Year 2000
The services provided to the Trust by the Owner Trustee, the Bond Trustee
and the Servicer, as well as the ability of the colleges and universities to
repay their loans owned by the Trust, depend on the smooth functioning of their
computer systems and those of their outside service providers. Many computer
software systems in use today cannot distinguish the Year 2000 from the Year
1900 because of the way dates are encoded and calculated.
The failure of any computer system used by key service providers to the
Trust to properly distinguish the Year 2000 could impact the ability of the
Trust to receive and process loan payments, receive or remit funds or invest its
funds, among other services which it obtains from its service providers. The
failure of any computer system used by significant borrowers could impact their
ability to make loans payments in accordance with the terms of their loan
documents. The Trust cannot control the Year 2000 compliance programs of its key
service providers or significant borrowers.
The Trust will evaluate the reports received periodically from its key
service providers to monitor their progress toward Year 2000 compliance. In the
event the Trust receives information that indicates there is a material
potential for not receiving compliant services from these providers, the Trust
intends to develop appropriate contingency plans. At this time there can be no
assurance that there will be no adverse impact on the Trust. The obligation to
make any necessary adaptations to their computer systems to prepare for the Year
2000 is the responsibility of the service provider that maintains the system.
The Trust does not expect to incur any material expense in that regard.
The Trust will evaluate the reports received periodically from the various
significant borrowers. The Trust has received no information from any
significant borrowers of any prospective inability to make the loan payments due
the Trust on account of Year 2000 compliance issues. The Trust can give no
assurances that the ability of the colleges and universities to repay the loans
owned by the Trust will not be affected by Year 2000 issues. In the event loan
payments are not received in a timely manner, payment to certificateholders
and/or bondholders may be impaired.
<PAGE>
College and University
Facility Loan Trust Two
================================================================================
Financial Statements
November 30, 1998
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To State Street Bank and Trust Company, Owner Trustee
of College and University Facility Loan Trust Two:
We have audited the accompanying balance sheet of College and University
Facility Loan Trust Two (a Massachusetts business trust), including the schedule
of investments, as of November 30, 1998, and the related statements of
operations and cash flows for the year then ended, and the statements of changes
in net assets for each of the two years in the period then ended, and the
selected financial highlights for each of the periods presented. These financial
statements and the selected financial highlights are the responsibility of the
Owner Trustee. Our responsibility is to express an opinion on these financial
statements and the selected financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the selected
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of the Loans and
Investments as of November 30, 1998 by correspondence with GMAC Commercial
Mortgage Corporation and Morgan Guaranty Trust Company, respectively. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and the selected financial highlights
referred to above present fairly, in all material respects, the financial
position of College and University Facility Loan Trust Two as of November 30,
1998, and the results of its operations and its cash flows for the year then
ended, and the changes in its net assets for each of the two years in the period
then ended, and the selected financial highlights for the periods presented, in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 29, 1999
<PAGE>
College and University
Facility Loan Trust Two
Balance Sheet
================================================================================
<TABLE>
<CAPTION>
November 30, 1998
===============================================================================================
<S> <C>
Assets
Investments, at amortized cost, net of allowance for loan losses of
$1,132,376 (Notes 1, 2, 6, 7 and 8 and Schedule of Investments) $ 174,570,274
Cash 74,061
Interest receivable 1,612,471
Deferred bond issuance costs (Note 2) 704,461
- -----------------------------------------------------------------------------------------------
Total assets $ 176,961,267
===============================================================================================
Liabilities
Bonds payable, net of unamortized discount (Notes 3 and 8) $ 151,932,419
Interest payable (Note 3) 3,932,674
Accrued expenses and other liabilities 243,989
Dividends payable (Note 5) 266,968
Payable for redemption of Class A Preferred Certificates (Note 5) 1,325,771
- -----------------------------------------------------------------------------------------------
Total liabilities 157,701,821
- -----------------------------------------------------------------------------------------------
Net Assets
Class A Preferred Certificates, par value $1 - authorized and outstanding -
2,585,848 certificates (preference as to annual dividends of 13.65%,
mandatory redemption and liquidation at par value) (Note 5) 2,585,848
- -----------------------------------------------------------------------------------------------
Class B Certificates, par value $1 - authorized, issued
and outstanding - 1,763,800 certificates (Note 5) 1,763,800
Accumulated deficit (Note 2) (169,008)
Paid-in capital (Note 2) 15,078,806
- -----------------------------------------------------------------------------------------------
Total net assets applicable to Class B certificateholders 16,673,598
- -----------------------------------------------------------------------------------------------
Total net assets $ 19,259,446
===============================================================================================
Net asset value per Class B certificate
(based on 1,763,800 certificates outstanding) $ 9.45
===============================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
College and University
Facility Loan Trust Two
Statement of Operations
================================================================================
Year ended November 30, 1998
================================================================================
Investment income:
Interest income (Note 2) $18,397,744
- --------------------------------------------------------------------------------
Expenses:
Interest expense (Notes 2 and 3) 15,021,114
Servicer fees (Note 4) 187,997
Trustee fees (Note 4) 62,529
Other trust and bond administration expenses 240,004
- --------------------------------------------------------------------------------
Total expenses 15,511,644
- --------------------------------------------------------------------------------
Net investment income 2,886,100
Provision for loan losses (Notes 2 and 6) 22,320
- --------------------------------------------------------------------------------
Net increase in net assets resulting from operations 2,863,780
Dividends to Class A Preferred Certificateholders 591,798
- --------------------------------------------------------------------------------
Net increase in net assets applicable to Class B
certificateholders resulting from operations $ 2,271,982
================================================================================
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
College and University
Facility Loan Trust Two
Statement of Cash Flows
================================================================================
Year ended November 30, 1998
================================================================================
Cash flows from operating activities:
Interest received $ 8,739,806
Interest paid (8,517,935)
Operating expenses paid (566,712)
- -------------------------------------------------------------------------------
Net cash used for operating activities (344,841)
- -------------------------------------------------------------------------------
Cash flows from investing activities:
Net increase in funds held under investment agreements (236,106)
Principal payments on Loans 27,160,450
Recovery of previously charged-off Loan 77,680
- -------------------------------------------------------------------------------
Net cash provided by investing activities 27,002,024
- -------------------------------------------------------------------------------
Cash flows from financing activities:
Principal repayments on Bonds (23,218,289)
Redemptions of Class A Preferred certificates (2,919,114)
Dividends on Class A Preferred certificates (848,187)
- -------------------------------------------------------------------------------
Net cash used for financing activities (26,985,590)
- -------------------------------------------------------------------------------
Net decrease in cash (328,407)
Cash, beginning of year 402,468
- -------------------------------------------------------------------------------
Cash, end of year $ 74,061
================================================================================
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 $ 2,863,780
Provision for loan losses 22,320
Decrease in interest receivable 356,090
Decrease in accrued expenses and other liabilities (76,180)
Decrease in Bond interest payable (464,366)
Amortization of original issue discount on Bonds 6,838,229
Amortization of purchase discount on Loans (10,014,031)
Amortization of deferred Bond issuance costs 129,317
- -------------------------------------------------------------------------------
