AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 24, 1999
REGISTRATION STATEMENT NO. 333-77215
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------------
MORGAN STANLEY CAPITAL I INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3291626
(State of incorporation) (I.R.S. Employer
Identification No.)
1585 Broadway
New York, New York 10036
(212) 296-7000
(Address, including zip code, and
telephone number, including area code, of principal executive
offices)
----------------------------------
DAVID R. WARREN
President
1585 Broadway
New York, New York 10036
(212) 296-7000
(Name and address, including zip code, and telephone
number, including area code, of agent for service)
----------------------------------
Copies to:
CARLOS RODRIGUEZ, ESQ. MICHAEL S. GAMBRO, ESQ. KEVIN C. BLAUCH, ESQ.
Brown & Wood LLP ANNA H. GLICK, ESQ. Latham & Watkins
One World Trade Center Cadwalader, Wickersham & Taft 885 Third Avenue
New York, New York 10048 100 Maiden Lane New York, New York 10022
(212) 839-5300 New York, New York 10038 (212) 906-1241
(212) 504-6000
----------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, please check the following box. [X]
----------------------------------
<TABLE>
CALCULATION OF REGISTRATION FEE*
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Proposed Amount of
Proposed Maximum Registration
Maximum Aggregate Fee(2)
Title of Securities Amount Offering Price Offering
being Registered being Registered Per Unit(1) Price
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Pass-Through Certificates $1,000,000 100% $1,000,000 $278.00
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Previously paid.
* To the extent that any series of Certificates offered pursuant to this
Registration Statement evidences a beneficial ownership interest in a Trust
Fund containing MBS that have been previously issued by the Registrant, this
Registration Statement is deemed to register such underlying MBS.
- ------------------------------------------------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
PURSUANT TO RULE 429 OF THE SECURITIES AND EXCHANGE COMMISSION'S RULES AND
REGULATIONS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, THE PROSPECTUS AND
PROSPECTUS SUPPLEMENT CONTAINED IN THIS REGISTRATION STATEMENT ALSO RELATE TO
THE REGISTRANT'S REGISTRATION STATEMENT ON FORM S-3 (REGISTRATION NO.333-62911).
================================================================================
<PAGE>
This Registration Statement contains: (1) a base prospectus and form of
prospectus supplement to be used in connection with the offering of certificates
that will represent beneficial ownership interests in trust funds consisting of
one or more segregated pools of various types of single family residential
mortgage loans, securities collateralized by such loans, and/or government
securities (the Version 1 Prospectus); and (2) a base prospectus and form of
prospectus supplement to be used in connection with the offering of certificates
that will represent beneficial ownership interests in trust funds consisting of
one or more segregated pools of various types of multifamily or commercial
mortgage loans, securities collateralized by such loans, and/or government
securities (the Version 2 Prospectus).
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement and the prospectus to which it relates
shall not constitute an offer to sell or the solicitation of an offer to buy nor
shall there by any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
(Version 1)
SUBJECT TO COMPLETION DATED _________________, 199__
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED ____, 199_)
[$ ]
(APPROXIMATE(1))
MORGAN STANLEY CAPITAL I 199_-_ TRUST,
ISSUER
MORGAN STANLEY CAPITAL I INC.,
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 199_-___
----------
Morgan Stanley Capital I Inc. is offering certain classes of the Series
199_-___ Mortgage Pass-Through Certificates issued by the trust. The
certificates represent beneficial ownership interests in a trust. The trust's
assets will primarily be residential mortgage loans, [participations therein,]
[mortgage-backed securities evidencing interests therein or secured thereby,]
[and] [certain direct obligations of the United States, agencies thereof or
agencies created thereby].
The Series 199_-___ mortgage pass-through certificates are not
obligations of Morgan Stanley Capital I Inc. or any of its affiliates, and
neither the certificates nor the underlying mortgage loans are insured or
guaranteed by any governmental agency.
----------
INVESTING IN THE OFFERED CERTIFICATES INVOLVES RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE S-__ IN THIS PROSPECTUS
SUPPLEMENT AND PAGE __ OF THE PROSPECTUS.
----------
Certain characteristics of the offered certificates include:
APPROXIMATE INITIAL
PRINCIPAL OR
CLASS NOTIONAL AMOUNT(1) INITIAL PASS-THROUGH RATE EXPECTED RATINGS
----- ------------------- ------------------------- ----------------
Class [___]...$ %
(1) Approximate, subject to adjustment as described herein.
----------
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS
HAVE NOT APPROVED OR DISAPPROVED THE OFFERED CERTIFICATES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS ARE TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Morgan Stanley & Co. Incorporated will offer certificates to the public
at negotiated prices determined at the time of sale. Morgan Stanley & Co.
Incorporated expects to deliver the offered certificates to purchasers on
__________ __, ____. Morgan Stanley Capital I Inc. expects to receive from this
offering approximately % of the initial principal amount of the offered
certificates, plus accrued interest from __________ __, ____, before deducting
expenses.
----------
MORGAN STANLEY DEAN WITTER
_____________________, 199__
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
Information about your certificates is contained in two separate
documents that progressively provide more detail:
(a) the accompanying prospectus, which provides general
information, some of which may not apply to the offered
certificates; and
(b) this prospectus supplement, which describes the specific terms
of the offered certificates.
If the description of your certificates vary between this prospectus
supplement and the accompanying prospectus, you should rely on the information
in this prospectus supplement.
You should rely only on the information contained in this prospectus
supplement and the accompanying prospectus. We have not authorized anyone to
provide you with information that is different from that contained in this
prospectus supplement and the prospectus.
Morgan Stanley Capital I Inc.'s principal offices are located at 1585
Broadway, New York, New York 10036 and its telephone number is (212) 761-4700.
Until the date that is ninety days after the date of this prospectus
supplement, all dealers that buy, sell or trade the offered certificates,
whether or not participating in this offering, may be required to deliver a
prospectus supplement and the accompanying prospectus. This is in addition to
the dealers' obligation to deliver a prospectus supplement and the accompanying
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
S-2
<PAGE>
Table Of Contents
Page
----
Prospectus Supplement
Summary Of Terms..............................................................5
Executive Summary.............................................................5
Description Of The [Mortgage Pool] [MBS].....................................16
General................................................................16
[The Mortgage-Backed Securities........................................17
[Convertible Mortgage Loans............................................17
[The Index.............................................................18
Characteristics Of The Mortgage Loans..................................18
Underwriting Standards.................................................29
Additional Information.................................................29
Description Of The Certificates...............................................29
General................................................................29
Distributions..........................................................30
Subordination..........................................................32
Advances...............................................................32
Yield, Prepayment And Maturity Considerations.................................33
Weighted Average Life Of The Class [ ] Certificates....................33
Pooling And Servicing Agreement...............................................36
General................................................................36
Assignment Of The Mortgage Loans.......................................36
The [Master] Servicer..................................................37
Certificate Account....................................................38
Servicing And Other Compensation And Payment Of Expenses...............38
Reports To Certificateholders..........................................39
Voting Rights..........................................................39
Termination............................................................40
Use Of Proceeds...............................................................40
Federal Income Tax Consequences...............................................40
Erisa Considerations..........................................................41
Legal Investment..............................................................43
Plan Of Distribution..........................................................44
Legal Matters.................................................................44
Rating........................................................................45
Glossary Of Terms.............................................................46
Annex A......................................................................A-1
Prospectus
Summary of Prospectus..........................................................5
Risk Factors..................................................................12
Description of the Trust Funds................................................21
S-3
<PAGE>
Use of Proceeds...............................................................27
Yield Considerations..........................................................27
The Depositor.................................................................33
Description of the Certificates.............................................. 33
Description of the Agreements.................................................43
Description of Credit Support.................................................65
Legal Aspects of Mortgage Loans...............................................68
Federal Income Tax Consequences.............................................. 83
State Tax Considerations.....................................................121
ERISA Considerations........................................................ 121
Legal Investment............................................................ 127
Plan of Distribution........................................................ 129
Legal Matters................................................................130
Financial Information........................................................130
Rating.......................................................................131
Where You Can Find More Information..........................................131
Incorporation of Information by Reference....................................132
Glossary of Terms............................................................133
S-4
<PAGE>
SUMMARY OF TERMS
This summary highlights selected information from this prospectus
supplement. It does not contain all of the information you need to consider in
making your investment decision. TO UNDERSTAND ALL OF THE TERMS OF THE OFFERING
OF THE CERTIFICATES, READ THIS ENTIRE DOCUMENT AND THE ACCOMPANYING PROSPECTUS
CAREFULLY.
RELEVANT PARTIES AND DATES
ISSUER........................ Morgan Stanley Capital I 199_-_ Trust.
DEPOSITOR..................... Morgan Stanley Capital I Inc., a Delaware
corporation and a wholly-owned limited purpose
finance subsidiary of Morgan Stanley Group Inc.
[MASTER] SERVICER............. _______________, a ________________.
[SPECIAL SERVICER............. ___________________, a __________________].
[SUB-SERVICERS................ ___________________, a __________________].
TRUSTEE....................... ___________________, a ___________________.
CUT-OFF DATE.................. ____________ 1, 199_.
CLOSING DATE.................. ______________ 1, 199_.
DISTRIBUTION DATE............. The __ day of each [month] [ ] or, if any such
__ day is not a business day, then the next
succeeding business day, beginning in ________
19__.
RECORD DATE................... With respect to each Distribution Date, the
[last business day of the month preceding such
Distribution Date].
EXECUTIVE SUMMARY
This Executive Summary highlights selected information regarding the
offered certificates and underlying mortgage loans. It does not contain all of
the information you need to consider in making your investment decision. To
understand all of the terms of the offering of the offered certificates and the
underlying mortgage loans, read this entire prospectus supplement and the
accompanying prospectus carefully.
S-5
<PAGE>
CERTIFICATE SUMMARY
APPROXIMATE
APPROXIMATE PERCENT OF
CREDIT SUPPORT TOTAL
CERTIFICATES
INITIAL RATINGS
CERTIFICATE ([LIST RATING
CLASS BALANCE AGENCIES])
----- ----------- --------------
[CLASS [___] CLASS[___] $ %
$
(Approximate Notional
Amount)]
[(1)]% [CLASS [___]] $ %
% [CLASS [___]] $ %
% [CLASS [___]] $ %
% [CLASS [___]](2) $ %
[(1) Represents the approximate credit support for the Class [___] and Class
[___] certificates in the aggregate.]
[(2) Not offered hereby.]
[The Class [___] certificates are not represented in this table.]
<TABLE>
<CAPTION>
INITIAL
CERTIFICATE
RATINGS(1) BALANCE [OR INITIAL
([LIST RATING NOTIONAL % OF PASS-THROUGH WTD. AVG. PRINCIPAL
CLASS AGENCIES]) AMOUNT](2)(5) TOTAL DESCRIPTION(3) RATE LIFE(4)(YRS.) WINDOW(4)
- ----- ------------- ------------- ----- -------------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Offered Certificates
[---] $ % %
[Non-Offered Certificates]
[---] $ % %
<FN>
(1) The rated final distribution date for each class of rated certificates is
the distribution date in ------------.
(2) Approximate, subject to adjustment as described herein.
(3) "Weighted Average Coupon" and "Fixed Rate" are descriptions of the type of
pass-through rates borne by the related classes [and "Interest Only"
designates that the related class is entitled only to distributions of
interest].
(4) The weighted average life and period during which distributions of
principal would be received, the principal window, are based on several
assumptions that the mortgage loans suffer no losses, payments are made as
scheduled and that they are fully paid on their respective maturity dates.
The principal window is expressed in months following the closing date,
commencing with the first distribution date.
(5) [The class [___] certificates will not have a certificate balance and will
not be entitled to receive distributions of principal. Interest will accrue
on the class [___] certificates at its pass-through rate and on its
notional amount. The notional amount of the class [___] certificates is
initially $[ ], which is equal to the aggregate initial certificate
principal amount of the class [___], class [___], class [___], class [___]
and class [___] certificates.
</FN>
</TABLE>
WHAT YOU WILL OWN
GENERAL....................... Morgan Stanley Capital I Inc. is offering the
following __ classes of mortgage pass-through
certificates) as part of Series 199_-_:
S-6
<PAGE>
o Class [ ]
o Class [ ]
Your certificates will represent beneficial
ownership interests in the trust. The trust's
assets will primarily be [[conventional],
[fixed] [and] [adjustable] interest rate
mortgage loans, with terms to maturity of not
more than ___ years, secured by first [and/or
junior] liens on one- to four-family residential
properties,] [ participations therein,]
[mortgage-backed securities evidencing interests
therein or secured thereby,] [and] [certain
direct obligations of the United States,
agencies thereof or agencies created thereby].
CERTIFICATE BALANCES.......... Your certificates will have the approximate
aggregate certificate balance set forth on the
cover, subject to a variance of plus or minus
5%.
[The class [ ] certificates will not have a
certificate balance.] [The class [ ]
certificates will receive interest only; they
will not be entitled to distributions of
principal.] [The class [ ] certificates will
receive principal only; they will not be
entitled to distributions of interest.] [The
certificate balance of the class [ ]
certificates will be adjusted from time to time
on each distribution date to reflect any
increase resulting from negative amortization of
mortgage loans included in the trust and any
decrease resulting from distributions of
principal of the class [ ] certificates.]
PASS-THROUGH RATE ON THE
CLASS [ ] CERTIFICATES....... Your certificates will accrue interest at an
annual rate called a pass-through rate [which is
set forth on the cover].
[Interest on the certificates will be calculated
based on a [360-day year consisting of twelve
30-day months] [365-day year and the actual
number of days in the relevant accrual period]
[describe any other interest accrual method]
S-7
<PAGE>
[The pass-through rate on the class [ ]
certificates will be equal to the weighted
average of the remittance rates in effect from
time to time on the trust's assets.] [The class
[ ] certificates [or a component thereof] will
not be entitled to distributions of interest and
will not have a pass-through rate.] [Accrual
interest on the class [ ] certificates will not
be paid currently, but will be added to the
principal balance until ________.] [Describe any
other method used to calculate the pass-through
rate.]
DISTRIBUTIONS
A. AMOUNT AND ORDER
OF DISTRIBUTIONS......... On each distribution date, funds available for
distribution from the trust's assets, net of
specified trust expenses, will be distributed in
the following amounts and order of priority:
Step 1/Class [ ]: To interest on Class [ ] based
on its interest entitlement.
Step 2/Class [ ]: To the extent of funds
available for principal, to principal on Class [
] until reduced to zero.
Step 3/Class [ ]: To interest on Class [ ] based
on its interest entitlement.
Step 4/Class [ ]: To the extent of funds
available for principal, to principal on Class [
] until reduced to zero.
B. INTEREST
ENTITLEMENTS............. The amount of interest owed to each class of
interest bearing certificates on each
distribution date will equal 1/12th of the
product of:
o the pass-through rate and
o the principal balance or notional
amount,
reduced by some types of interest shortfalls
PRINCIPAL ENTITLEMENT.... The amount of principal required to be
distributed to the classes entitled to principal
on a particular distribution will be based on
such classes' priority and a percentage of
scheduled and unscheduled principal. Some
classes may not be entitled to any scheduled or
unscheduled distributions of principal for a
period of time.
S-8
<PAGE>
ADVANCES OF PRINCIPAL AND
INTEREST..................... The master servicer is required to advance
delinquent monthly mortgage loan payments, if it
determines that the advance will be recoverable.
If the master servicer fails to make a
recoverable advance, the trustee will generally
be required to make the advance.
[SUBORDINATION................ The chart below describes the manner in which
the rights of various classes will be senior to
the rights of other classes. Entitlement to
receive principal and interest on any
distribution date is depicted in descending
order (top to bottom). The manner in which
losses on the trust's assets are allocated is
depicted in ascending order (bottom to top).
Class [ ]
Class [ ]
[NO OTHER FORM OF CREDIT ENHANCEMENT WILL BE
AVAILABLE FOR THE BENEFIT OF THE HOLDERS OF THE
CERTIFICATES.]
[CREDIT ENHANCEMENT: ........ Losses will be covered by a [policy] [other form
of credit enhancement] issued by [ ] [summary of
coverage]]
THE MORTGAGE ASSETS
GENERAL....................... The trust's assets, which are the primary source
of distributions to holders of the certificates,
will primarily be [__ [conventional], [fixed]
[and] [adjustable] interest rate mortgage loans,
each evidenced by one or more promissory notes
secured by first [and/or junior] mortgages,
deeds of trust or similar security instruments
on one or more one- to four-family residential
properties located in ______ [participations
therein,] [mortgage-backed securities evidencing
interests therein or secured thereby,] [and]
[certain direct obligations of the United
States, agencies thereof or agencies created
thereby].
[MORTGAGE LOANS............... As of the cut-off date, the mortgage loans will
have the approximate characteristics set forth
in the table below: [one or more of the
following]
S-9
<PAGE>
Aggregate Principal Balance $_________
Lowest Mortgage Loan Principal Balance $_________
Highest Mortgage Loan Principal Balance $_________
Average Mortgage Loan Principal Balance $_________
Range of Remaining Terms to Maturity ___ to ___ months
Weighted Average Remaining Term to ___ months
Maturity
Range of Mortgage Rates ___% to ___%
Weighted Average Mortgage Rate ___%
Range of Loan to Value Ratios ___% to ___%
Weighted Average Loan to Value Ratio ___%
Geographic Concentration of Mortgaged _________ __%
Properties Securing Mortgage Loans in
Excess of 5% of the Aggregate Principal
Balance
Maximum Five-Digit Zip Code Concentration ___%
[MORTGAGE-BACKED SECURITIES... [Title and issuer of underlying securities,
amount deposited or pledged, amount originally
issued, maturity date, interest rate,
[redemption provisions], description of other
material terms.]
ADDITIONAL ASPECTS OF CERTIFICATES
RATINGS....................... The class [___] certificates will not be issued
unless they be rated [not lower than] the
following ratings by __________:
class [___]
A rating agency may lower or withdraw a security
rating at any time.
FORM OF CERTIFICATES;
DENOMINATIONS.............. Your certificates will be issued [either] in
[book-entry form] [or] [fully registered,
certificated form]. The class [___] certificates
will be offered in minimum denominations of
$_____ initial certificate balance. Investments
in excess of the minimum denominations may be
made in multiples of $__.
[REGISTRATION, CLEARANCE AND
SETTLEMENT OF THE CLASS [___]
CERTIFICATES................ Your certificates will be registered in the name
of Cede & Co., as nominee of The Depository
Trust Company, and will not be registered in
your name. You will not receive a definitive
certificate representing your interest, except
in
S-10
<PAGE>
very limited circumstances described in this
prospectus supplement. As a result, you will not
be a certificateholder of record, and you will
receive distributions on your certificates and
reports relating to distributions only through
DTC, Cedel Bank, S.A. or The Euroclear System or
through participants in DTC, Cedel or Euroclear.
You may hold your certificates through: (i) DTC
in the United States; or (ii) Cedel or Euroclear
in Europe. Transfers within DTC, Cedel or
Euroclear will be made in accordance with the
usual rules and operating procedures of those
systems. Cross-market transfers between persons
holding directly through DTC, Cedel or Euroclear
will be effected in DTC through the relevant
depositories of Cedel or Euroclear.
Morgan Stanley Capital I Inc. may elect to
terminate the book-entry system through DTC with
respect to all or any portion of any class of
the certificates.
We expect that the class [___] certificates will
be delivered in book-entry form through the
facilities of DTC, Cedel or Euroclear on or
about __________.]
OPTIONAL TERMINATION OF
THE TRUST.................... _______________ may, subject to certain
conditions including the then-remaining balance
of the trust's assets, purchase all outstanding
assets and thereby effect early retirement of
the certificates. [At its option, ______________
may also, subject to certain conditions
including the then-remaining balance of the
trust's assets, purchase any class [ ]
certificates.]
TAX STATUS.................... [An election will be made to treat the trust as
a real estate mortgage investment conduit
("REMIC") for federal income tax purposes. In
the opinion of counsel, the trust will qualify
for this treatment.
Pertinent federal income tax consequences of an
investment in the class [___] certificates
include:
o The class [___] certificates will
constitute "regular interests" in the
REMIC [and the class [___]
certificates will constitute "residual
interests" in the REMIC.]
o The regular interests will be treated
as newly originated debt instruments
for federal income tax purposes.
S-11
<PAGE>
o Beneficial owners will be required to
report income on the class [___]
certificates in accordance with the
accrual method of accounting.
ERISA CONSIDERATIONS.......... Subject to the satisfaction of important
conditions, the class [___] certificates may be
purchased by persons investing assets of
employee benefit plans or individual retirement
accounts.]
[THE CLASS [___] CERTIFICATES MAY NOT BE
PURCHASED BY, OR TRANSFERRED TO, A PLAN OR ANY
PERSON INVESTING THE ASSETS OF A PLAN. (THIS
PROHIBITION DOES NOT APPLY TO AN INSURANCE
COMPANY INVESTING ASSETS OF ITS GENERAL ACCOUNT
UNDER CIRCUMSTANCES WHICH WOULD QUALIFY FOR AN
EXEMPTION UNDER PROHIBITED TRANSACTION CLASS
EXEMPTION 95-60.)]
LEGAL INVESTMENTS............. [The class [___] certificates will [not]
constitute "Mortgage Related Securities" for
purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended, so long as
those certificates are rated in one of the two
highest rating categories by one or more rating
agencies.
No representation is made regarding the proper
characterization of the certificates for
purposes of any applicable legal investment
restrictions, regulatory capital requirements or
other similar purposes. Regulated entities
should consult with their own advisors regarding
these matters.
S-12
<PAGE>
RISK FACTORS
[Description will depend on the particulars of the mortgage assets]
The offered certificates are not suitable investments for all
investors. In particular, you should not purchase any class of offered
certificates unless you understand the prepayment, credit liquidity and market
risks associated with that class.
The offered certificates are complex securities. You should possess,
either alone or together with an investment advisor, the expertise necessary to
evaluate the information contained in this prospectus supplement and the
prospectus in the context of your financial situation and tolerance for risk.
You should carefully consider, among other things, the following
factors in connection with the purchase of the offered certificates. The risks
and uncertainties described below and those risks described under "Risk Factors"
in the prospectus, summarize material risks relating to your certificates.
THE YIELD ON YOUR CERTIFICATES
WILL VARY DEPENDING ON
RATE OF PREPAYMENTS.......... The rate of distributions of principal and the
yield to maturity on your certificates will be
directly related to the rate of payments of
principal on the mortgage loans and the amount
and timing of borrower defaults resulting in
realized losses. Borrowers are permitted to
prepay the mortgage loans, in whole or in part,
at any time without penalty. The rate of
principal payments on the mortgage loans will be
affected by, among other things:
o the amortization schedules of the
mortgage loans;
o the rate of principal prepayments,
including partial prepayments and
those resulting from refinancing,
thereon by borrowers;
o liquidations of defaulted mortgage
loans;
o repurchases of mortgage loans by
Morgan Stanley Capital I Inc. as a
result of defective documentation or
breaches of representations and
warranties, optional purchase by
Morgan Stanley Capital I Inc. of
defaulted mortgage loans; and
o the optional purchase of all of the
mortgage loans in connection with the
termination of the trust.
S-13
<PAGE>
The rate of prepayments on pools of mortgage
loans is influenced by a variety of economic,
geographic, social and other factors.
o If prevailing rates for similar
mortgage loans fall below the mortgage
rates on the mortgage loans, the rate
of prepayment would generally be
expected to increase.
o Conversely, if interest rates on
similar mortgage loans rise above the
mortgage rates on the mortgage loans,
the rate of prepayment would generally
be expected to decrease.
The rate of prepayment on the mortgage loans may
also be influenced by programs offered by
mortgage originators, on a general or targeted
basis, to encourage refinancing.
If you are purchasing certificates at a
discount, you should consider the risk that if
principal payments on the mortgage loans occur
at a rate slower than you expected, your yield
may be lower than you expected.
If you are purchasing certificates at a
premium[, or are purchasing the [_____]
certificates, which have no certificate
balance], you should consider the risk that if
principal payments on the mortgage loans occur
at a rate faster than you expected, your yield
may be lower than you expected. [IF YOU ARE
PURCHASING CLASS [___] CERTIFICATES, YOU SHOULD
CONSIDER THE RISK THAT A RAPID RATE OF PRINCIPAL
PAYMENTS ON THE MORTGAGE LOANS COULD RESULT IN
YOUR FAILURE TO RECOVER YOUR INITIAL
INVESTMENT.]
[GEOGRAPHIC CONCENTRATION MAY
INCREASE RISK OF LOSS BECAUSE
OF ADVERSE ECONOMIC CONDITIONS
OR NATURAL DISASTERS IN A SPECIFIC
REGION...................... The yield to maturity on your certificates may
be affected by the geographic concentration of
the mortgaged properties securing the mortgage
loans. Certain geographic regions from time to
time will experience weaker regional economic
conditions and housing markets and,
consequently, will experience higher rates of
loss and delinquency on mortgage loans
generally. Any concentration of the mortgage
loans in such a region may present risk
considerations in addition to those generally
present for similar mortgage-backed securities
without such concentration. [__]% of the
mortgage loans are located in
<PAGE>
[____________]. Any deterioration in housing
prices in the states in which there is a
significant concentration of mortgaged
properties, as well as the other states in which
the mortgaged properties are located, and any
deterioration of economic conditions in such
states which adversely affects the ability of
borrowers to make payments on the mortgage loans
may increase the likelihood of losses on the
mortgage loans. Such losses, if they occur, may
have an adverse effect on the yield to maturity
of your certificates[, especially if they are
subordinated and particularly if they are class
[___] certificates].]
LOSSES ON THE MORTGAGE LOANS
WILL BE ALLOCATED TO MOST
SUBORDINATE CERTIFICATES.... The rights of the holders of each class of class
[___] certificates to receive distributions will
be subordinated to such rights of the holders of
the class [___] certificates and the
lower-numbered classes of class [___]
certificates, if any. In addition, realized
losses will be allocated to the class [___]
certificates in the reverse order in which they
are entitled to distributions of principal
before being allocated to a more senior class of
certificates. Accordingly, if you are purchasing
class [___] certificates, you will be more
likely to experience losses as a result of the
occurrence of losses or interest shortfalls on
the mortgage loans.
THE UNDERWRITING AND SERVICING
OF CERTAIN MORTGAGE LOANS
ACQUIRED FROM TROUBLED
ORIGINATORS MAY BE BELOW
BELOW INDUSTRY STANDARDS.... Certain of the mortgage loans were acquired by
Morgan Stanley Capital I Inc. from [Originating
Institutions], each of which is subject to
receivership. The financial difficulties
experienced by the [Originating Institutions]
may have adversely affected the standards and
procedures pursuant to which the mortgage loans
were originated or purchased by the [Originating
Institutions] and/or the manner in which such
mortgage loans have been serviced prior to
assumption of servicing responsibilities by the
master servicer, which could materially
adversely affect your certificates.
S-15
<PAGE>
DESCRIPTION OF THE [MORTGAGE POOL] [MBS]
Capitalized terms are defined in the "Glossary of Terms" beginning on
page 46.
GENERAL
The trust fund will consist primarily of:
o [___ [conventional], [fixed interest] [adjustable interest] rate
mortgage loans with an aggregate principal balance as of ________,
1999, after deducting payments of principal due on that date, of
$------------,]
o [mortgage participations, mortgage pass-through certificates,
mortgage-backed securities evidencing interests therein or secured
thereby,] [and] [government securities].
Each mortgage loan is evidenced by a mortgage note and secured by a
mortgage creating a first [and/or junior] fee lien on a mortgaged property. The
mortgaged properties consist of [description of one- to four-family residential
properties]. [Because no evaluation of any borrower's financial condition has
been conducted, investors should consider all of the mortgage loans to be
non-recourse loans so that, in the event of borrower default, recourse may be
had only against the specific property and the limited other assets as have been
pledged to secure the mortgage loan, and not against the borrower's other
assets.] All percentages of the mortgage loans described in this prospectus
supplement are approximate percentages, except as otherwise indicated, by
aggregate principal balance as of the Cut-off Date.]
[The mortgage loans to be included in the trust fund will have been
originated or acquired by the mortgage loan seller and will comply with the
underwriting criteria described in this prospectus supplement. Morgan Stanley
Capital I Inc. will purchase the mortgage loans to be included in the mortgage
pool on or before the Closing Date from the mortgage loan seller pursuant to a
Seller's Agreement.
Under the Seller's Agreement, _______________, as seller of the
mortgage loans to Morgan Stanley Capital I Inc., will make representations,
warranties and covenants to Morgan Stanley Capital I Inc. relating to, among
other things, the due execution and enforceability of the Seller's Agreement and
certain characteristics of the mortgage loans, and will be obligated to
repurchase or substitute for any mortgage loans as to which there exists
deficient documentation or an uncured material breach of a representation,
warranty or covenant. Under the Pooling and Servicing Agreement Morgan Stanley
Capital I Inc. will assign all its right, title and interest in these
representations, warranties and covenants, including [the seller's] repurchase
or substitution obligation, to the trustee for the trust fund. Morgan Stanley
Capital I Inc. will make [no] representations or warranties with respect to the
mortgage loans and will have no obligation to repurchase or substitute for
mortgage loans with deficient documentation or which are otherwise defective.
_____________, as seller of the mortgage loans to Morgan Stanley Capital I Inc.,
is selling these mortgage loans without recourse and, accordingly, in this
capacity, will have no obligations with respect to the certificates other than
pursuant to these representations, warranties, covenants and repurchase
obligations. See "Description of the Agreements--Representations and Warranties;
Repurchases" in the prospectus.]
S-16
<PAGE>
[THE MORTGAGE-BACKED SECURITIES
[Title and issuer of underlying securities, amount deposited or
pledged, amount originally issued, maturity date, interest rate, [redemption
provisions], together with description of other material terms.]
[Description of principal and interest distributions on the
mortgage-backed securities.]
[Description of advances by the servicer of the mortgage loans
underlying the mortgage-backed securities.]
[Description of effect on the mortgage-backed securities of allocation
of losses on the underlying mortgage loans.]
As to each series of mortgage-backed securities included in the trust
fund, the various classes of certificates from these series [ including classes
not in the trust fund but from the same series as classes that are in the trust
fund] are listed, together with the related pass-through rates and certain other
applicable information, in Annex A to this prospectus supplement.]
[CONVERTIBLE MORTGAGE LOANS
____% of the mortgage loans provide that, at the option of the related
borrowers, the adjustable interest rate on the mortgage loans may be converted
to a fixed interest rate. The first month in which any of the mortgage loans may
convert is ____________, and the last month in which any of the mortgage loans
may convert is _____________. Upon conversion, the mortgage rate will be
converted to a fixed interest rate determined in accordance with the formula set
forth in the related mortgage note which formula is intended to result in a
mortgage rate which is not less than the then current market interest rate,
subject to applicable usury laws. After conversion, the monthly payments of
principal and interest will be adjusted to provide for full amortization over
the remaining term to scheduled maturity. Upon notification from a borrower of
its intent to convert from an adjustable interest rate to a fixed interest rate
and prior to the conversion of the mortgage loan, the related warrantying party
will be obligated to purchase the converting mortgage loan at the Conversion
Price. In the event a warrantying party fails to purchase a converting mortgage
loan, the master servicer is required to use its best efforts to purchase the
mortgage loan following its conversion during the one-month period following the
date of conversion at the Conversion Price.
In the event that the related warrantying party fails to purchase a
converting mortgage loan and the master servicer does not purchase a mortgage
loan following its conversion, neither Morgan Stanley Capital I Inc. nor any of
its affiliates nor any other entity is obligated to purchase or arrange for the
purchase of any mortgage loan following its conversion. Any mortgage loan not
purchased following its conversion will remain in the mortgage pool as a
fixed-rate mortgage loan and will result in the mortgage pool's having both
fixed rate and adjustable rate mortgage loans. See "Certain Yield and Prepayment
Considerations" herein.
After the purchase of any mortgage loan following its conversion as
described above, the purchaser will be entitled to receive an assignment from
the trustee of the mortgage loan and the purchaser will thereafter own such
mortgage loan free of any further obligation to the trustee or the
certificateholders with respect thereto.]
S-17
<PAGE>
[THE INDEX
The amount of monthly payment on certain mortgage loan is subject to
adjustment on specified Due Dates. As of any Payment Adjustment Date, the Index
applicable to the determination of the related mortgage rate will be a per annum
rate equal to ______________, as most recently available as of the date days
prior to the Payment Adjustment Date. These average yields reflect the yields
for the week prior to that week in which the information is reported. In the
event that the Index is no longer available, an Index reasonably acceptable to
the trustee that is based on comparable information will be selected by the
master servicer.
The Index is currently calculated based on information reported in
___________. Listed below are the weekly average yields on actively traded
______________ as reported in ____________ on the date that would have been
applicable to mortgage loans having the following adjustment dates for the
indicated years. Average yields may fluctuate significantly from week to week as
well as over longer periods and may not increase or decrease in a constant
pattern from period to period. The following does not purport to be
representative of future average yields. No assurance can be given as to the
average yields on such _______________ on any Payment Adjustment Date or during
the life of any mortgage loan.]
[NAME OF INDEX]
Adjustment Date 1990 1991 1992 1993 1994 1995
- --------------- ---- ---- ---- ---- ---- ----
January [ ] .......
February [ ] ......
March [ ] .........
April [ ] .........
May [ ]............
June [ ]...........
July [ ]...........
August [ ].........
September [ ]......
October [ ]........
November [ ].......
December [ ].......
CHARACTERISTICS OF THE MORTGAGE LOANS
[Approximately ___% of the mortgage loans have Due Dates that occur on
the ___ day of each month; approximately ___% of the mortgage loans have Due
Dates that occur on the ___ day of each month; approximately _____% of the
mortgage loans have Due Dates that occur on the ___ day of each month; and the
remainder of the mortgage loans have Due Dates that occur on the fifteenth day
of each month.]
[As of the Cut-off Date, the mortgage loans had the following
characteristics:
o mortgage rates ranging from _____% per annum to _______% per
annum;
o a weighted average mortgage rate of ______% per annum;
o Gross Margins ranging from ____ basis points to ______ basis
points;
S-18
<PAGE>
o a weighted average Gross Margin of ____ basis points;
o principal balances ranging from $_______ to $______;
o an average principal balance of $_________;
o original terms to maturity ranging from _____ months to
_________ months;
o a weighted average original term to maturity of _____ months;
o remaining terms to maturity ranging from ____ months to _____
months;
o a weighted average remaining term to maturity of ________
months;
o LTV ratios ranging from ______% to ________%;
o a weighted average Cut-off Date LTV ratio of _____%;
o as to the [ ] mortgage loans, representing [ ]% of the initial
pool balance to which this characteristic applies, (A) minimum lifetime
mortgage rates ranging from ____% per annum to ______ % per annum and
(B) a weighted average minimum lifetime mortgage rate of _______% per
annum; and
o as to the [ ] mortgage loans, representing [ ]% of the initial
pool balance, to which this characteristic applies and for which it may
be currently calculated, (A) maximum lifetime mortgage rate ranging
from _______% per annum to ________% per annum and (B) a weighted
average maximum lifetime mortgage rate of _________% per annum.]
[___ mortgage loans, representing __% of the mortgage loans by
aggregate principal balance as of the Cut-off Date, provide for balloon payments
on their respective maturity dates. Loans providing for balloon payments involve
a greater degree of risk than self-amortizing loans. See "Risk Factors--Payments
in Full of a Balloon Loan Depend on the Borrower's Ability to Refinance the
Balloon Loan or Sell the Mortgaged Property" in the prospectus.]
[The mortgage rate on each mortgage loan is subject to adjustment on
each Interest Rate Adjustment Date by adding the related Gross Margin to the
value of the Index, as most recently announced a specified number of days prior
to this Interest Rate Adjustment Date, subject, in the case of substantially all
of the mortgage loans, to minimum and maximum lifetime mortgage rates, with
ranges specified below. The mortgage rates on the mortgage loans generally are
adjusted monthly; however, some of the mortgage loans may provide for Interest
Rate Adjustment Dates to occur:
o quarterly, ___% of the mortgage loans,
o semi-annually, % of the mortgage loans, or
o annually, ____% of the mortgage loans.
Other statistics are as follows:
S-19
<PAGE>
o [Each] of the mortgage loans provided for an initial fixed
interest rate period;
o mortgage loans, representing ___% of the initial pool balance,
have not experienced their first Interest Rate Adjustment Date]
o [The latest initial Interest Rate Adjustment Date for any mortgage
loan is to occur in subject to the Payment Caps described in this
prospectus supplement, the amount of the monthly payment on each
mortgage loan adjusts periodically on each Payment Adjustment Date to
an amount that would fully amortize the principal balance of the
mortgage loan over its then remaining amortization schedule and pay
interest at the mortgage rate in effect during the one month period
preceding this Payment Adjustment Date.]
o [Approximately __% of the mortgage loans provide that an
adjustment of the amount of the monthly payment on a Payment Adjustment
Date is subject to a Payment Cap; however, certain of those mortgage
loans also provide that the Payment Cap will not apply on certain
Payment Adjustment Dates or if the application thereof would result in
the principal balance of the mortgage loan exceeding, through negative
amortization, by a specified percentage the original principal balance
thereof. Generally, the related mortgage note provides that if, as a
result of negative amortization, the respective principal balance of
the mortgage loan reaches an amount specified in the mortgage note,
which as to most mortgage loans is not greater than _% of the mortgage
loan principal balance as of the origination date thereof, the amount
of the monthly payments due thereunder will be increased as necessary
to prevent further negative amortization.]
o [Only in the case of _____% of the mortgage loans does a Payment
Adjustment Date immediately follow each Interest Rate Adjustment Date.
As a result, and because application of Payment Caps may limit the
amount by which the monthly payments due on certain of the mortgage
loans may adjust, the amount of a monthly payment may be more or less
than the amount necessary to amortize the mortgage loan principal
balance over the then remaining amortization schedule at the applicable
mortgage rate. Accordingly, mortgage loans may be subject to slower
amortization, if the monthly payment due on a Due Date is sufficient to
pay interest accrued to this Due Date at the applicable mortgage rate
but is not sufficient to reduce principal in accordance with the
applicable amortization schedule, to negative amortization if interest
accrued to a Due Date at the applicable mortgage rate is greater than
the entire monthly payment due on this Due Date or to accelerated
amortization, if the monthly payment due on a Due Date is greater than
the amount necessary to pay interest accrued to this Due Date at the
applicable mortgage rate and to reduce principal in accordance with the
applicable amortization schedule.]
o [No mortgage loan currently prohibits principal prepayments;
however, some of the mortgage loans impose prepayment premiums in
connection with full or partial prepayments. Although prepayment
premiums are payable to the master servicer as additional servicing
compensation, the master servicer may waive the payment of any
prepayment premium only in connection with a principal prepayment that
is proposed to be made during the three month period prior to the
scheduled maturity of the related mortgage loan, or under certain other
limited circumstances.]
S-20
<PAGE>
The following table sets forth the range of mortgage rates on the
mortgage loans as of the Cut-off Date:
MORTGAGE RATES AS OF THE CUT-OFF DATE
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Mortgage Rate Loans Number the Cut-off Date the Cut-off Date
- ------------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
--------- ------- ---------------- ----------------
Weighted Average
Mortgage Rate:
Note: Percentage totals may not add due to rounding.
The following table sets forth the types of mortgaged properties
securing the mortgage loans:
PROPERTY TYPE
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Type Loans Number the Cut-off Date the Cut-off Date
- ---- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
--------- ------- ---------------- ----------------
Note: Percentage totals may not add due to rounding.
S-21
<PAGE>
[The following table sets forth the range of Gross Margins for the
mortgage loans:]
[GROSS MARGINS]
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Mortgage Rate Loans Number the Cut-off Date the Cut-off Date
- ------------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
--------- ------- ---------------- ----------------
Weighted Average
Gross Margin:
Note: Percentage totals may not add due to rounding.
[The following table sets forth the frequency of adjustments to the
mortgage rates on the mortgage loans as of the Cut-off Date:]
[FREQUENCY OF ADJUSTMENTS TO MORTGAGE RATES]
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Frequency(A) Loans Number the Cut-off Date the Cut-off Date
- ------------ --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
--------- ------- ---------------- ----------------
Weighted Average
Frequency of
Adjustments to
Mortgage Rate:
Note: Percentage totals may not add due to rounding.
S-22
<PAGE>
(A) _______ or ___% of mortgage loans have not experienced their
first Interest Rate Adjustment Date.
[The following table sets forth the frequency of adjustments to the
monthly payments on the mortgage loans as of the Cut-off Date:]
[FREQUENCY OF ADJUSTMENTS TO MONTHLY PAYMENTS]
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Frequency(A) Loans Number the Cut-off Date the Cut-off Date
- ------------ --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
--------- ------- ---------------- ----------------
Weighted Average
Frequency of
Adjustments to
Monthly Payments:
Note: Percentage totals may not add due to rounding.
[The following table sets forth the range of maximum lifetime mortgage
rates for the mortgage loans:]
[MAXIMUM LIFETIME MORTGAGE RATES]
Percent by
Aggregate Aggregate
Maximum Number of Percent Principal Principal
Lifetime Mortgage by Balance as of Balance as of
Mortgage Rate Loans Number the Cut-off Date the Cut-off Date
- ------------ --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
--------- ------- ---------------- ----------------
Weighted Average
Maximum Lifetime
Mortgage Rate:
Note: Percentage totals may not add due to rounding.
(A) Represents mortgage loans without a lifetime rate cap.
(B) The lifetime rate caps for these mortgage loans are based upon the
Index as determined at a future point in time plus a fixed percentage.
Therefore, the rate is not determinable as of the Cut-off Date.
S-23
<PAGE>
(C) This calculation does not include the ____ mortgage loans without a
lifetime rate cap or the mortgage loans with lifetime rate caps which
are currently not determinable.
[The following table sets forth the range of minimum lifetime mortgage
rates on the mortgage loans:]
[MINIMUM LIFETIME MORTGAGE RATES]
Percent by
Aggregate Aggregate
Minimum Number of Percent Principal Principal
Lifetime Mortgage by Balance as of Balance as of
Mortgage Rate Loans Number the Cut-off Date the Cut-off Date
- ------------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
--------- ------- ---------------- ----------------
Weighted Average
Minimum Lifetime
Mortgage Rate:
Note: Percentage totals may not add due to rounding.
(A) Represents mortgage loans without interest rate floors.
(B) This calculation does not include the mortgage loans without interest
rate floors.
The following table sets forth the range of principal balances of the
mortgage loans as of the Cut-off Date:
PRINCIPAL BALANCES AS OF THE CUT-OFF DATE
Percent by
Principal Aggregate Aggregate
Balance Number of Percent Principal Principal
as of the Mortgage by Balance as of Balance as of
Cut-off Date Loans Number the Cut-off Date the Cut-off Date
- ------------ --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
--------- ------- ---------------- ----------------
Average Principal Balance
as of the
Cut-off Date:
Note: Percentage totals may not add due to rounding.
S-24
<PAGE>
The following tables set forth the original and remaining terms to
maturity, in months, of the mortgage loans:
ORIGINAL TERM TO MATURITY IN MONTHS
Percent by
Aggregate Aggregate
Original Number of Percent Principal Principal
Term in Mortgage by Balance as of Balance as of
Months Loans Number the Cut-off Date the Cut-off Date
-------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
--------- ------- ---------------- ----------------
Weighted Average
Original Term to Maturity:
Note: Percentage totals may not add due to rounding.
The following tables set forth the purpose for which the mortgage loan
was originated, [the type of program under which it was originated and the
occupancy type].
MORTGAGE LOAN PURPOSE
Percent by
Aggregate Aggregate
Remaining Number of Percent Principal Principal
Term in Mortgage by Balance as of Balance as of
Months Loans Number the Cut-off Date the Cut-off Date
- --------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
--------- ------- ---------------- ----------------
Weighted Average
Original Term to Maturity:
Note: Percentage totals may not add due to rounding.
S-25
<PAGE>
[MORTGAGE LOAN DOCUMENTATION PROGRAM]
Percent by
Aggregate Aggregate
Remaining Number of Percent Principal Principal
Term in Mortgage by Balance as of Balance as of
Months Loans Number the Cut-off Date the Cut-off Date
-------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
--------- ------- ---------------- ----------------
Weighted Average
Original Term to Maturity:
Note: Percentage totals may not add due to rounding.
MORTGAGE LOAN OCCUPANCY TYPE
Percent by
Aggregate Aggregate
Remaining Number of Percent Principal Principal
Term in Mortgage by Balance as of Balance as of
Months Loans Number the Cut-off Date the Cut-off Date
-------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
--------- ------- ---------------- ----------------
Weighted Average
Original Term to Maturity:
Note: Percentage totals may not add due to rounding.
REMAINING TERM TO MATURITY IN MONTHS
Percent by
Aggregate Aggregate
Remaining Number of Percent Principal Principal
Term in Mortgage by Balance as of Balance as of
Months Loans Number the Cut-off Date the Cut-off Date
-------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
--------- ------- ---------------- ----------------
Weighted Average
Term to Maturity:
Note: Percentage totals may not add due to rounding.
S-26
<PAGE>
The following tables set forth the respective years in which the
mortgage loans were originated and are scheduled to mature:
MORTGAGE LOAN YEAR OF ORIGINATION
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Year Loans Number the Cut-off Date the Cut-off Date
---- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
--------- ------- ---------------- ----------------
Note: Percentage totals may not add due to rounding.
MORTGAGE LOAN YEAR OF SCHEDULED MATURITY
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Year Loans Number the Cut-off Date the Cut-off Date
---- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
--------- ------- ---------------- ----------------
Note: Percentage totals may not add due to rounding.
S-27
<PAGE>
The following table sets forth the range of Original LTV Ratios of the
mortgage loans. There can be no assurance that the value, determined through an
appraisal or otherwise, of a mortgaged property determined after origination of
the related mortgage loan will be equal to or greater than the value thereof,
determined through an appraisal or otherwise, obtained in connection with the
origination. As a result, there can be no assurance that the loan-to-value
ratio for any mortgage loan determined at any time following origination thereof
will be lower than the Original LTV Ratio, notwithstanding any positive
amortization of the mortgage loan.
ORIGINAL LTV RATIOS
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Original Mortgage by Balance as of Balance as of
LTV Radio Loans Number the Cut-off Date the Cut-off Date
- --------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
--------- ------- ---------------- ----------------
Weighted Average Original
LTV Radio:
Note: Percentage totals may not add due to rounding.
The mortgage loans are secured by mortgaged properties in different
states. The table below sets forth the states in which the mortgaged properties
are located:
GEOGRAPHIC DISTRIBUTION
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
State Loans Number the Cut-off Date the Cut-off Date
----- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
--------- ------- ---------------- ----------------
Note: Percentage totals may not add due to rounding.
[regional breakdown to be provided as appropriate]
No more than ___% of the mortgage loans will be secured by mortgaged
properties located in any one zip code.
[___% of the mortgage loans provide that upon any principal prepayment
of a mortgage loan, whether made voluntarily or involuntarily, the related
borrower will be required to pay a prepayment premium in the amount set forth in
the following table.]
