 3.000 10/01/2015 10.46 102
---------- TENNESSEE --------
243 Cumberland University 3.000 08/01/2017 10.52 154
157 Hiwassee College 3.000 09/15/2018 10.58 99
---------- TEXAS --------
280 Houston Tillotson College 3.500 04/01/2014 10.90 203
225 McLennan Community College 3.000 04/01/2006 10.49 209
204 Southern Methodist University 3.000 10/01/2007 10.61 176
1,700 Southwest Texas State University 3.000 10/01/2015 9.51 1,207
1,252 Stephen F. Austin State University 3.375-3.500 10/01/2012 9.57 974
346 Texas A & I University 3.000 07/01/2009 9.57 286
350 Texas Southern University 3.500 04/01/2013 10.45 265
520 University of Saint Thomas 3.000 10/01/2019 10.41 320
---------- VERMONT --------
106 Champlain College 3.000 12/01/2013 10.19 75
1,293 Saint Michael's College 3.000 05/01/2013 10.60 955
210 Vermont State College 3.000 06/01/2008 9.02 180
181 Vermont State College 3.000 07/01/2014 9.30 132
The accompanying notes are an integral part of this schedule. 28
COLLEGE AND UNIVERSITY FACILITY LOAN TRUST TWO
SCHEDULE OF INVESTMENTS
November 30, 2004
(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)
- ----------- ----------------------------------------------- ----------- ---------- ----------- -----------
---------- VIRGINIA --------
$ 880 James Madison University 3.000 06/01/2009 10.49 $ 706
368 Lynchburg College 3.750 05/01/2015 10.64 270
510 Lynchburg College 3.000 05/01/2018 10.68 330
273 Mary Baldwin College 3.375 05/01/2012 10.68 212
475 Marymount University 3.000 05/01/2016 10.52 324
2,360 Norfolk State University 3.000 12/01/2021 9.77 1,433
165 Randolph-Macon College 3.000 05/01/2010 10.72 134
348 Saint Paul's College 3.000 11/01/2014 10.56 246
1,572 Virginia Commonwealth University 3.000 06/01/2011 10.01 1,205
161 Virginia Wesleyan College 3.000 11/01/2009 10.54 133
111 Virginia Wesleyan College 3.000 11/01/2010 10.51 87
---------- WASHINGTON --------
229 Seattle University 3.000 11/01/2008 10.55 192
70 Western Washington University 3.750 10/01/2005 10.19 65
---------- WEST VIRGINIA --------
191 Bethany College 3.375 11/01/2012 10.54 146
215 Bethany College 3.000 11/01/2017 10.40 139
345 Bethany College 3.000 11/01/2012 10.40 260
30 Wheeling College 3.000 11/01/2007 10.59 26
---------- WISCONSIN --------
324 Carroll College 3.750 03/01/2015 10.93 230
405 Marian College 3.000 10/01/2016 10.45 268
144 Saint Norbert College 3.000 04/01/2007 11.10 128
---------- DISTRICT OF COLUMBIA --------
2,289 Georgetown University 3.000 11/01/2020 10.36 1,382
5,940 Georgetown University 4.000 11/01/2020 10.52 3,839
105 Georgetown University 3.000 05/01/2005 10.86 101
---------- PUERTO RICO --------
40 Inter American University of Puerto Rico 3.000 09/01/2007 10.66 35
1,860 Inter American University of Puerto Rico 3.000 01/01/2017 10.94 1,212
1,069 University of Puerto Rico, Rio Piedras Campus 3.000 06/01/2011 9.39 837
- -------- ---------
93,270 Total College and University Loans 65,888
- --------
Allowance for Loan Losses 1,432
---------
Net Loans of the Trust 64,456 (B)
---------
The accompanying notes are an integral part of this schedule. 29
COLLEGE AND UNIVERSITY FACILITY LOAN TRUST TWO
SCHEDULE OF INVESTMENTS
November 30, 2004
(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)
- ----------- ----------------------------------------------- ----------- ---------- ----------- -----------
INVESTMENT AGREEMENTS (20.0%)
1,852 JPMorgan Chase Bank - Liquidity Fund 7.750 06/01/2018 7.750 1,852
14,214 JPMorgan Chase Bank - Revenue Fund 7.050 06/01/2018 7.050 14,214
- -------- ---------
16,066 Total Investment Agreements 16,066
- -------- ---------
$109,336 Total Investments (100.0%) $ 80,522
======== =========
(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 $ 66,981
The accompanying notes are an integral part of this schedule. 30
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 2004 - $80,000
Fiscal year ended 2003 - $80,000
(b) Audit-Related Fees billed to the registrant for the two most recent fiscal
years:
Fiscal year ended 2004 - $0
Fiscal year ended 2003 - $0
(c) Tax Fees billed to the registrant for the two most recent fiscal years:
Fiscal year ended 2004 - $0
Fiscal year ended 2003 - $0
(d) All Other Fees billed to the registrant for the two most recent fiscal
years:
Fiscal year ended 2004 - $57,700
-$38,000 in connection with Accountants' Reports on Applying
Agreed-Upon Procedures as required by 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
Fiscal year ended 2003 - $60,000
-$38,000 in connection with Accountants' Reports on Applying
Agreed-Upon Procedures as required by the Trust's Indenture.
-$15,000 in connection with Accountants' Report on Applying
Agreed-Upon Procedures relating to the Trust's Servicing Agreement.
-$7,000 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, 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/ Diana J. Kenneally Assistant Vice President
-----------------------------------------------
Date February 18, 2005
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/ Diana J. Kenneally Assistant Vice President
-----------------------------------------------
Date February 18, 2005