Net cash used for operating activities $ (344,841)
================================================================================
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
College and University
Facility Loan Trust Two
Statement of Changes in Net Assets
(Note 2(f))
================================================================================
<TABLE>
<CAPTION>
Years ended November 30, 1998 1997
=========================================================================================
<S> <C> <C>
From operations:
Net investment income $ 2,886,100 $ 2,897,815
Provision for loan losses (22,320) (200,000)
Dividends to certificateholders (Notes 2 and 5):
Class A Preferred Certificateholders
($.1365 per certificate annually)
From net investment income -- --
As tax return of capital (591,798) (1,112,346)
- -----------------------------------------------------------------------------------------
Net increase in net assets applicable to Class B
certificateholders resulting from operations 2,271,982 1,585,469
- -----------------------------------------------------------------------------------------
Capital certificate transactions (Note 5):
Redemptions of Class A Preferred certificates
(2,836,268 and 3,229,372 certificates in 1998 and
1997, respectively) (2,836,268) (3,229,372)
Issuance of Class A Preferred certificates as
payment-in-kind dividend (21,609 certificates in 1997) -- 21,609
- -----------------------------------------------------------------------------------------
Net decrease in net assets resulting from
capital certificate transactions (2,836,268) (3,207,763)
- -----------------------------------------------------------------------------------------
Net decrease in net assets (564,286) (1,622,294)
Net assets:
Beginning of year 19,823,732 21,446,026
- -----------------------------------------------------------------------------------------
End of year $ 19,259,446 $ 19,823,732
=========================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
College and University
Facility Loan Trust Two
Selected Financial Highlights for Each
Class B Certificate Outstanding
Throughout the Years Indicated
(Notes 1 and 5)
================================================================================
<TABLE>
<CAPTION>
Years ended November 30, 1998 1997 1996 1995 1994
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $8.17 $7.27 $6.42 $5.69 $4.77
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.63 1.64 1.75 1.86 2.09
Provision for loan losses (.01) (.11) (.11) (.24) (.11)
Dividends to Class A Preferred
Certificateholders:
From net investment income -- -- -- (.43) (.26)
As tax return of capital (.34) (.63) (.79) (.46) (.80)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $9.45 $8.17 $7.27 $6.42 $5.69
====================================================================================================================================
Total investment return(a) N/A N/A N/A N/A N/A
Net assets applicable to
Class A Preferred
Certificates, end of year $2,585,848 $5,422,117 $8,629,880 $10,534,185 $11,857,751
Net assets applicable to Class
B Certificates, end of year $16,673,598 $14,401,615 $12,816,146 $11,324,698 $10,039,426
====================================================================================================================================
Ratios and Supplemental Data:
Ratio of operating expenses to average
net assets applicable to
Class B Certificates 99.83%(b) 123.64%(b) 150.97%(b) 186.94%(b) 237.22%(b)
Ratio of net investment income
to average net assets applicable
to Class B Certificates 18.57% 21.29% 25.54% 30.76% 40.16%
Number of Class B Certificates
outstanding, end of year 1,763,800 1,763,800 1,763,800 1,763,800 1,763,800
</TABLE>
(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 3.99%, 4.68%, 5.43%, 6.54%
and 7.28% in 1998, 1997, 1996, 1995 and 1994, respectively.
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
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 State Street Bank and Trust
Company, formerly the Bank of Boston, (the 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 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
<PAGE>
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 to the credit of 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 in the order of
priority 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
balance sheet, 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. The remaining balance of the purchase discount
on the Loans as of November 30, 1998 was approximately $70,118,000. As a
result of prepayments of Loans in the year ended November 30, 1998,
additional interest income of approximately $630,000 was recognized.
9
<PAGE>
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 recorded when
received. Payments are applied to interest first, with the balance, if any,
applied to principal. At November 30, 1998, no loans have been placed on
nonaccrual status.
(b) Other Investments
Other investments, which are included in Investments in the accompanying
balance sheet, consist of two investment agreements issued by Morgan
Guaranty Trust Company, 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 the bank's option.
These investments are carried at cost.
(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.
10
<PAGE>
College and University
Facility Loan Trust Two
Notes to Financial Statements
================================================================================
2. Summary of Significant Accounting Policies (Continued)
(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 Trust accounts for credit losses in accordance with Statement of
Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan," as amended by SFAS No. 118 (hereafter collectively
referred to as SFAS 114). SFAS 114 requires that impaired loans, as
defined, be measured based on the present value of the expected future cash
flows discounted at the loan's effective interest rate or the fair value of
the collateral if the loan is collateral dependent.
Management is responsible for establishing an allowance for loan losses
based on its best estimate of losses that might occur. Ultimate losses may
vary from the current estimate. This estimate is reviewed periodically, and
as a provision to the allowance for loan losses becomes necessary, it is
reported in the period in which it becomes known. Allowances are
established for those loans that, in the opinion of management, are deemed
to be impaired and potentially uncollectible.
The allowance for loan losses is based on management's evaluation of the
level of the allowance required in relation to the estimated loss exposure
in the loan portfolio. Factors considered in evaluating the adequacy of the
allowance include previous loss experience, current economic conditions and
their effect on borrowers, the performance of individual Loans in relation
to contract terms, adverse situations that may affect the borrower's
ability to pay and the estimated fair values of collateral.
11
<PAGE>
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)
The factors discussed above are inherently difficult to predict.
Accordingly, the final outcome of these estimates and the ultimate
realization of amounts on certain Loans may vary significantly from the
amounts reflected in the accompanying financial statements.
(f) Presentation of Capital Distributions
Capital distributions are accounted for in accordance with the American
Institute of Certified Public Accountants Statement of Position 93-2,
"Determination, Disclosure and Financial Statement Presentation of Income,
Capital Gain and Return of Capital Distributions by Investment Companies"
(SOP 93-2). 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.
All tax earnings and profits have been distributed, therefore all
accumulated undistributed net investment income has been reclassified to
paid-in capital as of November 30, 1998. 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 and dividends payable 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.
12
<PAGE>
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 generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
3. Bonds
The Bonds outstanding at November 30, 1998 consist of the following:
<TABLE>
<CAPTION>
Outstanding Unamortized
Interest Stated Principal Discount Carrying Value
Type Rate Maturity (000s) (000s) (000s)
=================================================================================================
<S> <C> <C> <C> <C> <C>
Sequential 4.00% June 1, 2002 $ 47,263 $ 1,856 $ 45,407
Sequential 4.00 June 1, 2018 149,370 42,845 106,525
-------------------------------------------------------------------------------------------------
$ 196,633 $ 44,701 $ 151,932
=================================================================================================
</TABLE>
Interest on the Bonds is payable semiannually. On December 1, 1998, the
Trust made a principal payment of $14,213,563 on the 4%, June 1, 2002
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.
13
<PAGE>
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,
1998 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 (000s)
===========================================================================
1999 $ 22,879
2000 19,737
2001 18,510
2002 18,534
2003 14,016
Thereafter 102,957
---------------------------------------------------------------------------
Total $196,633
===========================================================================
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.
14
<PAGE>
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 Corporation (GMAC) receives a collection fee. The
fee is paid each date payments are received on each Loan and is equal to
.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, 1998, GMAC's fees totaled $183,581. GMAC was also
reimbursed for related expenses of $4,416.