S-28
<PAGE>
[MORTGAGE LOAN PREPAYMENT PREMIUMS]
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Prepayment Mortgage by Balance as of Balance as of
Premium Loans Number the Cut-off Date the Cut-off Date
- ---------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
--------- ------- ---------------- ----------------
Note: Percentage totals may not add due to rounding.
UNDERWRITING STANDARDS
All of the mortgage loans were originated or acquired by _______,
generally in accordance with the underwriting criteria described in this
prospectus supplement.
[Description of underwriting standards.]
ADDITIONAL INFORMATION
The description in this prospectus supplement of the mortgage pool and
the mortgaged properties is based upon the mortgage pool as expected to be
constituted at the close of business on the Cut-off Date, as adjusted for the
scheduled principal payments due on or before this date. Prior to the issuance
of the Class [ ] certificates, a mortgage loan may be removed from the mortgage
pool as a result of incomplete documentation or otherwise, if Morgan Stanley
Capital I Inc. deems removal necessary or appropriate and may be prepaid at any
time. A limited number of other mortgage loans may be included in the mortgage
pool prior to the issuance of the Class [ ] certificates unless including the
mortgage loans would materially alter the characteristics of the mortgage pool
as described in this prospectus supplement. Morgan Stanley Capital I Inc.
believes that the information set forth in this prospectus supplement will be
representative of the characteristics of the mortgage pool as it will be
constituted at the time the Class [ ] certificates are issued, although the
range of mortgage rates and maturities and other characteristics of the mortgage
loans in the mortgage pool may vary.
A Current Report on Form 8-K will be available to purchasers of the
Class [ ] certificates and will be filed, together with the Pooling and
Servicing Agreement, with the Securities and Exchange Commission within fifteen
days after the initial issuance of the Class [ ] certificates. In the event
mortgage loans are removed from or added to the mortgage pool as set forth in
the preceding paragraph, this removal or addition will be noted in the Form 8-K.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The certificates will be issued pursuant to the Pooling and Servicing
Agreement and will consist of ____ classes to be designated as the Class [ ]
certificates, the Class [ ] certificates, the Class [ ] certificates and the
Class [ ] certificates. The Class [ ], Class [ ] and Class [ ] certificates
S-29
<PAGE>
will be subordinate to the Class [ ] certificates, as described in this
prospectus supplement. The certificates represent in the aggregate the entire
beneficial ownership interest in a trust fund consisting of:
o the mortgage loans and all payments under and proceeds of the
mortgage loans received after the Cut-off Date, exclusive of payments
of principal and interest due on or before the Cut-off Date;
o REO Property;
o any funds or assets as from time to time are deposited in the
REO Account; and
o the rights of the lender under all insurance policies with respect
to the mortgage loans. Only the Class [ ] certificates are offered
hereby.
The Class [ ] certificates will have an initial [ certificate balance]
[notional amount] of $__________. The Class [ ] certificates represent ___% of
the aggregate principal balance of the mortgage loans as of the Cut-off Date.
The Class [ ] certificates will have an initial certificate balance of
$__________, representing ___% of the aggregate principal balance of the
mortgage loans as of the Cut-off Date. The Class [ ] certificates will have an
initial certificate balance of $__________, representing ___% of the aggregate
principal balance of the mortgage loans as of the Cut-off Date. The initial
certificate balance of the Class [ ] certificates will be [zero]. The
certificate balance of any class of certificates outstanding at any time
represents the maximum amount which the holders thereof are entitled to receive
as distributions allocable to principal from the cash flow on the mortgage loans
and the other assets in the trust fund. The respective certificate balances of
the Class [ ], Class [ ] and Class [ ] certificates will in each case be (i)
reduced by amounts actually distributed on the class of certificates that are
allocable to principal and [(ii) increased by amounts allocated to the class of
certificates in respect of negative amortization on the mortgage loans [Describe
notional amount.]] [The Class [ ] balance will at any time equal the aggregate
Stated Principal Balance of the mortgage loans minus the sum of the Class [ ]
balance, Class [ ] balance and Class [ ] balance.]
[None of the Class [ ] certificates are offered by this prospectus
supplement.]
DISTRIBUTIONS
Method, Timing and Amount. Distributions on or with respect to the
certificates will be made, to the extent of the Available Distribution Amount,
on each Distribution Date commencing in ______. All distributions, other than
the final distribution on any certificate, will be made by the master servicer
to the persons in whose names the certificates are registered at the close of
business on the [last business day of the month] preceding the month in which
the related Distribution Date occurs. The distributions will be made by:
o wire transfer in immediately available funds to the account
specified by the certificateholder at a bank or other entity having
appropriate facilities therefor, if the certificateholder provides the
master servicer with wiring instructions no less than five
S-30
<PAGE>
business days prior to the related record date and is the registered
owner of certificates the aggregate initial principal amount of which
is at least $ , or otherwise
o by check mailed to the certificateholder.
The final distribution on any certificate will be made in like manner,
but only upon presentment or surrender of such certificate at the location
specified in the notice to the holder thereof of the final distribution. All
distributions made with respect to a class of certificates on each Distribution
Date will be allocated pro rata among the outstanding certificates of the class
based on their respective Percentage Interests.
The aggregate distribution to be made on the certificates on any
Distribution Date shall equal the Available Distribution Amount.
Priority. On each Distribution Date, the master servicer shall apply
amounts on deposit in the certificate account, to the extent of the Available
Distribution Amount:
[first, to distributions of interest to holders of the Class [ ]
certificates, in the amount equal to the Interest Distribution Amount in respect
of the Class [ ] certificates for such Distribution Date and, to the extent not
previously distributed, for all preceding Distribution Dates; and
second, to distributions of principal to holders of the Class [ ]
certificates, in an amount, not to exceed the sum of the Class [ ] Balance
outstanding immediately prior to such Distribution Date [and any Class Negative
Amortization in respect of the Class [ ] certificates for such Distribution
Date], equal to the sum of (A) the then Class [ ] Scheduled Principal
Distribution Percentage of the Scheduled Principal Distribution Amount for such
Distribution Date and (B) the Unscheduled Principal Distribution Amount for such
Distribution Date.
On or after the reduction of the Class [ ] Balance to zero, the
Available Distribution Amount will be paid solely to the holders of the
subordinate certificates.]
Calculations of Interest. The pass-through rate applicable to the Class
[ ] certificates for any Distribution Date [is fixed and is set forth on the
cover hereof][will equal the Weighted Average Class [ ] Remittance Rate][is
equal to the excess of the mortgage rate thereon over ___% per annum]. Interest
in respect of the Class [ ] certificates for any Distribution Date will be equal
to the Interest Distribution Amount thereon.
[The Class [ ] notional amount will equal the [sum of the Class [ ]
Balance. The Class [ ] notional amount does not entitle the Class [ ]
certificate [or a component thereof] to any distribution of principal.]
[The Class [ ] certificates [or a component thereof] will not be
entitled to distributions of interest and will not have a pass-through rate.]
Calculations of Principal. Holders of the Class [ ] certificates will
be entitled to receive on each Distribution Date, to the extent of the balance
of the Available Distribution Amount remaining after the payment of the Class [
] Interest Distribution Amount for such Distribution Date an amount equal to the
Class [ ] Principal Distribution Amount.
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<PAGE>
[The portion of the Class [ ] Principal Distribution Amount payable on
any Distribution Date shall be allocated to the Class [ ] certificates as
follows: [Describe distributions which may be concurrent or sequential and among
different classes and may be based on a schedule of payments sometimes referred
to as a Schedule of PAC, TAC or Scheduled Balances for some and not other
classes.]]
[The Class [ ] Scheduled Principal Distribution Percentage for any
Distribution Date represents the portion of the Scheduled Principal Distribution
Amount for such Distribution Date payable (subject to the payment priorities
described herein) on the Class [ ] certificates.
SUBORDINATION
In order to maximize the likelihood of distribution in full of the
Class [ ] Interest Distribution Amount and the Class [ ] Scheduled Principal
Distribution Amount, on each Distribution Date, holders of the Class [ ]
certificates have a right to distributions of the Available Distribution Amount
that is prior to the rights of the holders of the Subordinate certificates, to
the extent necessary to satisfy the class interest distribution amount and the
Class [ ] Scheduled Principal Distribution Amount.
[The entitlement to the Class [ ] certificates of the [entire] [a
larger percentage under certain circumstances of] Unscheduled Principal
Distribution Amount will accelerate the amortization of the Class [ ]
certificates relative to the actual amortization of the mortgage loans.]
[To the extent that the Class [ ] certificates are amortized faster
than the mortgage loans, without taking into account losses on the mortgage
loans, the percentage interest evidenced by the Class [ ] certificates in the
trust fund will be decreased (with a corresponding increase in the interest in
the trust fund evidenced by the subordinate certificates), thereby increasing,
relative to their respective certificate balances, the Subordinate afforded the
Class [ ] certificates by the subordinate certificates.]
[The principal portion of any Realized Losses will be allocated first
in reduction of the subordinate certificates [in the order specified here] and
then to the Class [ ] certificates [in the order specified here].
ADVANCES
On the business day immediately preceding each Distribution Date, the
master servicer will be obligated to make advances out of its own funds, or
funds held in the certificate account that are not required to be part of the
Available Distribution Amount for such Distribution Date, in an amount equal to
the aggregate of:
[(i)] all monthly payments (net of the Servicing Fee), [other than
balloon payments,] which were due on the mortgage loans during the related Due
Period and delinquent as of the related Determination Date [and
(ii) in the case of each mortgage loan delinquent in respect of its
balloon payment as of the related Determination Date, an amount sufficient to
amortize fully the principal portion of the balloon payment over the remaining
amortization term of such mortgage loan and to pay interest at the Net Mortgage
Rate in effect for the mortgage loan for the one month period preceding its
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<PAGE>
Due Date in the related Due Period (but only to the extent that the related
borrower has not made a payment sufficient to cover the amount under any
forbearance arrangement that has been included in the Available Distribution
Amount for such Distribution Date)].
The master servicer's obligations to make advances in respect of any mortgage
loan will continue through liquidation of the mortgage loan and out of its own
funds from any amounts collected in respect of the mortgage loan as to which
such advance was made, whether in the form of late payments, insurance proceeds,
liquidation proceeds, condemnation proceeds or amounts paid in connection with
the purchase of the mortgage loan. Notwithstanding the foregoing, the master
servicer will be obligated to make any advance only to the extent that it
determines in its reasonable good faith judgment that, if made, would be
recoverable out of general funds on deposit in the certificate account. Any
failure by the master servicer to make an advance as required under the Pooling
and Servicing Agreement will constitute an event of default thereunder, in which
case the trustee will be obligated to make any such advance, in accordance with
the terms of the Pooling and Servicing Agreement.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
The yield to maturity on the Class [ ] certificates will be affected by
the rate of principal payments on the mortgage loans including, for this
purpose, prepayments, which may include amounts received by virtue of
repurchase, condemnation, insurance or foreclosure. The yield to maturity on the
Class [ ] certificates will also be affected by the level of the Index. The rate
of principal payments on the Class [ ] certificates will correspond to the rate
of principal payments, including prepayments, on the related mortgage loans.
[Description of factors affecting yield, prepayment and maturity of the
mortgage loans and Class [ ] certificates depending upon characteristics of the
mortgage loans.]
WEIGHTED AVERAGE LIFE OF THE CLASS [ ] CERTIFICATES
Weighted average life refers to the average amount of time from the
date of issuance of a security until each dollar of principal of the security
will be repaid to the investor. The weighted average life of the Class [ ]
certificates will be influenced by the rate at which principal payments,
including scheduled payments, principal prepayments and payments made pursuant
to any applicable policies of insurance, on the mortgage loans are made.
Principal payments on the mortgage loans may be in the form of scheduled
amortization or prepayments (for this purpose, "prepayment" includes prepayments
and liquidations due to a default or other dispositions of the mortgage loans).
The table of Percent of Initial Certificate Balance Outstanding for the
Class [ ] certificates at the respective percentages of [CPR] [SPA] set forth
below indicates the weighted average life of such certificates and sets forth
the percentage of the initial principal amount of such certificates that would
be outstanding after each of the dates shown at the indicated percentages of
[CPR][SPA]. The table has been prepared on the basis of the following
assumptions regarding the characteristics of the mortgage loans:
(i) an outstanding principal balance of $_________, a remaining
amortization term of ___ months and a term to balloon of ___
months;
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(ii) an interest rate equal to ____% per annum until the Due Date
and thereafter an interest rate equal to % per annum (at an
assumed Index of ____%) and monthly payments that would fully
amortize the remaining balance of the mortgage loan over its
remaining amortization term;
(iii) the mortgage loans prepay at the indicated percentage of
[CPR][SPA];
(iv) the maturity date of each of the balloon mortgage loans is not
extended;
(v) distributions on the Class [ ] certificates are received in
cash, on the 25th day of each month, commencing in
_____________;
(vi) no defaults or delinquencies in, or modifications, waivers or
amendments respecting, the payment by the borrowers of
principal and interest on the mortgage loans occur;
(vii) the initial certificate balance of the Class [ ] certificates
is $________;
(viii) prepayments represent payment in full of individual mortgage
loans and are received on the respective Due Dates and include
30 days' interest thereon;
(ix) there are no repurchases of mortgage loans due to breaches of
any representation and warranty or otherwise;
(x) the Class [ ] certificates are purchased on ________;
(xi) the Servicing Fee is ____% per annum; and
(xii) the Index on each Interest Rate Adjustment Date is ________%
per annum.
Based on the foregoing assumptions, the table indicates the weighted
average life of the Class [ ] certificates and sets forth the percentages of the
initial certificate balance of the Class [ ] certificates that would be
outstanding after the Distribution Date in ___________ of each of the years
indicated, at various percentages of [CPR][SPA]. Neither [CPR][SPA] nor any
other prepayment model or assumption purports to be a historical description of
prepayment experience or a prediction of the anticipated rate of prepayment of
any pool of mortgage loans, including the mortgage loans included in the
mortgage pool. Variations in the actual prepayment experience and the balance of
the mortgage loans that prepay may increase or decrease the percentage of
initial certificate balance and weighted average life shown in the following
table. The variations may occur even if the average prepayment experience of all
such mortgage loans is the same as any of the specified assumptions.
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<PAGE>
PERCENT OF INITIAL CLASS [ ] CERTIFICATE BALANCE OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF [CPR][SPA]
Distribution Date
- -----------------
Initial Percent.............. ___% __% __% __% __% __%
____________ 25, 199__.......
____________ 25, 199__.......
____________ 25, 199__.......
____________ 25, 199__.......
____________ 25, 199__.......
____________ 25, 199__.......
____________ 25, 199__.......
____________ 25, 200__.......
____________ 25, 200__.......
____________ 25, 200__.......
____________ 25, 200__.......
Weighted Average Life
(Years) (+) . . . . . . . .
+ The weighted average life of the Class [ ] certificates is determined by
(i) multiplying the amount of each distribution of principal by the
number of years from the date of issuance to the related Distribution
Date, (ii) adding the results and (iii) dividing the sum by the total
principal distributions on such class of certificates.
[Class [ ] Yield Consideration]
[Will describe assumption for various scenarios showing sensitivity of
certain classes to prepayment and default risks and set forth resulting yield.]
S-35
<PAGE>
POOLING AND SERVICING AGREEMENT
GENERAL
The certificates will be issued pursuant to a Pooling and Servicing
Agreement to be dated as of ____________ 1, 199_, by and among Morgan Stanley
Capital I Inc., the master servicer and the trustee.
Reference is made to the prospectus for important information in
addition to that set forth in this prospectus supplement regarding the terms and
conditions of the Pooling and Servicing Agreement and the Class [ ]
certificates. Morgan Stanley Capital I Inc. will provide to a prospective or
actual Class [ ] certificateholder without charge, upon written request, a copy
(without exhibits) of the Pooling and Servicing Agreement. Requests should be
addressed to Morgan Stanley & Co. Incorporated, ____________________________ New
York, New York _____.
ASSIGNMENT OF THE MORTGAGE LOANS
On or prior to the Closing Date, Morgan Stanley Capital I Inc. will
assign or cause to be assigned the mortgage loans, without recourse, to the
trustee for the benefit of the certificateholders. Prior to the Closing Date,
Morgan Stanley Capital I Inc. will, as to each mortgage loan, deliver to the
trustee, or the custodian, among other things, the following documents:
(1) the original or, if accompanied by a "lost note" affidavit, a copy
of the mortgage note, endorsed by ____________________ which
transferred the mortgage loan, without recourse, in blank or to
the order of trustee;
(2) the original mortgage or a certified copy of the mortgage, and any
intervening assignments, or certified copies of the intervening
assignments, in each case with evidence of recording thereon;
(3) an assignment of the mortgage, executed by the
____________________ which transferred the mortgage loan, in blank
or to the order of the trustee, in recordable form;
(4) assignments of any related assignment of leases, rents and profits
and any related security agreement if, in either case, the item is
a document separate from the mortgage, executed by
____________________ which transferred the mortgage loan, in blank
or to the order of the trustee;
(5) originals or certified copies of all assumption, modification and
substitution agreements in those instances where the terms or
provisions of the mortgage or mortgage note have been modified or
the mortgage or mortgage note has been assumed; and
(6) the originals or certificates of a lender's title insurance policy
issued on the date of the origination of the mortgage loan or,
with respect to each mortgage loan not covered by a lender's title
insurance policy, an attorney's opinion of title given by an
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<PAGE>
attorney licensed to practice law in the jurisdiction where the
mortgaged property is located.
The Pooling and Servicing Agreement will require Morgan Stanley Capital
I Inc. promptly, and in any event within _____ days of the Closing Date, to
cause each assignment of the mortgage described in clause (3) above to be
submitted for recording in the real property records of the jurisdiction in
which the related mortgaged property is located. Any assignment delivered in
blank will be completed to the order of the trustee prior to recording. The
Pooling and Servicing Agreement will also require Morgan Stanley Capital I Inc.
to cause the endorsements on the mortgage notes delivered in blank to be
completed to the order of the trustee.
THE [MASTER] SERVICER
General. ____________________, a __________________ corporation, will
act as [master] servicer for the certificates pursuant to the Pooling and
Servicing Agreement. The [master] servicer[, a wholly-owned subsidiary of
__________,] [is engaged in the mortgage banking business and originates,
purchases, sells and services mortgage loans. _________________ primarily
originates mortgage loans through a branch system consisting of
_______________________ offices in __________ states, and through mortgage loan
brokers.]
The executive offices of the [master] servicer are located at
_______________, telephone number
(--)----------.
Delinquency and Foreclosure Experience. The following tables set forth
information concerning the delinquency experience, including pending
foreclosures, on one- to four- family residential mortgage loans included in the
[master] servicer's servicing portfolio, which includes mortgage loans that are
subserviced by others. The indicated periods of delinquency are based on the
number of days past due on a contractual basis. No mortgage loan is considered
delinquent for these purposes until 31 days past due on a contractual basis.
S-37
<PAGE>
<TABLE>
<CAPTION>
As of December 31, 19 As of December 31, 19 As of , 19
----------------------- ----------------------- ------------
By No. of By Dollar By No. of By Dollar By No. of By Dollar
Loans Amount of Loans Amount of Loans Amount of
--------- Loans --------- Loans --------- Loans
--------- --------- ---------
(Dollar Amount in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio --------- $-------- --------- $-------- --------- $--------
Period of Delinquency
31 to 59 days
60 to 89 days
90 days or more --------- --------- --------- --------- --------- ---------
Total Delinquent Loans --------- $-------- --------- $-------- --------- $--------
Percent of Portfolio % % % % % %
Foreclosures pending (1)
Percent of Portfolio % % % % % %
Foreclosures
Percent of Portfolio % % % % % %
- --------------------
<FN>
(1) Includes bankruptcies which preclude foreclosure.
</FN>
</TABLE>
There can be no assurance that the delinquency and foreclosure
experience of the mortgage loans comprising the mortgage pool will correspond to
the delinquency and foreclosure experience of the [master] servicer's mortgage
portfolio set forth in the foregoing tables. The aggregate delinquency and
foreclosure experience on the mortgage loans comprising the mortgage pool will
depend on the results obtained over the life of the mortgage pool.
CERTIFICATE ACCOUNT
The [master] servicer is required to deposit on a daily basis all
amounts received with respect to the mortgage loans of the mortgage pool, net of
its servicing compensation, into a separate certificate account maintained with
____________. Interest or other income earned on funds in the certificate
account will be paid to the [master] servicer as additional servicing
compensation. See "Description of the Trust Funds--Assets" and "Description of
the Agreements--Certificate Account and Other Collection Accounts" in the
prospectus.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
[Include description of Servicing Standard]
-----------------------------------------
S-38
<PAGE>
The compensation to be paid to the master servicer in respect of its
master servicing activities will be the Servicing Fee. The Servicing Fee will be
payable monthly only from amounts received in respect of interest on each
mortgage loan, will accrue at the Servicing Fee Rate and will be computed on the
basis of the same principal balance and for the same period respecting which any
related interest payment on the mortgage loan is computed. The Servicing Fee
Rate [with respect to each mortgage loan equals % per annum] [equals the
weighted average of the excesses of the mortgage rates over the respective Net
Mortgage Rates].
As additional servicing compensation, the master servicer is entitled
to retain all assumption fees, prepayment penalties and late payment charges, to
the extent collected from borrowers, together with any interest or other income
earned on funds held in the certificate account and any escrow accounts. The
Servicing Standard requires the master servicer to, among other things,
diligently service and administer the mortgage loans on behalf of the trustee
and in the best interests of the certificateholders, but without regard to the
master servicer's right to receive additional servicing compensation. The master
servicer is obligated to pay certain ongoing expenses associated with the
mortgage pool and incurred by the master servicer in connection with its
responsibilities under the Pooling and Servicing Agreement. See "Description of
the Agreements--Retained Interest; Servicing Compensation and Payment of
Expenses" in the prospectus for information regarding other possible
compensation payable to the master servicer and for information regarding
expenses payable by the master servicer [and "Federal Income Tax Consequences"
in this prospectus supplement regarding certain taxes payable by the master
servicer].
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date the master servicer shall furnish to each
certificateholder, to Morgan Stanley Capital I Inc., to the trustee and to the
rating agency a statement setting forth information with respect to the mortgage
loans and the certificates required pursuant to the Pooling and Servicing
Agreement. In addition, within a reasonable period of time after each calendar
year, the master servicer shall furnish to each person who at any time during
the calendar year was the holder of a certificate a statement containing
information with respect to the certificates required pursuant to the Pooling
and Servicing Agreement, aggregated for the calendar year or portion of the
calendar year during which the person was a certificateholder. See "Description
of the Certificates--Reports to Certificateholders" in the prospectus.
VOTING RIGHTS
At all times during the term of this Agreement, the voting rights shall
be allocated among the classes of certificateholders in proportion to the
respective certificate balances of their certificates [net, in the case of the
Class [ ], Class [ ] and Class [ ] certificates, of any uncovered portion of the
related certificate balance]. Voting rights allocated to a class of
certificateholders shall be allocated among these certificateholders in
proportion to the Percentage Interests evidenced by their respective
certificates.
S-39
<PAGE>
TERMINATION
The obligations created by the Pooling and Servicing Agreement will
terminate following the earliest of the final payment or other liquidation of
the last mortgage loan or REO Property subject thereto, and the purchase of all
of the assets of the trust fund by the master servicer.
Written notice of termination of the Pooling and Servicing Agreement
will be given to each certificateholder, and the final distribution will be made
only upon surrender and cancellation of the certificates at the office of the
certificate registrar specified in the notice of termination. In no event,
however, will the trust fund created by the Pooling and Servicing Agreement
continue beyond the expiration of 21 years from the death of the survivor of
certain persons named in the Pooling and Servicing Agreement.
Any purchase by the master servicer of all the mortgage loans and other
assets in the trust fund is required to be made at a price equal to the greater
of the aggregate fair market value of all the mortgage loans and REO Properties
then included in the trust fund, as mutually determined by the master servicer
and the trustee, and the excess of:
o the sum of (a) the aggregate Purchase Price of all the mortgage loans
then included in the trust fund and (b) the fair market value of all REO
Properties then included in the trust fund, as determined by an appraiser
mutually agreed upon by the master servicer and the trustee, over
o the aggregate of amounts payable or reimbursable to the master servicer
under the Pooling and Servicing Agreement.
The purchase will effect early retirement of the then outstanding Class
[ ] certificates, but the right of the master servicer to effect the termination
is subject to the requirement that the aggregate Stated Principal Balance of the
mortgage loans then in the trust fund is less than __% of the aggregate
principal balance of the mortgage loans as of the Cut-off Date. [In addition,
the master servicer may at its option purchase any class or classes of Class [ ]
certificates with a certificate balance less than __% of the original balance
thereof at a price equal to the certificate balance plus accrued interest
through ---------.]
USE OF PROCEEDS
The net proceeds from the sale of Class [ ] certificates will be used
by Morgan Stanley Capital I Inc. to pay the purchase price of the mortgage
loans.
FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Class [ ] certificates,
_______________________________, counsel to Morgan Stanley Capital I Inc., will
deliver its opinion generally to the effect that, assuming compliance with all
provisions of the Pooling and Servicing Agreement, for federal income tax
purposes, the trust fund will qualify as a REMIC under the Internal Revenue Code
of 1986, as amended (the "Code").
For federal income tax purposes, the Class [ ] certificates will be the
sole class of "residual interests" in the REMIC and the Class [ ], Class [ ] and
Class [ ] certificates will be the "regular interests" in the REMIC and will be
treated as debt instruments of the REMIC.
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<PAGE>
See "Federal Income Tax Consequences--REMICS" in the prospectus.
[The Class [ ] certificates [may][will not][will] be treated as having
been issued with original issue discount for federal income tax reporting
purposes. The prepayment assumption that will be used in determining the rate of
accrual of original issue discount, market discount and premium, if any, for
federal income tax purposes will be based on the assumption that subsequent to
the date of any determination the mortgage loans will prepay at a rate equal to
___% [CPR][SPA]. No representation is made that the mortgage loans will prepay
at that rate or at any other rate. See "Federal Income Tax
Consequences--REMICS--Taxation of Owners of REMIC Regular Certificates" and
"--Original Issue Discount" in the prospectus.]
The Class [ ] certificates may be treated for federal income tax
purposes as having been issued at a premium. Whether any holder of such a class
of certificates will be treated as holding a certificate with amortizable bond
premium will depend on such certificateholder's purchase price and the
distributions remaining to be made on such certificate at the time of its
acquisition by such certificateholder. Holders of such class of certificates
should consult their own tax advisors regarding the possibility of making an
election to amortize such premium. See "Federal Income Tax
Consequences--REMICS--Taxation of Owners of REMIC Regular Certificates" and
"--Premium" in the prospectus.
[The Class [ ] certificates will be treated as assets described in
Section 7701(a)(19)(C) of the Code] and "Real Estate Assets" within the meaning
of Section 856(c)(4)(A) of the Code generally in the same proportion that the
assets of the REMIC underlying such certificates would be so treated.] [In
addition, interest (including original issue discount) on the Class [ ]
certificates will be interests described in Section 856(c)(3)(B) of the Code to
the extent that such Class [ ] certificates are treated as "Real Estate Assets"
under Section 856(c)(4)(A) of the Code.] [Moreover, the Class [ ] certificates
will be "obligation[s] . . . which . . .[are] principally secured by an interest
in real property" within the meaning of Section 860G(a)(3)(C) of the Code.] [The
Class [ ] certificates will not be considered to represent an interest in "loans
. . . secured by an interest in real property" within the meaning of Section
7701 (a)(19)(C)(v) of the Code.] See "Federal Income Tax Consequences--REMICS"
in the prospectus.
For further information regarding the federal income tax consequences
of investing in the Class [ ] certificates, see "Federal Income Tax
Consequences--REMICS" in the prospectus.
ERISA CONSIDERATIONS
[A fiduciary of any employee benefit plan or other retirement plan or
arrangement, including individual retirement accounts and annuities and Keogh
plans , or of a collective investment fund or insurance company general or
separate account in which such plans, accounts or arrangements are invested,
that is subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 4975 of the Code (together, "Plans") should
carefully review with its legal advisors whether the purchase or holding of
Class [ ] certificates could give rise to a transaction that is prohibited or is
not otherwise permitted under either ERISA or Section 4975 of the Code.
[The U.S. Department of Labor issued an exemption, Prohibited
Transaction Exemption 90-24, as amended (the "Exemption"), to Morgan Stanley &
Co. Incorporated, which generally exempts from the application of the prohibited
transaction provisions of Section 406 of ERISA,
S-41
<PAGE>
and the excise taxes imposed on such prohibited transactions pursuant to
Sections 4975(a) and (b) of the Code and Section 502(i) of ERISA, certain
transactions relating to the servicing and operation of mortgage pools and the
purchase, sale and holding of mortgage pass-through certificates underwritten by
an underwriter (as hereinafter defined), provided that certain conditions set
forth in the Exemption are satisfied. For purposes of this Section "ERISA
Considerations," the term "underwriter" shall include (a) Morgan Stanley & Co.
Incorporated, (b) any person directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with Morgan
Stanley & Co. Incorporated and (c) any member of the underwriting syndicate or
selling group of which a person described in (a) or (b) is a manager or
co-manager with respect to the Class [ ] certificates.
The Exemption sets forth six general conditions which must be satisfied
for a transaction involving the purchase, sale and holding of the Class [ ]
certificates or a transaction in connection with the servicing, operation and
management of the trust fund to be eligible for exemptive relief thereunder.
First, the acquisition of the Class [ ] certificates by a Plan must be on terms
that are at least as favorable to the Plan as they would be in an arm's-length
transaction with an unrelated party. Second, the rights and interests evidenced
by the Class [ ] certificates must not be subordinate to the rights and
interests evidenced by the other certificates of the trust with respect to the
right to receive payment in the event of default or delinquencies in underlying
assets of the trust. Third, the Class [ ] certificates at the time of
acquisition by the Plan must be rated in one of the three highest generic rating
categories by Standard & Poor's Corporation, Moody's Investors Service, Inc.,
Duff & Phelps Credit Rating Co. or Fitch IBCA , Inc. Fourth, the trustee cannot
be an affiliate of any member of the "Restricted Group", which consists of any
Underwriter, Morgan Stanley Capital I Inc., the master servicer, each
sub-servicer, any insurer and any borrower with respect to mortgage loans
constituting more than 5% of the aggregate unamortized principal balance of the
mortgage loans as of the date of initial issuance of the Class [ ] certificates.
Fifth, the sum of all payments made to and retained by the Underwriter must
represent not more than reasonable compensation for underwriting the Class [ ]
certificates; the sum of all payments made to and retained by Morgan Stanley
Capital I Inc. pursuant to the assignment of the mortgage loans to the trust
fund must represent not more than the fair market value of such obligations; and
the sum of all payments made to and retained by the master servicer and any
sub-servicer must represent not more than reasonable compensation for such
person's services under the pooling and servicing agreement and reimbursement of
such person's reasonable expenses in connection therewith. Sixth, the investing
Plan must be an accredited investor as defined in Rule 501(a)(1) of Regulation D
of the Securities and Exchange Commission under the Securities Act of 1933, as
amended.
[Because the Class [ ] certificates are not subordinate to any other
class of certificates with respect to the right to receive payment in the event
of default or delinquencies on the underlying assets of the trust, the second
general condition set forth above is satisfied with respect to such
certificates. It is a condition of the issuance of the Class [ ] certificates
that they be rated [not lower than] "____" by ___________________. A fiduciary
of a Plan contemplating purchasing a Class [ ] certificate in the secondary
market must make its own determination that at the time of such acquisition, the
Class [ ] certificates continue to satisfy the third general condition set forth
above. Morgan Stanley Capital I Inc. expects that the fourth general condition
set forth above will be satisfied with respect to the Class [ ] certificates. A
fiduciary of a Plan contemplating purchasing a Class [ ] certificate must make
its own
S-42
<PAGE>
determination that the first, third, fifth and sixth general conditions
set forth above will be satisfied with respect to such Class [ ] certificate.
Before purchasing a Class [ ] certificate, a fiduciary of a Plan should
itself confirm (a) that such certificates constitute "certificates" for purposes
of the Exemption and (b) that the specific and general conditions of the
Exemption and the other requirements set forth in the Exemption would be
satisfied. In addition to making its own determination as to the availability of
the exemptive relief provided in the Exemption, the Plan fiduciary should
consider the availability of any other prohibited transaction exemptions, in
particular, Prohibited Transaction Class Exemption 83-1. See "ERISA
Considerations" in the prospectus.
Any Plan fiduciary considering whether to purchase a Class [ ]
certificate on behalf of a Plan should consult with its counsel regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to such investment. Prospective purchasers that
are insurance companies should consult with their counsel regarding whether the
United States Supreme Court's decision in the case of John Hancock v. Harris
Trust Savings Bank, 510 U.S. 86 (1993) affects their ability to make purchases
of Class [ ] certificates and the extent to which Prohibited Transaction Class
Exemption ("PTCE 95-60") may be available. [Any purchaser of a [class]
certificate will be [required/deemed to] represent that either (a) it is not a
Plan, and is not purchasing such certificate on behalf of or with assets of the
Plan, or (b) it is an insurance company which is purchasing the certificates
with funds contained in an insurance company general account (as defined in PTCE
95-60), and the purchase and holding of the certificate is covered under Section
I and III of PTCE 95-60. See "ERISA Considerations" in the prospectus.] [Because
the trust does not contain only assets to which the Exemption applies, Class [ ]
certificates shall not be transferred and the trustee shall not register any
proposed transfer of Class [ ] certificates unless it receives (i) a
representation substantially to the effect that the proposed transferee is not a
Plan, is not acquiring the Class [ ] certificates on behalf of or with the
assets of a Plan (including assets that may be held in an insurance company's
separate or general accounts where assets in such accounts may be deemed "plan
assets" for purposes of ERISA), or (ii) an opinion of counsel in form and
substance satisfactory to the trustee and the depositor that the purchase or
holding of the Class [ ] certificates by or on behalf of a Plan will not
constitute a prohibited transaction and will not result in the assets of the
trust being deemed to be "plan assets" and subject to the fiduciary
responsibility provisions of ERISA or the prohibited transaction provisions of
ERISA and the Code or subject the trustee, any servicer or the depositor to any
obligation in addition to those undertaken in the trust agreement.]
LEGAL INVESTMENT
The Class [ ] certificates will constitute "Mortgage Related
Securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984, as amended, so long as they are rated in at least the second highest
rating category by the rating agency, and, as such, will be legal investments
for certain entities to the extent provided in SMMEA. However, institutions
subject to the jurisdiction of the Office of the Comptroller of the Currency,
the Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation, the Office of Thrift Supervision, the National Credit
Union Administration or federal or state banking, insurance or other regulatory
authorities should review applicable rules, supervisory policies and guidelines,
since some restrictions may apply to investments in the certificates. It should
also be noted that certain states have enacted legislation limiting to varying
extents the ability of certain
S-43
<PAGE>
entities, in particular insurance companies, to invest in mortgage related
securities. Investors should consult with their own legal advisors in
determining whether, and to what extent, the Class [___] certificates constitute
legal investments for these investors.
The Class [___] certificates will not constitute "mortgage related
securities" under SMMEA. The appropriate characterization of the Class [___]
certificates under various legal investment restrictions, and thus the ability
of investors subject to these restrictions to purchase Class [___] certificates,
may be subject to significant interpretive uncertainties. All investors whose
investment authority is subject to legal restrictions should consult their own
legal advisors to determine whether, and to what extent, the Class [___]
certificates will constitute legal investments for them.
[Except as to the status of the Class [___] certificates as "mortgage
related securities," no] [No] representations as to the proper characterization
of the certificates for legal investment, financial regulatory or other
purposes, or as to the ability of particular investors to purchase the
certificates under applicable legal investment restrictions. The uncertainties
described above, and any unfavorable future determinations concerning legal
investment or financial institution regulatory characteristics of the
certificates, may adversely affect the liquidity of the certificates.
See "Legal Investment" in the prospectus.
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement between Morgan Stanley Capital I Inc. and the underwriter, the Class [
] certificates will be purchased from Morgan Stanley Capital I Inc. by the
underwriter, an affiliate of Morgan Stanley Capital I Inc., upon issuance.
Distribution of the Class [ ] certificates will be made by the underwriter from
time to time in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. Proceeds to Morgan Stanley Capital I Inc. from
the certificates will be __% of the initial aggregate principal balance thereof
as of the Cut-off Date, plus accrued interest from the Cut-off Date at a rate of
__% per annum, before deducting expenses payable by Morgan Stanley Capital I
Inc. In connection with the purchase and sale of the Class [ ] certificates, the
underwriter may be deemed to have received compensation from Morgan Stanley
Capital I Inc. in the form of underwriting discounts.
Morgan Stanley Capital I Inc. also has been advised by the underwriter
that it, through one or more of its affiliates currently expects to make a
market in the Class [ ] certificates offered by this prospectus supplement;
however, it has no obligation to do so, any market making may be discontinued at
any time, and there can be no assurance that an active public market for the
Class [ ] certificates will develop.
Morgan Stanley Capital I Inc. has agreed to indemnify the underwriter
against, or make contributions to the underwriter with respect to, certain
liabilities, including liabilities under the Securities Act of 1933.
LEGAL MATTERS
Certain legal matters will be passed upon for Morgan Stanley Capital I
Inc. by __________________ and for the underwriter by ____________________.
S-44
<PAGE>
RATING
It is a condition to issuance that the Class [ ] certificates be rated
[not lower than] "______" by ________________. However, no person is obligated
to maintain the rating on the Class [ ] certificates, and _______________ is not
obligated to monitor its rating following the Closing Date.
________________'s ratings on mortgage pass-through certificates
address the likelihood of the receipt by holders thereof of payments to which
they are entitled. _____________'s ratings take into consideration the credit
quality of the mortgage pool, structural and legal aspects associated with the
certificates, and the extent to which the payment stream in the mortgage pool is
adequate to make payments required under the certificates. _________________'s
rating on the Class [ ] certificates does not, however, constitute a statement
regarding frequency of prepayments on the mortgage loans. [The rating of the
Class [ ] certificates does not address the possibility that the holders of
these certificates may fail to fully recover their initial investments.] See
"Risk Factors" in this prospectus supplement.
There can be no assurance as to whether any rating agency not requested
to rate the Class [ ] certificates will nonetheless issue a rating and, if so,
what the rating would be. A rating assigned to the Class [ ] certificates by a
rating agency that has not been requested by Morgan Stanley Capital I Inc. to do
so may be lower than the rating assigned by ________________'s pursuant to
Morgan Stanley Capital I Inc.'s request.
The rating of the Class [ ] certificates should be evaluated
independently from similar ratings on other types of securities. A security
rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by the assigning rating agency.
S-45
<PAGE>
GLOSSARY OF TERMS
The certificates will be issued pursuant to the Pooling and Servicing
Agreement. The following Glossary of Terms is not complete. You should also
refer to the prospectus and the Pooling and Servicing Agreement for additional
definitions. If you send a written request to the trustee at its corporate
office, the trustee will provide to you without charge a copy of the Pooling and
Servicing Agreement, without exhibits and schedules.
Unless the context requires otherwise, the definitions contained in
this Glossary of Terms apply only to this series of certificates and will not
necessarily apply to any other series of certificates the trust fund may issue.
"Accrued Certificate Interest" means, with respect to any class of
certificates and any Distribution Date, an amount equal to thirty days' interest
accrued during the related Interest Accrual Period at the pass-through rate
applicable to such class of certificates for such Distribution Date accrued on
the related [certificate balance] [Classes [ ] notional amount] outstanding
immediately prior to such Distribution Date. The pass-through rate applicable to
such class of certificates for any Distribution Date [is fixed and is set forth
on the cover hereof][will equal the Weighted Average Class [ ] Remittance Rate.
"Aggregate Mortgage Loan Negative Amortization" means, for any
Distribution Date, the aggregate of any negative amortization in respect of the
mortgage loans for their respective Due Dates during the related Due Period.
"Available Distribution Amount" means, with respect to any Distribution
Date:
(a) the sum of (i) the amount on deposit in the certificate
account as of the close of business on the related
Determination Date, (ii) the aggregate amount of any advances
made by the master servicer in respect of the Distribution
Date and (iii) the aggregate amount deposited by the master
servicer in the certificate account in respect of the
Distribution Date in connection with Prepayment Interest
Shortfalls incurred during the related Due Period, net of
(b) the portion of the amount described in clause (a)(i) hereof
that represents (i) monthly payments due on a Due Date
subsequent to the end of the related Due Period, (ii) any
voluntary principal prepayments and other unscheduled
recoveries on the mortgage loans received after the end of the
related Due Period or (iii) any amounts payable or
reimbursable therefrom to any person.
"Class [ ] Interest Allocation Percentage" means, for any Distribution
Date a percentage equal to a fraction, expressed as a percentage, the numerator
of which is equal to the product of (a) the Class [ ] Balance [(net of any
Uncovered Portion thereof)] outstanding immediately prior to such Distribution
Date, multiplied by (b) the pass-through rate for the Class [ ] certificates for
such Distribution Date, and the denominator of which is the product of (x) the
aggregate Stated Principal Balance of the mortgage loans outstanding immediately
prior to such Distribution Date, multiplied by (y) the Weighted Average Net
Mortgage Rate for such Distribution Date.
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<PAGE>
"Class [ ] Principal Distribution Amount" for any Distribution Date
will equal the sum of:
(i) the product of the Scheduled Principal Distribution Amount and
the Class [ ] Scheduled Principal Distribution Percentage,
(ii) the product of the Senior Accelerated Percentage and all
principal prepayments received during the related Due Period,
and
(iii) to the extent not previously advanced, [the lesser of the
Class [ ] Scheduled Principal Distribution Percentage of the
Stated Principal Balance of the mortgage loans and the Senior
Accelerated Percentage of the Unscheduled Principal
Distribution Amount net of any prepayment amounts described in
clause (ii) above.
[Initially, the Senior Accelerated Percentage will equal 100%.
Thereafter, the Senior Accelerated Percentage may be reduced under certain
circumstances. [Describe circumstances]]
"Class [ ] Remittance Rate" means, with respect to any mortgage loan as
of any date of determination:
(a) prior to the first Interest Rate Adjustment Date of the mortgage
loan, an amount equal to the related mortgage rate then in effect minus basis
points and
(b) from and after the first Interest Rate Adjustment Date of the
mortgage loan, an amount equal to the related mortgage rate then in effect minus
the excess of the related Gross Margin over basis points.
"Class [ ] Scheduled Principal Distribution Percentage" means, for any
Distribution Date, an amount equal the lesser of (a) 100% and (b) a fraction,
expressed as a percentage, the numerator of which is the Class [ ] balance
outstanding immediately prior to such Distribution Date, and the denominator of
which is the lesser of (i) the sum of the Class [ ] balance, the Class [ ]
balance and the Class [ ] balance and (ii) the aggregate Stated Principal
Balance of the mortgage loans, in either case outstanding immediately prior to
such Distribution Date.]
"Class Negative Amortization" means, with respect to any class of
certificates for any Distribution Date, an amount equal to such class' allocable
share of the aggregate mortgage loan negative amortization for such Distribution
Date.
"Class Prepayment Percentage" means, with respect to any class of
certificates, other than the Class [ ], Class [ ] and Residual Certificates, and
any Distribution Date, a fraction, expressed as a percentage,
o o the numerator of which is the portion of the Principal
Distribution Amount to be distributed to the holders of the
class of certificates on the Distribution Date, and
o o the denominator of which is the total Principal Distribution
Amount for the Distribution Date.]
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<PAGE>
"Closing Date" means [ ].
"Conversion Price" means, with respect to any mortgage loan, the
outstanding principal balance of the mortgage loan plus accrued interest thereon
net of any subservicing fees.
"Cut-off Date" means ____________________________.
"Determination Date" means, with respect to any Distribution Date, the
[ ] business day prior to the related Distribution Date.
"Distribution Date" means the [ ] business day of each month or, if
this day is not a business day, the next succeeding business day, commencing
_______________, 199_.
"Due Dates" means dates upon which the related scheduled payments are
due and occur on the first day of each month.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Gross Margin" means that fixed percentage, generally, as specified in
the loan documents, that is added to the Index upon which the interest rate is
based to determine the interest rate for an adjustable rate mortgage loan.
"Index" means [ ].
"Interest Accrual Period" means with respect to the certificates, the
calendar month preceding the month in which the Distribution Date occurs.
"Interest Distribution Amount" means, with respect to any class of
certificates and any Distribution Date, the portion of the accrued certificate
interest in respect of such class of certificates for such Distribution Date
that is net of such class's allocable share of (i) [the aggregate portion of any
Prepayment Interest Shortfalls resulting from voluntary principal prepayments on
the mortgage loans during the related Due Period] [the Net Aggregate Prepayment
Interest Shortfall] [; and (ii) the Aggregate Mortgage Loan Negative
Amortization. The portion of Net Aggregate Prepayment Interest Shortfall [and
the Aggregate Mortgage Loan Negative Amortization] for any Distribution Date
that will be allocated to the Class [ ] certificates on such Distribution Date
will be equal to the then applicable Class [ ] Interest Allocation Percentage.
"Interest Rate Adjustment Date" means the date on which the interest
rate for an adjustable rate mortgage loan will be adjusted, generally, as
specified in the related note.
"Net Aggregate Prepayment Interest Shortfall" means with respect to any
Distribution Date, the aggregate portion of any Prepayment Interest Shortfalls
resulting from voluntary principal prepayments on the mortgage loans during the
related Due Period that are not covered by the application of servicing
compensation of the master servicer for the related Due Period.
S-48
<PAGE>
"Net Mortgage Rate" means, with respect to any mortgage loan as of any
date of determination, an amount equal to the related mortgage rate then in
effect minus __ basis points.
"Original LTV Ratio" is a fraction, expressed as a percentage:
o o the numerator of which is the principal balance of a mortgage
loan on the date of its origination, and the
o o denominator of which is [in general] the lesser of
o o the appraised value of the related mortgaged property as
determined by an appraisal of the mortgaged property obtained
in connection with the origination of the mortgage loan and
o o the sale price of the mortgaged property at the time of the
origination.
"Payment Adjustment Date" means the date on which the monthly payment
on an adjustable mortgage loan will be adjusted, generally, as specified in the
related loan documents.
"Payment Cap" means the provisions in the Pooling and Servicing
Agreement which provide that the adjustment of the amount of the monthly payment
on a Payment Adjustment Date may not result in a monthly payment that increases
by more than ___%--or, in some cases, decreases by more than ___%--of the amount
of the monthly payment in effect immediately prior to the Payment Adjustment
Date.
"Percentage Interest" is equal to the initial denomination of an
offered certificate as of the Closing Date divided by the initial certificate
balance of the related class.
"Plan" means an employee benefit plan or other retirement arrangement,
including an individual retirement account or a Keogh plan, which is subject to
Title I of ERISA, or Section 4975 of the Code, or a "governmental plan," as
defined in Section 3(32) of ERISA, that is subject to any federal, state or
local law which is, to a material extent, similar to the fiduciary
responsibility or prohibited transaction provisions of ERISA or the Code.
"Pooling and Servicing Agreement" means the pooling and servicing
agreement to be dated as of __________, 199_, by and among Morgan Stanley
Capital I Inc., the master servicer and the trustee.