(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:
o The Owner Trustee, in its capacities as manager of the Trust and as
Owner Trustee, received fees of $15,000 and $12,500, respectively, for
the year ended November 30, 1998. In addition, the Owner Trustee, in
its capacity as manager, was reimbursed $1,627 for out-of-pocket
expenses.
o The Bond Trustee is entitled to an annual fee equal to .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. For the year ended November
30, 1998, Bond Trustee fees were $32,106. In addition, the Bond
Trustee was reimbursed $1,296 for out-of-pocket expenses.
15
<PAGE>
College and University
Facility Loan Trust Two
Notes to Financial Statements
================================================================================
5. Certificates
The certificates comprise two classes, namely 13.65% Class A Preferred and
Class B. The Class A Preferred certificates have preference over the Class
B certificates with respect to the payment of dividends, rights of
redemption and liquidation payments. Dividends on the Class A Preferred
certificates are payable in cash on each Distribution Date (defined below)
at the rate of 13.65% per annum from amounts received by the Owner Trustee
pursuant to the Declaration of Trust. To the extent that such amounts are
not sufficient to pay accrued dividends on any Class A Preferred
certificates on any Distribution Date, such dividends will be paid in
additional certificates of the Class A Preferred certificates. The Class A
Preferred certificates are required to be redeemed by the Trust, in whole
or in part, on any Distribution Date to the extent of the amount on deposit
to the credit of the Revenue Fund, as discussed in Note 1, and after all
accrued but unpaid dividends thereon have been paid in full. No
distributions on the Class B certificates may be made until all Class A
Preferred certificates have been redeemed. Following the redemption in full
of the Class A Preferred certificates, on each Distribution Date, the
holders of the Class B certificates will receive amounts paid to the Owner
Trustee pursuant to the Declaration of Trust, pro-rata, in the same
proportion that the par value of the certificates evidenced by each Class B
certificate bears to the sum of the par value of the certificates evidenced
by all of the Class B certificates.
Dividends and other payments are distributed to the certificateholders,
while the Bonds are outstanding, 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.
16
<PAGE>
College and University
Facility Loan Trust Two
Notes to Financial Statements
================================================================================
5. Certificates (Continued)
On December 2, 1998, the Trust paid $1,592,739 to the holders of Class A
Preferred certificates, of which $266,968 was for payment of dividends and
$1,325,771 was a redemption of Class A Preferred certificates. These
payments are reflected as liabilities in the accompanying balance sheet.
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, 1998 is summarized as follows:
Balance, beginning of period $ 1,032,376
Provision 22,320
Recovery of previously charged-off loan 77,680
Charge-off --
---------------------------------------------------------------------------
Balance, end of period $ 1,132,376
===========================================================================
At November 30, 1998, there were no recorded investments in loans that are
considered to be impaired under SFAS 114.
The average recorded investment in impaired loans during the year ended
November 30, 1998 was approximately $1,094. For the year ended November 30,
1998, approximately $14,456 of interest income was recognized on impaired
loans.
See "Accounting for Impairment of a Loan and Allowance for Loan Losses" for
a discussion of the Trust's impaired loan accounting policy.
17
<PAGE>
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,
1998, excluding payments for Loans in Default, as defined in the Indenture,
are as follows:
Principal Interest
Payments Payments Total
Fiscal year (000s) (000s) (000s)
===========================================================================
1999 $ 23,515 $ 6,884 $ 30,399
2000 21,706 6,133 27,839
2001 20,274 5,432 25,706
2002 19,700 4,752 24,452
2003 15,787 4,170 19,957
Thereafter 120,281 24,239 144,520
---------------------------------------------------------------------------
Total $221,263 $ 51,610 $272,873
===========================================================================
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, 1998, there were no Loans in Default.
The following analyses summarize the stratification of the loan portfolio
by type of collateral and institution as of November 30, 1998:
Amortized
Number Cost
Type of Collateral of Loans (000s) %
===========================================================================
Loans secured by a
first mortgage 274 $ 81,778 54.1%
Loans not secured by
---------------------------------------------------------------------------
a first mortgage 177 69,367 45.9
Total Loans 451 $151,145 100.0%
===========================================================================
18
<PAGE>
College and University
Facility Loan Trust Two
Notes to Financial Statements
================================================================================
7. Loans (Continued)
Amortized
Number Cost
Type of Institution of Loans (000s) %
===========================================================================
Private 282 $ 81,844 54.1%
Public 169 69,301 45.9
---------------------------------------------------------------------------
Total Loans 451 $151,145 100.0%
===========================================================================
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.
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.
19
<PAGE>
College and University
Facility Loan Trust Two
Notes to Financial Statements
================================================================================
7. Loans (Continued)
A number of borrowers are currently experiencing financial difficulties due
to declining enrollment, increasing costs and a decline in endowments,
grants, private gifts, and State and Federal funding. Many of these
troubled borrowers are developing and implementing strategic plans to
improve their financial position; the plans generally include taking
actions to control costs and increase revenues through tuition increases,
fundraising campaigns, higher enrollment and a reduction of faculty.
Due to the special purpose nature of the borrowers' properties, the ability
of troubled borrowers to repay their loans may ultimately be dependent upon
the future success of the institutions' programs.
8. Fair Value of Financial Instruments
SFAS 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.
20
<PAGE>
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
balance sheet as of November 30, 1998 is as follows:
Book Value Fair Value
(000s) (000s)
===========================================================================
Loans $150,013 * $186,362
Investment Agreements:
Revenue Fund 20,310 21,743
Liquidity Fund 4,247 5,176
---------------------------------------------------------------------------
$174,570 $213,281
===========================================================================
Bonds $151,932 $177,571
===========================================================================
* Net of Allowance for Loan Losses of $1,132,376.