"Prepayment Interest Shortfall" means, with respect to any Distribution
Date and any mortgage loan, the amount of any shortfall in collections of
interest, adjusted to the applicable Net Mortgage Rate, resulting from a
principal prepayment on this mortgage loan during the related Collection Period
and prior to the Due Date in the Collection Period. The shortfall may result
because interest on a principal prepayment in full is paid by the related
borrower only to the date of prepayment.
"Realized Loss" means, any losses realized on a mortgage loan that is
finally liquidated equal to the excess of the Stated Principal Balance of such
mortgage loan remaining, if any, plus interest thereon through the last day of
the month in which such mortgage loan was finally
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<PAGE>
liquidated, after application of all amounts received (net of amounts
reimbursable to the master servicer or any Sub-Servicer for advances and
expenses, including attorneys' fees) towards interest and principal owing on the
mortgage loan.
"REO Account" means the certificate account and any account established
in connection with REO Properties in which funds or assets are deposited from
time to time.
"REO Property" means any mortgaged property acquired on behalf of the
trust fund in respect of a defaulted mortgage loan through foreclosure, deed in
lieu of foreclosure or otherwise.
"Restricted Group" means Morgan Stanley Capital I Inc., the
underwriter, the trustee, any servicer, any insurer and any borrower with
respect to mortgage loans included in the trust fund constituting more than five
percent of the aggregate unamortized principal balance of the assets in the
trust fund, or any affiliate of these parties.
"Scheduled Principal Distribution Amount" for any Distribution Date is
equal to the aggregate of the principal portions of all monthly payments,
including balloon payments, due during or, if and to the extent not previously
received or advanced and distributed to certificateholders on a preceding
Distribution Date, prior to the related Due Period, in each case to the extent
paid by the related borrower or advanced by the master servicer and included in
the Available Distribution Amount for such Distribution Date. The principal
portion of any advances in respect of a mortgage loan delinquent as to its
balloon payment will constitute advances in respect of the principal portion of
such balloon payment.
"Seller's Agreement" means the seller's agreement, to be dated as of [
], 1999 to be assigned to [ ], as trustee, pursuant to the Pooling and Servicing
Agreement. [ ], in its capacity as master servicer, will service the mortgage
loans pursuant to the Pooling and Servicing Agreement.
"Senior Accelerated Percentage" means, a percentage equal to 100%
initially. Thereafter, the percentage may be reduced under certain
circumstances. [Describe circumstances].
"Servicing Fee" means the monthly amount, based on the Servicing Fee
Rate, to which the master servicer is entitled in compensation for servicing the
mortgage loans.
"Servicing Fee Rate" means [ ] per annum each month payable with
respect to a mortgage loan in connection with the Servicing Fee.
"SMMEA" means the Secondary Mortgage Market Enhancement Act of 1984,
as amended.
"Stated Principal Balance" means, for any mortgage loan at any date of
determination:
o the Cut-off Date balance of the mortgage loan, plus
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<PAGE>
o any negative amortization added to the principal balance of the
mortgage loan on any Due Date after the Cut-off Date to and including
the Due Date in the Due Period for the most recently preceding
Distribution Date], minus
o the sum of
o the principal portion of each monthly payment due on the
mortgage loan after the Cut-off Date, to the extent received
from the borrower or advanced by the master servicer and
distributed to holders of the certificates before the date of
determination,
o all principal prepayments and other unscheduled collections
of principal received with respect to the mortgage loan, to
the extent distributed to holders of the certificates before
the date of determination, and
o any reduction in the outstanding principal balance of the
mortgage loan resulting out of a bankruptcy proceeding for the
related borrower.
"Uncovered Portion" means, with respect to the class balance of any
certificates, as of any date of determination, the portion thereof representing
the excess, if any, of (a) class balance of such certificates then outstanding,
over (b) the aggregate Stated Principal Balance of the mortgage loans then
outstanding.
"Unscheduled Principal Distribution Amount" means, for any Distribution
Date, the sum of: (a) all voluntary principal prepayments received on the
mortgage loans during the related Due Period; and (b) the excess, if any, of (i)
all unscheduled recoveries received on the mortgage loans during the related Due
Period, whether in the form of liquidation proceeds, condemnation proceeds,
insurance proceeds or amounts paid in connection with the purchase of a mortgage
loan out of the trust fund, exclusive in each case of any portion thereof
payable or reimbursable to the master servicer in connection with the related
mortgage loan, over (ii) the respective portions of the net amounts described in
the immediately preceding clause (i) needed to cover interest (at the applicable
Net Mortgage Rate in effect from time to time) on the related mortgage loan from
the date to which interest was previously paid or advanced through the Due Date
for such mortgage loan in the related Due Period [(exclusive of any portion of
such interest added to the principal balance of such mortgage loan as negative
amortization).]
"Weighted Average Class [ ] Remittance Rate" means with respect to any
class of certificates and any Distribution Date, the weighted average of the
Class [ ] Remittance Rates in effect for the mortgage assets as of the
commencement of the related Due Period.
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<PAGE>
ANNEX A
[TITLE, SERIES OF MORTGAGE-BACKED SECURITIES]
TERM SHEET
CUT-OFF DATE: [ ] MORTGAGE POOL CUT-OFF DATE BALANCE: $[ ]
DATE OF INITIAL ISSUANCE: [ ] REFERENCE DATE BALANCE: $[ ]
RELATED TRUSTEE: [ ] PERCENT OF ORIGINAL MORTGAGE POOL REMAINING [ ]%
AS OF REFERENCE DATE:
MATURITY DATE: [ ]
CLASS PASS-THROUGH INITIAL FEATURES
OF RATE CERTIFICATE
CERTIFICATES PRINCIPAL
BALANCE
[ ] [ ]% $[ ] [ ]
[First MBS Distribution Date on which the mortgage-backed securities may
receive a portion of prepayments: [date]]
MINIMUM SERVICING FEE RATE:* [ ]% per annum AS OF DATE OF
MAXIMUM SERVICING FEE RATE:* [ ]% per annum INITIAL ISSUANCE
----------------
SPECIAL HAZARD AMOUNT: $[ ]
BANKRUPTCY AMOUNT: $[ ]
FRAUD LOSS AMOUNT: $[ ]
- ------------------------------
*Combined Related Master Servicing and Subservicing Fee Rate.
A-1
<PAGE>
AS OF AS OF DATE OF
DELIVERY DATE INITIAL ISSUANCE
------------- ----------------
SENIOR PERCENTAGE [ ]% [ ]%
SUBORDINATE PERCENTAGE [ ]% [ ]%
RATINGS: RATING AGENCY CLASS VOTING RIGHTS:
------------- ----- --------------
[ ] [ ]
[ ]
[ ]
[ ]
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale
of these securities in any State in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the
securities laws of any such State.
(Version 1)
SUBJECT TO COMPLETION, DATED __________, 199__
PROSPECTUS
MORGAN STANLEY CAPITAL I INC.
Depositor
MORTGAGE PASS-THROUGH CERTIFICATES
(Issuable in series by separate trusts)
Morgan Stanley Capital I Inc. will offer one or more series of
certificates, which represent beneficial ownership interests in the related
trust. The assets of each trust will primarily be:
o (i) conventional, fixed or adjustable interest rate mortgage loans
secured by first and/or junior liens on one- to four-family
residential properties, including participations therein
o (ii) mortgage pass-through certificates and mortgage-backed
securities evidencing interests therein or secured thereby
and/or
o (iii) certain direct obligations of the United States, agencies
thereof or agencies created thereby.
The certificates of any series will not be obligations of Morgan Stanley Capital
I Inc. or any of its affiliates, and neither the certificates of any series nor
the underlying mortgage loans are insured or guaranteed by any governmental
agency.
- --------------------------------------------------------------------------------
INVESTING IN ANY SERIES OF CERTIFICATES INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE __ OF THIS PROSPECTUS.
- --------------------------------------------------------------------------------
The Securities and Exchange Commission and state securities regulators
have not approved or disapproved the certificates or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
---------------------------
The date of this prospectus is __________, ____.
MORGAN STANLEY DEAN WITTER
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
Information about the certificates being offered to you is contained
in two separate documents that progressively provide more detail:
o (a) this prospectus, which provides general information, some of
which may not apply to a particular series of certificates; and
o (b) the accompanying prospectus supplement, which describes the
specific terms of your series of certificates. If the terms of a
particular series of certificates vary between this prospectus
and the accompanying prospectus supplement, you should rely on
the information in the prospectus supplement.
You should rely only on the information contained in this prospectus
and the accompanying prospectus supplement. We have not authorized anyone to
provide you with information that is different from that contained in this
prospectus and the prospectus supplement. This prospectus and the accompanying
prospectus supplement include cross references to sections in these materials
where you can find further related discussions. The Tables of Contents in this
prospectus and the prospectus supplement identify the pages where these sections
are located.
Morgan Stanley Capital I Inc.'s principal executive office is located
at 1585 Broadway, 37th Floor, New York, New York 10036, and Morgan Stanley
Capital I Inc.'s telephone number is (212) 761-4700.
2
<PAGE>
TABLE OF CONTENTS
PAGE
Summary Of Prospectus..........................................................5
Risk Factors..................................................................12
Description Of The Trust Funds................................................21
Assets.....................................................................21
Mortgage Loans.............................................................22
Mortgage-Backed Securities.................................................24
Government Securities......................................................25
Accounts...................................................................26
Credit Support.............................................................26
Cash Flow Agreements.......................................................26
Use Of Proceeds...............................................................27
Yield Considerations..........................................................27
General....................................................................27
Pass-Through Rate..........................................................27
Timing Of Payment Of Interest..............................................27
Payments Of Principal; Prepayments.........................................28
Prepayments, Maturity And Weighted Average Life............................29
Other Factors Affecting Weighted Average Life..............................30
The Depositor.................................................................33
Description Of The Certificates...............................................33
General....................................................................33
Distributions..............................................................34
Available Distribution Amount..............................................35
Distributions Of Interest On The Certificates..............................35
Distributions Of Principal Of The Certificates.............................36
Components.................................................................36
Distributions On The Certificates Of Prepayment Premiums...................37
Allocation Of Losses And Shortfalls........................................37
Advances In Respect Of Delinquencies.......................................37
Reports To Certificateholders..............................................38
Termination................................................................41
Book-Entry Registration And Definitive Certificates........................41
Description Of The Agreements.................................................43
Assignment Of Assets; Repurchases..........................................44
Representations And Warranties; Repurchases................................45
Certificate Account And Other Collection Accounts..........................47
Collection And Other Servicing Procedures..................................51
Subservicers...............................................................52
Realization Upon Defaulted Mortgage Loans..................................53
Hazard Insurance Policies..................................................56
Fidelity Bonds And Errors And Omissions Insurance..........................57
Due-On-Sale Provisions.....................................................57
Retained Interest; Servicing Compensation And Payment Of Expenses..........58
Evidence As To Compliance..................................................58
Matters Regarding A Master Servicer And The Depositor......................59
Events Of Default..........................................................61
Rights Upon Event Of Default...............................................61
Amendment..................................................................62
The Trustee................................................................63
Duties Of The Trustee......................................................63
Matters Regarding The Trustee..............................................64
Resignation And Removal Of The Trustee.....................................64
Description Of Credit Support.................................................65
General....................................................................65
Subordinate Certificates...................................................66
Cross-Support Provisions...................................................66
Insurance Or Guarantees For The Mortgage Loans.............................66
Letter Of Credit...........................................................66
Insurance Policies And Surety Bonds........................................67
Reserve Funds..............................................................67
Credit Support For Mortgage-Backed Securities..............................68
Legal Aspects Of Mortgage Loans...............................................68
General....................................................................68
Types Of Mortgage Instruments..............................................69
Interest In Real Property..................................................69
Cooperative Loans..........................................................70
Foreclosure................................................................71
Junior Mortgages...........................................................77
Anti-Deficiency Legislation And Other Limitations On Lenders...............77
Environmental Legislation..................................................79
Due-On-Sale Clauses........................................................79
Prepayment Charges.........................................................80
Subordinate Financing......................................................80
3
<PAGE>
Applicability Of Usury Laws................................................80
Alternative Mortgage Instruments...........................................81
Soldiers' And Sailors' Civil Relief Act Of 1940............................82
Forfeitures In Drug And Rico Proceedings...................................82
Federal Income Tax Consequences...............................................83
General....................................................................83
Grantor Trust Funds........................................................83
A...... Single Class Of Grantor Trust Certificates........................83
B...... Multiple Classes Of Grantor Trust Certificates....................89
C...... Sale Or Exchange Of A Grantor Trust Certificate...................93
D...... Non-U.S. Persons..................................................94
E...... Information Reporting And Backup Withholding......................95
Remics.....................................................................96
A...... Taxation Of Owners Of Remic Regular Certificates..................98
B...... Taxation Of Owners Of Remic Residual Certificates................110
Prohibited Transactions And Other Taxes...................................116
Liquidation And Termination...............................................117
Administrative Matters....................................................117
Tax-Exempt Investors......................................................118
Residual Certificate Payments--Non-U.S.Persons............................118
Tax Related Restrictions On Transfers Of Remic Residual Certificates......118
State Tax Considerations.....................................................121
Erisa Considerations.........................................................121
General...................................................................121
Prohibited Transactions...................................................122
Review By Plan Fiduciaries................................................126
Legal Investment.............................................................127
Plan Of Distribution.........................................................129
Legal Matters................................................................130
Financial Information........................................................130
Rating.......................................................................131
Incorporation Of Information By Reference....................................131
Glossary Of Terms............................................................133
4
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SUMMARY OF PROSPECTUS
This summary highlights selected information from this prospectus. It
does not contain all of the information you need to consider in making your
investment decision. TO UNDERSTAND ALL OF THE TERMS OF A SERIES OF CERTIFICATES,
READ THIS ENTIRE DOCUMENT AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT CAREFULLY.
RELEVANT PARTIES FOR EACH SERIES OF CERTIFICATES
ISSUER.................... Each series of certificates will be issued by a
separate trust. Each trust will be formed
pursuant to a pooling and servicing agreement
among Morgan Stanley Capital I Inc., one or more
servicers and a trustee.
DEPOSITOR................... Morgan Stanley Capital I Inc., a wholly-owned
subsidiary of Morgan Stanley Group Inc.
MASTER SERVICER............. The servicer or servicers for substantially
all the mortgage loans for each series of
certificates, which servicer(s) may be
affiliates of Morgan Stanley Capital I Inc.,
will be named in the related prospectus
supplement.
TRUSTEE..................... The trustee for each series of certificates
will be named in the related prospectus
supplement.
THE MORTGAGE ASSETS
GENERAL................... Each trust will own the related mortgage loan,
including participations therein, and/or
mortgage-backed securities or, if specified in
the applicable prospectus supplement, direct
obligations of the United States or agencies
thereof or created thereby. You should refer
to the applicable prospectus supplement for
the precise characteristics or expected
characteristics of the mortgage loans and
mortgage-backed securities included in each
trust fund.
MORTGAGE LOANS.............. The mortgage loans in each trust will be
conventional, fixed or adjustable interest rate
mortgage loans, or participations therein,
secured by first and/or junior liens on one- to
four-family residential properties or shares
issued by cooperative housing corporations.
Unless otherwise provided in the related
prospectus supplement, all mortgage loans will
have individual principal balances at
origination of not less than $25,000 and
original terms to maturity of not more than 40
years. All mortgage loans will have been
originated by persons other than Morgan Stanley
Capital I Inc.
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MORTGAGE-BACKED SECURITIES... The mortgage-backed securities in each trust
will be mortgage pass-through certificates or
other mortgage-backed securities evidencing
interests in or secured by conventional, fixed
or adjustable rate mortgage loans secured by
first and/or junior liens on one- to
four-family residential properties or shares
issued by cooperative housing corporations.
GOVERNMENT SECURITIES....... Each trust may own, in addition to the mortgage
loans and mortgage-backed securities, certain
direct obligations of the United States,
agencies thereof or agencies created thereby
which provide for payment of interest and/or
principal.
OTHER ASSETS
OTHER ASSETS.............. If so specified in the applicable prospectus
supplement, the trust fund may include the
following agreements and other similar
agreements:
o guaranteed investment contracts;
o interest rate exchange agreements;
o interest rate cap or floor contracts;
o currency exchange contracts; or
o other swap or notional balance contracts.
CREDIT ENHANCEMENT
SUBORDINATION............... A series of certificates may include one or
more classes of senior certificates and one
or more classes of subordinate certificates.
The rights of the holders of subordinate
certificates of a series to receive
distributions will be subordinated to such
rights of the holders of the senior
certificates of the same series to the extent
and in the manner specified in the applicable
prospectus supplement. Subordination is intended
to enhance the likelihood of the timely receipt
by the senior certificateholders of their
proportionate shares of scheduled monthly
principal and interest payments on the related
mortgage loans and to protect them from losses.
This protection will be effected by:
6
<PAGE>
o the preferential right of the senior
certificateholders to receive, prior to any
distribution being made in respect of the
related subordinate certificates on each
distribution date, current distributions on
the related mortgage loans and mortgage-
backed securities of principal and
interest due them on each distribution
date out of the funds available for
distributions on such date;
o the right of such holders to receive future
distributions on the mortgage loans and
mortgage-backed securities that would
otherwise have been payable to the holders of
subordinate certificates; and/or
o the prior allocation to the subordinate
certificates of all or a portion of losses
realized on the underlying mortgage loans and
mortgage-backed securities.
OTHER TYPES OF CREDIT
ENHANCEMENT................. If so specified in the applicable prospectus
supplement, the certificates of any series, or
any one or more classes of a series may be
entitled to the benefits of other types of
credit enhancement, including but not limited
to:
o limited guarantee
o financial guaranty insurance policy
o surety bond
o letter of credit
o mortgage pool insurance policy
o reserve fund
o cross-support
Any credit support will be described in the
applicable prospectus supplement.
DISTRIBUTIONS ON CERTIFICATES
GENERAL................... Each series of certificates will consist of one
or more classes of certificates that will
be entitled, to the extent of funds available,
to one of the following:
o principal and interest payments in respect
of the related mortgage loans and
mortgage-backed securities;
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<PAGE>
o principal distributions, with no interest
distribution;
o interest distributions, with no principal
distributions;
o sequential or concurrent distributions of
principal;
o senior or subordinate distributions of
interest and/or principal;
o distributions of interest after an interest
accrual period; or
o such other distributions as are described in
the applicable prospectus supplement.
INTEREST DISTRIBUTIONS...... With respect to each series of certificates
(other than certain classes of certificates
which may be entitled to disproportionately
low, nominal or no interest distributions),
interest on the related mortgage loans and
mortgage-backed securities at the weighted
average of their mortgage rates (net of
servicing fees and certain other amounts as
described in this prospectus or in the
applicable prospectus supplement), will be
passed through to holders of the related
classes of certificates in accordance with
the particular terms of each such class of
certificates. The terms of each class of
certificates will be described in the related
prospectus supplement.
Except as otherwise specified in the applicable
prospectus supplement, interest on each
class of certificates of each series will
accrue at the fixed, floating or weighted
average pass-through rate for each class
indicated in the applicable prospectus
supplement on their outstanding principal
balance or notional amount.
PRINCIPAL................... With respect to a series of certificates,
principal payments (including prepayments) on
the related mortgage loans and mortgage-
backed securities will be passed through to
holders of the related
certificates or otherwise applied in accordance
with the related pooling and servicing
agreement on each distribution date.
Distributions in reduction of certificate
balance will be allocated among the classes
of certificates of a series in the manner
specified in the applicable prospectus
supplement.
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<PAGE>
DISTRIBUTION DATES.......... The dates upon which distributions on each
series of certificates will be made will be
specified in the related prospectus
supplement.
ADVANCES.................... Unless otherwise provided in the related
prospectus supplement, in the event that a
payment on a mortgage loan is delinquent, the
master servicer will be obligated to make
certain advances that the master servicer
determines are recoverable. The master
servicer will be reimbursed for advances as
described in this prospectus and in the
related prospectus supplement. The
prospectus supplement for any series of
certificates relating to a trust that includes
mortgage-backed securities will describe any
corresponding advancing obligation of any
person in connection with such mortgage-
backed securities.
ADDITIONAL ASPECTS OF EACH SERIES OF CERTIFICATES
TERMINATION................. If so specified in the prospectus supplement
with respect to a series of certificates,
all, but not less than all, of the mortgage
loans and mortgage-backed securities in the
related trust fund and any property acquired
with respect to such mortgage loans may be
purchased by the party as is specified in the
applicable prospectus supplement. Any such
purchase must be made in the manner and at the
price specified in such prospectus
supplement. If so provided in the related
prospectus supplement with respect to a
series, upon the reduction of the certificate
balance of a specified class or classes of
certificates by a specified percentage or
amount or on and after a date specified
therein, the party specified therein will
solicit bids for the purchase of all of the
trust's assets, or of a sufficient portion of
such assets to retire such class or classes, or
purchase such assets at a price set forth in
the related prospectus supplement. In
addition, if so provided in the related
prospectus supplement, certain classes of
certificates may be purchased subject to
similar conditions.
FORMS OF CERTIFICATES....... The certificates will be issued either:
o in book-entry form through the facilities
of The Depository Trust Company; or
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<PAGE>
o in fully registered, certificated form.
If you own book-entry certificates, you will not
receive a physical certificates representing your
ownership interest in such book-entry
certificates, except under extraordinary
circumstances. Instead, The Depository Trust
Company will effect payments and transfers
by means of its electronic recordkeeping
services, acting through certain participating
organizations. This may result in certain delays
in your receipt of distributions and may
restrict your ability to pledge your securities.
Your rights with respect to book-entry
certificates may generally only be exercised
through The Depository Trust Company and its
participating organizations.
TAX STATUS OF CERTIFICATES.. The treatment of the certificates for federal
income tax purposes will depend on:
o whether a "real estate mortgage investment
conduit" election is made with respect to a
series of certificates;
o if a "real estate mortgage investment conduit"
election is made, whether the certificates are
regular interests or residual interests; and
o if a "real estate mortgage investment
conduit" election is not made, the
certificates will be treated as interests in
a grantor trust.
ERISA CONSIDERATIONS........ If you are a fiduciary of any employee benefit
plan subject to the fiduciary responsibility
provisions of the Employee Retirement Income
Security Act of 1974, as amended, you should
carefully review with your own legal advisors
whether the purchase or holding of certificates
could give rise to a transaction prohibited or
otherwise impermissible under ERISA or the
Internal Revenue Code.
LEGAL INVESTMENT............ The applicable prospectus supplement will
specify whether the class or classes of
certificates offered will constitute "mortgage
related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of
1984, as amended. If your investment authority
is subject to legal restrictions, you should
consult your own legal advisors to determine
whether and to what extent such certificates
constitute legal investments for you.
10
<PAGE>
RATING........................ Certificates of any series will not be
offered pursuant to this prospectus and a
prospectus supplement unless each offered
class of certificates offered is rated in one
of the four highest rating categories by at
least one nationally recognized statistical
rating organization.
o A security rating is not a recommendation to
buy, sell or hold the certificates of any
series and is subject to revision or
withdrawal at any time by the assigning rating
agency.
o Ratings do not address the effect of
prepayments on the yield you may anticipate
when you purchase your certificates.
11
<PAGE>
RISK FACTORS
You should consider, among other things, the following factors in
connection with the purchase of certificates. The risks and uncertainties
described below, together with those in the related prospectus supplement under
"Risk Factors," summarize the material risks relating to your certificates.
LACK OF A SECONDARY MARKET
MAY MAKE IT DIFFICULT FOR YOU
TO RESELL YOUR CERTIFICATES... The liquidity of your certificates may be
limited. You should consider that:
o a secondary market for the certificates
of any series may not develop, or if it
does, it may not provide you with liquidity
of investment, or it may not continue for
the life of the certificates of any series;
o the prospectus supplement for any series of
certificates may indicate that an underwriter
intends to establish a secondary market in
such certificates, but no underwriter will be
obligated to do so; and
o unless specified in the applicable
prospectus supplement, the certificates
will not be listed on any securities
exchange.
THE TRUST FUND'S ASSETS MAY BE
INSUFFICIENT TO PAY YOUR
CERTIFICATES IN FULL.......... Except for any related insurance policies and
any reserve fund or credit enhancement described
in the applicable prospectus supplement, the
sole source of payment on your certificates will
be proceeds from the assets included in the
trust fund for each series of certificates and
any form of credit enhancement specified in the
related prospectus supplement. You will not have
any claim against, or security interest in, the
trust fund for any other series. In addition, in
general, there is no recourse to Morgan Stanley
Capital I, Inc. or any other entity, and neither
the certificates nor the underlying mortgage
loans are guaranteed or insured by any
governmental agency or instrumentality or any
other entity. Therefore, if the trust fund's
assets are insufficient to pay you your expected
return, in most situations you will not receive
payment from any other source. Exceptions
include:
o loan repurchase obligations in connection with
a breach of certain of the representations and
warranties; and
o advances on delinquent loans, to the extent
the master servicer deems the advance will be
recoverable.
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<PAGE>
Because some of the representations and
warranties with respect to the mortgage loans
and mortgage-backed securities may have been
made and/or assigned in connection with
transfers of the mortgage loans and
mortgage-backed securities prior to the closing
date, the rights fo the trustee and the
certificateholders with respect to those
representations or warranties will be limited to
their rights as assignees. Unless the related
prospectus supplement so specifies, neither
Morgan Stanley Capital I Inc., the master
servicer nor any affiliate thereof will have any
obligation with respect to representations or
warranties made by any other entity.
There may be accounts, as described in the
related prospectus supplement maintained as
credit support. The amounts in these accounts
may be withdrawn amounts will not be available
for the future payment of principal or interest
on the certificates.
If a series of certificates consists of one or
more classes of subordinate certificates, the
amount of any losses or shortfalls in
collections of assets on any distribution date
will be borne first by one or more classes of
the subordinate certificates, as described in
the related prospectus supplement. Thereafter,
those losses or shortfalls will be borne by the
remaining classes of certificates, in the
priority and manner and subject to the
limitations specified in the related prospectus
supplement.
CREDIT ENHANCEMENT IS LIMITED
IN AMOUNT AND COVERAGE........ With respect to each series of certificates,
credit enhancement may be provided to cover
losses on the underlying mortgage loans and
mortgage-backed securities up to specified
amounts.
Regardless of the form of credit enhancement
provided:
o the amount of coverage will be limited in
amount and in most cases will be subject to
periodic reduction in accordance with a
schedule or formula;
o the amount of coverage may provide only very
limited coverage as to certain types of
losses such as hazard losses, bankruptcy
losses and fraud losses, and may provide no
coverage as to certain other types of losses;
and
o all or a portion of the credit enhancement
for any series of certificates will generally
be permitted to be reduced, terminated or
substituted for, if each applicable rating
agency indicates that the then-current
ratings will not be adversely affected.
In the event losses exceed the amount of
coverage provided by any credit enhancement or
losses of a type not covered by any credit
enhancement occur, such losses will be borne by
the holders of the related certificates.
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<PAGE>
The rating of any series of certificates by any
applicable rating agency may be lowered
following the initial issuance thereof as a
result of the downgrading of the obligations of
any applicable credit support provider, or as a
result of losses on the related mortgage loans
in excess of the levels contemplated by such
rating agency at the time of its initial rating
analysis.
None of Morgan Stanley Capital I Inc.,
any servicer, or any of their affiliates, will
have any obligation to replace or supplement any
credit enhancement, or to take any other action
to maintain any rating of any class of
certificates.
CHANGES IN CONDITIONS IN
THE REAL ESTATE MARKET
WILL AFFECT MORTGAGE
LOAN PERFORMANCE.............. An investment in securities such as the
certificates, which generally represent
interests in pools of residential mortgage
loans, may be affected by a decline in real
estate values and changes in the borrower's
financial condition. There is no assurance
that the values of the mortgaged properties
securing the mortgage loans underlying any
series of certificates have remained or will
remain at their levels on the dates of
origination of the related mortgage loans.
If the residential real estate market should
experience an overall decline in property values
such that the outstanding balances of the
mortgage loans contained in a particular trust
fund and any secondary financing on the
mortgaged properties, become equal to or greater
than the value of the mortgaged properties,
delinquencies, foreclosures and losses could be
higher than those now generally experienced in
the mortgage lending industry and those
experienced in the servicer's or other
servicers' servicing portfolios.
To the extent that losses on mortgage loans
underlying a series are not covered by credit
enhancement, holders of certificates of the
series will bear all risk of loss resulting from
default by borrowers. Such loss may also be
greater than anticipated as a result of a
decline in real estate values.
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<PAGE>
GEOGRAPHIC CONCENTRATION
MAY INCREASE RATES OF LOSS AND
DELINQUENCY................... In addition to risk factors related to the
residential real estate market generally,
certain geographic regions of the United
States from time to time will experience
weaker regional economic conditions and
housing markets or be directly or indirectly
affected by natural disasters or civil
disturbances such as earthquakes, hurricanes,
floods, eruptions or riots. Mortgage assets
in such areas will experience higher rates of
loss and delinquency than on mortgage loans
generally. Although mortgaged properties
located in certain identified flood zones will
be required to be covered, to the maximum
extent available, by flood insurance, no
mortgaged properties will otherwise be
required to be insured against earthquake
damage or any other loss not covered by
standard hazard insurance policies.
The ability of borrowers to make payments on
the mortgage assets may also be affected by
factors which do not necessarily affect
property values, such as adverse economic
conditions generally, in particular geographic
areas or industries, or affecting particular
segments of the borrowing community (such as
borrowers relying on commission income and
self-employed borrowers). Such occurrences
may accordingly affect the actual rates of
delinquencies, foreclosure and losses with
respect to any trust fund.
THE RATE OF PREPAYMENT ON
MORTGAGE ASSETS MAY ADVERSELY
AFFECT AVERAGE LIVES AND
YIELDS ON CERTIFICATES........ The yield of the certificates of each series
will depend in part on the rate of
principal payment on the mortgage loans and
mortgage-backed securities (including
prepayments, liquidations due to defaults and
mortgage loan repurchases). Such yield may be
adversely affected, depending upon whether a
particular certificate is purchased at a
premium or a discount, by a higher or lower
than anticipated rate of prepayments on the
related mortgage loans and mortgage-backed
securities, in particular:
The yield on classes of certificates
entitling their holders primarily or
exclusively to payments of interest or
primarily or exclusively to payments of
principal will be extremely sensitive to the
rate of prepayments on the
15
<PAGE>
related mortgage loans and mortgage-backed
securities; and
The yield on certain classes of certificates may
be relatively more sensitive to the rate of
prepayment of specified mortgage loans and
mortgage-backed securities than other classes
of certificates.
The rate of prepayments on mortgage loans is
influenced by a number of factors, including:
o prevailing mortgage market interest rates;
o local and national economic conditions;
o homeowner mobility; and
o the ability of the borrower to obtain
refinancing.
In addition, your yield may be adversely
affected by interest shortfalls which may result
from the timing of the receipt of prepayments or
liquidations to the extent that such interest
shortfalls are not covered by aggregate fees
payable to the servicer or other mechanisms
specified in the applicable prospectus
supplement. Your yield will be also adversely
affected to the extent that losses on the
mortgage loans and mortgage-backed securities in
the related trust fund are allocated to your
certificates and may be adversely affected to
the extent of unadvanced delinquencies on the
mortgage loans and mortgage-backed securities in
the related trust fund. Classes of certificates
identified in the applicable prospectus
supplement as subordinate certificates are more
likely to be affected by delinquencies and
losses than other classes of certificates.
RATINGS ON CERTIFICATES
REFLECT LIMITED ASSESSMENTS... Any rating assigned by a rating agency to a
class of certificates will reflect such
rating agency's assessment solely of the
likelihood that holders of certificates of
such class will receive payments to which
they are entitled under the related pooling
and servicing agreement. A rating will not
constitute an assessment of the likelihood
that principal prepayments (including those
caused by defaults) on the related mortgage
loans and mortgage-backed securities will be
made, the degree to which the rate of such
prepayments might differ from that
16
<PAGE>
originally anticipated or the likelihood of
early optional termination of the series of
certificates. A rating will not address the
possibility that prepayment at higher or lower
rates than anticipated by an investor may
cause such investor to experience a lower than
anticipated yield or that an investor
purchasing a certificate at a significant
premium might fail to recoup its initial
investment under certain prepayment
scenarios. Each prospectus supplement will
identify any payment to which holders of
certificates of the related series are
entitled that is not covered by the applicable
rating.
The amount, type and nature of credit support,
if any, established with respect to a series
of certificates will be determined on the
basis of criteria established by each rating
agency. These criteria are sometimes based
upon an actuarial analysis of the behavior of
mortgage loans in a larger group. The
historical data supporting any such actuarial
analysis may not accurately reflect future
experience or accurately predict the actual
delinquency, foreclosure or loss experience of
the mortgage loans and mortgage-backed
securities included in any trust fund.
RATINGS DO NOT
GUARANTY VALUE.............. If one or more rating agencies downgrade
certificates of a series, your certificate
will decrease in value. Because none of
Morgan Stanley Capital I Inc., the seller, the
master servicer, the trustee or any affiliate
has any obligation to maintain a rating of a
class of certificates, you will have no
recourse if your certificate decreases in
value.
PAYMENTS IN FULL OF A BALLOON
LOAN DEPEND ON THE BORROWER'S
ABILITY TO REFINANCE THE
BALLOON LOAN OR SELL THE
MORTGAGED PROPERTY............ Certain of the mortgage loans may not be
fully amortizing over their terms to maturity
and, thus, will require substantial principal
payments (i.e., balloon payments) at their
stated maturity. Mortgage loans with balloon
payments involve a greater degree of risk
because the ability of a borrower to make a
balloon payment typically will depend upon its
ability either to timely refinance the loan or
to timely sell the related mortgaged property.
The ability of a borrower to accomplish either
of these goals will be affected by a number of
factors, including:
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<PAGE>
o the level of available mortgage interest
rates at the time of sale or refinancing;
o the borrower's equity in the related
mortgaged property;
o the financial condition of the mortgagor;
o tax laws;
o prevailing general economic conditions; and
o the availability of credit for single family
real properties generally.
MORTGAGE LOANS SECURED BY
JUNIOR LIENS MAY ONLY BE
SATISFIED AFTER THE RELATED
FIRST LIEN MORTGAGE HAS BEEN
SATISFIED..................... Certain of the mortgage loans may be secured
by junior liens and the related first liens
may not be included in the trust fund. The
primary risk to holders of mortgage loans
secured by junior liens is the possibility that
adequate funds will not be received in
connection with a foreclosure of the related
first lien to satisfy fully both the first lien
and the mortgage loan. In the event that a
holder of the first lien forecloses on a
mortgaged property, the proceeds of the
foreclosure or similar sale will be applied
first to the payment of court costs and fees in
connection with the foreclosure, second to real
estate taxes, third in satisfaction of all
principal, interest, prepayment or acceleration
penalties, if any, and any other sums due and
owing to the holder of the first lien. The
claims of the holder of the first lien will be
satisfied in full out of proceeds of the
liquidation of the mortgage loan, if such
proceeds are sufficient, before the trust fund
as holder of the junior lien receives any
payments in respect of the mortgage loan. In the
event that such proceeds from a foreclosure or
similar sale of the related Mortgaged Property
were insufficient to satisfy both loans in the
aggregate, the trust fund, as the holder of the
junior lien, and, accordingly, holders of the
certificates, would bear the risk of delay in
distributions while a deficiency judgment
against the borrower was being obtained and the
risk of loss if the deficiency judgment were not
realized upon.
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<PAGE>
OBLIGORS MAY DEFAULT IN
PAYMENT OF MORTGAGE LOANS..... If so specified in the related prospectus
supplement, in order to maximize recoveries on
defaulted mortgage loans, a servicer or a
subservicer will be permitted (within
prescribed parameters) to extend and modify
mortgage loans that are in default or as to
which a payment default is imminent, including
in particular with respect to balloon
payments. While any such entity generally
will be required to determine that any such
extension or modification is reasonably likely
to produce a greater recovery on a present
value basis than liquidation, such extensions
or modifications may not increase the present
value of receipts from or proceeds of mortgage
loans.
THE HOLDERS OF SUBORDINATE
CERTIFICATES WILL BEAR A
GREATER RISK OF PAYMENT DELAYS
AND LOSSES.................... The rights of holders of subordinate
certificates to receive distributions to which
they would otherwise be entitled with respect
to the mortgage loans and mortgage-backed
securities will be subordinate to the rights
of the servicer to receive its fee and
reimbursement for advances and the holders
of senior certificates to the extent
described herein. As a result of the
foregoing, investors must be prepared to bear
the risk that they may be subject to delays in
payment and may not recover their initial
investments in the subordinate certificates.
The yields on the subordinate certificates
may be extremely sensitive to the loss
experience of the mortgage loans and
mortgage-backed securities and the timing of
any such losses. If the actual rate and
amount of losses experienced by the mortgage
loans and mortgage-backed securities exceed
the rate and amount of such losses assumed by
an investor, the yields to maturity on the
subordinate certificates may be lower than
anticipated.
MORTGAGE LOAN ACCELERATION
CLAUSES MAY NOT BE ENFORCEABLE..Mortgages may contain a due-on-sale clause,
which permits the lender to accelerate the
maturity of the mortgage loan if the
borrower sells, transfers or conveys the
related mortgaged property or its interest
in the mortgaged property. Mortgages may
also include a debt-acceleration clause, which
permits the lender to accelerate the debt upon
a monetary or non-monetary
19
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default of the borrower. Such clauses are
generally enforceable subject to certain
exceptions. The courts of all states will
enforce clauses providing for acceleration in
the event of a material payment default. The
equity courts of any state, however, may refuse
the foreclosure of a mortgage or deed of trust
when an acceleration of the indebtedness would
be inequitable or unjust or the circumstances
would render the acceleration unconscionable.
THERE ARE RESTRICTIONS
ON INVESTORS SUBJECT TO
ERISA......................... Generally, ERISA applies to investments made by
employee benefit plans and transactions
involving the assets of such plans. Due to the
complexity of regulations which govern such
plans, prospective investors that are subject to
ERISA are urged to consult their own counsel
regarding consequences under ERISA of
acquisition, ownership and disposition of the
certificates of any series. In particular,
investors that are insurance companies should
consult with their counsel with respect to the
United States Supreme Court case, John Hancock
Mutual Life Insurance Co. v. Harris Trust &
Savings Bank.
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DESCRIPTION OF THE TRUST FUNDS
Capitalized terms are defined in the "Glossary of Terms" beginning on page 133.
ASSETS
The primary assets of each trust fund will include:
o single family mortgage loans and participations therein;
o pass-through certificates or other mortgage-backed securities
evidencing interests in or secured by one or more mortgage loans or
participations therein;
o direct obligations of the United States, agencies thereof or
agencies created thereby which are not subject to redemption prior
to maturity at the option of the issuer and are:
o interest-bearing securities,
o non-interest-bearing securities,
o originally interest-bearing securities from which coupons
representing the right to payment of interest have been
removed, or
o interest-bearing securities from which the right to payment of
principal has been removed; or
o a combination of mortgage loans, mortgage-backed securities
and government securities.
The mortgage loans and mortgage-backed securities will not be
guaranteed or insured by Morgan Stanley Capital I Inc. or any of its affiliates
or, unless otherwise provided in the prospectus supplement, by any governmental
agency or instrumentality or by any other person. Each asset will be selected by
Morgan Stanley Capital I Inc. for inclusion in a trust fund from among those
purchased, either directly or indirectly, from a prior holder thereof, which may
be an affiliate of Morgan Stanley Capital I Inc. and, with respect to mortgage
loans and mortgage-backed securities, which prior holder may or may not be the
originator of such mortgage loan or the issuer of such mortgage-backed
securities.
The certificates will be entitled to payment from the assets of the
related trust fund. If so specified in the related prospectus supplement, the
certificates will also be entitled to payments in respect of the assets of
another trust fund or trust funds established by Morgan Stanley Capital I Inc.
If specified in the related prospectus supplement, the assets of a trust fund
will consist of certificates representing beneficial ownership interests in
another trust fund that contains the assets.
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MORTGAGE LOANS
General
To the extent specified in the related prospectus supplement, the
mortgage loans will be secured by (i) liens on mortgaged properties consisting
of one- to four-family residential properties or security interests in shares
issued by private cooperative housing corporations; or (ii) on mortgaged
properties located in any one of the fifty states, the District of Columbia or
the Commonwealth of Puerto Rico, or, if so specified in the related prospectus
supplement, mortgaged properties may be located elsewhere. To the extent
specified in the related prospectus supplement, the mortgage loans will be
secured by first and/or junior mortgages or deeds of trust or other similar
security instruments creating a first or junior lien on mortgaged property. The
mortgaged properties may include apartments owned by cooperatives. The mortgaged
properties may include leasehold interests in properties, the title to which is
held by third party lessors. To the extent specified in the related prospectus
supplement, the term of any such leasehold shall exceed the term of the related
mortgage note by at least five years. Each mortgage loan will have been
originated by a person other than Morgan Stanley Capital I Inc. The related
prospectus supplement will indicate if any originator is an affiliate of Morgan
Stanley Capital I Inc. The mortgage loans will be evidenced by promissory notes
secured by mortgages or deeds of trust creating a lien on the mortgaged
properties.
Mortgage Loan Information in Prospectus Supplements
Each prospectus supplement will contain information, as of the date of
such prospectus supplement and to the extent then applicable and specifically
known to Morgan Stanley Capital I Inc., with respect to the mortgage loans,
including:
o the aggregate outstanding principal balance and the largest,
smallest and average outstanding principal balance of the
mortgage loans as of the applicable cut-off date;
o the type of property securing the mortgage loans;
o the weighted average (by principal balance) of the original
and remaining terms to maturity of the mortgage loans;
o the earliest and latest origination date and maturity date
of the mortgage loans;
o the weighted average (by principal balance) of the
loan-to-value ratios at origination of the mortgage loans;
o the mortgage rates or range of mortgage rates and the
weighted average mortgage rate borne by the mortgage loans;
o the states (or, if applicable, countries) in which most of
the mortgaged properties are located;
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o information with respect to the prepayment provisions, if any,
of the mortgage loans;
o any interest retained by a seller;
o with respect to mortgage loans with adjustable mortgage rates,
the index, the frequency of the adjustment dates, the highest,
lowest and weighted average note margin and pass-through
margin, and the maximum mortgage rate or monthly payment
variation at the time of any adjustment thereof and over the
life of the loan and the frequency of such monthly payment
adjustments; and
o information regarding the payment characteristics of the
mortgage loans, including without limitation balloon payment
and other amortization provisions.
If specific information respecting the mortgage loans is not known to
Morgan Stanley Capital I Inc. at the time certificates are initially offered,
more general information of the nature described above will be provided in the
prospectus supplement, and specific information will be set forth in a report
which will be available to purchasers of the related certificates at or before
the initial issuance thereof and will be filed as part of a Current Report on
Form 8-K with the Securities and Exchange Commission within fifteen days after
such initial issuance.
Payment Provisions of the Mortgage Loans
Unless otherwise specified in the related prospectus supplement, all
of the mortgage loans will:
o have individual principal balances at origination of not
less than $25,000;
o have original terms to maturity of not more than 40 years;
and
o provide for payments of principal, interest or both, on due
dates that occur monthly, quarterly or semi-annually or at
such other interval as is specified in the related prospectus
supplement.
Each mortgage loan may provide for no accrual of interest or for
accrual of interest thereon at an interest rate that is fixed over its term or
that adjusts from time to time, or that may be converted from an adjustable to a
fixed mortgage rate, or from a fixed to an adjustable mortgage rate, from time
to time pursuant to an election or as otherwise specified on the related
mortgage note, in each case as described in the related prospectus supplement.
Each mortgage loan may provide for scheduled payments to maturity or payments
that adjust from time to time to accommodate changes in the mortgage rate or to
reflect the occurrence of certain events, and may provide for negative
amortization or accelerated amortization, in each case as described in the
related prospectus supplement. Each mortgage loan may be fully amortizing or
require a balloon payment due on its stated maturity date, in each case as
described in the related prospectus supplement. Each mortgage loan may contain
prohibitions on prepayment or require payment of a premium or a yield
maintenance penalty in connection with a prepayment, in each case as described
in the related prospectus supplement. In the event that holders of any class or
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classes of offered certificates will be entitled to all or a portion of any
prepayment premiums collected in respect of mortgage loans, the related
prospectus supplement will specify the method or methods by which any such
amounts will be allocated.
MORTGAGE-BACKED SECURITIES
Any mortgage-backed security will have been issued pursuant to a
pooling and servicing agreement, a trust agreement, an indenture or similar
agreement. A seller and/or servicer of the underlying mortgage loans (or
underlying mortgage-backed securities) will have entered into an agreement with
a trustee or a custodian or with the original purchaser of the interest in the
underlying mortgage loans or mortgage-backed securities evidenced by the
mortgage-backed securities.
Distributions of any principal or interest, as applicable, will be
made on mortgage-backed securities on the dates specified in the related
prospectus supplement. The mortgage-backed securities may be issued in one or
more classes with characteristics similar to the classes of certificates
described in this prospectus. Any principal or interest distributions will be
made on the mortgage-backed securities by the related trustee or servicer. The
issuer of the mortgage-backed securities or a servicer or other person specified
in the related prospectus supplement may have the right or obligation to
repurchase or substitute assets underlying the mortgage-backed securities after
a certain date or under other circumstances specified in the related prospectus
supplement.
Enhancement in the form of reserve funds, subordination or other forms
of credit support similar to that described for the certificates under
"Description of Credit Support" may be provided with respect to the
mortgage-backed securities. The type, characteristics and amount of such credit
support, if any, will be a function of certain characteristics of the mortgage
loans or underlying mortgage-backed securities evidenced by or securing such
mortgage-backed securities and other factors and generally will have been
established for the mortgage-backed securities on the basis of requirements of
either any rating agency that may have assigned a rating to the mortgage-backed
securities or the initial purchasers of the mortgage-backed securities.
The prospectus supplement for a series of certificates evidencing
interests in mortgage assets that include mortgage-backed securities will
specify, to the extent available:
o the aggregate approximate initial and outstanding principal
amount or notional amount, as applicable, and type of the
mortgage-backed securities to be included in the trust fund;
o the original and remaining term to stated maturity of the
mortgage-backed securities, if applicable;
o whether the mortgage-backed securities are entitled only to
interest payments, only to principal payments or to both;
o the pass-through or bond rate of the mortgage-backed securities
or formula for determining such rates, if any;
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o the applicable payment provisions for the mortgage-backed
securities, including, but not limited to, any priorities,
payment schedules and subordination features;
o the issuer, servicer and trustee, as applicable;
o certain characteristics of the credit support, if any, such as
subordination, reserve funds, insurance policies, letters of
credit or guarantees relating to the related underlying mortgage
loans, the underlying mortgage-backed securities or directly to
such mortgage-backed securities;
o the terms on which the related underlying mortgage loans or
underlying mortgage-backed securities for such mortgage-backed
securities or the mortgage-backed securities may, or are required
to, be purchased prior to their maturity;
o the terms on which mortgage loans or underlying mortgage-backed
securities may be substituted for those originally underlying the
mortgage-backed securities,
o the applicable servicing fees;
o the type of information in respect of the underlying mortgage
loans described under "--Mortgage Loans--Mortgage Loan
Information in Prospectus Supplements" above, and the type of
information in respect of the underlying mortgage-backed
securities described in this paragraph;
o the characteristics of any cash flow agreements that are included
as part of the trust fund evidenced or secured by the
mortgage-backed securities; and
o whether the mortgage-backed securities are in certificated form,
book-entry form or held through a depository such as The
Depository Trust Company or the Participants Trust Company.
GOVERNMENT SECURITIES
The prospectus supplement for a series of certificates evidencing
interests in assets of a trust fund that include government securities will
specify, to the extent available:
o the aggregate approximate initial and outstanding principal
amounts or notional amounts, as applicable, and types of the
government securities to be included in the trust fund;
o the original and remaining terms to stated maturity of the
government securities;
o whether such government securities are entitled only to
interest payments, only to principal payments or to both;
o the interest rates of the government securities or the formula
to determine such rates, if any,
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o the applicable payment provisions for the government
securities; and
o to what extent, if any, the obligation evidenced thereby is
backed by the full faith and credit of the United States.
ACCOUNTS
Each trust fund will include one or more accounts established and
maintained on behalf of the certificateholders into which the person or persons
designated in the related prospectus supplement will, to the extent described in
this prospectus and in such prospectus supplement deposit all payments and
collections received or advanced with respect to the assets and other assets in
the trust fund. Such an account may be maintained as an interest bearing or a
non-interest bearing account, and funds held therein may be held as cash or
invested in certain short-term, investment grade obligations, in each case as
described in the related prospectus supplement. See "Description of the
Agreements--Certificate Account and Other Collection Accounts."
CREDIT SUPPORT
If so provided in the related prospectus supplement, partial or full
protection against certain defaults and losses on the assets in the related
trust fund may be provided to one or more classes of certificates in the related
series in the form of subordination of one or more other classes of certificates
in such series or by one or more other types of credit support, such as a letter
of credit, insurance policy, guarantee, reserve fund or another type of credit
support, or a combination thereof. The amount and types of coverage, the
identification of the entity providing the coverage (if applicable) and related
information with respect to each type of credit support, if any, will be
described in the prospectus supplement for a series of certificates. See "Risk
Factors--Credit Enhancement is Limited in Amount and Coverage" and "Description
of Credit Support."
CASH FLOW AGREEMENTS
If so provided in the related prospectus supplement, the trust fund
may include guaranteed investment contracts pursuant to which moneys held in the
funds and accounts established for the related series will be invested at a
specified rate. The trust fund may also include certain other agreements, such
as interest rate exchange agreements, interest rate cap or floor agreements,
currency exchange agreements, swap agreements, notional balance agreements, or
similar agreements provided to reduce the effects of interest rate or currency
exchange rate fluctuations on the assets or on one or more classes of
certificates. (Currency exchange agreements might be included in the trust fund
if some or all of the mortgage loans and mortgage-backed securities (such as
mortgage loans secured by mortgaged properties located outside the United
States) were denominated in a non-United States currency.) The principal terms
of any such guaranteed investment contract or other agreement, including,
without limitation, provisions relating to the timing, manner and amount of
payments thereunder and provisions relating to the termination thereof, will be
described in the prospectus supplement for the related series. In addition, the
related prospectus supplement will provide certain information with respect to
the obligor under any such cash flow agreement.
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USE OF PROCEEDS
The net proceeds to be received from the sale of the certificates will
be applied by Morgan Stanley Capital I Inc. to the purchase of assets and to pay
for certain expenses incurred in connection with such purchase of assets and
sale of certificates. Morgan Stanley Capital I Inc. expects to sell the
certificates from time to time, but the timing and amount of offerings of
certificates will depend on a number of factors, including the volume of assets
acquired by Morgan Stanley Capital I Inc., prevailing interest rates,
availability of funds and general market conditions.
YIELD CONSIDERATIONS
GENERAL
The yield on any offered certificate will depend on the price paid by
the certificateholder, the pass-through rate of the certificate, the receipt and
timing of receipt of distributions on the certificate and the weighted average
life of the assets in the related trust fund, which may be affected by
prepayments, defaults, liquidations or repurchases. See "Risk Factors."
PASS-THROUGH RATE
Certificates of any class within a series may have fixed, variable or
adjustable pass-through rates, which may or may not be based upon the interest
rates borne by the assets in the related trust fund. The prospectus supplement
with respect to any series of certificates will specify the pass-through rate
for each class of certificates or, in the case of a variable or adjustable
pass-through rate, the method of determining the pass-through rate; the effect,
if any, of the prepayment of any mortgage loan or mortgage-backed security on
the pass-through rate of one or more classes of certificates; and whether the
distributions of interest on the certificates of any class will be dependent, in
whole or in part, on the performance of any obligor under a cash flow agreement.
The effective yield to maturity to each holder of certificates
entitled to payments of interest will be below that otherwise produced by the
applicable pass-through rate and purchase price of the certificate because,
while interest may accrue on each asset during a certain period, the
distribution of interest will be made on a day which may be several days, weeks
or months following the period of accrual.
TIMING OF PAYMENT OF INTEREST
Each payment of interest on the certificates or addition to the
certificate balance of a class of accrual certificates on a distribution date
will include interest accrued during the interest accrual period for such
distribution date. As indicated in this prospectus under "--The Pass-Through
Rate" above, if the interest accrual period ends on a date other than a
distribution date for the related series, the yield realized by the holders of
the certificates may be lower than the yield that would result if the interest
accrual period ended on that distribution date. In addition, if so specified in
the related prospectus supplement, interest accrued for an interest accrual
period for one or more classes of certificates may be calculated on the
assumption that distributions of principal, additions to the certificate balance
of accrual certificates and
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allocations of losses on the assets may be made on the first day of the
interest accrual period for a distribution date and not on that distribution
date. This method would produce a lower effective yield than if interest were
calculated on the basis of the actual principal amount outstanding during an
interest accrual period. The interest accrual period for any class of offered
certificates will be described in the related prospectus supplement.
PAYMENTS OF PRINCIPAL; PREPAYMENTS
The yield to maturity on the certificates will be affected by the rate
of principal payments on the assets, including principal prepayments on mortgage
loans resulting from both voluntary prepayments by the borrowers and involuntary
liquidations. The rate at which principal prepayments occur on the mortgage
loans will be affected by a variety of factors, including, without limitation,
the terms of the mortgage loans, the level of prevailing interest rates, the
availability of mortgage credit and economic, demographic, geographic, tax,
legal and other factors. In general, however, if prevailing interest rates fall
significantly below the mortgage rates on the mortgage loans comprising or
underlying the assets in a particular trust fund, the mortgage loans are likely
to be the subject of higher principal prepayments than if prevailing rates
remain at or above the rates borne by the mortgage loans. In this regard, it
should be noted that assets may consist of mortgage loans with different
mortgage rates and the stated pass-through or pay-through interest rate of
mortgage-backed securities may be a number of percentage points higher or lower
than certain of the underlying mortgage loans. The rate of principal payments on
some or all of the classes of certificates of a series will correspond to the
rate of principal payments on the assets in the related trust fund and is likely
to be affected by the existence of lock-out periods and prepayment premium
provisions of the mortgage loans underlying or comprising the assets, and by the
extent to which the servicer of any such mortgage loan is able to enforce these
provisions. Mortgage loans with a lock-out period or a prepayment premium
provision, to the extent enforceable, generally would be expected to experience
a lower rate of principal prepayments than otherwise identical mortgage loans
without these provisions, with shorter lock-out periods or with lower prepayment
premiums.
If the purchaser of a certificate offered at a discount calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is faster than that actually experienced on the assets, the
actual yield to maturity will be lower than that so calculated. Conversely, if
the purchaser of a certificate offered at a premium calculates its anticipated
yield to maturity based on an assumed rate of distributions of principal that is
slower than that actually experienced on the assets, the actual yield to
maturity will be lower than that so calculated. In either case, if so provided
in the prospectus supplement for a series of certificates, the effect on yield
on one or more classes of the certificates of the series of prepayments of the
assets in the related trust fund may be mitigated or exacerbated by any
provisions for sequential or selective distribution of principal to these
classes.
When a full prepayment is made on a mortgage loan, the borrower is
charged interest on the principal amount of the mortgage loan so prepaid for the
number of days in the month actually elapsed up to the date of the prepayment.
To the extent specified in the related prospectus supplement, the effect of
prepayments in full will be to reduce the amount of interest paid in the
following month to holders of certificates entitled to payments of interest
because interest on the principal amount of any mortgage loan so prepaid will be
paid only to the date of
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prepayment rather than for a full month. To the extent specified in the
related prospectus supplement, a partial prepayment of principal is applied
so as to reduce the outstanding principal balance of the related mortgage loan
as of the due date in the month in which the partial prepayment is received. As
a result, to the extent specified in the related prospectus supplement, the
effect of a partial prepayment on a mortgage loan will be to reduce the amount
of interest passed through to holders of certificates in the month following the
receipt of the partial prepayment by an amount equal to one month's interest at
the applicable pass-through rate on the prepaid amount.
The timing of changes in the rate of principal payments on the
mortgage loans and mortgage-backed securities may significantly affect an
investor's actual yield to maturity, even if the average rate of distributions
of principal is consistent with an investor's expectation. In general, the
earlier a principal payment is received on the mortgage loans and
mortgage-backed securities and distributed on a certificate, the greater the
effect on the investor's yield to maturity. The effect on an investor's yield of
principal payments occurring at a rate higher or lower than the rate anticipated
by the investor during a given period may not be offset by a subsequent like
decrease or increase in the rate of principal payments.
PREPAYMENTS, MATURITY AND WEIGHTED AVERAGE LIFE
The rates at which principal payments are received on the assets
included in or comprising a trust fund and the rate at which payments are made
from any credit support or cash flow agreement for the related series of
certificates may affect the ultimate maturity and the weighted average life of
each class of a series. Prepayments on the mortgage loans comprising or
underlying the mortgage loans and mortgage-backed securities in a particular
trust fund will generally accelerate the rate at which principal is paid on some
or all of the classes of the certificates of the related series.
If so provided in the prospectus supplement for a series of
certificates, one or more classes of certificates may have a final scheduled
distribution date, which is the date on or prior to which the certificate
balance thereof is scheduled to be reduced to zero, calculated on the basis of
the assumptions applicable to that series set forth in the related prospectus
supplement.
Weighted average life refers to the average amount of time that will
elapse from the date of issue of a security until each dollar of principal of
the security will be repaid to the investor. The weighted average life of a
class of certificates of a series will be influenced by the rate at which
principal on the mortgage loans comprising or underlying the mortgage loans and
mortgage-backed securities is paid to that class, which may be in the form of
scheduled amortization or prepayments which include prepayments, in whole or in
part, and liquidations due to default.
In addition, the weighted average life of the certificates may be
affected by the varying maturities of the mortgage loans comprising or
underlying the mortgage-backed securities. If any mortgage loans comprising or
underlying the assets in a particular trust fund have actual terms to maturity
of less than those assumed in calculating final scheduled distribution dates for
the classes of certificates of the related series, one or more classes of
certificates may be fully paid prior to their respective final scheduled
distribution dates, even in the absence of
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prepayments. Accordingly, the prepayment experience of the assets will, to
some extent, be a function of the mix of mortgage rates and maturities of
the mortgage loans comprising or underlying the assets. See "Description of
the Trust Funds."
Prepayments on loans are also commonly measured relative to a
prepayment standard or model, such as the Constant Prepayment Rate prepayment
model or the Standard Prepayment Assumption prepayment model, each as described
below. The Constant Prepayment Rate represents a constant assumed rate of
prepayment each month relative to the then outstanding principal balance of a
pool of loans for the life of the loans. The Standard Prepayment Assumption
represents an assumed rate of prepayment each month relative to the then
outstanding principal balance of a pool of loans. A Prepayment Assumption of
100% of the Standard Prepayment Assumption assumes prepayment rates of 0.2% per
annum of the then outstanding principal balance of the loans in the first month
of the life of the loans and an additional 0.2% per annum in each month
thereafter until the thirtieth month. Beginning in the thirtieth month and in
each month thereafter during the life of the loans, 100% of the Standard
Prepayment Assumption assumes a constant prepayment rate of 6% per annum each
month.
Neither the Constant Prepayment Rate nor the Standard Prepayment
Assumption nor any other prepayment model or assumption purports to be a
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of loans, including the mortgage
loans underlying or comprising the mortgage loans and mortgage-backed
securities.
In general, if interest rates fall below the mortgage rates on
fixed-rate mortgage loans, the rate of prepayment would be expected to increase.
The prospectus supplement with respect to each series of certificates
will contain tables, if applicable, setting forth the projected weighted average
life of each class of offered certificates of the series and the percentage of
the initial certificate balance of each class that would be outstanding on
specified distribution dates based on the assumptions stated in the prospectus
supplement, including assumptions that prepayments on the mortgage loans
comprising or underlying the related assets are made at rates corresponding to
various percentages of the Constant Prepayment Rate, the Standard Prepayment
Assumption or at other rates specified in the prospectus supplement. These
tables and assumptions are intended to illustrate the sensitivity of weighted
average life of the certificates to various prepayment rates and will not be
intended to predict or to provide information that will enable investors to
predict the actual weighted average life of the certificates. It is unlikely
that prepayment of any mortgage loans comprising or underlying the mortgage
loans and mortgage-backed securities for any series will conform to any
particular level of the Constant Prepayment Rate, the Standard Prepayment
Assumption or any other rate specified in the related prospectus supplement.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
Type of Mortgage Asset
If so specified in the related prospectus supplement, a number of
mortgage loans may have balloon payments due at maturity, and because the
ability of a borrower to make a balloon
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payment typically will depend upon its ability either to refinance the loan
or to sell the related mortgaged property, there is a risk that a number of
mortgage loans having balloon payments may default at maturity. In the case of
defaults, recovery of proceeds may be delayed by, among other things, bankruptcy
of the borrower or adverse conditions in the market where the property is
located. In order to minimize losses on defaulted mortgage loans, the servicer
may, to the extent and under the circumstances set forth in the related
prospectus supplement, be permitted to modify mortgage loans that are in default
or as to which a payment default is imminent. Any defaulted balloon payment or
modification that extends the maturity of a mortgage loan will tend to extend
the weighted average life of the certificates, thereby lengthening the period of
time elapsed from the date of issuance of a certificate until it is retired.
With respect to certain mortgage loans, including adjustable rate
loans, the mortgage rate at origination may be below the rate that would result
if the index and margin relating thereto were applied at origination. Under the
applicable underwriting standards, the borrower under each mortgage loan
generally will be qualified on the basis of the mortgage rate in effect at
origination. The repayment of any mortgage loan may thus be dependent on the
ability of the borrower to make larger level monthly payments following the
adjustment of the mortgage rate. In addition, certain mortgage loans may be
subject to temporary buydown plans pursuant to which the monthly payments made
by the borrower during the early years of the mortgage loan will be less than
the scheduled monthly payments thereon. The periodic increase in the amount paid
by the borrower of a buydown mortgage loan during or at the end of the
applicable buydown period may create a greater financial burden for the
borrower, who might not have otherwise qualified for a mortgage, and may
accordingly increase the risk of default with respect to the related mortgage
loan.
The mortgage rates on adjustable rate loans subject to negative
amortization generally adjust monthly and their amortization schedules adjust
less frequently. During a period of rising interest rates as well as immediately
after origination (initial mortgage rates are generally lower than the sum of
the applicable index at origination and the related margin over the index at
which interest accrues), the amount of interest accruing on the principal
balance of the mortgage loans may exceed the amount of the minimum scheduled
monthly payment thereon. As a result, a portion of the accrued interest on
negatively amortizing mortgage loans may be added to the principal balance
thereof and will bear interest at the applicable mortgage rate. The addition of
any Deferred Interest to the principal balance of any related class or classes
of certificates will lengthen the weighted average life thereof and may
adversely affect yield to holders thereof, depending upon the price at which
those certificates were purchased. In addition, with respect to an adjustable
rate loan subject to negative amortization, during a period of declining
interest rates, it might be expected that each minimum scheduled monthly payment
on that mortgage loan would exceed the amount of scheduled principal and accrued
interest on the principal balance thereof, and since such excess will be applied
to reduce the principal balance of the related class or classes of certificates,
the weighted average life of those certificates will be reduced and may
adversely affect yield to holders thereof, depending upon the price at which
those certificates were purchased.
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Defaults
The rate of defaults on the mortgage loans will also affect the rate
and timing of principal payments on the assets and thus the yield on the
certificates. In general, defaults on mortgage loans are expected to occur with
greater frequency in their early years. The rate of default on mortgage loans
which are refinance or limited documentation mortgage loans, and on mortgage
loans with high loan-to-value ratios, may be higher than for other types of
mortgage loans. Furthermore, the rate and timing of prepayments, defaults and
liquidations on the mortgage loans will be affected by the general economic
condition of the region of the country in which the related mortgaged properties
are located. The risk of delinquencies and loss is greater and prepayments are
less likely in regions where a weak or deteriorating economy exists, as may be
evidenced by, among other factors, increasing unemployment or falling property
values.
Foreclosures
The number of foreclosures and the principal amount of the mortgage
loans comprising or underlying the mortgage loans and mortgage-backed securities
that are foreclosed in relation to the number and principal amount of mortgage
loans that are repaid in accordance with their terms will affect the weighted
average life of the mortgage loans comprising or underlying the mortgage loans
and mortgage-backed securities and that of the related series of certificates.
Refinancing
At the request of a borrower, the servicer or a subservicer may allow
the refinancing of a mortgage loan in any trust fund by accepting prepayments on
that loan and permitting a new loan secured by a mortgage on the same property.
In the event of a refinancing, the new loan would not be included in the related
trust fund and, therefore, the refinancing would have the same effect as a
prepayment in full of the related mortgage loan. The master servicer or a
subservicer may, from time to time, implement programs designed to encourage
refinancing. These programs may include, without limitation, modifications of
existing loans, general or targeted solicitations, the offering of pre-approved
applications, reduced origination fees or closing costs, or other financial
incentives. In addition, subservicers may encourage the refinancing of mortgage
loans, including defaulted mortgage loans, that would permit creditworthy
borrowers to assume the outstanding indebtedness of those mortgage loans.
Due-on-Sale Clauses
Acceleration of mortgage payments as a result of transfers of
underlying mortgaged property is another factor affecting prepayment rates that
may not be reflected in the prepayment standards or models used in the relevant
prospectus supplement. A number of the mortgage loans comprising or underlying
the assets may include "due-on-sale" clauses that allow the holder of the
mortgage loans to demand payment in full of the remaining principal balance of
the mortgage loans upon sale, transfer or conveyance of the related mortgaged
property. With respect to any mortgage loans, unless otherwise provided in the
related prospectus supplement, the servicer will generally enforce any
due-on-sale clause to the extent it has knowledge of the conveyance or proposed
conveyance of the underlying mortgaged property and it is entitled to do so
under applicable law; provided, however, that the servicer will not take any
action in relation
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to the enforcement of any due-on-sale provision which would adversely affect
or jeopardize coverage under any applicable insurance policy. See "Legal
Aspects of Mortgage Loans--Due-on-Sale Clauses" and "Description of the
Agreements--Due-on-Sale Provisions."
THE DEPOSITOR
Morgan Stanley Capital I Inc., the depositor, is a direct wholly-owned
subsidiary of Morgan Stanley Group Inc. and was incorporated in the State of
Delaware on January 28, 1985. The principal executive offices of Morgan Stanley
Capital I Inc. are located at 1585 Broadway, 37th Floor, New York, New York
10036. Its telephone number is (212) 761-4700.
Morgan Stanley Capital I Inc. does not have, nor is it expected in the
future to have, any significant assets.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The certificates of each series, including any class of certificates not
offered by this prospectus, will represent the entire beneficial ownership
interest in the trust fund created pursuant to the related Agreement. Each
series of certificates will consist of one or more classes of certificates that
may:
o provide for the accrual of interest thereon based on fixed,
variable or adjustable rates;
o be senior or subordinate to one or more other classes of
certificates in respect of distributions on the certificates;
o be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions;
o be entitled to interest distributions, with disproportionately
low, nominal or no principal distributions;
o provide for distributions of accrued interest thereon
commencing only following the occurrence of certain events,
such as the retirement of one or more other classes of
certificates of the series;
o provide for payments of principal sequentially, based on
specified payment schedules, from only a portion of the assets
in the trust fund or based on specified calculations, to the
extent of available funds, in each case as described in the
related prospectus supplement; and/or
o provide for distributions based on a combination of two or
more components thereof with one or more of the
characteristics described in this paragraph including a
stripped principal certificate component and a stripped
interest certificate component.
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If so specified in the related prospectus supplement, distributions on one
or more classes of a series of certificates may be limited to collections from a
designated portion of the mortgage loans in the related mortgage pool. Any of
the foregoing may be included in the certificates being offered to you.
Each class of offered certificates of a series will be issued in minimum
denominations corresponding to the certificate balances or, in case of stripped
interest certificates, notional amounts or percentage interests specified in the
related prospectus supplement. The transfer of any offered certificates may be
registered and these certificates may be exchanged without the payment of any
service charge payable in connection with the registration of transfer or
exchange, but Morgan Stanley Capital I Inc. or the trustee or any agent thereof
may require payment of a sum sufficient to cover any tax or other governmental
charge. One or more classes of certificates of a series may be issued in
definitive form or in book-entry form, as provided in the related prospectus
supplement. See "Risk Factors--Book-Entry Certificates May Experience Decreased
Liquidity and Payment Delay" and "Description of the Certificates--Book-Entry
Registration and Definitive Certificates." Definitive certificates will be
exchangeable for other certificates of the same class and series of a like
aggregate certificate balance, notional amount or percentage interest but of
different authorized denominations. See "Risk Factors--Lack of a Secondary
Market May Make it Difficult for You to Resell Your Certificates" and "--The
Trust Fund's Assets May be Insufficient to Pay Your Certificate in Full."
DISTRIBUTIONS
Distributions on the certificates of each series will be made by or on
behalf of the trustee on each distribution date as specified in the related
prospectus supplement from the Available Distribution Amount for the series and
the distribution date. Except as otherwise specified in the related prospectus
supplement, distributions other than the final distribution will be made to the
persons in whose names the certificates are registered on the Record Date, and
the amount of each distribution will be determined as of the close of business
on the date specified in the related prospectus supplement. All distributions
with respect to each class of certificates on each distribution date will be
allocated pro rata among the outstanding certificates in the class or by random
selection, as described in the related prospectus supplement or otherwise
established by the related trustee. Payments will be made either by wire
transfer in immediately available funds to the account of a certificateholder at
a bank or other entity having appropriate facilities therefor, if the
certificateholder has so notified the trustee or other person required to make
the payments no later than the date specified in the related prospectus
supplement and, if so provided in the related prospectus supplement, holds
certificates in the requisite amount specified therein, or by check mailed to
the address of the person entitled thereto as it appears on the certificate
register; provided, however, that the final distribution in retirement of the
certificates whether definitive certificates or book-entry certificates, will be
made only upon presentation and surrender of the certificates at the location
specified in the notice to certificateholders of the final distribution.
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AVAILABLE DISTRIBUTION AMOUNT
All distributions on the certificates of each series on each distribution
date will be made from the Available Distribution Amount, in accordance with
the terms described in the related prospectus supplement.
The entire Available Distribution Amount will be distributed among the
related certificates, including any certificates not offered hereby, on each
distribution date, and accordingly will be released from the trust fund and will
not be available for any future distributions.
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Each class of certificates, other than classes of stripped principal
certificates that have no pass-through rate, may have a different pass-through
rate, which will be a fixed, variable or adjustable rate at which interest will
accrue on the class or a component thereof. The related prospectus supplement
will specify the pass-through rate for each class or component or, in the case
of a variable or adjustable pass-through rate, the method for determining the
pass-through rate. If so specified in the related prospectus supplement,
interest on the certificates will be calculated on the basis of a 360-day year
consisting of twelve 30-day months.
Distributions of interest in respect of the certificates of any class will
be made on each distribution date -- other than any class of accrual
certificates, which will be entitled to distributions of accrued interest
commencing only on the distribution date, or under the circumstances specified
in the related prospectus supplement, and any class of stripped principal
certificates that are not entitled to any distributions of interest -- based on
the accrued certificate interest for the class and the distribution date,
subject to the sufficiency of the portion of the Available Distribution Amount
allocable to the class on the distribution date. Prior to the time interest is
distributable on any class of accrual certificates, the amount of accrued
certificate interest otherwise distributable on the class will be added to the
certificate balance thereof on each distribution date. Unless otherwise provided
in the prospectus supplement, [accrued certificate interest on stripped interest
certificates will be equal to interest accrued for a specified period on the
outstanding certificate balance thereof immediately prior to the distribution
date, at the applicable pass-through rate, reduced as described below]. To the
extent specified in the prospectus supplement, accrued certificate interest on
stripped interest certificates will be equal to interest accrued for a specified
period on the outstanding notional amount thereof immediately prior to each
distribution date, at the applicable pass-through rate, reduced as described
below in the next paragraph.
The method of determining the notional amount for any class of stripped
interest certificates will be described in the related prospectus supplement.
Reference to notional amount is solely for convenience in certain calculations
and does not represent the right to receive any distributions of principal.
Unless otherwise provided in the related prospectus supplement, the accrued
certificate interest on a series of certificates will be reduced in the event of
prepayment interest shortfalls, which are shortfalls in collections of interest
for a full accrual period resulting from prepayments prior to the due date in
such accrual period on the mortgage loans comprising or underlying the mortgage
loans and mortgage-backed securities in the trust fund for such
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series. The particular manner in which these shortfalls are to be allocated
among some or all of the classes of certificates of that series will be
specified in the related prospectus supplement. The related prospectus
supplement will also describe the extent to which the amount of accrued
certificate interest that is otherwise distributable on, or, in the case of
accrual certificates, that may otherwise be added to the certificate balance of,
a class of offered certificates may be reduced as a result of any other
contingencies, including delinquencies, losses and Deferred Interest on or in
respect of the mortgage loans comprising or underlying the mortgage loans and
mortgage-backed securities in the related trust fund. To the extent specified in
the related prospectus supplement, any reduction in the amount of accrued
certificate interest otherwise distributable on a class of certificates by
reason of the allocation to such class of a portion of any Deferred Interest on
the mortgage loans comprising or underlying the mortgage loans and
mortgage-backed securities in the related trust fund will result in a
corresponding increase in the certificate balance of the class. See "Risk
Factors--Rate of Prepayment on Mortgage Assets May Adversely Affect Average
Lives and Yields on Certificates" and "Yield Considerations."
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
The certificates of each series, other than certain classes of stripped
interest certificates, will have a certificate balance. The outstanding
certificate balance of a certificate will be reduced to the extent of
distributions of principal thereon from time to time and, if and to the extent
so provided in the related prospectus supplement, by the amount of losses
incurred in respect of the related assets, may be increased in respect of
Deferred Interest on the related mortgage loans to the extent provided in the
related prospectus supplement and, in the case of accrual certificates prior to
the distribution date on which distributions of interest are required to
commence, will be increased by any related accrued certificate interest. Unless
otherwise provided in the related prospectus supplement, the initial aggregate
certificate balance of all classes of certificates of a series will not be
greater than the outstanding aggregate principal balance of the related assets
as of the applicable cut-off date. The initial aggregate certificate balance of
a series and each class thereof will be specified in the related prospectus
supplement. Unless otherwise provided in the related prospectus supplement,
distributions of principal will be made on each distribution date to the class
or classes of certificates entitled thereto in accordance with the provisions
described in the prospectus supplement until the certificate balance of that
class has been reduced to zero. Stripped Interest Certificates with no
certificate balance are not entitled to any distributions of principal.
COMPONENTS
To the extent specified in the related prospectus supplement, distribution
on a class of certificates may be based on a combination of two or more
different components as described under "--General" above. The descriptions set
forth under "--Distributions of Interest on the Certificates" and
"--Distributions of Principal of the Certificates" above also relate to
components of a class of certificates. In this case, references to certificate
balance and pass-through rate refer to the principal balance, if any, of any
component and the pass-through rate, if any, on any component, respectively.
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DISTRIBUTIONS ON THE CERTIFICATES OF PREPAYMENT PREMIUMS
If so provided in the related prospectus supplement, prepayment premiums
that are collected on the mortgage loans and mortgage-backed securities in the
related trust fund will be distributed on each distribution date to the class or
classes of certificates entitled thereto in accordance with the provisions
described in the prospectus supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
If so provided in the prospectus supplement for a series of certificates
consisting of one or more classes of subordinate certificates, on any
distribution date in respect of which losses or shortfalls in collections on the
mortgage loans and mortgage-backed securities have been incurred, the amount of
such losses or shortfalls will be borne first by a class of subordinate
certificates in the priority and manner and subject to the limitations specified
in the prospectus supplement. See "Description of Credit Support" for a
description of the types of protection that may be included in a trust fund
against losses and shortfalls on mortgage loans and mortgage-backed securities
comprising the trust fund.
ADVANCES IN RESPECT OF DELINQUENCIES
With respect to any series of certificates evidencing an interest in a
trust fund, unless otherwise provided in the related prospectus supplement, the
master servicer or another entity described in the prospectus supplement will be
required as part of its servicing responsibilities to advance on or before each
distribution date its own funds or funds held in the certificate account that
are not included in the Available Distribution Amount for the distribution date,
in an amount equal to the aggregate of payments of principal other than any
balloon payments, and interest, net of related servicing fees and retained
interest loans and mortgage-backed securities, that were due on the mortgage
loans in the trust fund during the related Due Period and were delinquent on the
related determination date, subject to the master servicer's or another entity's
good faith determination that the advances will be reimbursable from Related
Proceeds. In the case of a series of certificates that includes one or more
classes of subordinate certificates and if so provided in the related prospectus
supplement, the master servicer's or another entity's advance obligation may be
limited only to the portion of the delinquencies necessary to make the required
distributions on one or more classes of senior certificates and/or may be
subject to the master servicer's or another entity's good faith determination
that the advances will be reimbursable not only from Related Proceeds but also
from collections on other assets otherwise distributable on one or more classes
of subordinate certificates. See "Description of Credit Support."
Advances are intended to maintain a regular flow of scheduled interest and
principal payments to holders of the class or classes of certificates entitled
thereto, rather than to guarantee or insure against losses. Unless otherwise
provided in the related prospectus supplement, advances of the master servicer's
or another entity's funds will be reimbursable only out of Related Proceeds and,
if so provided in the prospectus supplement, out of any amounts otherwise
distributable on one or more classes of subordinate certificates of the series;
provided, however, that any advance will be reimbursable from any amounts in the
certificate account prior to any distributions being made on the certificates to
the extent that the master servicer or another entity shall determine in good
faith that the advance is a nonrecoverable advance. If advances have
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been made by the master servicer from excess funds in the certificate account,
the master servicer is required to replace the funds in the certificate account
on any future distribution date to the extent that funds in the certificate
account on the distribution date are less than payments required to be made to
certificateholders on that date. If so specified in the related prospectus
supplement, the obligations of the master servicer or another entity to make
advances may be secured by a cash advance reserve fund, a surety bond, a letter
of credit or another form of limited guaranty. If applicable, information
regarding the characteristics of, and the identity of any obligor on, any surety
bond, will be set forth in the related prospectus supplement.
If and to the extent so provided in the related prospectus supplement, the
master servicer or another entity will be entitled to receive interest at the
rate specified therein on its outstanding advances and will be entitled to pay
itself interest periodically from general collections on the assets prior to any
payment to certificateholders or as otherwise provided in the related Agreement
and described in the prospectus supplement.
The prospectus supplement for any series of certificates evidencing an
interest in a trust fund that includes mortgage-backed securities will describe
any corresponding advancing obligation of any person in connection with such
mortgage-backed securities.
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise provided in the prospectus supplement, with each
distribution to holders of any class of certificates of a series, the servicer
or the trustee, as provided in the related prospectus supplement, will forward
or cause to be forwarded to each such holder, to Morgan Stanley Capital I Inc.
and to the other parties as may be specified in the related Agreement, a
statement setting forth, in each case to the extent applicable and available:
(1) the amount of the distribution to holders of certificates of that
class applied to reduce the certificate balance thereof;
(2) the amount of the distribution to holders of certificates of that
class allocable to accrued certificate interest;
(3) the amount of the distribution allocable to prepayment premiums;
(4) the amount of related servicing compensation received by a servicer
and, if payable directly out of the related trust fund, by any subservicer and
any other customary information as that servicer or trustee deems necessary or
desirable, or that a certificateholder reasonably requests, to enable
certificateholders to prepare their tax returns;
(5) the aggregate amount of advances included in that distribution, and
the aggregate amount of unreimbursed advances at the close of business on that
distribution date;
(6) the aggregate principal balance of the assets at the close of business
on that distribution date;
(7) the number and aggregate principal balance of mortgage loans in
respect of which:
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o one scheduled payment is delinquent;
o two scheduled payments are delinquent;
o three or more scheduled payments are delinquent; and
o foreclosure proceedings have been commenced;
(8) with respect to any mortgage loan liquidated during the related Due
Period:
o the portion of such liquidation proceeds payable or reimbursable
to the servicer or any other entity in respect of such mortgage
loan; and
o the amount of any loss to certificateholders;
(9) with respect to each REO property relating to a mortgage loan and
included in the trust fund as of the end of the related Due Period:
o the loan number of the related mortgage loan; and
o the date of acquisition;
(10) with respect to each REO property relating to a mortgage loan and
included in the trust fund as of the end of the related Due Period:
o the book value;
o the principal balance of the related mortgage loan immediately
following the distribution date, calculated as if the mortgage
loan were still outstanding taking into account certain limited
modifications to the terms thereof specified in the Agreement;
o the aggregate amount of unreimbursed servicing expenses and
unreimbursed advances in respect thereof; and
o if applicable, the aggregate amount of interest accrued and
payable on related servicing expenses and related advances;
(11) with respect to any REO property sold during the related Due Period:
o the aggregate amount of sale proceeds;
o the portion of sales proceeds payable or reimbursable to the
servicer in respect of the REO property or the related mortgage
loan; and
o the amount of any loss to certificateholders in respect of the
related mortgage loan;
(12) the aggregate certificate balance or notional amount, as the case may
be, of each class of certificates including any class of certificates not
offered hereby at the close of business on the distribution date, separately
identifying any reduction in the certificate balance due to the allocation of
any loss and increase in the certificate balance of a class of accrual
certificates in the event that accrued certificate interest has been added to
the balance;
(13) the aggregate amount of principal prepayments made during the related
Due Period;
(14) the amount deposited in the reserve fund, if any, on the distribution
date;
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(15) the amount remaining in the reserve fund, if any, as of the close of
business on the distribution date;
(16) the aggregate unpaid accrued certificate interest, if any, on each
class of certificates at the close of business on the distribution date;
(17) in the case of certificates with a variable pass-through rate, the
pass-through rate applicable to the distribution date, and, if available, the
immediately succeeding distribution date, as calculated in accordance with the
method specified in the related prospectus supplement;
(18) in the case of certificates with an adjustable pass-through rate, for
statements to be distributed in any month in which an adjustment date occurs,
the adjustable pass-through rate applicable to the distribution date and the
immediately succeeding distribution date as calculated in accordance with the
method specified in the related prospectus supplement;
(19) as to any series which includes credit support, the amount of
coverage of each instrument of credit support included therein as of the close
of business on the distribution date; and
(20) the aggregate amount of payments by the borrowers of:
o default interest;
o late charges; and
o assumption and modification fees collected during the related Due
Period.
In the case of information furnished pursuant to subclauses (1)-(4) above,
the amounts shall be expressed as a dollar amount per minimum denomination of
certificates or for another specified portion thereof. In addition, in the case
of information furnished pursuant to subclauses (1), (2), (12), (16) and (17)
above, the amounts shall also be provided with respect to each component, if
any, of a class of certificates. The servicer or the trustee, as specified in
the related prospectus supplement, will forward or cause to be forwarded to each
holder, to Morgan Stanley Capital I Inc. and to any other parties as may be
specified in the Agreement, a copy of any statements or reports received by the
servicer or the trustee, as applicable, with respect to any mortgage-backed
securities. The prospectus supplement for each series of offered certificates
will describe any additional information to be included in reports to the
holders of such certificates.
Within a reasonable period of time after the end of each calendar year,
the servicer or the trustee, as provided in the related prospectus supplement,
shall furnish to each person who at any time during the calendar year was a
holder of a certificate a statement containing the information set forth in
subclauses (1)-(4) above, aggregated for the calendar year or the applicable
portion thereof during which the person was a certificateholder. This obligation
of the servicer or the trustee shall be deemed to have been satisfied to the
extent that substantially comparable information shall be provided by the
servicer or the trustee pursuant to any requirements of the Internal Revenue
Code as are from time to time in force. See "Description of the
Certificates--Book-Entry Registration and Definitive Certificates."
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TERMINATION
The obligations created by the related Agreement for each series of
certificates will terminate upon the payment to certificateholders of that
series of all amounts held in the certificate account or by the servicer, if
any, or the trustee and required to be paid to them pursuant to the Agreement
following the earlier of:
o the final payment or other liquidation of the last asset subject
thereto or the disposition of all property acquired upon
foreclosure of any mortgage loan subject thereto; and
o the purchase of all of the assets of the trust fund by the party
entitled to effect the termination, under the circumstances and in
the manner set forth in the related prospectus supplement.
In no event, however, will the trust fund created by the Agreement
continue beyond the date specified in the related prospectus supplement. Written
notice of termination of the Agreement will be given to each certificateholder,
and the final distribution will be made only upon presentation and surrender of
the certificates at the location to be specified in the notice of termination.
If so specified in the related prospectus supplement, a series of
certificates may be subject to optional early termination through the repurchase
of the assets in the related trust fund by the party specified therein, under
the circumstances and in the manner set forth therein. If so provided in the
related prospectus supplement, upon the reduction of the certificate balance of
a specified class or classes of certificates by a specified percentage or
amount, the party specified therein will solicit bids for the purchase of all
assets of the trust fund, or of a sufficient portion of the assets to retire the
class or classes or purchase the class or classes at a price set forth in the
related prospectus supplement, in each case, under the circumstances and in the
manner set forth therein.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the related prospectus supplement, one or more classes
of the offered certificates of any series will be issued as book-entry
certificates, and each class will be represented by one or more single
certificates registered in the name of a nominee for the depository, The
Depository Trust Company.
The Depository Trust Company is a limited-purpose trust company organized
under the laws of the State of New York, a member of the Federal Reserve System,
a "clearing corporation" within the meaning of the Uniform Commercial Code and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. The Depository Trust Company was
created to hold securities for its participants and facilitate the clearance and
settlement of securities transactions between participants through electronic
book-entry changes in their accounts, thereby eliminating the need for physical
movement of certificates. Participants include Morgan Stanley & Co.
Incorporated, securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain
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other organizations. Indirect access to The Depository Trust Company system also
is available to indirect participants.
If so provided in the related prospectus supplement, investors that are
not participants or indirect participants but desire to purchase, sell or
otherwise transfer ownership of, or other interests in, book-entry certificates
may do so only through participants and indirect participants. In addition,
these certificate owners will receive all distributions on the book-entry
certificates through The Depository Trust Company and its participants. Under a
book-entry format, certificate owners will receive payments after the related
distribution date because, while payments are required to be forwarded to Cede &
Co., as nominee for The Depository Trust Company, on each distribution date, The
Depository Trust Company will forward the payments to its participants which
thereafter will be required to forward them to indirect participants or
certificate owners. Unless otherwise provided in the related prospectus
supplement, the only certificateholder will be Cede & Co., as nominee for The
Depository Trust Company, and the certificate owners will not be recognized by
the trustee as certificateholders under the Agreement. Certificate owners will
be permitted to exercise the rights of certificateholders under the related
Agreement only indirectly through the participants who in turn will exercise
their rights through The Depository Trust Company.
Under the rules, regulations and procedures creating and affecting The
Depository Trust Company and its operations, The Depository Trust Company is
required to make book-entry transfers among participants on whose behalf it acts
with respect to the book-entry certificates and is required to receive and
transmit distributions of principal of and interest on the book-entry
certificates. Participants and indirect participants with which certificate
owners have accounts with respect to the book-entry certificates similarly are
required to make book-entry transfers and receive and transmit the payments on
behalf of their respective certificate owners.
Because The Depository Trust Company can act only on behalf of
participants, who in turn act on behalf of indirect participants and certain
banks, the ability of a certificate owner to pledge its interest in the
book-entry certificates to persons or entities that do not participate in The
Depository Trust Company system, or otherwise take actions in respect of its
interest in the book-entry certificates, may be limited due to the lack of a
physical certificate evidencing the interest.
The Depository Trust Company has advised Morgan Stanley Capital I Inc.
that it will take any action permitted to be taken by a certificateholder under
the Agreement only at the direction of one or more participants to whose account
with The Depository Trust Company interests in the book-entry certificates are
credited.
Unless otherwise specified in the related prospectus supplement,
certificates initially issued in book-entry form will be issued as definitive
certificates, rather than to The Depository Trust Company or its nominee only
if:
o Morgan Stanley Capital I Inc. advises the trustee in writing that
The Depository Trust Company is no longer willing or able to
properly discharge its responsibilities as depository with respect
to the certificates and Morgan Stanley Capital I Inc. is unable to
locate a qualified successor; or
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o Morgan Stanley Capital I Inc., at its option, elects to terminate
the book-entry system through The Depository Trust Company.
Upon the occurrence of either of the events described in the immediately
preceding paragraph, The Depository Trust Company is required to notify all
participants of the availability through The Depository Trust Company of
definitive certificates for the certificate owners. Upon surrender by The
Depository Trust Company of the certificate or certificates representing the
book-entry certificates, together with instructions for reregistration, the
trustee will issue (or cause to be issued) to the certificate owners identified
in the instructions the definitive certificates to which they are entitled, and
thereafter the trustee will recognize the holders of the definitive certificates
as certificateholders under the Agreement.
DESCRIPTION OF THE AGREEMENTS
The certificates will be offered pursuant to a pooling and servicing
agreement or a trust agreement.
o A pooling and servicing agreement will be used where the trust
fund includes mortgage loans. The parties to a pooling and
servicing agreement will be Morgan Stanley Capital I Inc., a
trustee and a master servicer appointed as of the date of the
pooling and servicing agreement. If a master servicer is not
appointed, a servicer, with, generally, the same obligations as
described in this prospectus with respect to the master servicer,
unless otherwise specified in the prospectus supplement, will be
appointed. This servicer will service all or a significant number
of mortgage loans directly without a subservicer. References in
this prospectus to master servicer and its rights and obligations,
to the extent set forth in the related prospectus supplement,
shall be deemed to also be references to any servicer servicing
mortgage loans directly.
o A trust agreement will be used where the trust fund does not
include mortgage loans. The parties to a trust agreement will be
Morgan Stanley Capital I Inc. and a trustee. A manager or
administrator may be appointed pursuant to the trust agreement for
any trust fund to administer the trust fund.
The provisions of each Agreement will vary depending upon the nature of
the certificates to be issued thereunder and the nature of the related trust
fund. A form of a pooling and servicing agreement has been filed as an exhibit
to the registration statement of which this prospectus is a part. Any trust
agreement will generally conform to the form of pooling and servicing agreement
filed herewith, but will not contain provisions with respect to the servicing
and maintenance of mortgage loans. The following summaries describe some of the
provisions that may appear in each Agreement. The prospectus supplement for a
series of certificates will describe any provision of the Agreement relating to
a series that materially differs from the description thereof contained in this
prospectus. The summaries do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all of the provisions of the
Agreement for each trust fund and the description of the provisions in the
related prospectus supplement. Morgan Stanley Capital I Inc. will provide a copy
of the Agreement, without exhibits, relating to any series of certificates
without charge upon written request of a holder of a
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certificate of a series addressed to Morgan Stanley Capital I Inc., c/o Morgan
Stanley & Co. Incorporated, 1585 Broadway, 37th Floor, New York, New York 10036.
Attention: Mortgage Securities.
ASSIGNMENT OF ASSETS; REPURCHASES
At the time of issuance of any series of certificates, Morgan Stanley
Capital I Inc. will assign or cause to be assigned to the designated trustee the
assets to be included in the related trust fund, together with all principal and
interest to be received on or with respect to the assets after the cut-off date,
other than principal and interest due on or before the cut-off date and other
than any retained interest. The trustee will, concurrently with the assignment,
deliver the certificates to Morgan Stanley Capital I Inc. in exchange for the
assets and the other assets comprising the trust fund for the series. Each
mortgage loan and mortgaged-backed security will be identified in a schedule
appearing as an exhibit to the related Agreement. Unless otherwise provided in
the related prospectus supplement, the schedule will include detailed
information:
o in respect of each mortgage loan included in the related trust
fund, including without limitation, the address of the related
mortgaged property and type of the property, the mortgage rate
and, if applicable, the applicable index, margin, adjustment date
and any rate cap information, the original and remaining term to
maturity, the original and outstanding principal balance and
balloon payment, if any, the Value and loan-to-value ratio as of
the date indicated and payment and prepayment provisions, if
applicable; and
o in respect of each mortgage-backed security included in the
related trust fund, including without limitation, the related
issuer, servicer and trustee, the pass-through or bond rate or
formula for determining the rate, the issue date and original and
remaining term to maturity, if applicable, the original and
outstanding principal amount and payment provisions, if
applicable.
With respect to each mortgage loan, Morgan Stanley Capital I Inc. will
deliver or cause to be delivered to the trustee or to the custodian, certain
loan documents, which to the extent specified in the related prospectus
supplement will include the original mortgage note endorsed, without recourse,
in blank or to the order of the trustee, the original mortgage or a certified
copy thereof with evidence of recording indicated thereon and an assignment of
the mortgage to the trustee in recordable form. Notwithstanding the foregoing, a
trust fund may include mortgage loans where the original mortgage note is not
delivered to the trustee if Morgan Stanley Capital I Inc. delivers to the
trustee or the custodian a copy or a duplicate original of the mortgage note,
together with an affidavit certifying that the original thereof has been lost or
destroyed. With respect to these mortgage loans, the trustee or its nominee may
not be able to enforce the mortgage note against the related borrower. To the
extent specified in the related prospectus supplement, the asset seller will be
required to agree to repurchase, or substitute for, this type of mortgage loan
that is subsequently in default if the enforcement thereof or of the related
mortgage is materially adversely affected by the absence of the original
mortgage note. Unless otherwise provided in the related prospectus supplement,
the related Agreement will require Morgan Stanley Capital I Inc. or another
party specified therein to promptly cause each assignment of mortgage to be
recorded in the appropriate public office for real property records,
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except in the State of California or in other states where, in the opinion of
counsel acceptable to the trustee, recording is not required to protect the
trustee's interest in the related mortgage loan against the claim of any
subsequent transferee or any successor to or creditor of Morgan Stanley Capital
I Inc., the master servicer, the relevant asset seller or any other prior holder
of the mortgage loan.
The trustee or a custodian will review the mortgage loan documents within
a specified period of days after receipt thereof, and the trustee or a custodian
will hold the documents in trust for the benefit of the certificateholders.