21
<PAGE>
COLLEGE AND UNIVERSITY FACILITY LOAN TRUST TWO
SCHEDULE OF INVESTMENTS
November 30, 1998
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Outstanding Stated Internal Amortized
Principal Interest Maturity Rate of Cost (Notes
Balance Description Rate % Date Return % 1 and 2)
- ----------- ----------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
COLLEGE AND UNIVERSITY LOANS (85.9%)
-------------- A --------------
$490 Alabama Agricultural and Mechanical University 3.000-3.750 07/01/2005 10.25 $376
1,950 Alabama Agricultural and Mechanical University 3.000 05/01/2018 10.27 1,121
149 Albion College 3.000 10/01/2009 10.56 101
548 Albright College 3.000 11/01/2015 10.23 330
15 Alcorn State University 2.875 11/01/1999 10.11 14
28 Alcorn State University 3.500 11/01/2002 10.15 24
50 Allegheny College 3.000 07/01/2015 10.38 21
260 Alma College 3.750 04/01/2002 11.52 227
65 American International College 3.375 10/01/2002 10.84 55
114 Anderson University 3.500 03/01/2003 11.42 94
260 Anderson University 3.000 03/01/2006 11.19 193
51 Appalachian State University 3.500 07/01/2001 10.28 44
320 Arizona State University 3.125 09/01/2001 10.17 278
250 Arizona State University 3.375 10/01/2002 10.16 213
1,230 Arizona State University 3.000 04/01/2006 10.60 938
156 Arkansas State University 3.500 04/01/2001 10.97 142
82 Arkansas State University 3.375 10/01/2000 10.25 75
673 Arkansas State University 3.750 04/01/2005 10.75 539
10 Arkansas Technical University 2.875 10/01/1999 10.21 9
2,255 Auburn University 3.000 12/01/2018 9.16 1,348
220 Azusa Pacific University 3.750 04/01/2015 10.88 136
-------------- B --------------
114 Ball State University 3.000 07/01/1999 9.98 105
1,105 Baptist College at Charleston 3.000 03/01/2019 10.73 595
717 Baptist College at Charleston 3.000 03/01/2011 10.98 466
217 Becker Junior College 3.000 04/01/2005 11.21 168
113 Bellarmine College 3.625 05/01/2004 11.34 93
9 Benedict College 2.875 02/01/1999 11.83 9
126 Benedict College 3.750 11/01/2004 10.75 101
892 Benedict College 3.000 11/01/2006 10.61 664
1,854 Benedict College 3.000 11/01/2020 10.36 984
1,739 Bentley College 3.000 11/01/2007 10.57 1,246
311 Bethany College 3.375 11/01/2012 10.54 203
285 Bethany College 3.000 11/01/2017 10.40 159
550 Bethany College 3.000 11/01/2012 10.40 352
16 Bethune-Cookman College 3.000 11/01/2002 10.74 13
178 Boston Architectural Center 3.750 11/01/2004 10.77 144
135 Bradford College 3.375 10/01/2001 10.85 117
301 Brandeis University 3.000 11/01/2011 10.64 196
135 Brevard College 3.000 11/01/2004 10.71 108
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
COLLEGE AND UNIVERSITY FACILITY LOAN TRUST TWO
SCHEDULE OF INVESTMENTS
November 30, 1998
(Dollar Amounts in Thousands)
(continued)
<TABLE>
<CAPTION>
Outstanding Stated Internal Amortized
Principal Interest Maturity Rate of Cost (Notes
Balance Description Rate % Date Return % 1 and 2)
- ----------- ----------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
$79 Brevard College 3.000 05/01/2006 11.12 $59
126 Bryan College 3.500 04/01/2003 11.39 105
18 Buena Vista College 3.500 02/01/2000 11.85 17
122 Buena Vista College 3.000 02/01/2006 11.23 91
-------------- C --------------
1,030 California Polytechnic State University 3.000 11/01/2006 10.05 756
345 California State University 3.000 11/01/2006 8.75 273
1,270 California State University 3.000 11/01/2013 8.93 855
2,673 California State University 3.000 11/01/2019 8.99 1,598
99 Calvin College 3.000 11/01/2000 10.83 88
2,445 Cameron University 3.000 04/01/2007 10.16 1,830
215 Canisius College 3.375 05/01/2002 11.48 189
1,610 Canisius College 3.000 11/01/2017 10.40 904
59 Canisius College 3.000 11/01/1999 10.89 55
30 Carnegie-Mellon University 3.000 05/01/1999 11.37 29
190 Carnegie-Mellon University 3.500 11/01/2001 10.52 166
290 Carnegie-Mellon University 3.000 05/01/2009 10.73 201
1,040 Carnegie-Mellon University 3.000 11/01/2017 10.51 589
112 Carroll College 3.125 06/01/2000 10.75 99
360 Carroll College 3.750 06/01/2014 10.46 226
172 Carroll College 3.000 06/01/2018 10.15 97
452 Carroll College 3.750 03/01/2015 10.93 279
250 Case Western Reserve University 3.500 04/01/2003 11.39 207
269 Catawba College 3.000 12/01/2009 10.27 184
78 Central Missouri State University 3.125 07/01/2000 10.24 70
198 Central Missouri State University 3.375 07/01/2001 10.27 173
579 Central Missouri State University 3.625 07/01/2004 10.29 464
995 Central Missouri State University 3.000 07/01/2007 10.18 719
162 Champlain College 3.000 12/01/2013 10.19 99
585 Chapman College 3.000 10/01/2013 10.65 358
348 Chapman College 3.000 11/01/2005 10.63 264
235 Chapman College 3.000 11/01/2007 10.57 168
1,610 Chateau Community Housing Association 3.000 10/01/2012 10.51 1,008
70 Cisco Junior College 3.000 11/01/2005 10.04 55
110 Cisco Junior College 3.000 07/01/2005 10.15 81
27 Claflin College 3.125 04/01/2001 11.59 24
395 Clemson University 3.000 07/01/2005 9.51 312
157 Coker College 3.000 12/01/2009 10.04 108
87 College of Notre Dame of Maryland 3.375 11/01/2002 10.48 74
191 College of Our Lady of the Elms 3.375 10/01/2001 10.86 166
937 College of Saint Rose 3.000 05/01/2022 10.43 486
554 College of Saint Thomas 3.000 11/01/2009 10.53 376
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
COLLEGE AND UNIVERSITY FACILITY LOAN TRUST TWO
SCHEDULE OF INVESTMENTS
November 30, 1998
(Dollar Amounts in Thousands)
(continued)
<TABLE>
<CAPTION>
Outstanding Stated Internal Amortized
Principal Interest Maturity Rate of Cost (Notes
Balance Description Rate % Date Return % 1 and 2)
- ----------- ----------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
$51 College of Santa Fe 3.500 10/01/2001 10.86 $44
219 College of Santa Fe 3.000 10/01/2005 10.66 166
615 College of Santa Fe 3.000 10/01/2018 10.43 340
5 College of the Holy Cross 3.500 10/01/1999 11.03 5
1,060 College of the Holy Cross 3.625 10/01/2013 10.60 684
805 College of the Holy Cross 3.000 10/01/2006 10.63 592
36 College of the Virgin Islands 3.000 11/01/2002 10.15 30
86 College of the Virgin Islands 3.000 10/01/2003 10.16 70
244 Columbia College 3.625 07/01/2004 10.90 191
80 Columbia College 3.000 07/01/2006 10.80 59
150 Concordia College 3.000 04/01/2009 11.05 105
755 Concordia College 3.000 05/01/2019 10.65 409
54 Connecticut College 3.000 11/01/1999 10.89 50
64 Cornell College 3.000 10/01/2005 10.66 48
333 Cumberland University 3.000 08/01/2017 10.52 186
-------------- D --------------