Unless otherwise specified in the related prospectus supplement, if any of these
documents are found to be missing or defective in any material respect, the
trustee or custodian shall immediately notify the master servicer and Morgan
Stanley Capital I Inc., and the master servicer shall immediately notify the
relevant asset seller. If the asset seller cannot cure the omission or defect
within a specified number of days after receipt of such notice, then unless
otherwise specified in the related prospectus supplement, the asset seller will
be obligated, within a specified number of days of receipt of notice, to
repurchase the related mortgage loan from the trustee at the Purchase Price or
substitute for the mortgage loan. There can be no assurance that an asset seller
will fulfill this repurchase or substitution obligation, and neither the master
servicer nor Morgan Stanley Capital I Inc. will be obligated to repurchase or
substitute the mortgage loan if the asset seller defaults on its obligation. To
the extent specified in the related prospectus supplement, this repurchase or
substitution obligation constitutes the sole remedy available to the
certificateholders or the trustee for omission of, or a material defect in, a
constituent document. To the extent specified in the related prospectus
supplement, in lieu of curing any omission or defect in the asset or
repurchasing or substituting for the asset, the asset seller may agree to cover
any losses suffered by the trust fund as a result of this type of breach or
defect.
With respect to each government security or mortgage-backed security in
certificated form, Morgan Stanley Capital I Inc. will deliver or cause to be
delivered to the trustee or the custodian the original certificate or other
definitive evidence of the government security or mortgage-backed security, as
applicable, together with bond power or other instruments, certifications or
documents required to transfer fully the government security or mortgage-backed
security, as applicable, to the trustee for the benefit of the
certificateholders. With respect to each government security or mortgage-backed
security in uncertificated or book-entry form or held through a "clearing
corporation" within the meaning of the Uniform Commercial Code, Morgan Stanley
Capital I Inc. and the trustee will cause the government security or
mortgage-backed security to be registered directly or on the books of the
clearing corporation or of a financial intermediary in the name of the trustee
for the benefit of the certificateholders. Unless otherwise provided in the
related prospectus supplement, the related Agreement will require that either
Morgan Stanley Capital I Inc. or the trustee promptly cause any mortgage-backed
securities and government securities in certificated form not registered in the
name of the trustee to be re-registered, with the applicable persons, in the
name of the trustee.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
Unless otherwise provided in the related prospectus supplement, Morgan
Stanley Capital I Inc. will, with respect to each mortgage loan, make or assign
certain representations and warranties, as of a specified date covering, by way
of example, the following types of matters:
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o the accuracy of the information set forth for the mortgage loan on
the schedule of assets appearing as an exhibit to the related
Agreement;
o the existence of title insurance insuring the lien priority of the
mortgage loan;
o the authority of the warrantying party to sell the mortgage loan;
o the payment status of the mortgage loan and the status of payments
of taxes, assessments and other charges affecting the related
mortgaged property;
o the existence of customary provisions in the related mortgage note
and mortgage to permit realization against the mortgaged property
of the benefit of the security of the mortgage; and
o the existence of hazard and extended perils insurance coverage on
the mortgaged property.
Any warrantying party, if other than Morgan Stanley Capital I Inc., shall
be an asset seller or an affiliate thereof or another person acceptable to
Morgan Stanley Capital I Inc. and shall be identified in the related prospectus
supplement.
Representations and warranties made in respect of a mortgage loan may have
been made as of a date prior to the applicable cut-off date. A substantial
period of time may have elapsed between the date on which the representations
are made and the date of initial issuance of the related series of certificates
evidencing an interest in the mortgage loan. Unless otherwise specified in the
related prospectus supplement, in the event of a breach of any representation or
warranty, the warrantying party will be obligated to reimburse the trust fund
for losses caused by the breach or either cure the breach or repurchase or
replace the affected mortgage loan as described in the next paragraph. Since the
representations and warranties may not address events that may occur following
the date as of which they were made, the warrantying party will have a
reimbursement, cure, repurchase or substitution obligation in connection with a
breach of such a representation and warranty only if the relevant event that
causes such breach occurs prior to the date on which they were made. The
warrantying party would have no obligations if the relevant event that causes
the breach occurs after that date.
Unless otherwise provided in the related prospectus supplement, each
Agreement will provide that the master servicer and/or trustee will be required
to notify promptly the relevant warrantying party of any breach of any
representation or warranty made by it in respect of a mortgage loan that
materially and adversely affects the value of the mortgage loan or the interests
therein of the certificateholders. If the warrantying party cannot cure the
breach within a specified period following the date on which the party was
notified of the breach, then:
o the warrantying party will be obligated to repurchase the mortgage
loan from the trustee within a specified period from the date on
which the warrantying party was notified of the breach, at the
Purchase Price or;
o if so provided in the prospectus supplement for a series, the
warrantying party will have the option, within a specified period
after initial issuance of such series of certificates, to cause
the mortgage loan to be removed from the trust fund and substitute
in its place one or more other mortgage loans, in accordance with
the standards described in the related prospectus supplement; or
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o if so provided in the prospectus supplement for a series, the
warrantying party will have the option to reimburse the trust fund
or the certificateholders for any losses caused by the breach.
Unless otherwise provided in the related prospectus supplement, this
reimbursement, repurchase or substitution obligation will constitute the sole
remedy available to holders of certificates or the trustee for a breach of
representation by a warrantying party.
Neither Morgan Stanley Capital I Inc. except to the extent that it is the
warrantying party, nor the master servicer will be obligated to purchase or
substitute for a mortgage loan if a warrantying party defaults on its obligation
to do so, and no assurance can be given that warrantying parties will carry out
their obligations with respect to mortgage loans.
Unless otherwise provided in the related prospectus supplement the
warrantying party will, with respect to a trust fund that includes government
securities or mortgage-backed securities, make or assign certain representations
or warranties, as of a specified date, with respect to the government securities
or mortgage-backed securities, covering:
o the accuracy of the information set forth therefor on the schedule
of assets appearing as an exhibit to the related Agreement; and
o the authority of the warrantying party to sell the assets.
The related prospectus supplement will describe the remedies for a breach
thereof.
A master servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the related Agreement. A breach of any representation of the
master servicer which materially and adversely affects the interests of the
certificateholders and which continues unremedied for thirty days after the
giving of written notice of the breach to the master servicer by the trustee or
Morgan Stanley Capital I Inc., or to the master servicer, Morgan Stanley Capital
I Inc. and the trustee by the holders of certificates evidencing not less than
25% of the voting rights unless otherwise provided in the related prospectus
supplement, will constitute an Event of Default under the Agreement. See "Events
of Default" and "Rights Upon Event of Default" below.
CERTIFICATE ACCOUNT AND OTHER COLLECTION ACCOUNTS
General
The master servicer and/or the trustee will, as to each trust fund,
establish and maintain or cause to be established and maintained the certificate
account, which must be either an account or accounts:
o the deposits in which are insured by the Bank Insurance Fund or
the Savings Association Insurance Fund of the Federal Deposit
Insurance Corporation, to the limits established by the Federal
Deposit Insurance Corporation, and the uninsured deposits in which
are otherwise secured such that the certificateholders have a
claim with respect to the funds in the certificate account or a
perfected first priority security interest against any collateral
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securing the funds that is superior to the claims of any other
depositors or general creditors of the institution with which the
certificate account is maintained; or
o otherwise maintained with a bank or trust company, and in a
manner, satisfactory to the rating agency or agencies rating any
class of certificates of the series.
The collateral eligible to secure amounts in the certificate account is
limited to Permitted Investments. A certificate account may be maintained as an
interest bearing or a non-interest bearing account and the funds held therein
may be invested pending each succeeding distribution date in short-term
Permitted Investments. Unless otherwise provided in the related prospectus
supplement, any interest or other income earned on funds in the certificate
account will be paid to a master servicer or its designee as additional
servicing compensation. The certificate account may be maintained with an
institution that is an affiliate of the master servicer, if applicable, provided
that the institution meets the standards imposed by the rating agency or
agencies. If permitted by the rating agency or agencies and so specified in the
related prospectus supplement, a certificate account may contain funds relating
to more than one series of mortgage pass-through certificates and may contain
other funds respecting payments on mortgage loans belonging to the master
servicer or serviced or master serviced by it on behalf of others. Deposits
A master servicer or the trustee will deposit or cause to be deposited in
the certificate account for one or more trust funds on a daily basis, unless
otherwise provided in the related Agreement, the following payments and
collections received, or advances made, by the master servicer or the trustee or
on its behalf subsequent to the cut-off date, other than payments due on or
before the cut-off date, and exclusive of any amounts representing a retained
interest:
1. all payments on account of principal, including principal prepayments,
on the assets;
2. all payments on account of interest on the assets, including any
default interest collected, in each case net of any portion thereof retained by
a master servicer or a subservicer as its servicing compensation and net of any
retained interest;
3. all proceeds of the hazard insurance policies to be maintained in
respect of each mortgaged property securing a mortgage loan in the trust fund,
to the extent the proceeds are not applied to the restoration of the property or
released to the borrower in accordance with the normal servicing procedures of a
master servicer or the related subservicer, subject to the terms and conditions
of the related mortgage and mortgage note, insurance proceeds and all
liquidation proceeds, together with the net proceeds on a monthly basis with
respect to any mortgaged properties acquired for the benefit of
certificateholders by foreclosure or by deed in lieu of foreclosure or
otherwise;
4. any amounts paid under any instrument or drawn from any fund that
constitutes credit support for the related series of certificates as described
under "Description of Credit Support";
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5. any advances made as described under "Description of the
Certificates--Advances in Respect of Delinquencies";
6. any amounts paid under any cash flow agreement, as described under
"Description of the Trust Funds--Cash Flow Agreements";
7. all proceeds of any asset or, with respect to a mortgage loan, property
acquired in respect thereof purchased by Morgan Stanley Capital I Inc., any
asset seller or any other specified person as described above under
"--Assignment of Assets; Repurchases" and "--Representations and Warranties;
Repurchases," all proceeds of any defaulted mortgage loan purchased as described
under "--Realization Upon Defaulted Mortgage loans," and all proceeds of any
asset purchased as described above under "Description of the
Certificates--Termination";
8. any amounts paid by a master servicer to cover certain interest
shortfalls arising out of the prepayment of mortgage loans in the trust fund as
described under "Description of the Agreements--Retained Interest; Servicing
Compensation and Payment of Expenses";
9. to the extent that any item does not constitute additional servicing
compensation to a master servicer, any payments on account of modification or
assumption fees, late payment charges or prepayment premiums on the mortgage
loans and mortgage-backed securities;
10. all payments required to be deposited in the certificate account with
respect to any deductible clause in any blanket insurance policy described under
"--Hazard Insurance Policies";
11. any amount required to be deposited by a master servicer or the
trustee in connection with losses realized on investments for the benefit of the
master servicer or the trustee, as the case may be, of funds held in the
certificate account; and
12. any other amounts required to be deposited in the certificate account
as provided in the related Agreement and described in the related prospectus
supplement.
Withdrawals
A master servicer or the trustee may, from time to time, unless otherwise
provided in the related Agreement and described in the related prospectus
supplement, make withdrawals from the certificate account for each trust fund
for any of the following purposes:
1. to make distributions to the certificateholders on each distribution
date;
2. to reimburse a master servicer for unreimbursed amounts advanced as
described under "Description of the Certificates--Advances in Respect of
Delinquencies," the reimbursement to be made out of amounts received which were
identified and applied by the master servicer as late collections of interest,
net of related servicing fees and retained interest, on and principal of the
particular mortgage loans with respect to which the advances were made or out of
amounts drawn under any form of credit support with respect to those mortgage
loans;
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3. to reimburse a master servicer for unpaid servicing fees earned and
certain unreimbursed servicing expenses incurred with respect to mortgage loans
and properties acquired in respect thereof, such reimbursement to be made out of
amounts that represent liquidation proceeds and insurance proceeds collected on
the particular mortgage loans and properties, and net income collected on the
particular properties, with respect to which the fees were earned or the
expenses were incurred or out of amounts drawn under any form of credit support
with respect to such mortgage loans and properties;
4. to reimburse a master servicer for any advances described in clause (2)
above and any servicing expenses described in clause (3) above which, in the
master servicer's good faith judgment, will not be recoverable from the amounts
described in clauses (2) and (3), respectively, the reimbursement to be made
from amounts collected on other assets or, if and to the extent so provided by
the related Agreement and described in the related prospectus supplement, just
from that portion of amounts collected on other assets that is otherwise
distributable on one or more classes of subordinate certificates, if any, remain
outstanding, and otherwise any outstanding class of certificates, of the related
series;
5. if and to the extent described in the related prospectus supplement, to
pay a master servicer interest accrued on the advances described in clause (2)
above and the servicing expenses described in clause (3) above while these
remain outstanding and unreimbursed;
6. to reimburse a master servicer, Morgan Stanley Capital I Inc., or any
of their respective directors, officers, employees and agents, as the case may
be, for certain expenses, costs and liabilities incurred thereby, as and to the
extent described under "--Matters Regarding a Master Servicer and the Depositor;
7. if and to the extent described in the related prospectus supplement, to
pay or to transfer to a separate account for purposes of escrowing for the
payment of the trustee's fees;
8. to reimburse the trustee or any of its directors, officers, employees
and agents, as the case may be, for certain expenses, costs and liabilities
incurred thereby, as and to the extent described below under "--Matters
Regarding the Trustee";
9. unless otherwise provided in the related prospectus supplement, to pay
a master servicer, as additional servicing compensation, interest and investment
income earned in respect of amounts held in the certificate account;
10. to pay the person entitled thereto any amounts deposited in the
certificate account that were identified and applied by the master servicer as
recoveries of retained interest;
11. to pay for costs reasonably incurred in connection with the proper
management and maintenance of any mortgaged property acquired for the benefit of
certificateholders by foreclosure or by deed in lieu of foreclosure or
otherwise, such payments to be made out of income received on this type of
property;
12. if one or more elections have been made to treat the trust fund or
designated portions thereof as a REMIC, to pay any federal, state or local taxes
imposed on the trust fund or
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its assets or transactions, as and to the extent described below under "Federal
Income Tax Consequences--REMICS--Prohibited Transactions and Other Taxes";
13. to pay for the cost of an independent appraiser or other expert in
real estate matters retained to determine a fair sale price for a defaulted
mortgage loan or a property acquired in respect thereof in connection with the
liquidation of the defaulted mortgage loan or property;
14. to pay for the cost of various opinions of counsel obtained pursuant
to the related Agreement for the benefit of certificateholders;
15. to pay for the costs of recording the related Agreement if such
recordation materially and beneficially affects the interests of
certificateholders, provided that such payment shall not constitute a waiver
with respect to the obligation of the warrantying party to remedy any breach of
representation or warranty under the Agreement;
16. to pay the person entitled thereto any amounts deposited in the
certificate account in error, including amounts received on any asset after its
removal from the trust fund whether by reason of purchase or substitution as
contemplated by "--Assignment of Assets; Repurchases" and "Representations and
Warranties; Repurchases" or otherwise;
17. to make any other withdrawals permitted by the related Agreement and
described in the related prospectus supplement; and
18. to clear and terminate the certificate account at the termination of
the trust fund.
Other Collection Accounts
Notwithstanding the foregoing, if so specified in the related prospectus
supplement, the Agreement for any series of certificates may provide for the
establishment and maintenance of a separate collection account into which the
master servicer or any related subservicer will deposit on a daily basis the
amounts described under "--Deposits" above for one or more series of
certificates. Any amounts on deposit in any such collection account will be
withdrawn therefrom and deposited into the appropriate certificate account by a
time specified in the related prospectus supplement. To the extent specified in
the related prospectus supplement, any amounts which could be withdrawn from the
certificate account as described under "--Withdrawals" above, may also be
withdrawn from any collection account. The prospectus supplement will set forth
any restrictions with respect to any collection account, including investment
restrictions and any restrictions with respect to financial institutions with
which any collection account may be maintained.
COLLECTION AND OTHER SERVICING PROCEDURES
The master servicer, directly or through subservicers, is required to make
reasonable efforts to collect all scheduled payments under the mortgage loans
and will follow or cause to be followed the collection procedures as it would
follow with respect to mortgage loans that are comparable to the mortgage loans
and held for its own account, provided the procedures are consistent with the
Servicing Standard. In connection therewith, the master servicer will be
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permitted in its discretion to waive any late payment charge or penalty interest
in respect of a late mortgage loan payment.
Each master servicer will also be required to perform other customary
functions of a servicer of comparable loans, including maintaining hazard
insurance policies as described in this prospectus and in any related prospectus
supplement, and filing and settling claims thereunder; maintaining escrow or
impoundment accounts of borrowers for payment of taxes, insurance and other
items required to be paid by any borrower pursuant to the mortgage loan;
processing assumptions or substitutions in those cases where the master servicer
has determined not to enforce any applicable due-on-sale clause; attempting to
cure delinquencies; supervising foreclosures; inspecting and managing mortgaged
properties under certain circumstances; and maintaining accounting records
relating to the mortgage loans. To the extent specified in the related
prospectus supplement, the master servicer will be responsible for filing and
settling claims in respect of particular mortgage loans under any applicable
instrument of credit support. See "Description of Credit Support."
The master servicer may agree to modify, waive or amend any term of any
mortgage loan in a manner consistent with the Servicing Standard so long as the
modification, waiver or amendment will not:
o affect the amount or timing of any scheduled payments of principal
or interest on the mortgage loan; or
o in its judgment, materially impair the security for the mortgage
loan or reduce the likelihood of timely payment of amounts due
thereon.
The master servicer also may agree to any modification, waiver or
amendment that would so affect or impair the payments on, or the security for, a
mortgage loan if, unless otherwise provided in the related prospectus
supplement:
o in its judgment, a material default on the mortgage loan has
occurred or a payment default is imminent; and
o in its judgment, that modification, waiver or amendment is
reasonably likely to produce a greater recovery with respect to
the mortgage loan on a present value basis than would liquidation.
The master servicer is required to notify the trustee in the event of any
modification, waiver or amendment of any mortgage loan.
SUBSERVICERS
A master servicer may delegate its servicing obligations in respect of the
mortgage loans to a subservicer, but the master servicer will remain obligated
under the related Agreement. Each sub-servicing agreement must be consistent
with the terms of the related Agreement and must provide that, if for any reason
the master servicer for the related series of certificates is no longer acting
in the capacity, the trustee or any successor master servicer may assume the
master servicer's rights and obligations under a subservicing agreement.
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Unless otherwise provided in the related prospectus supplement, the master
servicer will be solely liable for all fees owed by it to any subservicer,
irrespective of whether the master servicer's compensation pursuant to the
related Agreement is sufficient to pay those fees. However, a subservicer may be
entitled to a retained interest in certain mortgage loans. Each subservicer will
be reimbursed by the master servicer for certain expenditures which it makes,
generally to the same extent the master servicer would be reimbursed under an
Agreement. See "Retained Interest, Servicing Compensation and Payment of
Expenses."
REALIZATION UPON DEFAULTED MORTGAGE LOANS
A borrower's failure to make required payments may reflect inadequate
income or the diversion of that income from the service of payments due under
the mortgage loan, and may call into question the borrower's ability to make
timely payment of taxes and to pay for necessary maintenance of the related
mortgaged property. Unless otherwise provided in the related prospectus
supplement, the master servicer is required to:
o monitor any mortgage loan which is in default;
o contact the borrower concerning the default;
o evaluate whether the causes of the default can be cured over a
reasonable period without significant impairment of the value of
the mortgaged property;
o initiate corrective action in cooperation with the borrower if
cure is likely;
o inspect the mortgaged property; and
o take any other actions as are consistent with the Servicing
Standard.
A significant period of time may elapse before the master servicer is able
to assess the success of such corrective action or the need for additional
initiatives.
The time within which the master servicer makes the initial determination
of appropriate action, evaluates the success of corrective action, develops
additional initiatives, institutes foreclosure proceedings and actually
forecloses or takes a deed to a mortgaged property in lieu of foreclosure on
behalf of the certificateholders, may vary considerably depending on the
particular mortgage loan, the mortgaged property, the borrower, the presence of
an acceptable party to assume the mortgage loan and the laws of the jurisdiction
in which the mortgaged property is located. Under federal bankruptcy law, the
master servicer in certain cases may not be permitted to accelerate a mortgage
loan or to foreclose on a mortgaged property for a considerable period of time.
See "Legal Aspects of Mortgage Loans."
Any Agreement relating to a trust fund that includes mortgage loans may
grant to the master servicer and/or the holder or holders of certain classes of
certificates a right of first refusal to purchase from the trust fund at a
predetermined purchase price any mortgage loan as to which a specified number of
scheduled payments thereunder are delinquent. Any such right granted to the
holder of an offered certificate will be described in the related prospectus
supplement. The
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related prospectus supplement will also describe any such right granted to any
person if the predetermined purchase price is less than the Purchase Price
described under "--Representations and Warranties; Repurchases."
If so specified in the related prospectus supplement, the master servicer
may offer to sell any defaulted mortgage loan described in the preceding
paragraph and not otherwise purchased by any person having a right of first
refusal with respect thereto, if and when the master servicer determines,
consistent with the Servicing Standard, that such a sale would produce a greater
recovery on a present value basis than would liquidation through foreclosure or
similar proceeding. The related Agreement will provide that any sale of this
type be made in a commercially reasonable manner for a specified period and that
the master servicer accept the highest cash bid received from any person
including itself, an affiliate of the master servicer or any certificateholder
that constitutes a fair price for such defaulted mortgage loan. In the absence
of any bid determined in accordance with the related Agreement to be fair, the
master servicer shall proceed with respect to such defaulted mortgage loan as
described in the paragraphs below. Any bid in an amount at least equal to the
Purchase Price described under "--Representations and Warranties; Repurchases"
will in all cases be deemed fair.
If a default on a mortgage loan has occurred or, in the master servicer's
judgment is imminent, and the action is consistent with the Servicing Standard,
the master servicer, on behalf of the trustee, may at any time:
o institute foreclosure proceedings;
o exercise any power of sale contained in any mortgage;
o obtain a deed in lieu of foreclosure; or
o otherwise acquire title to a mortgaged property securing the
mortgage loan.
Unless otherwise provided in the related prospectus supplement, if title
to any mortgaged property is acquired by a trust fund as to which a REMIC
election has been made, the master servicer, on behalf of the trust fund, will
be required to sell the mortgaged property by the close of the third calendar
year following the year of acquisition, unless:
o the Internal Revenue Service grants an extension of time to sell
the property; or
o the trustee receives an opinion of independent counsel to the
effect that the holding of the property by the trust fund will not
result in the imposition of a tax on the trust fund or cause the
trust fund to fail to qualify as a REMIC under the Internal
Revenue Code at any time that any certificate is outstanding.
Subject to the foregoing, the master servicer will be required to:
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o solicit bids for any mortgaged property so acquired by the trust
fund as will be reasonably likely to realize a fair price for the
property; and
o accept the first and, if multiple bids are contemporaneously
received, the highest cash bid received from any person that
constitutes a fair price.
The limitations imposed by the related Agreement and the REMIC provisions
of the Internal Revenue Code, if a REMIC election has been made with respect to
the related trust fund, on the ownership and management of any mortgaged
property acquired on behalf of the trust fund may result in the recovery of an
amount less than the amount that would otherwise be recovered. See "Legal
Aspects of Mortgage Loans--Foreclosure."
If recovery on a defaulted mortgage loan under any related instrument of
credit support is not available, the master servicer nevertheless will be
obligated to follow or cause to be followed normal practices and procedures as
it deems necessary or advisable to realize upon the defaulted mortgage loan. If
the proceeds of any liquidation of the property securing the defaulted mortgage
loan are less than the outstanding principal balance of the defaulted mortgage
loan plus interest accrued thereon at the mortgage rate plus the aggregate
amount of expenses incurred by the master servicer in connection with such
proceedings and which are reimbursable under the Agreement, the trust fund will
realize a loss in the amount of that difference. The master servicer will be
entitled to withdraw or cause to be withdrawn from the certificate account out
of the liquidation proceeds recovered on any defaulted mortgage loan, prior to
the distribution of the liquidation proceeds to certificateholders, amounts
representing its normal servicing compensation on the mortgage loan,
unreimbursed servicing expenses incurred with respect to the mortgage loan and
any unreimbursed advances of delinquent payments made with respect to the
mortgage loan.
If any property securing a defaulted mortgage loan is damaged and
proceeds, if any, from the related hazard insurance policy are insufficient to
restore the damaged property to a condition sufficient to permit recovery under
the related instrument of credit support, if any, the master servicer is not
required to expend its own funds to restore the damaged property unless it
determines:
o that the restoration will increase the proceeds to
certificateholders on liquidation of the mortgage loan after
reimbursement of the master servicer for its expenses; and
o that the expenses will be recoverable by it from related insurance
proceeds or liquidation proceeds.
As servicer of the mortgage loans, a master servicer, on behalf of itself,
the trustee and the certificateholders, will present claims to the obligor under
each instrument of credit support, and will take such reasonable steps as are
necessary to receive payment or to permit recovery thereunder with respect to
defaulted mortgage loans.
If a master servicer or its designee recovers payments under any
instrument of credit support with respect to any defaulted mortgage loan, the
master servicer will be entitled to
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withdraw or cause to be withdrawn from the certificate account out of those
proceeds, prior to distribution thereof to certificateholders, amounts
representing its normal servicing compensation on the mortgage loan,
unreimbursed servicing expenses incurred with respect to the mortgage loan and
any unreimbursed advances of delinquent payments made with respect to the
mortgage loan. See "Hazard Insurance Policies" and "Description of Credit
Support."
HAZARD INSURANCE POLICIES
To the extent specified in the related prospectus supplement, each
Agreement for a trust fund that includes mortgage loans will require the master
servicer to cause the borrower on each mortgage loan to maintain a hazard
insurance policy providing for the coverage required under the related mortgage
or, if any mortgage permits the holder thereof to dictate to the borrower the
insurance coverage to be maintained on the related mortgaged property, then the
coverage that is consistent with the Servicing Standard. To the extent specified
in the related prospectus supplement, the coverage will be in general in an
amount equal to the lesser of the principal balance owing on the mortgage loan
and the amount necessary to fully compensate for any damage or loss to the
improvements on the mortgaged property on a replacement cost basis, but in
either case not less than the amount necessary to avoid the application of any
co-insurance clause contained in the hazard insurance policy. The ability of the
master servicer to assure that hazard insurance proceeds are appropriately
applied may be dependent upon its being named as an additional insured under any
hazard insurance policy and under any other insurance policy referred to below,
or upon the extent to which information in this regard is furnished by
borrowers. All amounts collected by the master servicer under any policy, except
for amounts to be applied to the restoration or repair of the mortgaged property
or released to the borrower in accordance with the master servicer's normal
servicing procedures, subject to the terms and conditions of the related
mortgage and mortgage note will be deposited in the certificate account. The
Agreement will provide that the master servicer may satisfy its obligation to
cause each borrower to maintain a hazard insurance policy by the master
servicer's maintaining a blanket policy insuring against hazard losses on the
mortgage loans. If the blanket policy contains a deductible clause, the master
servicer will be required to deposit in the certificate account all sums that
would have been deposited therein but for such clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies relating to the mortgage loans will be underwritten by
different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, the basic terms thereof are dictated by respective state laws, and
most of these policies typically do not cover any physical damage resulting from
war, revolution, governmental actions, floods and other water-related causes,
earth movement, including earthquakes, landslides and mudflows, wet or dry rot,
vermin, domestic animals and certain other kinds of uninsured risks.
The hazard insurance policies covering the mortgaged properties securing
the mortgage loans will typically contain a co-insurance clause that in effect
requires the insured at all times to carry insurance of a specified percentage,
generally 80% to 90%, of the full replacement value of the improvements on the
property in order to recover the full amount of any partial loss. If the
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insured's coverage falls below this specified percentage, the co-insurance
clause generally provides that the insurer's liability in the event of partial
loss does not exceed the lesser of:
o the replacement cost of the improvements less physical
depreciation; and
o such proportion of the loss as the amount of insurance carried
bears to the specified percentage of the full replacement cost of
the improvements.
Each Agreement for a trust fund that includes mortgage loans will require
the master servicer to cause the borrower on each mortgage loan to maintain all
other insurance coverage with respect to the related mortgaged property as is
consistent with the terms of the related mortgage and the Servicing Standard,
which insurance may typically include flood insurance if the related mortgaged
property was located at the time of origination in a federally designated flood
area.
Any cost incurred by the master servicer in maintaining any insurance
policy will be added to the amount owing under the mortgage loan where the terms
of the mortgage loan so permit; provided, however, that the addition of this
cost will not be taken into account for purposes of calculating the distribution
to be made to certificateholders. These costs may be recovered by the master
servicer or subservicer, as the case may be, from the Collection Account, with
interest thereon, as provided by the Agreement.
Under the terms of the mortgage loans, borrowers will generally be
required to present claims to insurers under hazard insurance policies
maintained on the related mortgaged properties. The master servicer, on behalf
of the trustee and certificateholders, is obligated to present or cause to be
presented claims under any blanket insurance policy insuring against hazard
losses on mortgaged properties securing the mortgage loans. However, the ability
of the master servicer to present or cause to be presented these claims is
dependent upon the extent to which information in this regard is furnished to
the master servicer by borrowers.
FIDELITY BONDS AND ERRORS AND OMISSIONS INSURANCE
To the extent specified in the related prospectus supplement, each
Agreement will require that the master servicer obtain and maintain in effect a
fidelity bond or similar form of insurance coverage which may provide blanket
coverage or any combination thereof insuring against loss occasioned by fraud,
theft or other intentional misconduct of the officers, employees and agents of
the master servicer. The related Agreement will allow the master servicer to
self-insure against loss occasioned by the errors and omissions of the officers,
employees and agents of the master servicer so long as criteria set forth in the
Agreement are met.
DUE-ON-SALE PROVISIONS
Some of the mortgage loans may contain clauses requiring the consent of
the lender to any sale or other transfer of the related mortgaged property, or
due-on-sale clauses entitling the lender to accelerate payment of the mortgage
loan upon any sale, transfer or conveyance of the related mortgaged property.
Unless otherwise provided in the related prospectus supplement, the master
servicer will generally enforce any due-on-sale clause to the extent it has
knowledge of the conveyance or proposed conveyance of the underlying mortgaged
property and it is entitled
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to do so under applicable law; provided, however, that the master servicer will
not take any action in relation to the enforcement of any due-on-sale provision
which would adversely affect or jeopardize coverage under any applicable
insurance policy. To the extent specified in the related prospectus supplement,
any fee collected by or on behalf of the master servicer for entering into an
assumption agreement will be retained by or on behalf of the master servicer as
additional servicing compensation. See "Legal Aspects of Mortgage
Loans--Due-on-Sale Clauses."
RETAINED INTEREST; SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The prospectus supplement for a series of certificates will specify
whether there will be any retained interest in the assets, and, if so, the
initial owner thereof. If so, the retained interest will be established on a
loan-by-loan basis and will be specified on an exhibit to the related Agreement.
To the extent specified in the related prospectus supplement, the master
servicer's and a subservicer's primary servicing compensation with respect to a
series of certificates will come from the periodic payment to it of a portion of
the interest payment on each asset. Since any retained interest and a master
servicer's primary compensation are percentages of the principal balance of each
asset, these amounts will decrease in accordance with the amortization of the
assets. The prospectus supplement with respect to a series of certificates
evidencing interests in a trust fund that includes mortgage loans may provide
that, as additional compensation, the master servicer or the subservicers may
retain all or a portion of assumption fees, modification fees, late payment
charges or prepayment premiums collected from borrowers and any interest or
other income which may be earned on funds held in the certificate account or any
account established by a subservicer pursuant to the Agreement.
The master servicer may, to the extent provided in the related prospectus
supplement, pay from its servicing compensation certain expenses incurred in
connection with its servicing and managing of the assets, including, without
limitation, payment of the fees and disbursements of the trustee and independent
accountants, payment of expenses incurred in connection with distributions and
reports to certificateholders, and payment of any other expenses described in
the related prospectus supplement. Certain other expenses, including certain
expenses relating to defaults and liquidations on the mortgage loans and, to the
extent so provided in the related prospectus supplement, interest thereon at the
rate specified therein may be borne by the trust fund.
If and to the extent provided in the related prospectus supplement, the
master servicer may be required to apply a portion of the servicing compensation
otherwise payable to it in respect of any Due Period to certain interest
shortfalls resulting from the voluntary prepayment of any mortgage loans in the
related trust fund during that period prior to their respective due dates
therein.
EVIDENCE AS TO COMPLIANCE
Each Agreement relating to assets which include mortgage loans will
provide that on or before a specified date in each year, beginning with the
first such date at least six months after
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the related cut-off date, a firm of independent public accountants will furnish
a statement to the trustee to the effect that, on the basis of the examination
by that firm conducted substantially in compliance with either the Uniform
Single Attestation Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for the Federal Home Loan Mortgage Corporation, the servicing
by or on behalf of the master servicer of mortgage loans under pooling and
servicing agreements substantially similar to each other, including the related
Agreement, was conducted in compliance with the terms of such agreements except
for any significant exceptions or errors in records that, in the opinion of the
firm, either the Audit Program for Mortgages serviced for FHLMC, or paragraph 4
of the Uniform Single Attestation Program for Mortgage Bankers, requires it to
report. In rendering its statement that firm may rely, as to matters relating to
the direct servicing of mortgage loans by subservicers, upon comparable
statements for examinations conducted substantially in compliance with the
Uniform Single Attestation Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for FHLMC, rendered within one year of such statement, of
firms of independent public accountants with respect to the related subservicer.
Each Agreement will also provide for delivery to the trustee, on or before
a specified date in each year, of an annual statement signed by two officers of
the master servicer to the effect that the master servicer has fulfilled its
obligations under the Agreement throughout the preceding calendar year or other
specified twelve-month period.
Unless otherwise provided in the related prospectus supplement, copies of
annual accountants' statement and statements of officers will be obtainable by
certificateholders without charge upon written request to the master servicer at
the address set forth in the related prospectus supplement.
MATTERS REGARDING A MASTER SERVICER AND THE DEPOSITOR
The master servicer, if any, or a servicer for substantially all the
mortgage loans under each Agreement will be named in the related prospectus
supplement. The entity serving as master servicer or as servicer may be an
affiliate of Morgan Stanley Capital I Inc. and may have other normal business
relationships with Morgan Stanley Capital I Inc. or Morgan Stanley Capital I
Inc.'s affiliates. Reference to the master servicer shall be deemed to be to the
servicer of substantially all of the mortgage loans, if applicable.
To the extent specified in the related prospectus supplement, the related
Agreement will provide that the master servicer may resign from its obligations
and duties thereunder only upon a determination that its duties under the
Agreement are no longer permissible under applicable law or are in material
conflict by reason of applicable law with any other activities carried on by it;
provided that the other activities of the master servicer causing the conflict
were carried on by the master servicer at the date of the Agreement. No
resignation will become effective until the trustee or a successor servicer has
assumed the master servicer's obligations and duties under the Agreement.
To the extent specified in the related prospectus supplement, each
Agreement will further provide that neither any master servicer, Morgan Stanley
Capital I Inc. nor any director, officer, employee, or agent of a master
servicer or Morgan Stanley Capital I Inc. will be under any
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liability to the related trust fund or certificateholders for any action taken,
or for refraining from the taking of any action, in good faith pursuant to the
Agreement; provided, however, that neither a master servicer, Morgan Stanley
Capital I Inc. nor any director, officer, employee or agent of a master servicer
or Morgan Stanley Capital I Inc. will be protected against any breach of a
representation, warranty or covenant made in the Agreement, or against any
liability specifically imposed thereby, or against any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of obligations or duties thereunder or by reason
of reckless disregard of obligations and duties thereunder. Unless otherwise
described in the related prospectus supplement, each Agreement will further
provide that any master servicer, Morgan Stanley Capital I Inc. and any
director, officer, employee or agent of a master servicer or Morgan Stanley
Capital I Inc. will be entitled to indemnification by the related trust fund and
will be held harmless against any loss, liability or expense incurred in
connection with any legal action relating to the Agreement or the certificates;
provided, however, that the indemnification will not extend to any loss,
liability or expense:
o specifically imposed by such Agreement or otherwise incidental to
the performance of obligations and duties thereunder, including,
in the case of a master servicer, the prosecution of an
enforcement action in respect of any specific mortgage loan or
mortgage loans, except as any loss, liability or expense shall be
otherwise reimbursable pursuant to the Agreement;
o incurred in connection with any breach of a representation,
warranty or covenant made in the Agreement;
o incurred by reason of misfeasance, bad faith or gross negligence
in the performance of obligations or duties thereunder, or by
reason of reckless disregard of its obligations or duties;
o incurred in connection with any violation of any state or federal
securities law; or
o imposed by any taxing authority if the loss, liability or expense
is not specifically reimbursable pursuant to the terms of the
related Agreement.
In addition, each Agreement will provide that neither any master servicer
nor Morgan Stanley Capital I Inc. will be under any obligation to appear in,
prosecute or defend any legal action which is not incidental to its respective
responsibilities under the Agreement and which in its opinion may involve it in
any expense or liability. The master servicer or Morgan Stanley Capital I Inc.
may, however, in its discretion undertake any such action which it may deem
necessary or desirable with respect to the Agreement and the rights and duties
of the parties thereto and the interests of the certificateholders thereunder.
In this event, the legal expenses and costs of the action and any liability
resulting therefrom will be expenses, costs and liabilities of the
certificateholders, and the master servicer or Morgan Stanley Capital I Inc., as
the case may be, will be entitled to be reimbursed therefor and to charge the
certificate account.
Any person into which the master servicer or Morgan Stanley Capital I Inc.
may be merged or consolidated, or any person resulting from any merger or
consolidation to which the master servicer or Morgan Stanley Capital I Inc. is a
party, or any person succeeding to the
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business of the master servicer or Morgan Stanley Capital I Inc., will be the
successor of the master servicer or Morgan Stanley Capital I Inc., as the case
may be, under the related Agreement.
EVENTS OF DEFAULT
Unless otherwise provided in the related prospectus supplement for a trust
fund that includes mortgage loans, Events of Default under the related Agreement
will include:
o any failure by the master servicer to distribute or cause to be
distributed to certificateholders, or to remit to the trustee for
distribution to certificateholders, any required payment;
o any failure by the master servicer duly to observe or perform in
any material respect any of its other covenants or obligations
under the Agreement which continues unremedied for thirty days
after written notice of the failure has been given to the master
servicer by the trustee or Morgan Stanley Capital I Inc., or to
the master servicer, Morgan Stanley Capital I Inc. and the trustee
by the holders of certificates evidencing not less than 25% of the
voting rights;
o any breach of a representation or warranty made by the master
servicer under the Agreement which materially and adversely
affects the interests of certificateholders and which continues
unremedied for thirty days after written notice of that breach has
been given to the master servicer by the trustee or Morgan Stanley
Capital I Inc., or to the master servicer, Morgan Stanley Capital
I Inc. and the trustee by the holders of certificates evidencing
not less than 25% of the voting rights; and
o certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings and certain actions
by or on behalf of the master servicer indicating its insolvency
or inability to pay its obligations.
Material variations to the foregoing Events of Default -- other than to
shorten cure periods or eliminate notice requirements-- will be specified in the
related prospectus supplement. Unless otherwise described in the related
prospectus supplement, the trustee shall, not later than the later of 60 days
after the occurrence of any event which constitutes or, with notice or lapse of
time or both, would constitute an Event of Default and five days after certain
officers of the trustee become aware of the occurrence of such an event,
transmit by mail to Morgan Stanley Capital I Inc. and all certificateholders of
the applicable series notice of the occurrence, unless the default shall have
been cured or waived.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default under an Agreement remains unremedied,
Morgan Stanley Capital I Inc. or the trustee may, and at the direction of
holders of certificates evidencing not less than 51% of the voting rights, the
trustee shall, terminate all of the rights and obligations of the master
servicer under the Agreement and in and to the mortgage loans, other than as a
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certificateholder or as the owner of any retained interest, whereupon the
trustee will succeed to all of the responsibilities, duties and liabilities of
the master servicer under the Agreement, except that if the trustee is
prohibited by law from obligating itself to make advances regarding delinquent
mortgage loans, or if the related prospectus supplement so specifies, then the
trustee will not be obligated to make the advances, and will be entitled to
similar compensation arrangements. Unless otherwise described in the related
prospectus supplement, in the event that the trustee is unwilling or unable so
to act, it may or, at the written request of the holders of certificates
entitled to at least 51% of the voting rights, it shall appoint, or petition a
court of competent jurisdiction for the appointment of, a loan servicing
institution acceptable to the rating agency with a net worth at the time of such
appointment of at least $15,000,000 to act as successor to the master servicer
under the Agreement. Pending appointment, the trustee is obligated to act in the
capacity of master servicer. The trustee and any successor may agree upon the
servicing compensation to be paid, which in no event may be greater than the
compensation payable to the master servicer under the Agreement.
Unless otherwise described in the related prospectus supplement, the
holders of certificates representing at least 66 2/3% of the voting rights
allocated to the respective classes of certificates affected by any Event of
Default will be entitled to waive that Event of Default; provided, however, that
an Event of Default involving a failure to distribute a required payment to
certificateholders described in clause (1) under "--Events of Default" may be
waived only by all of the certificateholders. Upon any waiver of an Event of
Default, such Event of Default shall cease to exist and shall be deemed to have
been remedied for every purpose under the Agreement.
No certificateholder will have the right under any Agreement to institute
any proceeding with respect thereto unless the holder previously has given to
the trustee written notice of default and unless the holders of certificates
evidencing not less than 25% of the voting rights have made written request upon
the trustee to institute the proceeding in its own name as trustee thereunder
and have offered to the trustee reasonable indemnity, and the trustee for sixty
days has neglected or refused to institute any proceeding. The trustee, however,
is under no obligation to exercise any of the trusts or powers vested in it by
any Agreement or to make any investigation of matters arising thereunder or to
institute, conduct or defend any litigation thereunder or in relation thereto at
the request, order or direction of any of the holders of certificates covered by
the Agreement, unless the certificateholders have offered to the trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby.
AMENDMENT
Each Agreement may be amended by the parties thereto, without the consent
of any of the holders of certificates covered by the Agreement:
o to cure any ambiguity;
o to correct, modify or supplement any provision therein which may
be inconsistent with any other provision therein;
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o to make any other provisions with respect to matters or questions
arising under the Agreement which are not inconsistent with the
provisions thereof; or
o to comply with any requirements imposed by the Internal Revenue
Code;
provided that the amendment -- other than an amendment for the purpose specified
in clause (4) above-- will not, as evidenced by an opinion of counsel to that
effect, adversely affect in any material respect the interests of any holder of
certificates covered by the Agreement.
To the extent specified in the related prospectus supplement, each
Agreement may also be amended by Morgan Stanley Capital I Inc., the master
servicer, if any, and the trustee, with the consent of the holders of
certificates affected thereby evidencing not less than 51% of the voting rights,
for any purpose; provided, however, that to the extent specified in the related
prospectus supplement, no such amendment may:
o reduce in any manner the amount of or delay the timing of,
payments received or advanced on mortgage loans which are required
to be distributed on any certificate without the consent of the
holder of that certificate;
o adversely affect in any material respect the interests of the
holders of any class of certificates in a manner other than as
described in (1), without the consent of the holders of all
certificates of that class; or
o modify the provisions of the Agreement described in this paragraph
without the consent of the holders of all certificates covered by
the Agreement then outstanding.
However, with respect to any series of certificates as to which a REMIC
election is to be made, the trustee will not consent to any amendment of the
Agreement unless it shall first have received an opinion of counsel to the
effect that the amendment will not result in the imposition of a tax on the
related trust fund or cause the related trust fund to fail to qualify as a REMIC
at any time that the related certificates are outstanding.
THE TRUSTEE
The trustee under each Agreement will be named in the related prospectus
supplement. The commercial bank, national banking association, banking
corporation or trust company serving as trustee may have a banking relationship
with Morgan Stanley Capital I Inc. and its affiliates and with any master
servicer and its affiliates.
DUTIES OF THE TRUSTEE
The trustee will make no representations as to the validity or sufficiency
of any Agreement, the certificates or any asset or related document and is not
accountable for the use or application by or on behalf of any master servicer of
any funds paid to the master servicer or its designee in respect of the
certificates or the assets, or deposited into or withdrawn from the certificate
account or any other account by or on behalf of the master servicer. If no Event
of Default has occurred and is continuing, the trustee is required to perform
only those duties
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specifically required under the related Agreement. However, upon receipt of the
various certificates, reports or other instruments required to be furnished to
it, the trustee is required to examine the documents and to determine whether
they conform to the requirements of the Agreement.
MATTERS REGARDING THE TRUSTEE
Unless otherwise described in the related prospectus supplement, the
trustee and any director, officer, employee or agent of the trustee shall be
entitled to indemnification out of the certificate account for any loss,
liability or expense, including costs and expenses of litigation, and of
investigation, counsel fees, damages, judgments and amounts paid in settlement,
incurred in connection with the trustee's:
o enforcing its rights and remedies and protecting the interests,
and enforcing the rights and remedies, of the certificateholders
during the continuance of an Event of Default;
o defending or prosecuting any legal action in respect of the
related Agreement or series of certificates;
o being the lender of record with respect to the mortgage loans in a
trust fund and the owner of record with respect to any mortgaged
property acquired in respect thereof for the benefit of
certificateholders; or
o acting or refraining from acting in good faith at the direction of
the holders of the related series of certificates entitled to not
less than 25% or a higher percentage as is specified in the
related Agreement with respect to any particular matter of the
voting rights for the series; provided, however, that the
indemnification will not extend to any loss, liability or expense
that constitutes a specific liability of the trustee pursuant to
the related Agreement, or to any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or negligence
on the part of the trustee in the performance of its obligations
and duties thereunder, or by reason of its reckless disregard of
the obligations or duties, or as may arise from a breach of any
representation, warranty or covenant of the trustee made therein.
RESIGNATION AND REMOVAL OF THE TRUSTEE
The trustee may at any time resign from its obligations and duties under
an Agreement by giving written notice thereof to Morgan Stanley Capital I Inc.,
the master servicer, if any, and all certificateholders. Upon receiving the
notice of resignation, Morgan Stanley Capital I Inc. is required promptly to
appoint a successor trustee acceptable to the master servicer, if any. If no
successor trustee shall have been so appointed and have accepted appointment
within 30 days after the giving of the notice of resignation, the resigning
trustee may petition any court of competent jurisdiction for the appointment of
a successor trustee.
If at any time the trustee shall cease to be eligible to continue as
trustee under the related Agreement, or if at any time the trustee shall become
incapable of acting, or shall be adjudged
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bankrupt or insolvent, or a receiver of the trustee or of its property shall be
appointed, or any public officer shall take charge or control of the trustee or
of its property or affairs for the purpose of rehabilitation, conservation or
liquidation, then Morgan Stanley Capital I Inc. may remove the trustee and
appoint a successor trustee acceptable to the master servicer, if any. Holders
of the certificates of any series entitled to at least 51% of the voting rights
for that series may at any time remove the trustee without cause and appoint a
successor trustee.
Any resignation or removal of the trustee and appointment of a successor
trustee shall not become effective until acceptance of appointment by the
successor trustee.
DESCRIPTION OF CREDIT SUPPORT
GENERAL
For any series of certificates, credit support may be provided with
respect to one or more classes thereof or the related assets. Credit support may
be in the form of the subordination of one or more classes of certificates,
letters of credit, insurance policies, guarantees, the establishment of one or
more reserve funds or another method of credit support described in the related
prospectus supplement, or any combination of the foregoing. If so provided in
the related prospectus supplement, any form of credit support may be structured
so as to be drawn upon by more than one series to the extent described therein.