73 Daemen College 3.125 04/01/2000 11.68 68
655 Daemen College 3.000 04/01/2016 10.77 379
192 Dakota Wesleyan University 3.000 10/01/2015 10.46 112
285 Dana College 3.000 04/01/2005 11.22 219
65 Dana College 3.500 04/01/2003 11.39 54
55 Dean Academy & Jr. College 3.500 10/01/1999 10.97 51
140 Dickinson College 3.000 05/01/2018 10.30 80
271 Dillard University 3.000 04/01/2008 11.09 195
75 Doane College 3.000 11/01/2000 10.83 67
390 Dormitory Authority State of NY (New York University) 3.000 07/01/2000 8.95 354
644 Dowling College 3.000 10/01/2010 10.75 427
97 Drexel University 2.875 05/01/2001 11.57 88
1,220 Drexel University 3.500 05/01/2014 10.53 757
10 Drury College 3.125 10/01/1999 11.32 9
294 Drury College 3.000 04/01/2015 10.63 176
520 Drury College 3.000 10/01/2010 10.75 345
1,127 D'Youville College 3.000 04/01/2018 10.90 617
-------------- E --------------
64 East Texas State University 2.875 09/01/1999 8.94 60
1,296 East Texas State University 3.500 03/01/2002 9.48 1,078
1,614 East Texas State University 3.000 03/01/2002 9.60 1,312
83 East Texas State University 3.000 11/01/2000 9.26 76
49 Eastern Oklahoma State College 3.125 05/15/1999 9.96 47
410 Elizabeth City State University 3.000 10/01/2017 10.02 241
500 Embry-Riddle Aeronautical University 3.000 09/01/2007 10.64 355
167 Emmanuel College 3.000 11/01/2013 10.45 102
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
COLLEGE AND UNIVERSITY FACILITY LOAN TRUST TWO
SCHEDULE OF INVESTMENTS
November 30, 1998
(Dollar Amounts in Thousands)
(continued)
<TABLE>
<CAPTION>
Outstanding Stated Internal Amortized
Principal Interest Maturity Rate of Cost (Notes
Balance Description Rate % Date Return % 1 and 2)
- ----------- ----------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
-------------- F --------------
$21 Fairleigh Dickinson University 3.125 11/01/1999 10.93 $19
1,710 Fairleigh Dickinson University 3.000 11/01/2017 10.39 962
213 Florida Agricultural and Mechanical University 3.625 07/01/2004 10.29 170
223 Florida Atlantic University 3.500 07/01/2004 10.27 181
355 Florida Atlantic University 3.000 07/01/2006 10.18 263
197 Florida Institute of Technology 3.000 11/01/2009 10.53 134
32 Florida Southern College 3.000 11/01/1999 10.89 30
54 Florida State University 3.000 01/01/1999 9.20 52
187 Florida State University 3.500 06/01/2001 8.44 168
775 Florida State University 3.000 01/01/2009 9.40 574
43 Fort Hays State University 3.500 10/01/2001 10.19 38
108 Fort Hays State University 3.625 10/01/2002 10.18 92
170 Fort Hays State University 3.000 10/01/2007 10.08 124
575 Fort Lewis College 3.000 10/01/2006 10.09 431
-------------- G --------------
745 Gannon University 3.000 11/01/2011 10.49 481
211 Gannon University 3.000 12/01/2022 10.13 109
87 Gavilan College 3.000 04/01/2006 10.59 66
75 George Fox College 3.500 04/01/2001 11.25 67
809 George Fox College 3.000 07/01/2018 10.64 445
126 George Washington University 3.500 05/01/2000 11.30 117
928 George Washington University 3.500 11/01/2002 10.50 843
55 Georgetown College 3.000 12/01/1999 10.02 51
546 Georgetown College 3.000 12/01/2008 10.04 386
955 Georgetown College 3.000 12/01/2009 10.05 657
2,904 Georgetown University 3.000 11/01/2020 10.36 1,541
7,384 Georgetown University 4.000 11/01/2020 10.52 4,288
1,255 Georgetown University 3.000 05/01/2005 10.86 977
697 Georgia Education Authority Board of Regents
of the University System of Georgia 3.375 01/01/2003 10.60 588
6 Grambling State University 3.000 11/01/1999 10.12 6
85 Grambling State University 3.000 11/01/2000 10.11 77
-------------- H --------------
406 Hampshire College 3.000 07/01/2013 10.75 247
1,456 Hampshire College 3.000 02/01/2014 10.70 878
195 Harcum Junior College 3.375 11/01/2002 10.77 164
755 Harper Grace Hospital 3.625 04/01/2005 11.26 592
49 Henderson State University 3.125 04/01/1999 11.06 47
165 Hesston College 3.000 04/01/2006 11.14 123
342 High Point College 3.000 12/01/2010 10.26 224
2,079 Hinds Junior College 3.000 04/01/2013 10.42 1,338
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
COLLEGE AND UNIVERSITY FACILITY LOAN TRUST TWO
SCHEDULE OF INVESTMENTS
November 30, 1998
(Dollar Amounts in Thousands)
(continued)
<TABLE>
<CAPTION>
Outstanding Stated Internal Amortized
Principal Interest Maturity Rate of Cost (Notes
Balance Description Rate % Date Return % 1 and 2)
- ----------- ----------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
$106 Hiwassee College 3.375 01/01/2003 11.58 $89
207 Hiwassee College 3.000 09/15/2018 10.58 113
2,110 Hofstra University 3.000 11/01/2012 10.61 1,336
300 Hood College 3.625 11/01/2014 10.54 190
425 Houston Tillotson College 3.500 04/01/2014 10.90 268
60 Huntingdon College 3.500 03/01/2002 11.54 51
270 Huntingdon College 3.000 10/01/2008 10.60 188
-------------- I --------------
198 Illinois Institute of Technology 3.000 03/01/2003 11.10 163
42 Indiana University 2.875 04/01/1999 10.08 40
402 Indiana University 3.375 04/01/2001 10.06 365
880 Indiana University 3.500 04/01/2001 10.06 797
1,468 Indiana University 3.750 12/01/2003 8.84 1,271
190 Indiana University 3.000 07/01/1999 9.31 177
126 Inter American University of Puerto Rico 3.000 09/01/2007 10.66 91
2,568 Inter American University of Puerto Rico 3.000 01/01/2017 10.94 1,434
-------------- J --------------
1,780 James Madison University 3.000 06/01/2009 10.49 1,198
29 John Brown University 2.875 04/01/2000 11.64 27
411 Johnson & Wales College 3.000 11/01/2013 10.59 254
235 Johnson C. Smith University 3.000 05/01/2005 11.18 181
30 Judson College 3.750 07/01/2004 10.92 24
-------------- K --------------
191 Kansas State University 3.375 10/01/2002 9.12 167
775 Kansas State University 3.625 04/01/2004 9.77 633
92 Kendall College 3.375 10/01/2002 10.82 77
246 Kendall College 3.000 10/01/2008 10.59 171
426 Kent State University 3.500 12/01/2000 8.90 390
370 Knox College 3.000 04/01/2006 11.15 276
-------------- L --------------
335 LaGrange College 3.000 03/01/2009 11.06 228
319 Langston University 3.375 10/01/2003 10.15 264
1,105 Langston University 3.000 04/01/2007 10.56 815
484 Lassen Junior College District 3.000 04/01/2020 10.27 265
1,415 Leland Stanford Junior College 3.375 05/01/2003 11.33 1,176
204 Lenoir Rhyne College 3.000 12/01/2006 10.04 153
85 Linfield College 3.000 10/01/2017 10.44 47
802 Long Island University 3.750 05/01/2005 11.22 634
227 Long Island University 3.000 11/01/2009 10.69 155