Unless otherwise provided in the related prospectus supplement for a
series of certificates, the credit support will not provide protection against
all risks of loss and will not guarantee repayment of the entire certificate
balance of the certificates and interest thereon. If losses or shortfalls occur
that exceed the amount covered by credit support or that are not covered by
credit support, certificateholders will bear their allocable share of
deficiencies. Moreover, if a form of credit support covers more than one series
of certificates, holders of certificates evidencing interests in any of the
trusts will be subject to the risk that the credit support will be exhausted by
the claims of other trusts prior to the trust fund receiving any of its intended
share of coverage.
If credit support is provided with respect to one or more classes of
certificates of a series, or the related assets, the related prospectus
supplement will include a description of:
o the nature and amount of coverage under the credit support;
o any conditions to payment thereunder not otherwise described in
this prospectus;
o the conditions, if any, under which the amount of coverage under
the credit support may be reduced and under which the credit
support may be terminated or replaced;
o the material provisions relating to such credit support; and
o information regarding the obligor under any instrument of credit
support, including:
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o a brief description of its principal business activities;
o its principal place of business, place of incorporation and the
jurisdiction under which it is chartered or licensed to do
business;
o if applicable, the identity of regulatory agencies that exercise
primary jurisdiction over the conduct of its business; and
o its total assets, and its stockholders' or policyholders' surplus,
if applicable, as of the date specified in the prospectus
supplement.
See "Risk Factors--Credit Enhancement is Limited in Amount and Coverage."
SUBORDINATE CERTIFICATES
If so specified in the related prospectus supplement, one or more classes
of certificates of a series may be subordinate certificates. To the extent
specified in the related prospectus supplement, the rights of the holders of
subordinate certificates to receive distributions of principal and interest from
the certificate account on any distribution date will be subordinated to the
rights of the holders of senior certificates. If so provided in the related
prospectus supplement, the subordination of a class may apply only in the event
of or may be limited to certain types of losses or shortfalls. The related
prospectus supplement will set forth information concerning the amount of
subordination of a class or classes of subordinate certificates in a series, the
circumstances in which the subordination will be applicable and the manner, if
any, in which the amount of subordination will be effected.
CROSS-SUPPORT PROVISIONS
If the assets for a series are divided into separate groups, each
supporting a separate class or classes of certificates of a series, credit
support may be provided by cross-support provisions requiring that distributions
be made on senior certificates evidencing interests in one group of mortgage
loans and mortgage-backed securities prior to distributions on subordinate
certificates evidencing interests in a different group of mortgage loans and
mortgage-backed securities within the trust fund. The prospectus supplement for
a series that includes a cross-support provision will describe the manner and
conditions for applying these provisions.
INSURANCE OR GUARANTEES FOR THE MORTGAGE LOANS
If so provided in the prospectus supplement for a series of certificates,
the mortgage loans in the related trust fund will be covered for various default
risks by insurance policies or guarantees. A copy of any material instrument for
a series will be filed with the Securities and Exchange Commission as an exhibit
to a Current Report on Form 8-K to be filed within 15 days of issuance of the
certificates of the related series.
LETTER OF CREDIT
If so provided in the prospectus supplement for a series of certificates,
deficiencies in amounts otherwise payable on the certificates or certain classes
thereof will be covered by one or
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more letters of credit, issued by the letter of credit bank. Under a letter of
credit, the letter of credit bank will be obligated to honor draws thereunder in
an aggregate fixed dollar amount, net of unreimbursed payments thereunder,
generally equal to a percentage specified in the related prospectus supplement
of the aggregate principal balance of the mortgage loans and mortgage-backed
securities on the related cut-off date or of the initial aggregate certificate
balance of one or more classes of certificates. If so specified in the related
prospectus supplement, the letter of credit may permit draws in the event of
only certain types of losses and shortfalls. The amount available under the
letter of credit will, in all cases, be reduced to the extent of the
unreimbursed payments thereunder and may otherwise be reduced as described in
the related prospectus supplement. The obligations of the letter of credit bank
under the letter of credit for each series of certificates will expire at the
earlier of the date specified in the related prospectus supplement or the
termination of the trust fund. A copy of any letter of credit for a series will
be filed with the Securities and Exchange Commission as an exhibit to a Current
Report on Form 8-K to be filed within 15 days of issuance of the certificates of
the related series.
INSURANCE POLICIES AND SURETY BONDS
If so provided in the prospectus supplement for a series of certificates,
deficiencies in amounts otherwise payable on the certificates or certain classes
thereof will be covered by insurance policies and/or surety bonds provided by
one or more insurance companies or sureties. The instruments may cover, with
respect to one or more classes of certificates of the related series, timely
distributions of interest and/or full distributions of principal on the basis of
a schedule of principal distributions set forth in or determined in the manner
specified in the related prospectus supplement. A copy of any instrument for a
series will be filed with the Securities and Exchange Commission as an exhibit
to a Current Report on Form 8-K to be filed with the Securities and Exchange
Commission within 15 days of issuance of the certificates of the related series.
RESERVE FUNDS
If so provided in the prospectus supplement for a series of certificates,
deficiencies in amounts otherwise payable on the certificates or certain classes
thereof will be covered by one or more reserve funds in which cash, a letter of
credit, Permitted Investments, a demand note or a combination thereof will be
deposited, in the amounts so specified in the prospectus supplement. The reserve
funds for a series may also be funded over time by depositing therein a
specified amount of the distributions received on the related assets as
specified in the related prospectus supplement.
Amounts on deposit in any reserve fund for a series, together with the
reinvestment income thereon, if any, will be applied for the purposes, in the
manner, and to the extent described in the related prospectus supplement. A
reserve fund may be provided to increase the likelihood of timely distributions
of principal of and interest on the certificates. If so specified in the related
prospectus supplement, reserve funds may be established to provide limited
protection against only certain types of losses and shortfalls. Following each
distribution date amounts in a reserve fund in excess of any amount required to
be maintained therein may be released from the reserve fund under the conditions
and to the extent specified in the related prospectus supplement and will not be
available for further application to the certificates.
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Moneys deposited in any reserve funds will be invested in Permitted
Investments, except as otherwise specified in the related prospectus supplement.
Unless otherwise described in the related prospectus supplement, any
reinvestment income or other gain from these investments will be credited to the
related reserve fund for the series, and any loss resulting from these
investments will be charged to the reserve fund. However, the income may be
payable to any related master servicer or another service provider as additional
compensation. The reserve fund, if any, for a series will not be a part of the
trust fund unless otherwise described in the related prospectus supplement.
Additional information concerning any reserve fund will be set forth in
the related prospectus supplement, including the initial balance of the reserve
fund, the balance required to be maintained in the reserve fund, the manner in
which the required balance will decrease over time, the manner of funding the
reserve fund, the purposes for which funds in the reserve fund may be applied to
make distributions to certificateholders and use of investment earnings from the
reserve fund, if any.
CREDIT SUPPORT FOR MORTGAGE-BACKED SECURITIES
If so provided in the prospectus supplement for a series of certificates,
the mortgage-backed securities in the related trust fund and/or the mortgage
loans underlying the mortgage-backed securities may be covered by one or more of
the types of credit support described in this prospectus. The related prospectus
supplement will specify as to each form of credit support the information
indicated above under "Description of Credit Support--General," to the extent
such information is material and available.
LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains general summaries of certain legal
aspects of loans secured by single-family residential properties. The legal
aspects are governed primarily by applicable state law, which laws may differ
substantially. As such, the summaries do not purport to:
o be complete;
o reflect the laws of any particular state; or
o encompass the laws of all states in which the security for the
mortgage loans is situated.
The summaries are qualified in their entirety by reference to the
applicable federal and state laws governing the mortgage loans. See "Description
of the Trust Funds--Assets."
GENERAL
All of the mortgage loans are loans evidenced by a note or bond and
secured by instruments granting a security interest in real property. The
instrument granting a security interest may be a mortgage, deed of trust,
security deed or deed to secure debt, depending upon the prevailing practice and
law in the state in which the mortgaged property is located. Any of
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the foregoing types of mortgages will create a lien upon, or grant a title
interest in, the subject property. The priority of the mortgage will depend on
the terms of the particular security instrument, as well as separate, recorded,
contractual arrangements with others holding interests in the mortgaged
property, the knowledge of the parties to the instrument as well as the order of
recordation of the instrument in the appropriate public recording office.
However, recording does not generally establish priority over governmental
claims for real estate taxes and assessments and other charges imposed under
governmental police powers.
TYPES OF MORTGAGE INSTRUMENTS
A mortgage either creates a lien against or constitutes a conveyance of
real property between two parties:
o a mortgagor--the borrower and usually the owner of the subject
property, and
o a mortgagee--the lender.
In contrast, a deed of trust is a three-party instrument, among:
o a trustor--the equivalent of a borrower,
o a trustee to whom the mortgaged property is conveyed, and
o a beneficiary--the lender--for whose benefit the conveyance is
made.
Under a deed of trust, the borrower grants the property, irrevocably until
the debt is paid, in trust, generally with a power of sale as security for the
indebtedness evidenced by the related note. A deed to secure debt typically has
two parties.
By executing a deed to secure debt, the grantor conveys title to, as
opposed to merely creating a lien upon, the subject property to the grantee
until the time that the underlying debt is repaid, generally with a power of
sale as security for the indebtedness evidenced by the related mortgage note. If
a borrower under a mortgage is a land trust, there would be an additional party
because legal title to the property is held by a land trustee under a land trust
agreement for the benefit of the borrower. At origination of a mortgage loan
involving a land trust, the borrower executes a separate undertaking to make
payments on the mortgage note. The lender's authority under a mortgage, the
trustee's authority under a deed of trust and the grantee's authority under a
deed to secure debt are governed by the express provisions of the mortgage, the
law of the state in which the real property is located, certain federal laws
including, without limitation, the Soldiers' and Sailors' Civil Relief Act of
1940 and, in some cases, in deed of trust transactions, the directions of the
beneficiary.
INTEREST IN REAL PROPERTY
The real property covered by a mortgage, deed of trust, security deed or
deed to secure debt is most often the fee estate in land and improvements.
However, the mortgage or other instrument may encumber other interests in real
property such as:
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o a tenant's interest in a lease of land or improvements, or both,
and
o the leasehold estate created by the lease.
A mortgage or other instrument covering an interest in real property other
than the fee estate requires special provisions in the instrument creating the
interest to protect the lender against termination of the interest before the
note secured by the mortgage, deed of trust, security deed or deed to secure
debt is paid. To the extent specified in the prospectus supplement, Morgan
Stanley Capital I Inc. or the asset seller will make certain representations and
warranties in the Agreement with respect to any mortgage loans that are secured
by an interest in a leasehold estate. The representations and warranties, if
applicable, will be set forth in the prospectus supplement.
COOPERATIVE LOANS
If specified in the prospectus supplement relating to a series of offered
certificates, the mortgage loans may also consist of cooperative apartment loans
secured by security interests in shares issued by a cooperative and in the
related proprietary leases or occupancy agreements granting exclusive rights to
occupy specific dwelling units in the cooperatives' buildings. The security
agreement will create a lien upon, or grant a title interest in, the property
which it covers, the priority of which will depend on the terms of the
particular security agreement as well as the order of recordation of the
agreement in the appropriate recording office. This type of lien or title
interest is not prior to the lien for real estate taxes and assessments and
other charges imposed under governmental police powers.
Each cooperative owns in fee or has a leasehold interest in all the real
property and owns in fee or leases the building and all separate dwelling units
therein. The cooperative is directly responsible for property management and, in
most cases, payment of real estate taxes, other governmental impositions and
hazard and liability insurance. If there is a blanket mortgage or mortgages on
the cooperative apartment building or underlying land, as is generally the case,
or an underlying lease of the land, as is the case in some instances, the
cooperative, as property borrower, or lessee, as the case may be, is also
responsible for meeting these mortgage or rental obligations. A blanket mortgage
is ordinarily incurred by the cooperative in connection with either the
construction or purchase of the cooperative's apartment building or obtaining of
capital by the cooperative. The interest of the occupant under proprietary
leases or occupancy agreements as to which that cooperative is the landlord are
generally subordinate to the interest of the holder of a blanket mortgage and to
the interest of the holder of a land lease. If the cooperative is unable to meet
the payment obligations:
o arising under a blanket mortgage, the lender holding a blanket
mortgage could foreclose on that mortgage and terminate all
subordinate proprietary leases and occupancy agreements, or
o arising under its land lease, the holder of the landlord's
interest under the land lease could terminate it and all
subordinate proprietary leases and occupancy agreements.
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Also, a blanket mortgage on a cooperative may provide financing in the
form of a mortgage that does not fully amortize, with a significant portion of
principal being due in one final payment at maturity. The inability of the
cooperative to refinance a mortgage and its consequent inability to make the
final payment could lead to foreclosure by the lender. Similarly, a land lease
has an expiration date and the inability of the cooperative to extend its term
or, in the alternative, to purchase the land could lead to termination of the
cooperatives' interest in the property and termination of all proprietary leases
and occupancy agreement. In either event, a foreclosure by the holder of a
blanket mortgage or the termination of the underlying lease could eliminate or
significantly diminish the value of any collateral held by the lender that
financed the purchase by an individual tenant stockholder of cooperative shares
or, in the case of the mortgage loans, the collateral securing the cooperative
loans.
The cooperative is owned by tenant-stockholders who, through ownership of
stock or shares in the corporation, receive proprietary lease or occupancy
agreements which confer exclusive rights to occupy specific units. Generally, a
tenant-stockholder of a cooperative must make a monthly payment to the
cooperative representing the tenant-stockholder's pro rata share of the
cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights are financed through
a cooperative share loan evidenced by a promissory note and secured by an
assignment of and a security interest in the occupancy agreement or proprietary
lease and a security interest in the related cooperative shares. The lender
generally takes possession of the share certificate and a counterpart of the
proprietary lease or occupancy agreement and a financing statement covering the
proprietary lease or occupancy agreement and the cooperative shares is filed in
the appropriate state and local offices to perfect the lender's interest in its
collateral. Subject to the limitations discussed below, upon default of the
tenant-stockholder, the lender may sue for judgment on the promissory note,
dispose of the collateral at a public or private sale or otherwise proceed
against the collateral or tenant-stockholder as an individual as provided in the
security agreement covering the assignment of the proprietary lease or occupancy
agreement and the pledge of cooperative shares. See "Foreclosure--Cooperative
Loans" below.
FORECLOSURE
General
Foreclosure is a legal procedure that allows the lender to recover its
mortgage debt by enforcing its rights and available legal remedies under the
mortgage. If the borrower defaults in payment or performance of its obligations
under the note or mortgage, the lender has the right to institute foreclosure
proceedings to sell the mortgaged property at public auction to satisfy the
indebtedness.
Foreclosure procedures with respect to the enforcement of a mortgage vary
from state to state. Two primary methods of foreclosing a mortgage are judicial
foreclosure and non-judicial foreclosure pursuant to a power of sale granted in
the mortgage instrument. There are several other foreclosure procedures
available in some states that are either infrequently used or available only in
certain limited circumstances, such as strict foreclosure.
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Judicial Foreclosure
A judicial foreclosure proceeding is conducted in a court having
jurisdiction over the mortgaged property. Generally, the action is initiated by
the service of legal pleadings upon all parties having an interest of record in
the real property. Delays in completion of the foreclosure may occasionally
result from difficulties in locating defendants. When the lender's right to
foreclose is contested, the legal proceedings can be time-consuming. Upon
successful completion of a judicial foreclosure proceeding, the court generally
issues a judgment of foreclosure and appoints a referee or other officer to
conduct a public sale of the mortgaged property, the proceeds of which are used
to satisfy the judgment. The sales are made in accordance with procedures that
vary from state to state.
Equitable Limitations on Enforceability of Certain Provisions
United States courts have traditionally imposed general equitable
principles to limit the remedies available to a lender in connection with
foreclosure. These equitable principles are generally designed to relieve the
borrower from the legal effect of mortgage defaults, to the extent that the
effect is perceived as harsh or unfair. Relying on these principles, a court may
alter the specific terms of a loan to the extent it considers necessary to
prevent or remedy an injustice, undue oppression or overreaching, or may require
the lender to undertake affirmative and expensive actions to determine the cause
of the borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's and have required that lenders reinstate loans or recast payment
schedules in order to accommodate borrowers who are suffering from a temporary
financial disability. In other cases, courts have limited the right of the
lender to foreclose if the default under the mortgage is not monetary, e.g., the
borrower failed to maintain the mortgaged property adequately or the borrower
executed a junior mortgage on the mortgaged property. The exercise by the court
of its equity powers will depend on the individual circumstances of each case
presented to it. Finally, some courts have been faced with the issue of whether
federal or state constitutional provisions reflecting due process concerns for
adequate notice require that a borrower receive notice in addition to
statutorily-prescribed minimum notice. For the most part, these cases have
upheld the reasonableness of the notice provisions or have found that a public
sale under a mortgage providing for a power of sale does not involve sufficient
state action to afford constitutional protections to the borrower.
Non-Judicial Foreclosure/Power of Sale
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale pursuant to the power of sale granted in the deed of trust. A
power of sale is typically granted in a deed of trust. It may also be contained
in any other type of mortgage instrument. A power of sale allows a non-judicial
public sale to be conducted generally following a request from the
beneficiary/lender to the trustee to sell the property upon any default by the
borrower under the terms of the mortgage note or the mortgage instrument and
after notice of sale is given in accordance with the terms of the mortgage
instrument, as well as applicable state law. In some states, prior to the sale,
the trustee under a deed of trust must record a notice of default and notice of
sale and send a copy to the borrower and to any other party who has recorded a
request for a copy of a notice of default and notice of sale. In addition, in
some states the trustee must provide
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notice to any other party having an interest of record in the real property,
including junior lienholders. A notice of sale must be posted in a public place
and, in most states, published for a specified period of time in one or more
newspapers. The borrower or junior lienholder may then have the right, during a
reinstatement period required in some states, to cure the default by paying the
entire actual amount in arrears, without acceleration, plus the expenses
incurred in enforcing the obligation. In other states, the borrower or the
junior lienholder is not provided a period to reinstate the loan, but has only
the right to pay off the entire debt to prevent the foreclosure sale. Generally,
the procedure for public sale, the parties entitled to notice, the method of
giving notice and the applicable time periods are governed by state law and vary
among the states. Foreclosure of a deed to secure debt is also generally
accomplished by a non-judicial sale similar to that required by a deed of trust,
except that the lender or its agent, rather than a trustee, is typically
empowered to perform the sale in accordance with the terms of the deed to secure
debt and applicable law.
Public Sale
A third party may be unwilling to purchase a mortgaged property at a
public sale because of the difficulty in determining the value of the property
at the time of sale, due to, among other things, redemption rights which may
exist and the possibility of physical deterioration of the property during the
foreclosure proceedings. For these reasons, it is common for the lender to
purchase the mortgaged property for an amount equal to or less than the
underlying debt and accrued and unpaid interest plus the expenses of
foreclosure. Generally, state law controls the amount of foreclosure costs and
expenses which may be recovered by a lender. Thereafter, subject to the
borrower's right in some states to remain in possession during a redemption
period, if applicable, the lender will become the owner of the property and have
both the benefits and burdens of ownership of the mortgaged property. For
example, the lender will become obligated to pay taxes, obtain casualty
insurance and to make the repairs at its own expense as are necessary to render
the property suitable for sale. The lender will commonly obtain the services of
a real estate broker and pay the broker's commission in connection with the sale
of the property. Depending upon market conditions, the ultimate proceeds of the
sale of the property may not equal the lender's investment in the property.
Moreover, a lender commonly incurs substantial legal fees and court costs in
acquiring a mortgaged property through contested foreclosure and/or bankruptcy
proceedings. Generally, state law controls the amount of foreclosure expenses
and costs, including attorneys' fees, that may be recovered by a lender.
A junior lender may not foreclose on the property securing the junior
mortgage unless it forecloses subject to senior mortgages and any other prior
liens, in which case it may be obliged to make payments on the senior mortgages
to avoid their foreclosure. In addition, in the event that the foreclosure of a
junior mortgage triggers the enforcement of a "due-on-sale" clause contained in
a senior mortgage, the junior lender may be required to pay the full amount of
the senior mortgage to avoid its foreclosure. Accordingly, with respect to those
mortgage loans, if any, that are junior mortgage loans, if the lender purchases
the property the lender's title will be subject to all senior mortgages, prior
liens and certain governmental liens.
The proceeds received by the referee or trustee from the sale are applied
first to the costs, fees and expenses of sale and then in satisfaction of the
indebtedness secured by the mortgage under which the sale was conducted. Any
proceeds remaining after satisfaction of senior
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mortgage debt are generally payable to the holders of junior mortgages and other
liens and claims in order of their priority, whether or not the borrower is in
default. Any additional proceeds are generally payable to the borrower. The
payment of the proceeds to the holders of junior mortgages may occur in the
foreclosure action of the senior mortgage or a subsequent ancillary proceeding
or may require the institution of separate legal proceedings by these holders.
REO Properties
If title to any mortgaged property is acquired by the trustee on behalf of
the certificateholders, the master servicer or any related subservicer, on
behalf of the certificateholders, will be required to sell the mortgaged
property by the close of the third calendar year following the year of
acquisition, unless:
o the Internal Revenue Service grants an REO extension or
o it obtains an opinion of counsel generally to the effect that the
holding of the property beyond the close of the third calendar
year after its acquisition will not result in the imposition of a
tax on the trust fund or cause any REMIC created pursuant to the
Agreement to fail to qualify as a REMIC under the Internal Revenue
Code.
Subject to the foregoing, the master servicer or any related subservicer
will generally be required to solicit bids for any mortgaged property so
acquired in such a manner as will be reasonably likely to realize a fair price
for the property. The master servicer or any related subservicer may retain an
independent contractor to operate and manage any REO property; however, the
retention of an independent contractor will not relieve the master servicer or
any related subservicer of its obligations with respect to the REO property.
In general, the master servicer or any related subservicer or an
independent contractor employed by the master servicer or any related
subservicer at the expense of the trust fund will be obligated to operate and
manage any mortgaged property acquired as REO property in a manner that would,
to the extent commercially feasible, maximize the trust fund's net after-tax
proceeds from such property. After the master servicer or any related
subservicer reviews the operation of the property and consults with the trustee
to determine the trust fund's federal income tax reporting position with respect
to the income it is anticipated that the trust fund would derive from the
property, the master servicer or any related subservicer could determine,
particularly in the case of an REO property that is a hospitality or residential
health care facility, that it would not be commercially feasible to manage and
operate the property in a manner that would avoid the imposition of an REO Tax.
To the extent that income the trust fund receives from an REO property is
subject to a tax on (i) "net income from foreclosure property" that income would
be subject to federal income tax at the highest marginal corporate tax rate --
currently 35% or (ii) "prohibited transactions," that income would be subject to
federal income tax at a 100% rate. The determination as to whether income from
an REO property would be subject to an REO Tax will depend on the specific facts
and circumstances relating to the management and operation of each REO property.
Generally, income from an REO property that is directly operated by the master
servicer or any related subservicer would be apportioned and classified as
"service" or "non-service" income. The "service" portion of the income could be
subject to federal income tax either at the highest marginal corporate tax rate
or at the 100%
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rate on "prohibited transactions," and the "non-service" portion of the income
could be subject to federal income tax at the highest marginal corporate tax
rate or, although it appears unlikely, at the 100% rate applicable to
"prohibited transactions." Any REO Tax imposed on the trust fund's income from
an REO property would reduce the amount available for distribution to
certificateholders. Certificateholders are advised to consult their tax advisors
regarding the possible imposition of REO Taxes in connection with the operation
of commercial REO properties by REMICs. See "Federal Income Tax Consequences" in
this prospectus and "Federal Income Tax Consequences" in the prospectus
supplement.
Rights of Redemption
The purposes of a foreclosure action are to enable the lender to realize
upon its security and to bar the borrower, and all persons who have an interest
in the property which is subordinate to the mortgage being foreclosed, from
exercise of their "equity of redemption." The doctrine of equity of redemption
provides that, until the property covered by a mortgage has been sold in
accordance with a properly conducted foreclosure and foreclosure sale, those
having an interest which is subordinate to that of the foreclosing lender have
an equity of redemption and may redeem the property by paying the entire debt
with interest. In addition, in some states, when a foreclosure action has been
commenced, the redeeming party must pay certain costs of the action. Those
having an equity of redemption must generally be made parties and joined in the
foreclosure proceeding in order for their equity of redemption to be cut off and
terminated.
The equity of redemption is a common-law or non-statutory right which
exists prior to completion of the foreclosure, is not waivable by the borrower,
must be exercised prior to foreclosure sale and should be distinguished from the
post-sale statutory rights of redemption. In some states, after sale pursuant to
a deed of trust or foreclosure of a mortgage, the borrower and foreclosed junior
lienors are given a statutory period in which to redeem the property from the
foreclosure sale. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
authorized if the former borrower pays only a portion of the sums due. The
effect of a statutory right of redemption is to diminish the ability of the
lender to sell the foreclosed property. The exercise of a right of redemption
would defeat the title of any purchaser from a foreclosure sale or sale under a
deed of trust. Consequently, the practical effect of the redemption right is to
force the lender to maintain the property and pay the expenses of ownership
until the redemption period has expired. In some states, a post-sale statutory
right of redemption may exist following a judicial foreclosure, but not
following a trustee's sale under a deed of trust.
Under the REMIC provisions currently in effect, property acquired by
foreclosure generally must not be held beyond the close of the third calendar
year following the year of acquisition. Unless otherwise provided in the related
prospectus supplement, with respect to a series of certificates for which an
election is made to qualify the trust fund or a part thereof as a REMIC, the
Agreement will permit foreclosed property to be held beyond the close of the
third calendar year following the year of acquisition if the Internal Revenue
Service grants an extension of time within which to sell the property or
independent counsel renders an opinion to the effect that holding the property
for such additional period is permissible under the REMIC provisions.
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Cooperative Loans
The cooperative shares owned by the tenant-stockholder and pledged to the
lender are, in almost all cases, subject to restrictions on transfer as set
forth in the cooperative's certificate of incorporation and by-laws, as well as
the proprietary lease or occupancy agreement, and may be cancelled by the
cooperative for failure by the tenant-stockholder to pay rent or other
obligations or charges owed by the tenant-stockholder, including mechanics'
liens against the cooperative apartment building incurred by the
tenant-stockholder. The proprietary lease or occupancy agreement generally
permit the cooperative to terminate the lease or agreement in the event an
obligor fails to make payments or defaults in the performance of covenants
required thereunder. Typically, the lender and the cooperative enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder under the
proprietary lease or occupancy agreement which will usually constitute a default
under the security agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate the lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the cooperative will recognize the
lender's lien against proceeds from the sale of the cooperative apartment,
subject, however, to the cooperative's right to sums due under the proprietary
lease or occupancy agreement. The total amount owed to the cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the cooperative loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure on
a cooperative loan, the lender must obtain the approval or consent of the
cooperative as required by the proprietary lease before transferring the
cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited in any rights it may have to dispossess the tenant-stockholders.
In some states, foreclosure on the cooperative shares is accomplished by a
sale in accordance with the provisions of Article 9 of the Uniform Commercial
Code and the security agreement relating to those shares. Article 9 of the
Uniform Commercial Code requires that a sale be conducted in a "commercially
reasonable" manner. Whether a foreclosure sale has been conducted in a
"commercially reasonable" manner will depend on the facts in each case. In
determining commercial reasonableness, a court will look to the notice given the
debtor and the method, manner, time, place and terms of the foreclosure.
Generally, a sale conducted according to the usual practice of banks selling
similar collateral will be considered reasonably conducted.
Article 9 of the Uniform Commercial Code provides that the proceeds of the
sale will be applied first to pay the costs and expenses of the sale and then to
satisfy the indebtedness secured by the lender's security interest. The
recognition agreement, however, generally provides that the lender's right to
reimbursement is subject to the right of the cooperatives to receive sums due
under the proprietary lease or occupancy agreement. If there are proceeds
remaining, the lender
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must account to the tenant-stockholder for the surplus. Conversely, if a portion
of the indebtedness remains unpaid, the tenant-stockholder is generally
responsible for the deficiency.
In the case of foreclosure on a building which was converted from a rental
building to a building owned by a cooperative under a non-eviction plan, some
states require that a purchaser at a foreclosure sale take the property subject
to rent control and rent stabilization laws which apply to certain tenants who
elected to remain in the building was so converted.
JUNIOR MORTGAGES
Some of the mortgage loans may be secured by junior mortgages or deeds of
trust, which are subordinate to first mortgages or deeds of trust held by other
lenders. The rights of the trust fund as the holder of a junior deed of trust or
a junior mortgage are subordinate in lien and in payment to those of the holder
of the senior mortgage or deed of trust, including the prior rights of the
senior lender or beneficiary to receive and apply hazard insurance and
condemnation proceeds and, upon default of the borrower, to cause a foreclosure
on the property. Upon completion of the foreclosure proceedings by the holder of
the senior mortgage or the sale pursuant to the deed of trust, the junior
lender's or junior beneficiary's lien will be extinguished unless the junior
lienholder satisfies the defaulted senior loan or asserts its subordinate
interest in a property in foreclosure proceedings. See "--Foreclosure" in this
prospectus.
Furthermore, because the terms of the junior mortgage or deed of trust are
subordinate to the terms of the first mortgage or deed of trust, in the event of
a conflict between the terms of the first mortgage or deed of trust and the
junior mortgage or deed of trust, the terms of the first mortgage or deed of
trust will generally govern. Upon a failure of the borrower or trustor to
perform any of its obligations, the senior lender or beneficiary, subject to the
terms of the senior mortgage or deed of trust, may have the right to perform the
obligation itself. Generally, all sums so expended by the lender or beneficiary
become part of the indebtedness secured by the mortgage or deed of trust. To the
extent a first lender expends these sums, such sums will generally have priority
over all sums due under the junior mortgage.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Statutes in some states limit the right of a beneficiary under a deed of
trust or a lender under a mortgage to obtain a deficiency judgment against the
borrower following foreclosure or sale under a deed of trust. A deficiency
judgment would be a personal judgment against the former borrower equal to the
difference between the net amount realized upon the public sale of the real
property and the amount due to the lender. Some states require the lender to
exhaust the security afforded under a mortgage by foreclosure in an attempt to
satisfy the full debt before bringing a personal action
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against the borrower. In certain other states, the lender has the option of
bringing a personal action against the borrower on the debt without first
exhausting the security; however, in some of these states, the lender, following
judgment on a personal action, may be deemed to have elected a remedy and may be
precluded from exercising remedies with respect to the security. In some cases,
a lender will be precluded from exercising any additional rights under the note
or mortgage if it has taken any prior enforcement action. Consequently, the
practical effect of the election requirement, in those states permitting such
election, is that lenders will usually proceed against the security first rather
than bringing a personal action against the borrower. Finally, other statutory
provisions limit any deficiency judgment against the former borrower following a
judicial sale to the excess of the outstanding debt over the fair market value
of the property at the time of the public sale. The purpose of these statutes is
generally to prevent a lender from obtaining a large deficiency judgment against
the former borrower as a result of low or no bids at the judicial sale.
In addition to laws limiting or prohibiting deficiency judgments, numerous
other federal and state statutory provisions, including the federal bankruptcy
laws and state laws affording relief to debtors, may interfere with or affect
the ability of the secured mortgage lender to realize upon collateral or enforce
a deficiency judgment. For example, with respect to federal bankruptcy law, a
court with federal bankruptcy jurisdiction may permit a debtor through his or
her Chapter 11 or Chapter 13 rehabilitative plan to cure a monetary default in
respect of a mortgage loan on a debtor's residence by paying arrearages within a
reasonable time period and reinstating the original mortgage loan payment
schedule even though the lender accelerated the mortgage loan and final judgment
of foreclosure had been entered in state court (provided no sale of the
residence had yet occurred) prior to the filing of the debtor's petition. Some
courts with federal bankruptcy jurisdiction have approved plans, based on the
particular facts of the reorganization case, that effected the curing of a
mortgage loan default by paying arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that the
terms of a mortgage loan secured by property of the debtor may be modified.
These courts have allowed modifications that include reducing the amount of each
monthly payment, changing the rate of interest, altering the repayment schedule,
forgiving all or a portion of the debt and reducing the lender's security
interest to the value of the residence, thus leaving the lender a general
unsecured creditor for the difference between the value of the residence and the
outstanding balance of the loan. Generally, however, the terms of a mortgage
loan secured only by a mortgage on real property that is the debtor's principal
residence may not be modified pursuant to a plan confirmed pursuant to Chapter
11 or Chapter 13 except with respect to mortgage payment arrearages, which may
be cured within a reasonable time period.
Certain tax liens arising under the Internal Revenue Code of 1986, as
amended, may in certain circumstances provide priority over the lien of a
mortgage or deed of trust. In addition, substantive requirements are imposed
upon mortgage lenders in connection with the origination and the servicing of
mortgage loans by numerous federal and some state consumer protection laws.
These laws include the federal Truth-in-Lending Act, Real Estate Settlement
Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair
Credit Reporting Act and related statutes. These federal laws impose specific
statutory liabilities upon lenders who originate mortgage loans and who fail to
comply with the provisions of the law. In some cases this liability may affect
assignees of the mortgage loans.
Generally, Article 9 of the Uniform Commercial Code governs foreclosure on
cooperative shares and the related proprietary lease or occupancy agreement.
Some courts have interpreted section 9-504 of the Uniform Commercial Code to
prohibit a deficiency award unless the creditor establishes that the sale of the
collateral which, in the case of a cooperative loan, would be the shares of the
cooperative and the related proprietary lease or occupancy agreement, was
conducted in a commercially reasonable manner.
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ENVIRONMENTAL LEGISLATION
Certain states impose a statutory lien for associated costs on property
that is the subject of a cleanup action by the state on account of hazardous
wastes or hazardous substances released or disposed of on the property. Such a
lien will generally have priority over all subsequent liens on the property and,
in certain of these states, will have priority over prior recorded liens
including the lien of a mortgage. In addition, under federal environmental
legislation and under state law in a number of states, a secured party that
takes a deed in lieu of foreclosure or acquires a mortgaged property at a
foreclosure sale or becomes involved in the operation or management of a
property so as to be deemed an "owner" or "operator" of the property may be
liable for the costs of cleaning up a contaminated site. Although such costs
could be substantial, it is unclear whether they would be imposed on a lender
(such as a trust fund) secured by residential real property. In the event that
title to a mortgaged property securing a mortgage loan in a trust fund was
acquired by the trust fund and cleanup costs were incurred in respect of the
mortgaged property, the holders of the related series of certificates might
realize a loss if such costs were required to be paid by the trust fund.
DUE-ON-SALE CLAUSES
Unless the related prospectus supplement indicates otherwise, the mortgage
loans will contain due-on-sale clauses. These clauses generally provide that the
lender may accelerate the maturity of the loan if the borrower sells, transfers
or conveys the related mortgaged property. The enforceability of due-on-sale
clauses has been the subject of legislation or litigation in many states and, in
some cases, the enforceability of these clauses was limited or denied. However,
with respect to certain loans the Garn-St Germain Depository Institutions Act of
1982 preempts state constitutional, statutory and case law that prohibits the
enforcement of due-on-sale clauses and permits lenders to enforce these clauses
in accordance with their terms, subject to certain limited exceptions.
Due-on-sale clauses contained in mortgage loans originated by federal savings
and loan associations of federal savings banks are fully enforceable pursuant to
regulations of the United States Federal Home Loan Bank Board, as succeeded by
the Office of Thrift Supervision, which preempt state law restrictions on the
enforcement of these clauses. Similarly, "due-on-sale" clauses in mortgage loans
made by national banks and federal credit unions are now fully enforceable
pursuant to preemptive regulations of the Comptroller of the Currency and the
National Credit Union Administration, respectively.
The Garn-St Germain Act also sets forth nine specific instances in which a
mortgage lender covered by the act (including federal savings and loan
associations and federal savings banks) may not exercise a "due-on-sale" clause,
notwithstanding the fact that a transfer of the property may have occurred.
These include intra-family transfers, certain transfers by operation of law,
leases of fewer than three years and the creation of a junior encumbrance.
Regulations promulgated under the Garn-St Germain Act also prohibit the
imposition of a prepayment penalty upon the acceleration of a loan pursuant to a
due-on-sale clause. The inability to enforce a "due-on-sale" clause may result
in a mortgage that bears an interest rate below the current market rate being
assumed by a new home buyer rather than being paid off, which may affect the
average life of the mortgage loans and the number of mortgage loans which may
extend to maturity.
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PREPAYMENT CHARGES
Under certain state laws, prepayment charges may not be imposed after a
certain period of time following the origination of mortgage loans secured by
liens encumbering owner-occupied residential properties, if the loans are paid
prior to maturity. Since many of the mortgaged properties will be
owner-occupied, it is anticipated that prepayment charges may not be imposed
with respect to many of the mortgage loans. The absence of a restraint on
prepayment, particularly with respect to fixed rate mortgage loans having higher
mortgage rates, may increase the likelihood of refinancing or other early
retirement of the loans.
SUBORDINATE FINANCING
Where a borrower encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the borrower
may have difficulty servicing and repaying multiple loans. In addition, if the
junior loan permits recourse to the borrower --as junior loans often do-- and
the senior loan does not, a borrower may be more likely to repay sums due on the
junior loan than those on the senior loan. Second, acts of the senior lender
that prejudice the junior lender or impair the junior lender's security may
create a superior equity in favor of the junior lender. For example, if the
borrower and the senior lender agree to an increase in the principal amount of
or the interest rate payable on the senior loan, the senior lender may lose its
priority to the extent any existing junior lender is harmed or the borrower is
additionally burdened. Third, if the borrower defaults on the senior loan and/or
any junior loan or loans, the existence of junior loans and actions taken by
junior lenders can impair the security available to the senior lender and can
interfere with or delay the taking of action by the senior lender. Moreover, the
bankruptcy of a junior lender may operate to stay foreclosure or similar
proceedings by the senior lender.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980, provides that state usury limitations shall
not apply to certain types of residential first mortgage loans originated by
certain lenders after March 31, 1980. A similar federal statute was in effect
with respect to mortgage loans made during the first three months of 1980. The
Office of Thrift Supervision is authorized to issue rules and regulations and to
publish interpretations governing implementation of Title V. The statute
authorized any state to reimpose interest rate limits by adopting, before April
1, 1983, a law or constitutional provision that expressly rejects application of
the federal law. In addition, even where Title V is not so rejected, any state
is authorized by the law to adopt a provision limiting discount points or other
charges on mortgage loans covered by Title V. Certain states have taken action
to reimpose interest rate limits and/or to limit discount points or other
charges.
Morgan Stanley Capital I Inc. has been advised by counsel that a court
interpreting Title V would hold that residential first mortgage loans that are
originated on or after January 1, 1980 are subject to federal preemption.
Therefore, in a state that has not taken the requisite action to reject
application of Title V or to adopt a provision limiting discount points or other
charges prior to origination of mortgage loans, any such limitation under the
state's usury law would not apply to the mortgage loans.
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In any state in which application of Title V has been expressly rejected
or a provision limiting discount points or other charges is adopted, no mortgage
loan originated after the date of the state action will be eligible for
inclusion in a trust fund unless the mortgage loan provides:
o the interest rate, discount points and charges as are permitted in
that state; or
o that the terms of the loan shall be construed in accordance with
the laws of another state under which the interest rate, discount
points and charges would not be usurious and the borrower's
counsel has rendered an opinion that the choice of law provision
would be given effect.
Statutes differ in their provisions as to the consequences of a usurious
loan. One group of statutes requires the lender to forfeit the interest due
above the applicable limit or impose a specified penalty. Under this statutory
scheme, the borrower may cancel the recorded mortgage or deed of trust upon
paying its debt with lawful interest, and the lender may foreclose, but only for
the debt plus lawful interest. A second group of statutes is more severe. A
violation of this type of usury law results in the invalidation of the
transaction, thereby permitting the borrower to cancel the recorded mortgage or
deed of trust without any payment or prohibiting the lender from foreclosing.
ALTERNATIVE MORTGAGE INSTRUMENTS
Alternative mortgage instruments, including adjustable rate mortgage loans
and early ownership mortgage loans, originated by non-federally chartered
lenders have historically been subject to a variety of restrictions. The
restrictions differed from state to state, resulting in difficulties in
determining whether a particular alternative mortgage instrument originated by a
state-chartered lender was in compliance with applicable law. These difficulties
were alleviated substantially as a result of the enactment of Title VIII of the
Garn-St Germain Act. Title VIII of the Garn-St Germain Act provides that,
notwithstanding any state law to the contrary:
o state-chartered banks may originate alternative mortgage instruments in
accordance with regulations promulgated by the Comptroller of the
Currency with respect to origination of alternative mortgage
instruments by national banks;
o state-chartered credit unions may originate alternative mortgage
instruments in accordance with regulations promulgated by the National
Credit Union Administration with respect to origination of alternative
mortgage instruments by federal credit unions; and
o all other non-federally chartered housing creditors, including
state-chartered savings and loan associations, state-chartered savings
banks and mutual savings banks and mortgage banking companies, may
originate alternative mortgage instruments in accordance with the
regulations promulgated by the Federal Home Loan Bank Board,
predecessor to the Office of Thrift Supervision, with respect to
origination of alternative mortgage instruments by federal savings and
loan associations.
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Title VIII of the Garn-St Germain Act provides that any state may reject
applicability of the provisions of Title VIII of the Garn-St Germain Act by
adopting, prior to October 15, 1985, a law or constitutional provision expressly
rejecting the applicability of the provisions. Certain states have taken this
type of action.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended, a borrower who enters military service after the origination of a
mortgage loan, including a borrower who was in reserve status and is called to
active duty after origination of the mortgage loan, may not be charged interest,
including fees and charges, above an annual rate of 6% during the period of the
borrower's active duty status, unless a court orders otherwise upon application
of the lender. The Soldiers' and Sailors' Civil Relief Act of 1940, as amended,
applies to borrowers who are members of the Army, Navy, Air Force, Marines,
National Guard, Reserves, Coast Guard and officers of the U.S. Public Health
Service assigned to duty with the military. Because the Soldiers' and Sailors'
Civil Relief Act of 1940, as amended, applies to borrowers who enter military
service, including reservists who are called to active duty, after origination
of the related mortgage loan, no information can be provided as to the number of
loans that may be affected by the Soldiers' and Sailors' Civil Relief Act of
1940, as amended. Application of the Soldiers' and Sailors' Civil Relief Act of
1940, as amended, would adversely affect, for an indeterminate period of time,
the ability of any servicer to collect full amounts of interest on certain of
the mortgage loans. Any shortfalls in interest collections resulting from the
application of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended,
would result in a reduction of the amounts distributable to the holders of the
related series of certificates, and would not be covered by advances or, to the
extent specified in the related prospectus supplement, any form of credit
support provided in connection with the certificates. In addition, the Soldiers'
and Sailors' Civil Relief Act of 1940, as amended, imposes limitations that
would impair the ability of the servicer to foreclose on an affected mortgage
loan during the borrower's period of active duty status, and, under certain
circumstances, during an additional three month period thereafter. Thus, in the
event that an affected mortgage loan goes into default, there may be delays and
losses occasioned thereby.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations statute can be seized by the government if the property
was used in, or purchased with the proceeds of, such crimes. Under procedures
contained in the Comprehensive Crime Control Act of 1984, the government may
seize the property even before conviction. The government must publish notice of
the forfeiture proceeding and may give notice to all parties "known to have an
alleged interest in the property," including the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
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FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of offered certificates
is based on the advice of Brown & Wood LLP or Latham & Watkins or Cadwalader,
Wickersham & Taft, counsel to Morgan Stanley Capital I Inc. This summary is
based on laws, regulations, including the REMIC Regulations promulgated by the
Treasury Department, rulings and decisions now in effect or, with respect to
regulations, proposed, all of which are subject to change either prospectively
or retroactively. This summary does not address the federal income tax
consequences of an investment in certificates applicable to all categories of
investors, some of which, for example, banks and insurance companies, may be
subject to special rules. Prospective investors should consult their tax
advisors regarding the federal, state, local and any other tax consequences to
them of the purchase, ownership and disposition of certificates.
GENERAL
The federal income tax consequences to certificateholders will vary
depending on whether an election is made to treat the trust fund relating to a
particular series of certificates as a REMIC under the Internal Revenue Code.
The prospectus supplement for each series of certificates will specify whether a
REMIC election will be made.
GRANTOR TRUST FUNDS
If a REMIC election is not made, Brown & Wood LLP or Cadwalader,
Wickersham & Taft or Latham & Watkins will deliver its opinion that the trust
fund will not be classified as an association taxable as a corporation and that
the trust fund will be classified as a grantor trust under subpart E, Part I of
subchapter J of Chapter 1 of Subtitle A of the Internal Revenue Code. In this
case, owners of certificates will be treated for federal income tax purposes as
owners of a portion of the trust fund's assets as described in this section of
the prospectus.
A. SINGLE CLASS OF GRANTOR TRUST CERTIFICATES
Characterization. The trust fund may be created with one class of grantor
trust certificates. In this case, each grantor trust certificateholder will be
treated as the owner of a pro rata undivided interest in the interest and
principal portions of the trust fund represented by the grantor trust
certificates and will be considered the equitable owner of a pro rata undivided
interest in each of the mortgage loans and mortgage-backed securities in the
pool. Any amounts received by a grantor trust certificateholder in lieu of
amounts due with respect to any mortgage loan and mortgage-backed security
because of a default or delinquency in payment will be treated for federal
income tax purposes as having the same character as the payments they replace.
Each grantor trust certificateholder will be required to report on its
federal income tax return in accordance with the grantor trust
certificateholder's method of accounting its pro rata share of the entire income
from the mortgage loans in the trust fund represented by grantor trust
certificates, including interest, original issue discount, if any, prepayment
fees, assumption fees, any gain recognized upon an assumption and late payment
charges received by the master servicer. Under Internal Revenue Code Section 162
or 212 each grantor trust certificateholder
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will be entitled to deduct its pro rata share of servicing fees, prepayment
fees, assumption fees, any loss recognized upon an assumption and late payment
charges retained by the master servicer, provided that such amounts are
reasonable compensation for services rendered to the trust fund. Grantor trust
certificateholders that are individuals, estates or trusts will be entitled to
deduct their share of expenses as itemized deductions only to the extent such
expenses plus all other Internal Revenue Code Section 212 expenses exceed two
percent of its adjusted gross income. In addition, the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the applicable amount under Internal Revenue Code
Section 68(b)--which amount will be adjusted for inflation--will be reduced by
the lesser of:
o 3% of the excess of adjusted gross income over the applicable
amount and
o 80% of the amount of itemized deductions otherwise allowable for
such taxable year.