793 Long Island University 3.000 11/01/2009 10.69 542
419 Long Island University 3.750 04/01/2003 11.41 351
570 Long Island University 3.625 06/01/2014 10.49 354
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
COLLEGE AND UNIVERSITY FACILITY LOAN TRUST TWO
SCHEDULE OF INVESTMENTS
November 30, 1998
(Dollar Amounts in Thousands)
(continued)
<TABLE>
<CAPTION>
Outstanding Stated Internal Amortized
Principal Interest Maturity Rate of Cost (Notes
Balance Description Rate % Date Return % 1 and 2)
- ----------- ----------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
$113 Long Island University 3.750 10/01/2004 10.79 $90
313 Louisiana State University 3.500 07/01/2001 8.65 282
976 Louisiana State University 3.625 07/01/2004 9.04 812
393 Louisiana State University 3.000 07/01/2005 8.84 318
350 Louisiana State University 3.000 07/01/2006 8.87 278
57 Louisiana State University 3.000 05/01/1999 9.17 55
256 Louisiana State University 3.000 07/01/2001 8.62 227
172 Lycoming College 3.500 05/01/2001 11.22 155
254 Lycoming College 3.625 05/01/2014 10.64 162
340 Lycoming College 3.750 05/01/2015 10.62 214
528 Lynchburg College 3.750 05/01/2015 10.64 337
675 Lynchburg College 3.000 05/01/2018 10.68 376
-------------- M --------------
500 MacAlester College 3.375 05/01/2002 11.41 430
461 MacAlester College 3.000 05/01/2020 10.46 249
20 Madison General Hospital 3.000 12/01/1999 9.67 18
560 Marian College 3.000 10/01/2016 10.45 321
20 Marian College 3.000 11/01/1999 10.89 18
33 Marist College 3.500 04/01/2000 11.73 31
95 Marquette University 3.000 07/31/2024 10.59 46
2 Mary Baldwin College 2.875 11/01/1999 10.94 2
443 Mary Baldwin College 3.375 05/01/2012 10.68 293
660 Marymount University 3.000 05/01/2016 10.52 388
870 McLennan Community College 3.000 04/01/2006 10.49 666
68 McNeese State University 3.500 10/01/2001 10.18 60
1,074 Memorial Hospital for Cancer and Allied Diseases 3.375 04/01/2012 10.68 709
86 Menlo College 3.125 04/01/2001 11.53 76
500 Mercer University 3.000 05/01/2014 10.58 305
1,520 Mercy College of Detroit 3.625 10/01/2013 10.59 968
41 Merrimack College 3.000 04/15/2019 10.53 29
125 Merrimack College 3.000 04/15/2008 10.79 68
77 Middlebury College 3.375 10/01/2002 11.12 65
105 Midland Lutheran College 3.000 04/01/2005 11.20 81
596 Millsaps College 3.000 11/01/2021 10.34 311
56 Mississippi State University 2.875 01/01/2000 10.99 51
1,630 Mississippi State University 3.000 12/01/2020 9.64 913
80 Mississippi Valley State University 3.500 07/01/2001 10.28 70
95 Molloy College 3.375 10/01/2002 10.81 80
233 Moravian College 3.375 11/01/2012 10.52 150
760 Morehouse College 3.000 07/01/2010 10.50 464
2,343 Morgan State University 3.000 11/01/2014 10.56 1,415
216 Morris Brown College 3.750 05/01/2007 11.12 161
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
COLLEGE AND UNIVERSITY FACILITY LOAN TRUST TWO
SCHEDULE OF INVESTMENTS
November 30, 1998
(Dollar Amounts in Thousands)
(continued)
<TABLE>
<CAPTION>
Outstanding Stated Internal Amortized
Principal Interest Maturity Rate of Cost (Notes
Balance Description Rate % Date Return % 1 and 2)
- ----------- ----------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
$1,998 Morris Brown College 2.750-3.750 05/01/2018 10.89 $1,229
629 Morris College 3.000 11/01/2009 10.53 427
67 Muhlenberg College 3.000 11/01/2000 10.50 60
-------------- N --------------
164 New England College 3.000 04/01/2016 10.77 94
695 Newark Beth Israel Hospital 3.625 01/01/2014 11.06 430
72 NIACC Dormitories, Inc. 3.000 10/01/2012 10.27 46
37 Nicholls State University 3.000 09/01/1999 8.88 35
2,925 Norfolk State University 3.000 12/01/2021 9.77 1,580
667 North Carolina Agricultural and
Technical State University 3.000 05/01/2014 10.34 414
575 North Carolina State University 3.625 09/01/2004 7.97 497
222 North Carolina State University 3.125 09/01/2001 7.58 203
267 North Carolina State University 3.500 09/01/2001 7.63 245
141 North Greenville College 3.000 11/01/2003 10.72 116
196 Northeast Louisiana University 3.500 04/01/2001 10.28 178
388 Northeast Missouri State University 3.375-3.500 05/01/2002 10.75 339
3,148 Northeastern University 3.000 05/01/2018 10.53 1,758
134 Northeastern University 3.000 05/01/2004 10.97 108
75 Northwestern State University 3.125 10/01/2000 10.15 70
425 Nova University 3.000 12/01/2007 10.04 310
-------------- O -------------
284 Occidental College 3.000 10/01/2019 10.41 153
225 Olympic Community College 3.000 10/01/2008 10.07 160
55 Ouachita Baptist University 3.125 12/01/1999 10.03 51
34 Ouachita Baptist University 3.000 12/01/2006 10.04 25
-------------- P -------------
7 Pacific University 3.000 11/01/1999 10.89 6
961 Paine College 3.000 10/01/2016 10.45 550
6 Pan American University 3.000 10/01/1999 9.23 6
2,480 Philadelphia College of Art 3.000 01/01/2022 10.62 1,260
600 Pine Manor College 3.625 10/01/2003 10.80 490
7 Point Loma Nazarene College 2.875 04/01/1999 11.85 7
174 Polytechnic University 3.375 10/01/2011 10.59 114
208 Post College 3.000 04/01/2010 10.76 139
1,130 Purdue University 3.625 07/01/2004 9.33 929
328 Purdue University 3.000 07/01/2005 9.26 262
-------------- Q -------------
36 Queens College 3.500 11/01/2001 10.88 32
154 Queens College 3.625 07/01/2004 10.90 121
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
COLLEGE AND UNIVERSITY FACILITY LOAN TRUST TWO
SCHEDULE OF INVESTMENTS
November 30, 1998
(Dollar Amounts in Thousands)
(continued)
<TABLE>
<CAPTION>
Outstanding Stated Internal Amortized
Principal Interest Maturity Rate of Cost (Notes
Balance Description Rate % Date Return % 1 and 2)
- ----------- ----------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
-------------- R -------------
$317 Randolph-Macon College 3.000 05/01/2010 10.72 $214
193 Randolph-Macon College 3.000 11/01/2000 10.50 173
540 Regis College (Denver) 3.000 11/01/2012 10.47 338
118 Regis College (Weston) 3.375 10/01/2002 10.85 102
230 Rhode Island College 3.000 10/01/2005 10.09 177
105 Rider College 3.500 05/01/2001 11.57 96
248 Rider College 3.375 05/01/2002 11.44 215
67 Rider College 3.125 11/01/2000 10.86 60
1,850 Rider College 3.625 11/01/2013 10.42 1,180
462 Rider College 3.000 05/01/2017 10.70 263
107 Rio Grande College 3.000 03/30/2009 10.93 74
53 Roberts Wesleyan College 3.000 11/01/2000 10.83 49
87 Roger Williams College 3.000 11/01/1999 10.89 80
100 Rutgers, The State University 2.750 05/01/1999 8.84 97
705 Rutgers, The State University 3.750 05/01/2016 9.19 476