In general, a grantor trust certificateholder using the cash method of
accounting must take into account its pro rata share of income and deductions as
and when collected by or paid to the master servicer or, with respect to
original issue discount or certain other income items for which the
certificateholder has made an election, as the amounts are accrued by the trust
fund on a constant interest basis, and will be entitled to claim its pro rata
share of deductions, subject to the foregoing limitations, when such amounts are
paid or the certificateholder would otherwise be entitled to claim the
deductions had it held the mortgage loans and mortgage-backed securities
directly. A grantor trust certificateholder using an accrual method of
accounting must take into account its pro rata share of income as payment
becomes due or is paid to the master servicer, whichever is earlier, and may
deduct its pro rata share of expense items, subject to the foregoing
limitations, when the amounts are paid or the certificateholder otherwise would
be entitled to claim the deductions had it held the mortgage loans and
mortgage-backed securities directly. If the servicing fees paid to the master
servicer are deemed to exceed reasonable servicing compensation, the amount of
the excess could be considered as an ownership interest retained by the master
servicer or any person to whom the master servicer assigned for value all or a
portion of the servicing fees in a portion of the interest payments on the
mortgage loans and mortgage-backed securities. The mortgage loans and
mortgage-backed securities would then be subject to the "coupon stripping" rules
of the Internal Revenue Code discussed below under "--Stripped Bonds and
Coupons."
Unless otherwise described in the related prospectus supplement or
otherwise provided below in this section of the prospectus, as to each series of
certificates counsel to Morgan Stanley Capital I Inc. will have advised Morgan
Stanley Capital I Inc. that:
o a grantor trust certificate owned by a "domestic building and loan
association" within the meaning of Internal Revenue Code Section
7701(a)(19) representing principal and interest payments on
mortgage loans and mortgage-backed securities will be considered
to represent "loans. . .secured by an interest in real property
which is. . .residential property" within the meaning of Internal
Revenue Code Section 7701(a)(19)(C)(v), to the extent that the
mortgage loans and
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mortgage-backed securities represented by that grantor trust
certificate are of a type described in that Internal Revenue Code
section;
o a grantor trust certificate owned by a real estate investment
trust representing an interest in mortgage loans and
mortgage-backed securities will be considered to represent "real
estate assets" within the meaning of Internal Revenue Code Section
856(c)(4)(A), and interest income on the mortgage loans and
mortgage-backed securities will be considered "interest on
obligations secured by mortgages on real property" within the
meaning of Internal Revenue Code Section 856(c)(3)(B), to the
extent that the mortgage loans and mortgage-backed securities
represented by that grantor trust certificate are of a type
described in that Internal Revenue Code section; and
o a grantor trust certificate owned by a REMIC will represent
"obligation[s] ... which [are] principally secured by an interest
in real property" within the meaning of Internal Revenue Code
Section 860G(a)(3).
The Small Business Job Protection Act of 1996, as part of the repeal of
the bad debt reserve method for thrift institutions, repealed the application of
Internal Revenue Code Section 593(d) to any taxable year beginning after
December 31, 1995.
Stripped Bonds and Coupons. Certain trust funds may consist of government
securities that constitute "stripped bonds" or "stripped coupons" as those terms
are defined in section 1286 of the Internal Revenue Code, and, as a result,
these assets would be subject to the stripped bond provisions of the Internal
Revenue Code. Under these rules, these government securities are treated as
having original issue discount based on the purchase price and the stated
redemption price at maturity of each Security. As such, grantor trust
certificateholders would be required to include in income their pro rata share
of the original issue discount on each government security recognized in any
given year on an economic accrual basis even if the grantor trust
certificateholder is a cash method taxpayer. Accordingly, the sum of the income
includible to the grantor trust certificateholder in any taxable year may exceed
amounts actually received during such year.
Buydown Loans. The assets constituting certain trust funds may include
buydown loans. The characterization of any investment in buydown loans will
depend upon the precise terms of the related buydown agreement, but to the
extent that buydown loans are secured in part by a bank account or other
personal property, they may not be treated in their entirety as assets described
in the foregoing sections of the Internal Revenue Code. There are no directly
applicable precedents with respect to the federal income tax treatment or the
characterization of investments in buydown loans. Accordingly, grantor trust
certificateholders should consult their own tax advisors with respect to the
characterization of investments in grantor trust certificates representing an
interest in a trust fund that includes buydown loans.
Premium. The price paid for a grantor trust certificate by a holder will
be allocated to the holder's undivided interest in each mortgage loan and
mortgage-backed security based on each
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asset's relative fair market value, so that the holder's undivided interest in
each asset will have its own tax basis. A grantor trust certificateholder that
acquires an interest in mortgage loans and mortgage-backed securities at a
premium may elect to amortize the premium under a constant interest method,
provided that the underlying mortgage loans with respect to the mortgage loans
and mortgage-backed securities were originated after September 27, 1985. Premium
allocable to mortgage loans originated on or before September 27, 1985 should be
allocated among the principal payments on such mortgage loans and allowed as an
ordinary deduction as principal payments are made. Amortizable bond premium will
be treated as an offset to interest income on such grantor trust certificate.
The basis for the grantor trust certificate will be reduced to the extent that
amortizable premium is applied to offset interest payments. It is not clear
whether a reasonable Prepayment Assumption should be used in computing
amortization of premium allowable under Internal Revenue Code Section 171. A
certificateholder that makes this election for a certificate that is acquired at
a premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
certificateholder acquires during the year of the election or thereafter.
If a premium is not subject to amortization using a reasonable Prepayment
Assumption, the holder of a grantor trust certificate acquired at a premium
should recognize a loss if a mortgage loan or an underlying mortgage loan with
respect to an asset prepays in full, equal to the difference between the portion
of the prepaid principal amount of such mortgage loan or underlying mortgage
loan that is allocable to the certificate and the portion of the adjusted basis
of the certificate that is allocable to the mortgage loan or underlying mortgage
loan. If a reasonable Prepayment Assumption is used to amortize the premium, it
appears that such a loss would be available, if at all, only if prepayments have
occurred at a rate faster than the reasonable assumed prepayment rate. It is not
clear whether any other adjustments would be required to reflect differences
between an assumed prepayment rate and the actual rate of prepayments.
The Internal Revenue Service has issued Amortizable Bond Premium
Regulations. The Amortizable Bond Premium Regulations specifically do not apply
to prepayable debt instruments or any pool of debt instruments the yield on
which may be affected by prepayments, such as the trust fund, which are subject
to Section 1272(a)(6) of the Internal Revenue Code. Absent further guidance from
the Internal Revenue Service and unless otherwise described in the related
prospectus supplement, the trustee will account for amortizable bond premium in
the manner described above. Prospective purchasers should consult their tax
advisors regarding amortizable bond premium and the Amortizable Bond Premium
Regulations.
Original Issue Discount. The Internal Revenue Service has stated in
published rulings that, in circumstances similar to those described in this
prospectus, the OID Regulations will be applicable to a grantor trust
certificateholder's interest in those mortgage loans and mortgage-backed
securities meeting the conditions necessary for these sections to apply. Rules
regarding periodic inclusion of original issue discount income are applicable to
mortgages of corporations originated after May 27, 1969, mortgages of
noncorporate borrowers other than individuals originated after July 1, 1982, and
mortgages of individuals originated after March 2, 1984. Such original issue
discount could arise by the financing of points or other charges by the
originator of the mortgages in an amount greater than a statutory de minimis
exception to the extent that the points are not currently deductible under
applicable Internal Revenue Code provisions or are not
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for services provided by the lender. Original issue discount generally must be
reported as ordinary gross income as it accrues under a constant interest
method. See "--Multiple Classes of Grantor Trust Certificates--Accrual of
Original Issue Discount" below.
Market Discount. A grantor trust certificateholder that acquires an
undivided interest in mortgage loans and mortgage-backed securities may be
subject to the market discount rules of Internal Revenue Code Sections 1276
through 1278 to the extent an undivided interest in the asset is considered to
have been purchased at a "market discount." Generally, the amount of market
discount is equal to the excess of the portion of the principal amount of the
mortgage loan or mortgage-backed security allocable to the holder's undivided
interest over the holder's tax basis in such interest. Market discount with
respect to a grantor trust certificate will be considered to be zero if the
amount allocable to the grantor trust certificate is less than 0.25% of the
grantor trust certificate's stated redemption price at maturity multiplied by
the weighted average maturity remaining after the date of purchase. Treasury
regulations implementing the market discount rules have not yet been issued;
therefore, investors should consult their own tax advisors regarding the
application of these rules and the advisability of making any of the elections
allowed under Internal Revenue Code Sections 1276 through 1278.
The Internal Revenue Code provides that any principal payment, whether a
scheduled payment or a prepayment, or any gain on disposition of a market
discount bond acquired by the taxpayer after October 22, 1986 shall be treated
as ordinary income to the extent that it does not exceed the accrued market
discount at the time of such payment. The amount of accrued market discount for
purposes of determining the tax treatment of subsequent principal payments or
dispositions of the market discount bond is to be reduced by the amount so
treated as ordinary income.
The Internal Revenue Code also grants the Treasury Department authority to
issue regulations providing for the computation of accrued market discount on
debt instruments, the principal of which is payable in more than one
installment. While the Treasury Department has not yet issued regulations, rules
described in the relevant legislative history will apply. Under those rules, the
holder of a market discount bond may elect to accrue market discount either on
the basis of a constant interest rate or according to one of the following
methods. If a grantor trust certificate is issued with original issue discount,
the amount of market discount that accrues during any accrual period would be
equal to the product of
o the total remaining market discount and
o a fraction, the numerator of which is the original issue discount
accruing during the period and the denominator of which is the
total remaining original issue discount at the beginning of the
accrual period.
For grantor trust certificates issued without original issue discount, the
amount of market discount that accrues during a period is equal to the product
of
o the total remaining market discount and
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o a fraction, the numerator of which is the amount of stated
interest paid during the accrual period and the denominator of
which is the total amount of stated interest remaining to be paid
at the beginning of the accrual period.
For purposes of calculating market discount under any of the above methods
in the case of instruments, such as the grantor trust certificates, that provide
for payments that may be accelerated by reason of prepayments of other
obligations securing such instruments, the same Prepayment Assumption applicable
to calculating the accrual of original issue discount will apply. Because the
regulations described above have not been issued, it is impossible to predict
what effect those regulations might have on the tax treatment of a grantor trust
certificate purchased at a discount or premium in the secondary market.
A holder who acquired a grantor trust certificate at a market discount
also may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to purchase
or carry such grantor trust certificate purchased with market discount. For
these purposes, the de minimis rule referred to above applies. Any such Deferred
Interest expense would not exceed the market discount that accrues during such
taxable year and is, in general, allowed as a deduction not later than the year
in which the market discount is includible in income. If such holder elects to
include market discount in income currently as it accrues on all market discount
instruments acquired by such holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
Election to Treat All Interest as Original Issue Discount. The OID
Regulations permit a certificateholder to elect to accrue all interest, discount
(including de minimis market or original issue discount) and premium in income
as interest, based on a constant yield method for certificates acquired on or
after April 4, 1994. If this election were to be made with respect to a grantor
trust certificate with market discount, the certificateholder would be deemed to
have made an election to include in income currently market discount with
respect to all other debt instruments having market discount that such
certificateholder acquires during the year of the election or thereafter.
Similarly, a certificateholder that makes this election for a certificate that
is acquired at a premium will be deemed to have made an election to amortize
bond premium with respect to all debt instruments having amortizable bond
premium that such certificateholder owns or acquires. See "Premium" in this
prospectus. The election to accrue interest, discount and premium on a constant
yield method with respect to a certificate is irrevocable.
Anti-abuse Rule. The Internal Revenue Service can apply or depart from the
rules contained in the OID Regulations as necessary or appropriate to achieve a
reasonable result where a principal purpose in structuring a mortgage loan,
mortgage-backed security or grantor trust certificate or the effect of applying
the otherwise applicable rules is to achieve a result that is unreasonable in
light of the purposes of the applicable statutes, which generally are intended
to achieve the clear reflection of income for both issuers and holders of debt
instruments.
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B. MULTIPLE CLASSES OF GRANTOR TRUST CERTIFICATES
1. Stripped Bonds and Stripped Coupons
Pursuant to Internal Revenue Code Section 1286, the separation of
ownership of the right to receive some or all of the interest payments on an
obligation from ownership of the right to receive some or all of the principal
payments results in the creation of "stripped bonds" with respect to principal
payments and "stripped coupons" with respect to interest payments. For purposes
of Internal Revenue Code Sections 1271 through 1288, Internal Revenue Code
Section 1286 treats a stripped bond or a stripped coupon as an obligation issued
on the date that such stripped interest is created.
Excess Servicing will be Treated Under the Stripped Bond Rules. If the
excess servicing fee is less than 100 basis points, i.e., 1% interest on the
mortgage asset principal balance, or the certificates are initially sold with a
de minimis discount, assuming no prepayment assumption is required, any non-de
minimis discount arising from a subsequent transfer of the certificates should
be treated as market discount. The Internal Revenue Service appears to require
that reasonable servicing fees be calculated on a mortgage asset by mortgage
asset basis, which could result in some mortgage loans and mortgage-backed
securities being treated as having more than 100 basis points of interest
stripped off. See "Multiple Classes of Grantor Trust Certificates--Stripped
Bonds and Stripped Coupons" in this prospectus.
Although not entirely clear, a Stripped Bond Certificate generally should
be treated as an interest in mortgage loans and mortgage-backed securities
issued on the day the certificate is purchased for purposes of calculating any
original issue discount. Generally, if the discount on a mortgage loan or
mortgage-backed security is larger than a de minimis amount, as calculated for
purposes of the original issue discount rules, a purchaser of such a certificate
will be required to accrue the discount under the original issue discount rules
of the Internal Revenue Code. See "--Single Class of Grantor Trust
Certificates--Original Issue Discount" in this prospectus. However, a purchaser
of a Stripped Bond Certificate will be required to account for any discount on
the mortgage loans and mortgage-backed securities as market discount rather than
original issue discount if either
o the amount of original issue discount with respect to the mortgage
loans and mortgage-backed securities is treated as zero under the
original issue discount de minimis rule when the certificate was
stripped or
o no more than 100 basis points, including any amount of servicing
fees in excess of reasonable servicing fees, is stripped off of
the trust fund's mortgage loans and mortgage-backed securities.
Pursuant to Revenue Procedure 91-49, issued on August 8, 1991, purchasers
of Stripped Bond Certificates using an inconsistent method of accounting must
change their method of accounting and request the consent of the Internal
Revenue Service to the change in their accounting method on a statement attached
to their first timely tax return filed after August 8, 1991.
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The precise tax treatment of Stripped Coupon Certificates is substantially
uncertain. The Internal Revenue Code could be read literally to require that
original issue discount computations be made for each payment from each mortgage
loan or mortgage-backed security. Unless otherwise described in the related
prospectus supplement, all payments from a mortgage loan or mortgage-backed
security underlying a Stripped Coupon Certificate will be treated as a single
installment obligation subject to the original issue discount rules of the
Internal Revenue Code, in which case, all payments from the mortgage loan or
mortgage-backed security would be included in the stated redemption price at
maturity for the mortgage loan and mortgage-backed security purposes of
calculating income on the certificate under the original issue discount rules of
the Internal Revenue Code.
It is unclear under what circumstances, if any, the prepayment of mortgage
loans and mortgage-backed securities will give rise to a loss to the holder of a
Stripped Bond Certificate purchased at a premium or a Stripped Coupon
Certificate. If the certificate is treated as a single instrument rather than an
interest in discrete mortgage loans and the effect of prepayments is taken into
account in computing yield with respect to the grantor trust certificate, it
appears that no loss will be available as a result of any particular prepayment
unless prepayments occur at a rate faster than the assumed prepayment rate.
However, if the certificate is treated as an interest in discrete mortgage loans
or mortgage-backed securities, or if no Prepayment Assumption is used, then when
a mortgage loan or mortgage-backed security is prepaid, the holder of the
certificate should be able to recognize a loss equal to the portion of the
adjusted issue price of the certificate that is allocable to the mortgage loan
or mortgage-backed security.
Holders of Stripped Bond Certificates and Stripped Coupon Certificates are
urged to consult with their own tax advisors regarding the proper treatment of
these certificates for federal income tax purposes.
Treatment of Certain Owners. Several Internal Revenue Code sections
provide beneficial treatment to certain taxpayers that invest in mortgage loans
and mortgage-backed securities of the type that make up the trust fund. With
respect to these Internal Revenue Code sections, no specific legal authority
exists regarding whether the character of the grantor trust certificates, for
federal income tax purposes, will be the same as that of the underlying mortgage
loans and mortgage-backed securities. While Internal Revenue Code Section 1286
treats a stripped obligation as a separate obligation for purposes of the
Internal Revenue Code provisions addressing original issue discount, it is not
clear whether such characterization would apply with regard to these other
Internal Revenue Code sections. Although the issue is not free from doubt, each
class of grantor trust certificates, unless otherwise described in the related
prospectus supplement, should be considered to represent "real estate assets"
within the meaning of Internal Revenue Code Section 856(c)(4)(A) and "loans . .
. secured by, an interest in real property which is . . . residential real
property" within the meaning of Internal Revenue Code Section 7701(a)(19)(C)(v),
and interest income attributable to grantor trust certificates should be
considered to represent "interest on obligations secured by mortgages on real
property" within the meaning of Internal Revenue Code Section 856(c)(3)(B),
provided that in each case the underlying mortgage loans and mortgage-backed
securities and interest on such mortgage loans and mortgage-backed securities
qualify for such treatment. Prospective purchasers to which such
characterization of an investment in certificates is material should consult
their own tax advisors regarding the characterization of the grantor trust
certificates and the income therefrom.
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Grantor trust certificates will be "obligation[s] ... which [are] principally
secured, by an interest in real property" within the meaning of Internal Revenue
Code Section 860G(a)(3)(A).
2. Grantor Trust Certificates Representing Interests in Loans Other Than
Adjustable Rate Loans
The original issue discount rules of Internal Revenue Code Sections 1271
through 1275 will be applicable to a certificateholder's interest in those
mortgage loans and mortgage-backed securities as to which the conditions for the
application of those sections are met. Rules regarding periodic inclusion of
original issue discount in income are applicable to mortgages of corporations
originated after May 27, 1969, mortgages of noncorporate borrowers -- other than
individuals -- originated after July 1, 1982, and mortgages of individuals
originated after March 2, 1984. Under the OID Regulations, such original issue
discount could arise by the charging of points by the originator of the mortgage
in an amount greater than the statutory de minimis exception, including a
payment of points that is currently deductible by the borrower under applicable
Internal Revenue Code provisions, or under certain circumstances, by the
presence of "teaser" rates on the mortgage loans and mortgage-backed securities.
Original issue discount on each grantor trust certificate must be included in
the owner's ordinary income for federal income tax purposes as it accrues, in
accordance with a constant interest method that takes into account the
compounding of interest, in advance of receipt of the cash attributable to such
income. The amount of original issue discount required to be included in an
owner's income in any taxable year with respect to a grantor trust certificate
representing an interest in mortgage loans and mortgage-backed securities other
than adjustable rate loans likely will be computed as described below under
"--Accrual of Original Issue Discount." The following discussion is based in
part on the OID Regulations and in part on the provisions of the Tax Reform Act
of 1986. The OID Regulations generally are effective for debt instruments issued
on or after April 4, 1994, but may be relied upon as authority with respect to
debt instruments, such as the grantor trust certificates, issued after December
21, 1992. Alternatively, proposed Treasury regulations issued December 21, 1992
may be treated as authority for debt instruments issued after December 21, 1992
and prior to April 4, 1994, and proposed Treasury regulations issued in 1986 and
1991 may be treated as authority for instruments issued before December 21,
1992. In applying these dates, the issue date of the mortgage loans and
mortgage-backed securities should be used, or, in the case of Stripped Bond
Certificates or Stripped Coupon Certificates, the date such certificates are
acquired. The holder of a certificate should be aware, however, that neither the
proposed OID Regulations nor the OID Regulations adequately address certain
issues relevant to prepayable securities.
Under the Internal Revenue Code, the mortgage loans and mortgage-backed
securities underlying the grantor trust certificate will be treated as having
been issued on the date they were originated with an amount of original issue
discount equal to the excess of such asset's stated redemption price at maturity
over its issue price. The issue price of a mortgage loan or mortgage-backed
security is generally the amount lent to the lender, which may be adjusted to
take into account certain loan origination fees. The stated redemption price at
maturity of a mortgage loan or mortgage-backed security is the sum of all
payments to be made on these assets other than payments that are treated as
qualified stated interest payments. The accrual of this original issue discount,
as described below under "--Accrual of Original Issue Discount," will, unless
otherwise described in the related prospectus supplement, utilize the Prepayment
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Assumption on the issue date of such grantor trust certificate, and will take
into account events that occur during the calculation period. The Prepayment
Assumption will be determined in the manner prescribed by regulations that have
not yet been issued. In the absence of such regulations, the Prepayment
Assumption used will be the prepayment assumption that is used in determining
the offering price of such certificate. No representation is made that any
certificate will prepay at the Prepayment Assumption or at any other rate.
Accrual of Original Issue Discount. Generally, the owner of a grantor
trust certificate must include in gross income the sum of the "daily portions,"
as defined below in this section, of the original issue discount on the grantor
trust certificate for each day on which it owns the certificate, including the
date of purchase but excluding the date of disposition. In the case of an
original owner, the daily portions of original issue discount with respect to
each component generally will be determined as set forth under the OID
Regulations. A calculation will be made by the master servicer or such other
entity specified in the related prospectus supplement of the portion of original
issue discount that accrues during each successive monthly accrual period, or
shorter period from the date of original issue, that ends on the day in the
calendar year corresponding to each of the distribution dates on the grantor
trust certificates, or the day prior to each such date. This will be done, in
the case of each full month accrual period, by
o adding (1) the present value at the end of the accrual period --
determined by using as a discount factor the original yield to
maturity of the respective component under the Prepayment
Assumption -- of all remaining payments to be received under the
Prepayment Assumption on the respective component and (2) any
payments included in the stated redemption price at maturity
received during such accrual period, and
o subtracting from that total the "adjusted issue price" of the
respective component at the beginning of such accrual period.
The adjusted issue price of a grantor trust certificate at the beginning
of the first accrual period is its issue price; the adjusted issue price of a
grantor trust certificate at the beginning of a subsequent accrual period is the
adjusted issue price at the beginning of the immediately preceding accrual
period plus the amount of original issue discount allocable to that accrual
period reduced by the amount of any payment other than a payment of qualified
stated interest made at the end of or during that accrual period. The original
issue discount accruing during such accrual period will then be divided by the
number of days in the period to determine the daily portion of original issue
discount for each day in the period. With respect to an initial accrual period
shorter than a full monthly accrual period, the daily portions of original issue
discount must be determined according to an appropriate allocation under any
reasonable method.
Original issue discount generally must be reported as ordinary gross
income as it accrues under a constant interest method that takes into account
the compounding of interest as it accrues rather than when received. However,
the amount of original issue discount includible in the income of a holder of an
obligation is reduced when the obligation is acquired after its initial issuance
at a price greater than the sum of the original issue price and the previously
accrued original issue discount, less prior payments of principal. Accordingly,
if such mortgage loans
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and mortgage-backed securities acquired by a certificateholder are purchased at
a price equal to the then unpaid principal amount of the asset, no original
issue discount attributable to the difference between the issue price and the
original principal amount of the asset -- i.e., points -- will be includible by
the holder. Other original issue discount on the mortgage loans and
mortgage-backed securities -- e.g., that arising from a "teaser" rate -- would
still need to be accrued.
3. Grantor Trust Certificates Representing Interests in Adjustable Rate
Loans
The OID Regulations do not address the treatment of instruments, such as
the grantor trust certificates, which represent interests in adjustable rate
loans. Additionally, the Internal Revenue Service has not issued guidance under
the Internal Revenue Code's coupon stripping rules with respect to such
instruments. In the absence of any authority, the master servicer will report
Stripped ARM Obligations to holders in a manner it believes is consistent with
the rules described above under the heading "--Grantor Trust Certificates
Representing Interests in Loans Other Than Adjustable Rate Loans" and with the
OID Regulations. In general, application of these rules may require inclusion of
income on a Stripped ARM Obligation in advance of the receipt of cash
attributable to such income. Further, the addition of Deferred Interest to the
principal balance of an adjustable rate loan may require the inclusion of such
amount in the income of the grantor trust certificateholder when the amount
accrues. Furthermore, the addition of Deferred Interest to the grantor trust
certificate's principal balance will result in additional income, including
possibly original issue discount income, to the grantor trust certificateholder
over the remaining life of such grantor trust certificates.
Because the treatment of Stripped ARM Obligations is uncertain, investors
are urged to consult their tax advisors regarding how income will be includible
with respect to such certificates.
C. SALE OR EXCHANGE OF A GRANTOR TRUST CERTIFICATE
Sale or exchange of a grantor trust certificate prior to its maturity will
result in gain or loss equal to the difference, if any, between the amount
received and the owner's adjusted basis in the grantor trust certificate. Such
adjusted basis generally will equal the seller's purchase price for the grantor
trust certificate, increased by the original issue discount included in the
seller's gross income with respect to the grantor trust certificate, and reduced
by principal payments on the grantor trust certificate previously received by
the seller. Such gain or loss will be capital gain or loss to an owner for which
a grantor trust certificate is a "capital asset" within the meaning of Internal
Revenue Code Section 1221, except to the extent described above with respect to
the market discount, and will generally be long-term capital gain if the grantor
trust certificate has been owned for more than one year.
Long-term capital gains of individuals are subject to reduced maximum tax
rates while capital gains recognized by individuals on capital assets held less
than twelve months are generally subject to ordinary income tax rates. The use
of capital losses is limited.
It is possible that capital gain realized by holders of one or more
classes of grantor trust certificates could be considered gain realized upon the
disposition of property that was part of a
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"conversion transaction." A sale of a grantor trust certificate will be part of
a conversion transaction if substantially all of the holder's expected return is
attributable to the time value of the holder's net investment, and:
o the holder entered the contract to sell the grantor trust
certificate substantially contemporaneously with acquiring the
grantor trust;
o the grantor trust certificate is part of a straddle;
o the grantor trust certificate is marketed or sold as producing
capital gain; or
o other transactions to be specified in Treasury regulations that
have not yet been issued.
If the sale or other disposition of a grantor trust certificate is part of a
conversion transaction, all or any portion of the gain realized upon the sale or
other disposition would be treated as ordinary income instead of capital gain.
Grantor trust certificates will be "evidences of indebtedness" within the
meaning of Internal Revenue Code Section 582(c)(1), so that gain or loss
recognized from the sale of a grantor trust certificate by a bank or a thrift
institution to which such section applies will be treated as ordinary income or
loss.
D. NON-U.S. PERSONS
Generally, to the extent that a grantor trust certificate evidences
ownership in underlying mortgage loans and mortgage-backed securities that were
issued on or before July 18, 1984, interest or original issue discount paid by
the person required to withhold tax under Internal Revenue Code Section 1441 or
1442 to
o an owner that is not a U.S. Person or
o a grantor trust certificate holder holding on behalf of an owner that
is not a U.S. Person will be subject to federal income tax, collected
by withholding, at a rate of 30% or such lower rate as may be provided
for interest by an applicable tax treaty, unless such income is
effectively connected with a U.S. trade or business of such owner or
beneficial owner.
Accrued original issue discount recognized by the owner on the sale or
exchange of such a grantor trust certificate also will be subject to federal
income tax at the same rate. Generally, such payments would not be subject to
withholding to the extent that a grantor trust certificate evidences ownership
in mortgage loans and mortgage-backed securities issued after July 18, 1984, by
natural persons if such grantor trust certificateholder complies with certain
identification requirements, including delivery of a statement, signed by the
grantor trust certificateholder under penalties of perjury, certifying that such
grantor trust certificateholder is not a U.S. Person and providing the name and
address of such grantor trust certificateholder. To the extent payments to
grantor trust certificateholders that are not U.S. Persons are payments of
"contingent interest" on the underlying mortgage loans and mortgage-backed
securities, or such
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grantor trust certificateholder is ineligible for the exemption described in the
preceding sentence, the 30% withholding tax will apply unless such withholding
taxes are reduced or eliminated by an applicable tax treaty and such holder
meets the eligibility and certification requirements necessary to obtain the
benefits of such treaty. Additional restrictions apply to mortgage loans and
mortgage-backed securities of where the borrower is not a natural person in
order to qualify for the exemption from withholding. If capital gain derived
from the sale, retirement or other disposition of a grantor trust certificate is
effectively connected with a U.S. trade or business of a grantor trust
certificateholder that is not a U.S. Person, the certificateholder will be taxed
on the net gain under the graduated U.S. federal income tax rates applicable to
U.S. Persons and, with respect to grantor trust certificates held by or on
behalf of corporations, also may be subject to branch profits tax. In addition,
if the trust fund acquires a United States real property interest through
foreclosure, deed in lieu of foreclosure or otherwise on a mortgage loan or
mortgage-backed security secured by such an interest, which for this purpose
includes real property located in the United States and the Virgin Islands, a
grantor trust certificateholder that is not a U.S. Person will potentially be
subject to federal income tax on any gain attributable to such real property
interest that is allocable to such holder. Non-U.S. Persons should consult their
tax advisors regarding the application to them of the foregoing rules.
E. INFORMATION REPORTING AND BACKUP WITHHOLDING
The master servicer will furnish or make available, within a reasonable
time after the end of each calendar year, to each person who was a
certificateholder at any time during such year, such information as may be
deemed necessary or desirable to assist certificateholders in preparing their
federal income tax returns, or to enable holders to make such information
available to beneficial owners or financial intermediaries that hold such
certificates as nominees on behalf of beneficial owners. If a holder, beneficial
owner, financial intermediary or other recipient of a payment on behalf of a
beneficial owner fails to supply a certified taxpayer identification number or
if the Secretary of the Treasury determines that such person has not reported
all interest and dividend income required to be shown on its federal income tax
return, 31% backup withholding may be required with respect to any payments to
registered owners who are not "exempt recipients." In addition, upon the sale of
a grantor trust certificate to, or through, a broker, the broker must withhold
31% of the entire purchase price, unless either
o the broker determines that the seller is a corporation or other
exempt recipient, or
o the seller provides, in the required manner, certain identifying
information and, in the case of a non-U.S. Person, certifies that
such seller is a Non-U.S. Person, and other conditions are met.
Such a sale must also be reported by the broker to the Internal Revenue
Service, unless either
o the broker determines that the seller is an exempt recipient or
o the seller certifies its non-U.S. Person status and other
conditions are met.
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Certification of the registered owner's non-U.S. Person status normally
would be made on Internal Revenue Service Form W-8 under penalties of perjury,
although in some cases it may be possible to submit other documentary evidence.
Any amounts deducted and withheld from a distribution to a recipient would be
allowed as a credit against such recipient's federal income tax liability.
On October 6, 1997, the Treasury Department issued new regulations which
make certain modifications to the withholding, backup withholding and
information reporting rules described above. The New Regulations attempt to
unify certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
1999, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
REMICS
The trust fund relating to a series of certificates may elect to be
treated as a REMIC. Qualification as a REMIC requires ongoing compliance with
certain conditions. Although a REMIC is not generally subject to federal income
tax (see, however "--Taxation of Owners of REMIC Residual Certificates" and
"--Prohibited Transactions" below), if a trust fund with respect to which a
REMIC election is made fails to comply with one or more of the ongoing
requirements of the Internal Revenue Code for REMIC status during any taxable
year, including the implementation of restrictions on the purchase and transfer
of the residual interests in a REMIC as described below under "--Taxation of
Owners of REMIC Residual Certificates," the Internal Revenue Code provides that
a trust fund will not be treated as a REMIC for the year and thereafter. In that
event, the entity may be taxable as a separate corporation, and the REMIC
Certificates may not be accorded the status or given the tax treatment described
below in this section. While the Internal Revenue Code authorizes the Treasury
Department to issue regulations providing relief in the event of an inadvertent
termination of the status of a trust fund as a REMIC, no such regulations have
been issued. Any relief, moreover, may be accompanied by sanctions, such as the
imposition of a corporate tax on all or a portion of the REMIC's income for the
period in which the requirements for such status are not satisfied. With respect
to each trust fund that elects REMIC status, Brown & Wood LLP or Cadwalader,
Wickersham & Taft or Latham & Watkins will deliver its opinion generally to the
effect that, under then existing law and assuming compliance with all provisions
of the related Agreement, the trust fund will qualify as a REMIC, and the
related certificates will be considered to be REMIC Regular Certificates or a
sole class of REMIC Residual Certificates in the REMIC. The related prospectus
supplement for each series of certificates will indicate whether the trust fund
will make a REMIC election and whether a class of certificates will be treated
as a regular or residual interest in the REMIC.
In general, with respect to each series of certificates for which a REMIC
election is made:
o certificates held by a thrift institution taxed as a "domestic
building and loan association" will constitute assets described in
Internal Revenue Code Section 7701(a)(19)(C);
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o certificates held by a real estate investment trust will
constitute "real estate assets" within the meaning of Internal
Revenue Code Section 856(c)(4)(A); and
o interest on certificates held by a real estate investment trust
will be considered "interest on obligations secured by mortgages
on real property" within the meaning of Internal Revenue Code
Section 856(c)(3)(B).
If less than 95% of the REMIC's assets are assets qualifying under any of
the foregoing Internal Revenue Code sections, the certificates will be
qualifying assets only to the extent that the REMIC's assets are qualifying
assets.
In some instances the mortgage loans and mortgage-backed securities may
not be treated entirely as assets described in the foregoing sections. See, in
this regard, the discussion of buydown loans contained in "--Single Class of
Grantor Trust Certificates" above. REMIC Certificates held by a real estate
investment trust will not constitute "Government Securities" within the meaning
of Internal Revenue Code Section 856(c)(4)(A), and REMIC Certificates held by a
regulated investment company will not constitute "Government Securities" within
the meaning of Internal Revenue Code Section 851(b)(4)(A)(ii). REMIC
Certificates held by certain financial institutions will constitute "evidences
of indebtedness" within the meaning of Internal Revenue Code Section 582(c)(1).
A "qualified mortgage" for REMIC purposes includes any obligation,
including certificates of participation in such an obligation, that is
principally secured by an interest in real property and that is transferred to
the REMIC within a prescribed time period in exchange for regular or residual
interests in the REMIC. The REMIC Regulations provide that manufactured housing
or mobile homes, not including recreational vehicles, campers or similar
vehicles, that are "single family residences" under Internal Revenue Code
Section 25(e)(10) will qualify as real property without regard to state law
classifications. Under Internal Revenue Code Section 25(e)(10), a single family
residence includes any manufactured home that has a minimum of 400 square feet
of living space and a minimum width in excess of 102 inches and that is of a
kind customarily used at a fixed location.
Tiered REMIC Structures. For certain series of certificates, two or more
separate elections may be made to treat designated portions of the related trust
fund as REMICs for federal income tax purposes. Upon the issuance of any such
series of certificates, Brown & Wood LLP or Cadwalader, Wickersham & Taft or
Latham & Watkins, counsel to Morgan Stanley Capital I Inc., will deliver its
opinion generally to the effect that, assuming compliance with all provisions of
the related Agreement, the Master REMIC as well as any Subsidiary REMIC will
each qualify as a REMIC, and the REMIC Certificates issued by the Master REMIC
and the Subsidiary REMIC or REMICs, respectively, will be considered REMIC
Regular Certificates or REMIC Residual Certificates in the related REMIC within
the meaning of the REMIC Provisions.
Other than the residual interest in a Subsidiary REMIC, only REMIC
Certificates issued by the Master REMIC will be offered hereunder. The
Subsidiary REMIC or REMICs and the
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Master REMIC will be treated as one REMIC solely for purposes of determining
whether the REMIC Certificates will be:
o "real estate assets" within the meaning of Section 856(c)(4)(A) of
the Internal Revenue Code;
o "loans secured by an interest in real property" under Section
7701(a)(19)(C) of the Internal Revenue Code; and
o whether the income on such certificates is interest described in
Section 856(c)(3)(B) of the Internal Revenue Code.
A. TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES
General. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC and not as ownership interests in the REMIC or its assets.
Moreover, holders of REMIC Regular Certificates that otherwise report income
under a cash method of accounting will be required to report income with respect
to REMIC Regular Certificates under an accrual method.
Original Issue Discount and Premium. The REMIC Regular Certificates may be
issued with original issue discount. Generally, the original issue discount, if
any, will equal the difference between the "stated redemption price at maturity"
of a REMIC Regular Certificate and its "issue price." Holders of any class of
certificates issued with original issue discount will be required to include
such original issue discount in gross income for federal income tax purposes as
it accrues, in accordance with a constant interest method based on the
compounding of interest as it accrues rather than in accordance with receipt of
the interest payments. The following discussion is based in part on the OID
Regulations and in part on the provisions of the Tax Reform Act of 1986. The
REMIC Regular Certificateholders should be aware, however, that the OID
Regulations do not adequately address certain issues relevant to prepayable
securities, such as the REMIC Regular Certificates.
Rules governing original issue discount are set forth in Internal Revenue
Code Sections 1271 through 1273 and 1275. These rules require that the amount
and rate of accrual of original issue discount be calculated based on the
Prepayment Assumption and the anticipated reinvestment rate, if any, relating to
the REMIC Regular Certificates and prescribe a method for adjusting the amount
and rate of accrual of such discount where the actual prepayment rate differs
from the Prepayment Assumption. Under the Internal Revenue Code, the Prepayment
Assumption must be determined in the manner prescribed by regulations, which
regulations have not yet been issued. The legislative history provides, however,
that Congress intended the regulations to require that the Prepayment Assumption
be the Prepayment Assumption that is used in determining the initial offering
price of such REMIC Regular Certificates. The prospectus supplement for each
series of REMIC Regular Certificates will specify the Prepayment Assumption to
be used for the purpose of determining the amount and rate of accrual of
original issue discount. No representation is made that the REMIC Regular
Certificates will prepay at the Prepayment Assumption or at any other rate.
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In general, each REMIC Regular Certificate will be treated as a single
installment obligation issued with an amount of original issue discount equal to
the excess of its "stated redemption price at maturity" over its "issue price."
The issue price of a REMIC Regular Certificate is the first price at which a
substantial amount of REMIC Regular Certificates of that class are first sold to
the public (excluding bond houses, brokers, underwriters or wholesalers). If
less than a substantial amount of a particular class of REMIC Regular
Certificates is sold for cash on or prior to the closing date, the issue price
for such class will be treated as the fair market value of such class on the
closing date. The issue price of a REMIC Regular Certificate also includes the
amount paid by an initial certificateholder for accrued interest that relates to
a period prior to the issue date of the REMIC Regular Certificate. The stated
redemption price at maturity of a REMIC Regular Certificate includes the
original principal amount of the REMIC Regular Certificate, but generally will
not include distributions of interest if such distributions constitute
"qualified stated interest." Qualified stated interest generally means interest
payable at a single fixed rate or qualified variable rate, provided that the
interest payments are unconditionally payable at intervals of one year or less
during the entire term of the REMIC Regular Certificate. Interest is payable at
a single fixed rate only if the rate appropriately takes into account the length
of the interval between payments. Distributions of interest on REMIC Regular
Certificates with respect to which Deferred Interest will accrue will not
constitute qualified stated interest payments, and the stated redemption price
at maturity of such REMIC Regular Certificates includes all distributions of
interest as well as principal thereon.
Where the interval between the issue date and the first distribution date
on a REMIC Regular Certificate is longer than the interval between subsequent
distribution dates, the greater of any original issue discount, disregarding the
rate in the first period, and any interest foregone during the first period is
treated as the amount by which the stated redemption price at maturity of the
certificate exceeds its issue price for purposes of the de minimis rule
described below in this section. The OID Regulations suggest that all interest
on a long first period REMIC Regular Certificate that is issued with non-de
minimis original issue discount, as determined under the foregoing rule, will be
treated as original issue discount. Where the interval between the issue date
and the first distribution date on a REMIC Regular Certificate is shorter than
the interval between subsequent distribution dates, interest due on the first
distribution date in excess of the amount that accrued during the first period
would be added to the certificate's stated redemption price at maturity. REMIC
Regular Certificateholders should consult their own tax advisors to determine
the issue price and stated redemption price at maturity of a REMIC Regular
Certificate.
Under the de minimis rule, original issue discount on a REMIC Regular
Certificate will be considered to be zero if such original issue discount is
less than 0.25% of the stated redemption price at maturity of the REMIC Regular
Certificate multiplied by the weighted average maturity of the REMIC Regular
Certificate. For this purpose, the weighted average maturity of the REMIC
Regular Certificate is computed as the sum of the amounts determined by
multiplying the number of full years, i.e., rounding down partial years, from
the issue date until each distribution in reduction of stated redemption price
at maturity is scheduled to be made by a fraction, the numerator of which is the
amount of each distribution included in the stated redemption price at maturity
of the REMIC Regular Certificate and the denominator of which is the stated
redemption price at maturity of the REMIC Regular Certificate. Although
currently unclear, it appears that the schedule of such distributions should be
determined in accordance
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with the Prepayment Assumption. The Prepayment Assumption with respect to a
series of REMIC Regular Certificates will be set forth in the related prospectus
supplement. Holders generally must report de minimis original issue discount pro
rata as principal payments are received, and the income will be capital gain if
the REMIC Regular Certificate is held as a capital asset. However, accrual
method holders may elect to accrue all de minimis original issue discount as
well as market discount under a constant interest method.
The prospectus supplement with respect to a trust fund may provide for
Super-Premium Certificates. The income tax treatment of such REMIC Regular
Certificates is not entirely certain. For information reporting purposes, the
trust fund intends to take the position that the stated redemption price at
maturity of such REMIC Regular Certificates is the sum of all payments to be
made on such REMIC Regular Certificates determined under the Prepayment
Assumption, with the result that such REMIC Regular Certificates would be issued
with original issue discount. The calculation of income in this manner could
result in negative original issue discount, which delays future accruals of
original issue discount rather than being immediately deductible, when
prepayments on the mortgage loans and mortgage-backed securities exceed those
estimated under the Prepayment Assumption. The Internal Revenue Service might
contend, however, that certain contingent payment rules contained in final
regulations issued on June 11, 1996, with respect to original issue discount,
should apply to such certificates. Although such rules are not applicable to
instruments governed by Internal Revenue Code Section 1272(a)(6), they represent
the only guidance regarding the current views of the Internal Revenue Service
with respect to contingent payment instruments. In the alternative, the Internal
Revenue Service could assert that the stated redemption price at maturity of
such REMIC Regular Certificates should be limited to their principal amount,
subject to the discussion below under "--Accrued Interest Certificates", so that
such REMIC Regular Certificates would be considered for federal income tax
purposes to be issued at a premium. If such a position were to prevail, the
rules described below under "--Taxation of Owners of REMIC Regular
Certificates--Premium" would apply. It is unclear when a loss may be claimed for
any unrecovered basis for a Super-Premium Certificate. It is possible that a
holder of a Super-Premium Certificate may only claim a loss when its remaining
basis exceeds the maximum amount of future payments, assuming no further
prepayments or when the final payment is received with respect to such
Super-Premium Certificate.
Under the REMIC Regulations, if the issue price of a REMIC Regular
Certificate, other than a REMIC Regular Certificate based on a notional amount,
does not exceed 125% of its actual principal amount, the interest rate is not
considered disproportionately high. Accordingly, such REMIC Regular Certificate
generally should not be treated as a Super-Premium Certificate and the rules
described below under "--Premium" should apply. However, it is possible that
holders of REMIC Regular Certificates issued at a premium, even if the premium
is less than 25% of such certificate's actual principal balance, will be
required to amortize the premium under an original issue discount method or
contingent interest method even though no election under Internal Revenue Code
Section 171 is made to amortize such premium.
Generally, a REMIC Regular Certificateholder must include in gross income
the "daily portions," as determined below, of the original issue discount that
accrues on a REMIC Regular Certificate for each day a certificateholder holds
the REMIC Regular Certificate, including the purchase date but excluding the
disposition date. In the case of an original holder of a REMIC
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Regular Certificate, a calculation will be made of the portion of the original
issue discount that accrues during each successive period -- an "accrual period"
- -- that ends on the day in the calendar year corresponding to a distribution
date, or if distribution dates are on the first day or first business day of the
immediately preceding month, interest may be treated as payable on the last day
of the immediately preceding month and begins on the day after the end of the
immediately preceding accrual period or on the issue date in the case of the
first accrual period. This will be done, in the case of each full accrual
period, by:
o adding (1) the present value at the end of the accrual period --
determined by using as a discount factor the original yield to
maturity of the REMIC Regular Certificates as calculated under the
Prepayment Assumption -- of all remaining payments to be received
on the REMIC Regular Certificates under the Prepayment Assumption
and (2) any payments included in the stated redemption price at
maturity received during such accrual period, and
o subtracting from that total the adjusted issue price of the REMIC
Regular Certificates at the beginning of such accrual period.
The adjusted issue price of a REMIC Regular Certificate at the beginning
of the first accrual period is its issue price; the adjusted issue price of a
REMIC Regular Certificate at the beginning of a subsequent accrual period is the
adjusted issue price at the beginning of the immediately preceding accrual
period plus the amount of original issue discount allocable to that accrual
period and reduced by the amount of any payment other than a payment of
qualified stated interest made at the end of or during that accrual period. The
original issue discount accrued during an accrual period will then be divided by
the number of days in the period to determine the daily portion of original
issue discount for each day in the accrual period. The calculation of original
issue discount under the method described above will cause the accrual of
original issue discount to either increase or decrease -- but never below zero
- -- in a given accrual period to reflect the fact that prepayments are occurring
faster or slower than under the Prepayment Assumption. With respect to an
initial accrual period shorter than a full accrual period, the "daily portions"
of original issue discount may be determined according to an appropriate
allocation under any reasonable method.
A subsequent purchaser of a REMIC Regular Certificate issued with original
issue discount who purchases the REMIC Regular Certificate at a cost less than
the remaining stated redemption price at maturity will also be required to
include in gross income the sum of the daily portions of original issue discount
on that REMIC Regular Certificate. In computing the daily portions of original
issue discount for such a purchaser, as well as an initial purchaser that
purchases at a price higher than the adjusted issue price but less than the
stated redemption price at maturity, however, the daily portion is reduced by
the amount that would be the daily portion for such day, computed in accordance
with the rules set forth above, multiplied by a fraction, the numerator of which
is the amount, if any, by which the price paid by such holder for that REMIC
Regular Certificate exceeds the following amount:
o the sum of the issue price plus the aggregate amount of original
issue discount that would have been includible in the gross income
of an original REMIC
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Regular Certificateholder, who purchased the REMIC Regular
Certificate at its issue price, less
o any prior payments included in the stated redemption price at
maturity, and the denominator of which is the sum of the daily
portions for that REMIC Regular Certificate for all days beginning
on the date after the purchase date and ending on the maturity
date computed under the Prepayment Assumption.
A holder who pays an acquisition premium instead may elect to accrue
original issue discount by treating the purchase as a purchase at original
issue.
Variable Rate REMIC Regular Certificates. REMIC Regular Certificates may
provide for interest based on a qualifying variable rate. Under the original
issue discount rules, interest based on a variable rate will constitute
qualified stated interest and not contingent interest if, generally:
o the interest is unconditionally payable at least annually;
o the issue price of the debt instrument does not exceed the total
noncontingent principal payments; and
o interest is based on a "qualified floating rate," an "objective
rate," a combination of a single fixed rate and one or more
"qualified floating rates," one "qualified inverse floating rate,"
or a combination of "qualified floating rates" that do not operate
in a manner that significantly accelerates or defers interest
payments on the REMIC Regular Certificate.