10 Rutgers, The State University 2.875 05/01/1999 8.80 10
470 Rutgers, The State University 3.125 05/01/2001 8.89 443
-------------- S -------------
111 Saint Ambrose University 3.000 11/01/2001 10.78 96
105 Saint Anselm College 3.375 10/01/2001 10.88 92
24 Saint Edward's University 3.125 04/01/2000 11.69 22
95 Saint John's University 3.000 10/01/2002 10.76 79
135 Saint Joseph Hospital 3.500 10/01/2001 10.87 117
176 Saint Louis College of Pharmacy 3.375 10/01/2004 10.74 139
56 Saint Louis University 3.125 10/01/2000 10.90 50
394 Saint Louis University 3.500 11/01/2002 10.80 334
114 Saint Mary's College 3.000 03/01/2005 11.25 87
438 Saint Mary's College 3.000 06/01/2020 10.14 239
2,030 Saint Michael's College 3.000 05/01/2013 10.60 1,270
256 Saint Norbert College 3.375 04/01/2002 11.52 225
228 Saint Norbert College 3.625 04/01/2004 11.33 184
408 Saint Norbert College 3.000 04/01/2007 11.10 296
512 Saint Paul's College 3.000 11/01/2014 10.56 309
60 Saint Peter's College 3.000 05/01/1999 11.70 57
670 Saint Vincent College 3.500 05/01/2013 10.86 428
265 Sam Houston State University 3.500 10/01/2001 9.10 237
915 San Diego State University 3.000 11/01/2007 10.04 689
1,270 Sangamon State University 3.000 11/01/2018 10.12 738
300 Seattle University 3.500 11/01/2001 10.84 263
526 Seattle University 3.000 11/01/2008 10.55 367
220 Seton Hall University 3.000 11/01/2000 10.83 196
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
COLLEGE AND UNIVERSITY FACILITY LOAN TRUST TWO
SCHEDULE OF INVESTMENTS
November 30, 1998
(Dollar Amounts in Thousands)
(continued)
<TABLE>
<CAPTION>
Outstanding Stated Internal Amortized
Principal Interest Maturity Rate of Cost (Notes
Balance Description Rate % Date Return % 1 and 2)
- ----------- ----------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
$344 Seton Hill College 3.625 11/01/2014 10.53 $215
24 Sierra College 3.375 04/01/2002 10.87 21
328 Simpson College 3.000 07/01/2016 10.58 185
412 South Dakota School of Mines and Technology 3.000 04/01/2018 10.30 234
287 South Dakota School of Mines and Technology 3.625 04/01/2002 10.85 253
31 South Plains College 3.500 10/01/2002 10.18 26
84 South Plains College 3.625 10/01/2004 10.17 68
59 South Plains College 3.000 10/01/2005 10.10 46
430 Southeast Missouri State University 3.500 04/01/2002 10.82 373
1,246 Southeast Missouri State University 3.000 04/01/2007 10.58 935
795 Southeastern Oklahoma State University 3.000 04/01/2009 10.51 558
140 Southern Arkansas University 3.500 10/01/2002 10.23 119
560 Southern Methodist University 3.000 10/01/2007 10.61 400
256 Southern Nazarene University 3.750 04/01/2005 11.27 201
625 Southwest Missouri State College 3.375 10/01/2002 10.17 539
2,415 Southwest Texas State University 3.000 10/01/2015 9.51 1,498
14 Southwestern Christian College 3.000 11/01/2000 10.83 13
25 Spalding University 3.125 09/01/2000 10.95 23
371 Spalding University 3.000 09/01/2007 10.66 269
14 Springfield College 3.500 11/01/1999 10.60 13
32 Springfield College 3.125 05/01/2000 11.29 30
503 Springfield College 3.500 05/01/2013 10.67 332
87 Springfield College 3.000 05/15/2005 10.11 68
185 State Center Community College 3.000 10/01/2004 10.10 147
26 Stephen F. Austin State University 2.875 10/01/1999 9.23 24
2,022 Stephen F. Austin State University 3.375-3.500 10/01/2012 9.57 1,377
203 Stetson University 3.000 01/01/2006 11.25 149
153 Stillman College 3.750 02/01/2004 11.42 123
353 Stonehill College 3.000 10/01/2006 10.64 260
175 SUNY, Mohawk Valley Community College 3.000 04/01/2005 10.26 119
69 Susquehanna University 3.125 05/01/2000 11.27 64
714 Syracuse University 3.000 05/01/2008 10.74 509
-------------- T -------------
60 Talladega College 3.375 12/01/2001 10.08 53
435 Talladega College 3.000 12/01/2012 10.24 275
283 Taylor University 3.000 10/01/2012 10.50 177
861 Taylor University 3.000 10/01/2013 10.49 528
46 Temple University 3.125 03/01/1999 10.70 44
132 Tennessee State University 3.375 01/01/1999 11.10 125
701 Texas A & I University 3.000 07/01/2009 9.57 494
140 Texas Southern University 3.500 04/01/2001 10.89 126
525 Texas Southern University 3.500 04/01/2013 10.45 341
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
COLLEGE AND UNIVERSITY FACILITY LOAN TRUST TWO
SCHEDULE OF INVESTMENTS
November 30, 1998
(Dollar Amounts in Thousands)
(continued)
<TABLE>
<CAPTION>
Outstanding Stated Internal Amortized
Principal Interest Maturity Rate of Cost (Notes
Balance Description Rate % Date Return % 1 and 2)
- ----------- ----------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
$482 Transylvania University 3.000 11/01/2010 10.51 $319
810 Trinity University 3.625 09/01/2004 10.82 640
297 Tufts University 3.375 10/01/2001 10.87 259
2,373 Tufts University 3.000 10/01/2021 10.39 1,230
575 Tulane University of Louisiana 3.500 10/01/2001 9.06 514
-------------- U -------------
44 Union College 3.000 11/01/2002 10.74 37
1,945 University of Alabama in Birmingham 3.000 11/01/2008 7.97 1,522
67 University of Alabama in Huntsville 3.000 05/01/1999 10.05 65
84 University of Alaska 3.500 04/01/2000 10.94 78
178 University of Alaska 3.375 04/01/2002 10.82 155
436 University of Alaska 3.500 04/01/2003 10.80 377
100 University of Alaska 3.000 10/01/1999 10.22 93
126 University of Arkansas at Little Rock 3.500 04/01/2001 10.04 115
200 University of Arkansas at Little Rock 3.000 11/01/2009 9.42 149
508 University of Central Arkansas 3.000 04/01/2005 10.69 397
535 University of Central Florida 3.000 10/01/2007 10.08 390
290 University of Chicago 3.500 12/01/2001 10.10 252
93 University of Chicago 3.375 12/01/2001 10.08 81
36 University of Chicago 3.500 12/01/2002 10.11 30
100 University of Delaware 3.125 11/01/2000 8.84 92
123 University of Delaware 3.375 11/01/2000 8.81 115
1,240 University of Delaware 3.000 11/01/2006 9.08 968
709 University of Delaware 3.000 12/01/2018 8.81 436
2,340 University of Florida 3.000 07/01/2014 10.15 1,420
131 University of Hartford 3.000 11/01/2001 10.78 113
27 University of Hawaii at Manoa 2.875 10/01/1999 10.13 25
59 University of Hawaii at Manoa 3.500 10/01/2001 10.18 52
48 University of Lowell 3.000 11/01/2000 7.62 45
2,399 University of Michigan 3.750 10/01/2005 9.51 1,943
90 University of Michigan 3.000 04/01/1999 10.08 87
823 University of Missouri 3.375 05/01/2002 10.03 745
77 University of Missouri 2.875 11/01/2000 9.25 70
70 University of Montevallo 3.125 11/01/2000 9.27 64
176 University of Nevada at Reno 3.000 11/01/1999 10.12 170
777 University of North Carolina 3.000 11/01/2005 8.81 634
635 University of North Carolina 3.000 01/01/2008 9.50 471
55 University of North Carolina 3.000 01/01/2007 9.50 42
1,045 University of Notre Dame 3.000 02/15/2019 10.62 569
840 University of Portland 3.375 04/01/2013 10.88 539
20 University of Puerto Rico, Rio Piedras Campus 3.125 06/01/2000 9.17 18
1,829 University of Puerto Rico, Rio Piedras Campus 3.000 06/01/2011 9.39 1,238
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
COLLEGE AND UNIVERSITY FACILITY LOAN TRUST TWO
SCHEDULE OF INVESTMENTS
November 30, 1998
(Dollar Amounts in Thousands)
(continued)
<TABLE>
<CAPTION>
Outstanding Stated Internal Amortized
Principal Interest Maturity Rate of Cost (Notes
Balance Description Rate % Date Return % 1 and 2)
- ----------- ----------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
$42 University of Rhode Island 3.000 10/01/2001 9.68 $37
670 University of Saint Thomas 3.000 10/01/2019 10.41 360
420 University of Santa Clara 3.125 04/01/2002 11.44 358
190 University of Santa Clara 3.375 04/01/2002 11.45 163
1,005 University of Santa Clara 3.625 04/01/2004 11.33 812
33 University of Scranton 3.125 11/01/2000 10.84 29
157 University of South Dakota 3.500 10/01/2001 9.59 139
905 University of South Florida 3.750 07/01/2005 10.30 707
357 University of Steubenville 3.125 04/01/2010 10.98 239
1,316 University of Vermont 3.000 07/01/2016 8.95 831
165 University of Vermont 3.375 07/01/2001 8.33 150
1,220 University of Vermont 3.000 07/01/2019 9.06 722
90 University of Washington 3.000 08/01/1999 8.82 84
260 University of Washington 3.500 08/01/2002 9.07 226
313 University of Washington 3.000 08/01/2003 9.06 262
1,625 University Student Co-Operative Association 3.000 04/01/2019 10.70 879
96 Ursinus College 3.000 10/01/2000 10.86 85
528 Utica College 3.000 11/01/2009 10.53 358
-------------- V -------------
490 Vermont State College 3.000 06/01/2008 9.02 363
266 Vermont State College 3.000 07/01/2014 9.30 170
1,215 Villanova University 3.000 04/01/2019 10.70 659
3,879 Vincennes University 3.000 06/01/2023 9.02 2,151
2,677 Virginia Commonwealth University 3.000 06/01/2011 10.01 1,751
1,050 Virginia Commonwealth University 3.000 06/01/2004 10.08 827
350 Virginia Wesleyan College 3.000 11/01/2009 10.54 241
204 Virginia Wesleyan College 3.000 11/01/2010 10.51 135
-------------- W -------------
20 Waldorf College 3.125 07/01/2000 10.97 18
241 Waldorf College 3.000 07/01/2005 10.77 181
43 Wartburg College 3.500 10/01/2001 10.87 37
167 Wartburg College 3.750 04/01/2011 11.00 113
765 Washington State University 3.625 04/01/2004 10.02 638
495 Washington State University 3.750 04/01/2004 10.03 415
835 Washington State University 3.375 04/01/2003 10.02 712
25 Washington State University 3.000 04/01/1999 10.08 24
267 Washington University 3.500 10/01/2001 10.91 237
238 Wesley College 3.375 05/01/2013 10.88 154
72 West Kern Junior College District 3.625 04/01/2004 10.73 59
510 West Valley College 3.000 04/01/2009 10.50 357
96 West Virginia Wesleyan College 2.875 05/01/2000 11.56 89
477 West Virginia Wesleyan College 3.000 05/01/2015 10.75 283
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
COLLEGE AND UNIVERSITY FACILITY LOAN TRUST TWO
SCHEDULE OF INVESTMENTS
November 30, 1998
(Dollar Amounts in Thousands)
(continued)
<TABLE>
<CAPTION>
Outstanding Stated Internal Amortized
Principal Interest Maturity Rate of Cost (Notes
Balance Description Rate % Date Return % 1 and 2)
- ----------- ----------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
$419 Western Carolina University 3.625 05/01/2003 10.75 $359
200 Western Washington University 3.500 10/01/2001 10.18 175
615 Western Washington University 3.625 10/01/2004 10.18 497
445 Western Washington University 3.750 10/01/2005 10.19 352
40 Westmoreland Hospital Association 3.500 07/01/2001 10.98 34
1 Wheaton College 2.875 04/01/1999 11.50 1
875 Wheaton College 3.500 04/01/2013 10.70 562
235 Wheeling College 3.500 05/01/2001 11.23 208
85 Wheeling College 3.000 11/01/2007 10.59 61
28 Wheelock College 3.000 05/01/2011 10.23 19
33 Wichita State University 3.000 10/01/2000 9.29 30
810 Wittenberg University 3.000 05/01/2015 10.76 478
245 Wittenberg University 3.000 11/01/2017 10.39 138
51 Wooster Business College 3.000 03/30/2009 10.88 35
124 Worcester Polytechnic Institute 3.375 04/01/2001 11.57 111
699 Wright State University 3.000 05/01/2009 9.89 511
-------------- Y -------------
374 York Hospital 3.000 05/01/2020 10.64 201
--------
- --------
221,263 Total College and University Loans 151,145
- --------
Allowance for Possible Loan Losses 1,132
--------
Net College and University Loans 150,013
--------
INVESTMENT AGREEMENTS (14.1%)
Morgan Guaranty Trust Company -
4,247 Liquidity Fund 7.750 06/01/2018 7.750 4,247
Morgan Guaranty Trust Company -
20,310 Revenue Fund 7.050 06/01/2018 7.050 20,310
--------
- --------
24,557 Total Investment Agreements 24,557
- -------- --------
$245,820 Total Investments (100.0%) $174,570
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains financial information extracted from the November 30,
1998 College and University Facility Loan Trust Two financial statements and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 174570
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 1613
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 788
<TOTAL-ASSETS> 176961
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 151932
<OTHER-ITEMS-LIABILITIES> 5770
<TOTAL-LIABILITIES> 157702
<SENIOR-EQUITY> 2586
<PAID-IN-CAPITAL-COMMON> 15078
<SHARES-COMMON-STOCK> 1763800
<SHARES-COMMON-PRIOR> 1763800
<ACCUMULATED-NII-CURRENT> (169)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 19259
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 18398
<OTHER-INCOME> 0
<EXPENSES-NET> 15512
<NET-INVESTMENT-INCOME> 2886
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2864
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 592
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (564)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 15079
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 15021
<GROSS-EXPENSE> 15512
<AVERAGE-NET-ASSETS> 19481
<PER-SHARE-NAV-BEGIN> 8.17
<PER-SHARE-NII> 1.63
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (.34)
<PER-SHARE-NAV-END> 9.45
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 159446
<AVG-DEBT-PER-SHARE> 90.40
</TABLE>