The amount of original issue discount with respect to a REMIC Regular
Certificate bearing a variable rate of interest will accrue in the manner
described above under "--Original Issue Discount and Premium" by assuming
generally that the index used for the variable rate will remain fixed throughout
the term of the certificate at the rate applicable on the date they are issued.
Appropriate adjustments are made for the actual variable rate.
Although unclear at present, Morgan Stanley Capital I Inc. intends to
treat interest on a REMIC Regular Certificate that is a weighted average of the
net interest rates on mortgage loans as qualified stated interest. In such case,
the weighted average rate used to compute the initial pass-through rate on the
REMIC Regular Certificates will be deemed to be the index in effect through the
life of the REMIC Regular Certificates. It is possible, however, that the
Internal Revenue Service may treat some or all of the interest on REMIC Regular
Certificates with a weighted average rate as taxable under the rules relating to
obligations providing for contingent payments. No guidance is currently
available as to how original issue discount would be determined for debt
instruments subject to Internal Revenue Code Section 1272(a)(6) that provide for
contingent interest. The treatment of REMIC Regular Certificates as contingent
payments debt instruments may affect the timing of income accruals on the REMIC
Regular Certificates.
Election to Treat All Interest as Original Issue Discount. The OID
Regulations permit a certificateholder to elect to accrue all interest, discount
(including de minimis market discount or
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original issue discount) and premium in income as interest, based on a constant
yield method. If such an election were to be made with respect to a REMIC
Regular Certificate with market discount, the certificateholder would be deemed
to have made an election to include in income currently market discount with
respect to all other debt instruments having market discount that such
certificateholder acquires during the year of the election or thereafter.
Similarly, a certificateholder that makes this election for a certificate that
is acquired at a premium will be deemed to have made an election to amortize
bond premium with respect to all debt instruments having amortizable bond
premium that such certificateholder owns or acquires. See "--Premium" in this
prospectus. The election to accrue interest, discount and premium on a constant
yield method with respect to a certificate is irrevocable.
Market Discount. A purchaser of a REMIC Regular Certificate may also be
subject to the market discount provisions of Internal Revenue Code Sections 1276
through 1278. Under these provisions and the OID Regulations, "market discount"
equals the excess, if any, of (1) the REMIC Regular Certificate's stated
principal amount or, in the case of a REMIC Regular Certificate with original
issue discount, the adjusted issue price, determined for this purpose as if the
purchaser had purchased such REMIC Regular Certificate from an original holder,
over (2) the price for such REMIC Regular Certificate paid by the purchaser. A
certificateholder that purchases a REMIC Regular Certificate at a market
discount will recognize income upon receipt of each distribution representing
amounts included in such certificate's stated redemption price at maturity. In
particular, under Section 1276 of the Internal Revenue Code such a holder
generally will be required to allocate each such distribution first to accrued
market discount not previously included in income, and to recognize ordinary
income to that extent. A certificateholder may elect to include market discount
in income currently as it accrues rather than including it on a deferred basis
in accordance with the foregoing. If made, the election will apply to all market
discount bonds acquired by such certificateholder on or after the first day of
the first taxable year to which the election applies.
Market discount with respect to a REMIC Regular Certificate will be
considered to be zero if the amount allocable to the REMIC Regular Certificate
is less than 0.25% of the REMIC Regular Certificate's stated redemption price at
maturity multiplied by the REMIC Regular Certificate's weighted average maturity
remaining after the date of purchase. If market discount on a REMIC Regular
Certificate is considered to be zero under this rule, the actual amount of
market discount must be allocated to the remaining principal payments on the
REMIC Regular Certificate, and gain equal to the allocated amount will be
recognized when the corresponding principal payment is made. Treasury
regulations implementing the market discount rules have not yet been issued;
therefore, investors should consult their own tax advisors regarding the
application of these rules and the advisability of making any of the elections
allowed under Internal Revenue Code Sections 1276 through 1278.
The Internal Revenue Code provides that any principal payment, whether a
scheduled payment or a prepayment, or any gain on disposition of a market
discount bond acquired by the taxpayer after October 22, 1986, shall be treated
as ordinary income to the extent that it does not exceed the accrued market
discount at the time of the payment. The amount of accrued market discount for
purposes of determining the tax treatment of subsequent principal payments or
dispositions of the market discount bond is to be reduced by the amount so
treated as ordinary income.
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The Internal Revenue Code also grants authority to the Treasury Department
to issue regulations providing for the computation of accrued market discount on
debt instruments, the principal of which is payable in more than one
installment. Until such time as regulations are issued by the Treasury, rules
described in the legislative history will apply. Under those rules, the holder
of a market discount bond may elect to accrue market discount either on the
basis of a constant interest method rate or according to one of the following
methods. For REMIC Regular Certificates issued with original issue discount, the
amount of market discount that accrues during a period is equal to the product
of
1) the total remaining market discount and
2) a fraction, the numerator of which is the original issue discount
accruing during the period and the denominator of which is the
total remaining original issue discount at the beginning of the
period.
For REMIC Regular Certificates issued without original issue discount, the
amount of market discount that accrues during a period is equal to the product
of
1) the total remaining market discount and
2) a fraction, the numerator of which is the amount of stated
interest paid during the accrual period and the denominator of
which is the total amount of stated interest remaining to be paid
at the beginning of the period.
For purposes of calculating market discount under any of the above methods
in the case of instruments (such as the REMIC Regular Certificates) that provide
for payments that may be accelerated by reason of prepayments of other
obligations securing such instruments, the same Prepayment Assumption applicable
to calculating the accrual of original issue discount will apply.
A holder who acquired a REMIC Regular Certificate at a market discount
also may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to purchase
or carry the certificate purchased with market discount. For these purposes, the
de minimis rule referred to above applies. Any such Deferred Interest expense
would not exceed the market discount that accrues during such taxable year and
is, in general, allowed as a deduction not later than the year in which such
market discount is includible in income. If such holder elects to include market
discount in income currently as it accrues on all market discount instruments
acquired by such holder in that taxable year or thereafter, the interest
deferral rule described above will not apply.
Premium. A purchaser of a REMIC Regular Certificate that purchases the
REMIC Regular Certificate at a cost, not including accrued qualified stated
interest greater than its remaining stated redemption price at maturity will be
considered to have purchased the REMIC Regular Certificate at a premium and may
elect to amortize the premium under a constant yield method. A certificateholder
that makes this election for a certificate that is acquired at a premium will be
deemed to have made an election to amortize bond premium with respect to all
debt instruments having amortizable bond premium that such certificateholder
acquires during the year of the election or thereafter. It is not clear whether
the Prepayment Assumption would
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be taken into account in determining the life of the REMIC Regular Certificate
for this purpose. However, the legislative history states that the same rules
that apply to accrual of market discount, which rules require use of a
Prepayment Assumption in accruing market discount with respect to REMIC Regular
Certificates without regard to whether such certificates have original issue
discount, will also apply in amortizing bond premium under Internal Revenue Code
Section 171. The Internal Revenue Code provides that amortizable bond premium
will be allocated among the interest payments on such REMIC Regular Certificates
and will be applied as an offset against the interest payment. The Amortizable
Bond Premium Regulations do not apply to prepayable securities described in
Section 1272(a)(6) of the Internal Revenue Code, such as the REMIC Regular
Certificates. Certificateholders should consult their tax advisors regarding the
possibility of making an election to amortize any such bond premium.
Deferred Interest. Certain classes of REMIC Regular Certificates may
provide for the accrual of Deferred Interest with respect to one or more
adjustable rate loans. Any Deferred Interest that accrues with respect to a
class of REMIC Regular Certificates will constitute income to the holders of
such certificates prior to the time distributions of cash with respect to such
Deferred Interest are made. It is unclear, under the OID Regulations, whether
any of the interest on such certificates will constitute qualified stated
interest or whether all or a portion of the interest payable on such
certificates must be included in the stated redemption price at maturity of the
certificates and accounted for as original issue discount, which could
accelerate such inclusion. Interest on REMIC Regular Certificates must in any
event be accounted for under an accrual method by the holders of such
certificates and, therefore, applying the latter analysis may result only in a
slight difference in the timing of the inclusion in income of interest on such
REMIC Regular Certificates.
Effects of Defaults and Delinquencies. Certain series of certificates may
contain one or more classes of subordinate certificates, and in the event there
are defaults or delinquencies on the mortgage loans and mortgage-backed
securities, amounts that would otherwise be distributed on the subordinate
certificates may instead be distributed on the senior certificates. Subordinate
certificateholders nevertheless will be required to report income with respect
to such certificates under an accrual method without giving effect to delays and
reductions in distributions on such subordinate certificates attributable to
defaults and delinquencies on the mortgage loans and mortgage-backed securities,
except to the extent that it can be established that those amounts are
uncollectible. As a result, the amount of income reported by a subordinate
certificateholder in any period could significantly exceed the amount of cash
distributed to such holder in that period. The holder will eventually be allowed
a loss, or will be allowed to report a lesser amount of income, to the extent
that the aggregate amount of distributions on the subordinate certificate is
reduced as a result of defaults and delinquencies on the mortgage loans and
mortgage-backed securities. Timing and characterization of such losses is
discussed in "--Taxation of Owners of REMIC Regular Certificates--Treatment of
Realized Losses" below.
Sale, Exchange or Redemption. If a REMIC Regular Certificate is sold,
exchanged, redeemed or retired, the seller will recognize gain or loss equal to
the difference between the amount realized on the sale, exchange, redemption, or
retirement and the seller's adjusted basis in the REMIC Regular Certificate.
Such adjusted basis generally will equal the cost of the REMIC Regular
Certificate to the seller, increased by any original issue discount and market
discount included in the seller's gross income with respect to the REMIC Regular
Certificate,
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and reduced, but not below zero, by payments included in the stated redemption
price at maturity previously received by the seller and by any amortized
premium. Similarly, a holder who receives a payment that is part of the stated
redemption price at maturity of a REMIC Regular Certificate will recognize gain
equal to the excess, if any, of the amount of the payment over the holder's
adjusted basis in the REMIC Regular Certificate. A REMIC Regular
Certificateholder who receives a final payment that is less than the holder's
adjusted basis in the REMIC Regular Certificate will generally recognize a loss.
Except as provided in the following paragraph and as provided under "--Market
Discount" above, any such gain or loss will be capital gain or loss, provided
that the REMIC Regular Certificate is held as a "capital asset" (generally,
property held for investment) within the meaning of Internal Revenue Code
Section 1221.
Such capital gain or loss will generally be long-term capital gain or loss
if the REMIC Regular Certificate was held for more than one year. Long-term
capital gains of individuals are subject to reduced maximum tax rates while
capital gains recognized by individuals on capital assets held less than twelve
months are generally subject to ordinary income tax rates. The use of capital
losses is limited.
Gain from the sale or other disposition of a REMIC Regular Certificate
that might otherwise be capital gain will be treated as ordinary income to the
extent that such gain does not exceed the excess, if any, of
o the amount that would have been includible in the holder's income
with respect to the REMIC Regular Certificate had income accrued
thereon at a rate equal to 110% of the AFR as defined in Internal
Revenue Code Section 1274(d) determined as of the date of purchase
of such REMIC Regular Certificate, over
o the amount actually includible in such holder's income.
Gain from the sale or other disposition of a REMIC Regular Certificate
that might otherwise be capital gain will be treated as ordinary income if the
REMIC Regular Certificate is held as part of a "conversion transaction" as
defined in Internal Revenue Code Section 1258(c), up to the amount of interest
that would have accrued on the REMIC Regular Certificateholder's net investment
in the conversion transaction at 120% of the appropriate applicable federal rate
under Internal Revenue Code Section 1274(d) in effect at the time the taxpayer
entered into the transaction minus any amount previously treated as ordinary
income with respect to any prior disposition of property that was held as part
of such transaction, or if the REMIC Regular Certificate is held as part of a
straddle. Potential investors should consult their tax advisors with respect to
tax consequences of ownership and disposition of an investment in REMIC Regular
Certificates in their particular circumstances.
The certificates will be "evidences of indebtedness" within the meaning of
Internal Revenue Code Section 582(c)(1), so that gain or loss recognized from
the sale of a REMIC Regular Certificate by a bank or a thrift institution to
which this section applies will be ordinary income or loss.
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The REMIC Regular Certificate information reports will include a statement
of the adjusted issue price of the REMIC Regular Certificate at the beginning of
each accrual period. In addition, the reports will include information necessary
to compute the accrual of any market discount that may arise upon secondary
trading of REMIC Regular Certificates. Because exact computation of the accrual
of market discount on a constant yield method would require information relating
to the holder's purchase price which the REMIC may not have, it appears that the
information reports will only require information pertaining to the appropriate
proportionate method of accruing market discount.
Accrued Interest Certificates. Payment Lag Certificates may provide for
payments of interest based on a period that corresponds to the interval between
distribution dates but that ends prior to each such distribution date. The
period between the closing date for Payment Lag Certificates and their first
distribution date may or may not exceed such interval. Purchasers of Payment Lag
Certificates for which the period between the closing date and the first
distribution date does not exceed such interval could pay upon purchase of the
REMIC Regular Certificates accrued interest in excess of the accrued interest
that would be paid if the interest paid on the distribution date were interest
accrued from distribution date to distribution date. If a portion of the initial
purchase price of a REMIC Regular Certificate is allocable to pre-issuance
accrued interest and the REMIC Regular Certificate provides for a payment of
stated interest on the first payment date and the first payment date is within
one year of the issue date that equals or exceeds the amount of the pre-issuance
accrued interest, then the REMIC Regular Certificate's issue price may be
computed by subtracting from the issue price the amount of pre-issuance accrued
interest, rather than as an amount payable on the REMIC Regular Certificate.
However, it is unclear under this method how the OID Regulations treat interest
on Payment Lag Certificates. Therefore, in the case of a Payment Lag
Certificate, the trust fund intends to include accrued interest in the issue
price and report interest payments made on the first distribution date as
interest to the extent such payments represent interest for the number of days
that the certificateholder has held the Payment Lag Certificate during the first
accrual period.
Investors should consult their own tax advisors concerning the treatment
for federal income tax purposes of Payment Lag Certificates.
Non-Interest Expenses of the REMIC. Under temporary Treasury regulations,
if the REMIC is considered to be a "single-class REMIC," a portion of the
REMIC's servicing, administrative and other non-interest expenses will be
allocated as a separate item to those REMIC Regular Certificateholders that are
"pass-through interest holders." Certificateholders that are pass-through
interest holders should consult their own tax advisors about the impact of these
rules on an investment in the REMIC Regular Certificates. See "Pass-Through of
Non-Interest Expenses of the REMIC" under "Taxation of Owners of REMIC Residual
Certificates" below.
Treatment of Realized Losses. Although not entirely clear, it appears that
holders of REMIC Regular Certificates that are corporations should in general be
allowed to deduct as an ordinary loss any loss sustained during the taxable year
on account of any such certificates becoming wholly or partially worthless, and
that, in general, holders of certificates that are not corporations should be
allowed to deduct as a short-term capital loss any loss sustained during the
taxable year on account of any such certificates becoming wholly worthless.
Although the
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matter is not entirely clear, non-corporate holders of certificates may be
allowed a bad debt deduction at such time that the principal balance of any such
certificate is reduced to reflect realized losses resulting from any liquidated
mortgage loans and mortgage-backed securities. The Internal Revenue Service,
however, could take the position that non-corporate holders will be allowed a
bad debt deduction to reflect realized losses only after all mortgage loans and
mortgage-backed securities remaining in the related trust fund have been
liquidated or the certificates of the related series have been otherwise
retired. Potential investors and holders of the certificates are urged to
consult their own tax advisors regarding the appropriate timing, amount and
character of any loss sustained with respect to such certificates, including any
loss resulting from the failure to recover previously accrued interest or
discount income. Special loss rules are applicable to banks and thrift
institutions, including rules regarding reserves for bad debts. Such taxpayers
are advised to consult their tax advisors regarding the treatment of losses on
certificates.
Non-U.S. Persons. Generally, payments of interest on the REMIC Regular
Certificates, including any payment with respect to accrued original issue
discount, to a REMIC Regular Certificateholder who is not a U.S. Person and is
not engaged in a trade or business within the United States will not be subject
to federal withholding tax if:
o the REMIC Regular Certificateholder does not actually or
constructively own 10 percent or more of the combined voting power
of all classes of equity in the issuer;
o the REMIC Regular Certificateholder is not a controlled foreign
corporation, within the meaning of Internal Revenue Code Section
957, related to the issuer; and
o the REMIC Regular Certificateholder complies with identification
requirements, including delivery of a statement, signed by the
REMIC Regular Certificateholder under penalties of perjury,
certifying that the REMIC Regular Certificateholder is a foreign
person and providing the name and address of the REMIC Regular
Certificateholder.
If a REMIC Regular Certificateholder is not exempt from withholding,
distributions of interest to the holder, including distributions in respect of
accrued original issue discount, may be subject to a 30% withholding tax,
subject to reduction under any applicable tax treaty. If the interest on a REMIC
Regular Certificate is effectively connected with the conduct by a holder that
is a non-U.S. Person of a trade or business in the United States, then the
holder will not be subject to the 30% withholding tax on gross income therefrom
but will be subject to U.S. income tax at regular graduated rates on its net
income and, if such holder is a corporation, may be subject to U.S. branch
profits tax as well.
Further, a REMIC Regular Certificate will not be included in the estate of
a non-resident alien individual and will not be subject to United States estate
taxes. However, certificateholders who are non-resident alien individuals should
consult their tax advisors concerning this question.
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REMIC Regular Certificateholders who are not U.S. Persons and persons
related to such holders should not acquire any REMIC Residual Certificates, and
REMIC Residual Certificateholders and persons related to REMIC Residual
Certificateholders should not acquire any REMIC Regular Certificates without
consulting their tax advisors as to the possible adverse tax consequences of
doing so. In addition, the Internal Revenue Service may assert that non-U.S
Persons that own directly or indirectly, a greater than 10% interest in any
borrower, and foreign corporations that are "controlled foreign corporations" as
to the United States of which such a borrower is a "United States shareholder"
within the meaning of Section 951(b) of the Internal Revenue Code, are subject
to United States withholding tax on interest distributed to them to the extent
of interest concurrently paid by the related borrower.
Information Reporting and Backup Withholding. The master servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each person who was a REMIC Regular Certificateholder at any
time during that year, the information as may be deemed necessary or desirable
to assist REMIC Regular Certificateholders in preparing their federal income tax
returns, or to enable holders to make such information available to beneficial
owners or financial intermediaries that hold the REMIC Regular Certificates on
behalf of beneficial owners. If a holder, beneficial owner, financial
intermediary or other recipient of a payment on behalf of a beneficial owner
fails to supply a certified taxpayer identification number or if the Secretary
of the Treasury determines that such person has not reported all interest and
dividend income required to be shown on its federal income tax return, 31%
backup withholding may be required with respect to any payments with respect to
any payments to registered owners who are not "exempt recipients." In addition,
upon the sale of a REMIC Regular Certificate to, or through, a broker, the
broker must withhold 31% of the entire purchase price, unless either:
o the broker determines that the seller is a corporation or other
exempt recipient, or
o the seller provides, in the required manner, identifying
information and, in the case of a non-U.S. Person, certifies that
such seller is a Non-U.S. Person, and other conditions are met.
A sale of a REMIC Regular Certificate to, or through, a broker must also
be reported by the broker to the Internal Revenue Service, unless either:
o the broker determines that the seller is an exempt recipient or
o the seller certifies its non-U.S. Person status (and other
conditions are met).
Certification of the registered owner's non-U.S. Person status normally
would be made on Internal Revenue Service Form W-8 under penalties of perjury,
although in certain cases it may be possible to submit other documentary
evidence. Any amounts deducted and withheld from a distribution to a recipient
would be allowed as a credit against such recipient's federal income tax
liability.
On October 6, 1997, the Treasury Department issued the New Regulations,
which make certain modifications to the withholding, backup withholding and
information reporting rules
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described above. The New Regulations attempt to unify certification requirements
and modify reliance standards. The New Regulations will generally be effective
for payments made after December 31, 1999, subject to certain transition rules.
Prospective investors are urged to consult their own tax advisors regarding the
New Regulations.
B. TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES
Allocation of the Income of the REMIC to the REMIC Residual Certificates.
The REMIC will not be subject to federal income tax except with respect to
income from prohibited transactions and certain other transactions. See
"--Prohibited Transactions and Other Taxes" below. Instead, each original holder
of a REMIC Residual Certificate will report on its federal income tax return, as
ordinary income, its share of the taxable income of the REMIC for each day
during the taxable year on which the holder owns any REMIC Residual
Certificates. The taxable income of the REMIC for each day will be determined by
allocating the taxable income of the REMIC for each calendar quarter ratably to
each day in the quarter. Such a holder's share of the taxable income of the
REMIC for each day will be based on the portion of the outstanding REMIC
Residual Certificates that such holder owns on that day. The taxable income of
the REMIC will be determined under an accrual method and will be taxable to the
holders of REMIC Residual Certificates without regard to the timing or amounts
of cash distributions by the REMIC. Ordinary income derived from REMIC Residual
Certificates will be "portfolio income" for purposes of the taxation of
taxpayers subject to the limitations on the deductibility of "passive losses."
As residual interests, the REMIC Residual Certificates will be subject to tax
rules, described below, that differ from those that would apply if the REMIC
Residual Certificates were treated for federal income tax purposes as direct
ownership interests in the certificates or as debt instruments issued by the
REMIC.
A REMIC Residual Certificateholder may be required to include taxable
income from the REMIC Residual Certificate in excess of the cash distributed.
For example, a structure where principal distributions are made serially on
regular interests, that is, a fast-pay, slow-pay structure, may generate such a
mismatching of income and cash distributions -- that is, "phantom income". This
mismatching may be caused by the use of certain required tax accounting methods
by the REMIC, variations in the prepayment rate of the underlying mortgage loans
and mortgage-backed securities and certain other factors. Depending upon the
structure of a particular transaction, the aforementioned factors may
significantly reduce the after-tax yield of a REMIC Residual Certificate to a
REMIC Residual Certificateholder or cause the REMIC Residual Certificate to have
negative "value." Investors should consult their own tax advisors concerning the
federal income tax treatment of a REMIC Residual Certificate and the impact of
the tax treatment on the after-tax yield of a REMIC Residual Certificate.
A subsequent REMIC Residual Certificateholder also will report on its
federal income tax return amounts representing a daily share of the taxable
income of the REMIC for each day that the REMIC Residual Certificateholder owns
the REMIC Residual Certificate. Those daily amounts generally would equal the
amounts that would have been reported for the same days by an original REMIC
Residual Certificateholder, as described above. The legislative history
indicates that certain adjustments may be appropriate to reduce or increase the
income of a subsequent holder of a REMIC Residual Certificate that purchased the
REMIC Residual Certificate at a price greater than or less than the adjusted
basis such REMIC Residual Certificate
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would have in the hands of an original REMIC Residual Certificateholder. See
"--Sale or Exchange of REMIC Residual Certificates" below. It is not clear,
however, whether the adjustments will in fact be permitted or required and, if
so, how they would be made. The REMIC Regulations do not provide for any such
adjustments.
Taxable Income of the REMIC Attributable to Residual Interests. The
taxable income of the REMIC will reflect a netting of:
o the income from the mortgage loans and mortgage-backed securities
and the REMIC's other assets, and
o the deductions allowed to the REMIC for interest and original
issue discount on the REMIC Regular Certificates and, except as
described above under "--Taxation of Owners of REMIC Regular
Certificates--Non-Interest Expenses of the REMIC," other expenses.
REMIC taxable income is generally determined in the same manner as the
taxable income of an individual using the accrual method of accounting, except
that:
o the limitations on deductibility of investment interest expense
and expenses for the production of income do not apply,
o all bad loans will be deductible as business bad debts, and
o the limitation on the deductibility of interest and expenses
related to tax-exempt income will apply.
The REMIC's gross income includes interest, original issue discount
income, and market discount income, if any, on the mortgage loans, reduced by
amortization of any premium on the mortgage loans, plus income on reinvestment
of cash flows and reserve assets, plus any cancellation of indebtedness income
upon allocation of realized losses to the REMIC Regular Certificates. Note that
the timing of cancellation of indebtedness income recognized by REMIC Residual
Certificateholders resulting from defaults and delinquencies on mortgage loans
and mortgage-backed securities may differ from the time of the actual loss on
the assets. The REMIC's deductions include interest and original issue discount
expense on the REMIC Regular Certificates, servicing fees on the mortgage loans,
other administrative expenses of the REMIC and realized losses on the mortgage
loans. The requirement that REMIC Residual Certificateholders report their pro
rata share of taxable income or net loss of the REMIC will continue until there
are no certificates of any class of the related series outstanding.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate tax basis in its assets equal to the sum of the issue prices
of the REMIC Regular Certificates and the REMIC Residual Certificates, or, if a
class of certificates is not sold initially, its fair market value. The
aggregate basis will be allocated among the mortgage loans and mortgage-backed
securities and other assets of the REMIC in proportion to their respective fair
market value. A mortgage loan or mortgage-backed security will be deemed to have
been acquired with discount or premium to the extent that the REMIC's basis
therein is less than or greater than its principal
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balance, respectively. Any such discount, whether market discount or original
issue discount, will be includible in the income of the REMIC as it accrues, in
advance of receipt of the cash attributable to the income, under a method
similar to the method described above for accruing original issue discount on
the REMIC Regular Certificates. The REMIC may elect under Internal Revenue Code
Section 171 to amortize any premium on the mortgage loans and mortgage-backed
securities. Premium on any mortgage loan or mortgage-backed security to which
the election applies would be amortized under a constant yield method. It is not
clear whether the yield of a mortgage loan or mortgage-backed security would be
calculated for this purpose based on scheduled payments or taking account of the
Prepayment Assumption. Additionally, such an election would not apply to the
yield with respect to any underlying mortgage loan originated on or before
September 27, 1985. Instead, premium with respect to such a mortgage loan would
be allocated among the principal payments thereon and would be deductible by the
REMIC as those payments become due.
The REMIC will be allowed a deduction for interest and original issue
discount on the REMIC Regular Certificates. The amount and method of accrual of
original issue discount will be calculated for this purpose in the same manner
as described above with respect to REMIC Regular Certificates except that the
0.25% per annum de minimis rule and adjustments for subsequent holders described
therein will not apply.
A REMIC Residual Certificateholder will not be permitted to amortize the
cost of the REMIC Residual Certificate as an offset to its share of the REMIC's
taxable income. However, REMIC taxable income will not include cash received by
the REMIC that represents a recovery of the REMIC's basis in its assets, and, as
described above, the issue price of the REMIC Residual Certificates will be
added to the issue price of the REMIC Regular Certificates in determining the
REMIC's initial basis in its assets. See "--Sale or Exchange of REMIC Residual
Certificates" below. For a discussion of possible adjustments to income of a
subsequent holder of a REMIC Residual Certificate to reflect any difference
between the actual cost of the REMIC Residual Certificate to the holder and the
adjusted basis the REMIC Residual Certificate would have in the hands of an
original REMIC Residual Certificateholder, see "--Allocation of the Income of
the REMIC to the REMIC Residual Certificates" above.
Net Losses of the REMIC. The REMIC will have a net loss for any calendar
quarter in which its deductions exceed its gross income. The net loss would be
allocated among the REMIC Residual Certificateholders in the same manner as the
REMIC's taxable income. The net loss allocable to any REMIC Residual Certificate
will not be deductible by the holder to the extent that the net loss exceeds
such holder's adjusted basis in the REMIC Residual Certificate. Any net loss
that is not currently deductible by reason of this limitation may only be used
by the REMIC Residual Certificateholder to offset its share of the REMIC's
taxable income in future periods (but not otherwise). The ability of REMIC
Residual Certificateholders that are individuals or closely held corporations to
deduct net losses may be subject to additional limitations under the Internal
Revenue Code.
Mark-to-Market Rules. Prospective purchasers of a REMIC Residual
Certificate should be aware that the Internal Revenue Service finalized
Mark-to-Market Regulations which provide that a REMIC Residual Certificate
acquired after January 3, 1995 cannot be marked to market. The Mark-to-Market
Regulations replaced the temporary regulations which allowed a residual
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certificate to be marked to market provided that it was not a "negative value"
residual interest and did not have the same economic effect as a "negative
value" residual interest.
Pass-Through of Non-Interest Expenses of the REMIC. As a general rule, all
of the fees and expenses of a REMIC will be taken into account by holders of the
REMIC Residual Certificates. In the case of a single class REMIC, however, the
expenses and a matching amount of additional income will be allocated, under
temporary Treasury regulations, among the REMIC Regular Certificateholders and
the REMIC Residual Certificateholders on a daily basis in proportion to the
relative amounts of income accruing to each certificateholder on that day. In
general terms, a single class REMIC is one that either:
o would qualify, under existing Treasury regulations, as a grantor
trust if it were not a REMIC, treating all interests as ownership
interests, even if they would be classified as debt for federal
income tax purposes, or
o is similar to such a trust and is structured with the principal
purpose of avoiding the single class REMIC rules. Unless otherwise
stated in the applicable prospectus supplement, the expenses of
the REMIC will be allocated to holders of the related REMIC
Residual Certificates in their entirety and not to holders of the
related REMIC Regular Certificates.
In the case of individuals or trusts, estates or other persons that
compute their income in the same manner as individuals who own an interest in a
REMIC Regular Certificate or a REMIC Residual Certificate directly or through a
pass-through interest holder that is required to pass miscellaneous itemized
deductions through to its owners or beneficiaries, e.g., a partnership, an S
corporation or a grantor trust, such expenses will be deductible under Internal
Revenue Code Section 67 only to the extent that such expenses, plus other
"miscellaneous itemized deductions" of the individual, exceed 2% of such
individual's adjusted gross income. In addition, Internal Revenue Code Section
68 provides that the applicable amount will be reduced by the lesser of:
o 3% of the excess of the individual's adjusted gross income over
the applicable amount or
o 80% of the amount of itemized deductions otherwise allowable for
the taxable year.
The amount of additional taxable income recognized by REMIC Residual
Certificateholders who are subject to the limitations of either Internal Revenue
Code Section 67 or Internal Revenue Code Section 68 may be substantial. Further,
holders other than corporations subject to the alternative minimum tax may not
deduct miscellaneous itemized deductions in determining such holders'
alternative minimum taxable income. The REMIC is required to report to each
pass-through interest holder and to the Internal Revenue Service such holder's
allocable share, if any, of the REMIC's non-interest expenses. The term
"PASS-THROUGH INTEREST HOLDER" generally refers to individuals, entities taxed
as individuals and certain pass-through entities, but does not include real
estate investment trusts. REMIC Residual
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Certificateholders that are pass-through interest holders should consult their
own tax advisors about the impact of these rules on an investment in the REMIC
Residual Certificates.
Excess Inclusions. A portion of the income on a REMIC Residual Certificate
referred to in the Internal Revenue Code as an "excess inclusion", for any
calendar quarter will be subject to federal income tax in all events. Thus, for
example, an excess inclusion:
o may not, except as described below, be offset by any unrelated
losses, deductions or loss carryovers of a REMIC Residual
Certificateholder;
o will be treated as "unrelated business taxable income" within the
meaning of Internal Revenue Code Section 512 if the REMIC Residual
Certificateholder is a pension fund or any other organization that
is subject to tax only on its unrelated business taxable income,
as discussed under "--Tax-Exempt Investors" below; and
o is not eligible for any reduction in the rate of withholding tax
in the case of a REMIC Residual Certificateholder that is a
foreign investor, as discussed under "--Non-U.S. Persons" below.
Except as discussed in the following paragraph, with respect to any REMIC
Residual Certificateholder, the excess inclusions for any calendar quarter is
the excess, if any, of (1) the income of such REMIC Residual Certificateholder
for that calendar quarter from its REMIC Residual Certificate over (2) the sum
of the "daily accruals" for all days during the calendar quarter on which the
REMIC Residual Certificateholder holds a REMIC Residual Certificate. For this
purpose, the daily accruals with respect to a REMIC Residual Certificate are
determined by allocating to each day in the calendar quarter its ratable portion
of the product of the "adjusted issue price" of the REMIC Residual Certificate
at the beginning of the calendar quarter and 120 percent of the "Federal
long-term rate" in effect at the time the REMIC Residual Certificate is issued.
For this purpose, the "adjusted issue price" of a REMIC Residual Certificate at
the beginning of any calendar quarter equals the issue price of the REMIC
Residual Certificate, increased by the amount of daily accruals for all prior
quarters, and decreased -- but not below zero -- by the aggregate amount of
payments made on the REMIC Residual Certificate before the beginning of the
quarter. The "FEDERAL LONG-TERM RATE" is an average of current yields on
Treasury securities with a remaining term of greater than nine years, computed
and published monthly by the Internal Revenue Service.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to the REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Internal Revenue Code
Section 857(b)(2), excluding any net capital gain), will be allocated among the
shareholders of such trust in proportion to the dividends received by the
shareholders from such trust, and any amount so allocated will be treated as an
excess inclusion with respect to a REMIC Residual Certificate as if held
directly by the shareholder. Regulated investment companies, common trust funds
and certain cooperatives are subject to similar rules.
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The Small Business Job Protection Act of 1996 eliminated the special rule
permitting Section 593 institutions ("THRIFT INSTITUTIONS") to use net operating
losses and other allowable deductions to offset their excess inclusion income
from REMIC Residual Certificates that have "significant value" within the
meaning of the REMIC Regulations, effective for taxable years beginning after
December 31, 1995, except with respect to residual certificates continuously
held by a thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides three
rules for determining the effect on excess inclusions on the alternative minimum
taxable income of a residual holder. First, alternative minimum taxable income
for the residual holder is determined without regard to the special rule that
taxable income cannot be less than excess inclusions. Second, the amount of any
alternative minimum tax net operating loss deductions must be computed without
regard to any excess inclusions. Third, a residual holder's alternative minimum
taxable income for a tax year cannot be less than excess inclusions for the
year. The effect of this last statutory amendment is to prevent the use of
nonrefundable tax credits to reduce a taxpayer's income tax below its tentative
minimum tax computed only on excess inclusions. These rules are effective for
tax years beginning after December 31, 1986, unless a residual holder elects to
have such rules apply only to tax years beginning after August 20, 1996.
Payments. Any distribution made on a REMIC Residual Certificate to a REMIC
Residual Certificateholder will be treated as a non-taxable return of capital to
the extent it does not exceed the REMIC Residual Certificateholder's adjusted
basis in the REMIC Residual Certificate. To the extent a distribution exceeds
the adjusted basis, it will be treated as gain from the sale of the REMIC
Residual Certificate.
Sale or Exchange of REMIC Residual Certificates. If a REMIC Residual
Certificate is sold or exchanged, the seller will generally recognize gain or
loss equal to the difference between the amount realized on the sale or exchange
and its adjusted basis in the REMIC Residual Certificate except that the
recognition of loss may be limited under the "wash sale" rules described in the
second following paragraph. A holder's adjusted basis in a REMIC Residual
Certificate generally equals the cost of the REMIC Residual Certificate to the
REMIC Residual Certificateholder, increased by the taxable income of the REMIC
that was included in the income of the REMIC Residual Certificateholder with
respect to the REMIC Residual Certificate, and decreased--but not below zero--by
the net losses that have been allowed as deductions to the REMIC Residual
Certificateholder with respect to the REMIC Residual Certificate and by the
distributions received thereon by the REMIC Residual Certificateholder. In
general, any such gain or loss will be capital gain or loss provided the REMIC
Residual Certificate is held as a capital asset. However, REMIC Residual
Certificates will be "evidences of indebtedness" within the meaning of Internal
Revenue Code Section 582(c)(1), so that gain or loss recognized from sale of a
REMIC Residual Certificate by a bank or thrift institution to which such section
applies would be ordinary income or loss.
The capital gain or loss will generally be long-term capital gain or loss
if the REMIC Regular Certificate was held for more than one year. Long-term
capital gains of individuals are subject to reduced maximum tax rates while
capital gains recognized by individuals on capital assets held twelve months or
less are generally subject to ordinary income tax rates. The use of capital
losses is limited.
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Except as provided in Treasury regulations yet to be issued, if the seller
of a REMIC Residual Certificate reacquires such REMIC Residual Certificate, or
acquires any other REMIC Residual Certificate, any residual interest in another
REMIC or similar interest in a "taxable mortgage pool", as defined in Internal
Revenue Code Section 7701(i), during the period beginning six months before, and
ending six months after, the date of such sale, such sale will be subject to the
"wash sale" rules of Internal Revenue Code Section 1091. In that event, any loss
realized by the REMIC Residual Certificateholder on the sale will not be
deductible, but, instead, will increase such REMIC Residual Certificateholder's
adjusted basis in the newly acquired asset.
PROHIBITED TRANSACTIONS AND OTHER TAXES
The Internal Revenue Code imposes a tax on REMICs equal to 100% of the net
income derived from "prohibited transactions". In general, subject to certain
specified exceptions, a prohibited transaction means:
o the disposition of a mortgage loan or mortgage-backed security;
o the receipt of income from a source other than a mortgage loan or
mortgage-backed security or certain other permitted investments;
o the receipt of compensation for services; or
o gain from the disposition of an asset purchased with the payments
on the mortgage loans and mortgage-backed securities for temporary
investment pending distribution on the certificates.
It is not anticipated that the trust fund for any series of certificates
will engage in any prohibited transactions in which it would recognize a
material amount of net income.
In addition, certain contributions to a trust fund as to which an election
has been made to treat the trust fund as a REMIC made after the day on which the
trust fund issues all of its interests could result in the imposition of the
Contributions Tax. No trust fund for any series of certificates will accept
contributions that would subject it to such tax.
In addition, a trust fund as to which an election has been made to treat
the trust fund as a REMIC may also be subject to federal income tax at the
highest corporate rate on "net income from foreclosure property," determined by
reference to the rules applicable to real estate investment trusts. "Net income
from foreclosure property" generally means income from foreclosure property
other than qualifying income for a real estate investment trust.
Where any Prohibited Transactions Tax, Contributions Tax, tax on net
income from foreclosure property or state or local income or franchise tax that
may be imposed on a REMIC relating to any series of certificates arises out of
or results from:
o a breach of the related servicer's, trustee's or depositor's
obligations, as the case may be, under the related Agreement for
such series, such tax will be
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borne by such servicer, trustee or depositor, as the case
may be, out of its own funds; or
o Morgan Stanley Capital I Inc.'s obligation to repurchase a
mortgage loan, such tax will be borne by Morgan Stanley Capital I
Inc.
In the event that the servicer, trustee or depositor, as the case may be,
fails to pay or is not required to pay any Prohibited Transactions Tax,
Contributions Tax, tax on net income from foreclosure property or state or local
income or franchise tax, the tax will be payable out of the trust fund for the
series and will result in a reduction in amounts available to be distributed to
the certificateholders of the series.
LIQUIDATION AND TERMINATION
If the REMIC adopts a plan of complete liquidation, within the meaning of
Internal Revenue Code Section 860F(a)(4)(A)(i), which may be accomplished by
designating in the REMIC's final tax return a date on which such adoption is
deemed to occur, and sells all of its assets other than cash within a 90-day
period beginning on such date, the REMIC will not be subject to any Prohibited
Transaction Tax, provided that the REMIC credits or distributes in liquidation
all of the sale proceeds plus its cash, other than the amounts retained to meet
claims, to holders of Regular and REMIC Residual Certificates within the 90-day
period.
The REMIC will terminate shortly following the retirement of the REMIC
Regular Certificates. If a REMIC Residual Certificateholder's adjusted basis in
the REMIC Residual Certificate exceeds the amount of cash distributed to such
REMIC Residual Certificateholder in final liquidation of its interest, then it
would appear that the REMIC Residual Certificateholder would be entitled to a
loss equal to the amount of such excess. It is unclear whether such a loss, if
allowed, will be a capital loss or an ordinary loss.
ADMINISTRATIVE MATTERS
Solely for the purpose of the administrative provisions of the Internal
Revenue Code, the REMIC generally will be treated as a partnership and the REMIC
Residual Certificateholders will be treated as the partners. Information will be
furnished quarterly to each REMIC Residual Certificateholder who held a REMIC
Residual Certificate on any day in the previous calendar quarter.
Each REMIC Residual Certificateholder is required to treat items on its
return consistently with their treatment on the REMIC's return, unless the REMIC
Residual Certificateholder either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC. The Internal Revenue Service may assert a
deficiency resulting from a failure to comply with the consistency requirement
without instituting an administrative proceeding at the REMIC level. The REMIC
does not intend to register as a tax shelter pursuant to Internal Revenue Code
Section 6111 because it is not anticipated that the REMIC will have a net loss
for any of the first five taxable years of its existence. Any person that holds
a REMIC Residual Certificate as a nominee for
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another person may be required to furnish the REMIC, in a manner to be provided
in Treasury regulations, with the name and address of such person and other
information.
TAX-EXEMPT INVESTORS
Any REMIC Residual Certificateholder that is a pension fund or other
entity that is subject to federal income taxation only on its "unrelated
business taxable income" within the meaning of Internal Revenue Code Section 512
will be subject to such tax on that portion of the distributions received on a
REMIC Residual Certificate that is considered an excess inclusion. See
"--Taxation of Owners of REMIC Residual Certificates--Excess Inclusions" above.
RESIDUAL CERTIFICATE PAYMENTS--NON-U.S. PERSONS
Amounts paid to REMIC Residual Certificateholders who are not U.S. Persons
(see "--Taxation of Owners of REMIC Regular Certificates--Non-U.S. Persons"
above) are treated as interest for purposes of the 30% or lower treaty rate,
United States withholding tax. Amounts distributed to holders of REMIC Residual
Certificates should qualify as "portfolio interest," subject to the conditions
described in "--Taxation of Owners of REMIC Regular Certificates" above, but
only to the extent that the underlying mortgage loans were originated after July
18, 1984. Furthermore, the rate of withholding on any income on a REMIC Residual
Certificate that is excess inclusion income will not be subject to reduction
under any applicable tax treaties. See "--Taxation of Owners of REMIC Residual
Certificates--Excess Inclusions" above. If the portfolio interest exemption is
unavailable, such amount will be subject to United States withholding tax when
paid or otherwise distributed, or when the REMIC Residual Certificate is
disposed of, under rules similar to those for withholding upon disposition of
debt instruments that have original issue discount. The Internal Revenue Code,
however, grants the Treasury Department authority to issue regulations requiring
that those amounts be taken into account earlier than otherwise provided where
necessary to prevent avoidance of tax, for example, where the REMIC Residual
Certificates do not have significant value. See "--Taxation of Owners of REMIC
Residual Certificates--Excess Inclusions" above. If the amounts paid to REMIC
Residual Certificateholders that are not U.S. Persons are effectively connected
with their conduct of a trade or business within the United States, the 30% or
lower treaty rate withholding will not apply. Instead, the amounts paid to such
non-U.S. Person will be subject to U.S. federal income taxation at regular
graduated rates. For special restrictions on the transfer of REMIC Residual
Certificates, see "--Tax-Related Restrictions on Transfers of REMIC Residual
Certificates" below.
REMIC Regular Certificateholders and persons related to such holders
should not acquire any REMIC Residual Certificates, and REMIC Residual
Certificateholders and persons related to REMIC Residual Certificateholders
should not acquire any REMIC Regular Certificates, without consulting their tax
advisors as to the possible adverse tax consequences of such acquisition.
TAX RELATED RESTRICTIONS ON TRANSFERS OF REMIC RESIDUAL CERTIFICATES
Disqualified Organizations. An entity may not qualify as a REMIC unless
there are reasonable arrangements designed to ensure that residual interests in
such entity are not held by "disqualified organizations". Further, a tax is
imposed on the transfer of a residual interest in a
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REMIC to a "disqualified organization." The amount of the tax equals the product
of (A) an amount, as determined under the REMIC Regulations, equal to the
present value of the total anticipated "excess inclusions" with respect to such
interest for periods after the transfer and (B) the highest marginal federal
income tax rate applicable to corporations. The tax is imposed on the transferor
unless the transfer is through an agent, including a broker or other middleman,
for a disqualified organization, in which event the tax is imposed on the agent.
The person otherwise liable for the tax shall be relieved of liability for the
tax if the transferee furnished to such person an affidavit that the transferee
is not a disqualified organization and, at the time of the transfer, such person
does not have actual knowledge that the affidavit is false. A "DISQUALIFIED
ORGANIZATION" means:
(A) the United States, any State, possession or political subdivision
thereof, any foreign government, any international organization or any
agency or instrumentality of any of the foregoing (provided that such
term does not include an instrumentality if all its activities are
subject to tax and, except for FHLMC, a majority of its board of
directors is not selected by any such governmental agency),
(B) any organization, other than certain farmers' cooperatives, generally
exempt from federal income taxes unless such organization is subject
to the tax on "unrelated business taxable income", and
(C) a rural electric or telephone cooperative.
A tax is imposed on a "pass-through entity" holding a residual interest in
a REMIC if at any time during the taxable year of the pass-through entity a
disqualified organization is the record holder of an interest in such entity.
The amount of the tax is equal to the product of (A) the amount of excess
inclusions for the taxable year allocable to the interest held by the
disqualified organization and (B) the highest marginal federal income tax rate
applicable to corporations. The pass-through entity otherwise liable for the
tax, for any period during which the disqualified organization is the record
holder of an interest in such entity, will be relieved of liability for the tax
if such record holder furnishes to such entity an affidavit that such record
holder is not a disqualified organization and, for such period, the pass-through
entity does not have actual knowledge that the affidavit is false. For this
purpose, a "PASS-THROUGH ENTITY" means:
o a regulated investment company, real estate investment trust or
common trust fund,
o a partnership, trust or estate and
o certain cooperatives.
Except as may be provided in Treasury regulations not yet issued, any
person holding an interest in a pass-through entity as a nominee for another
will, with respect to such interest, be treated as a pass-through entity.
Electing large partnerships -- generally, non-service partnerships with 100 or
more members electing to be subject to simplified Internal Revenue
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Service reporting provisions under Internal Revenue Code sections 771 through
777 -- will be taxable on excess inclusion income as if all partners were
disqualified organizations.
In order to comply with these rules, the Agreement will provide that no
record or beneficial ownership interest in a REMIC Residual Certificate may be
purchased, transferred or sold, directly or indirectly, without the express
written consent of the master servicer. The master servicer will grant such
consent to a proposed transfer only if it receives the following:
o an affidavit from the proposed transferee to the effect that it is
not a disqualified organization and is not acquiring the REMIC
Residual Certificate as a nominee or agent for a disqualified
organization and
o a covenant by the proposed transferee to the effect that the
proposed transferee agrees to be bound by and to abide by the
transfer restrictions applicable to the REMIC Residual
Certificate.
Noneconomic REMIC Residual Certificates. The REMIC Regulations disregard,
for federal income tax purposes, any transfer of a Noneconomic REMIC Residual
Certificate to a U.S. Person, unless no significant purpose of the transfer is
to enable the transferor to impede the assessment or collection of tax. A
Noneconomic REMIC Residual Certificate is any REMIC Residual Certificate,
including a REMIC Residual Certificate with a positive value at issuance,
unless, at the time of transfer, taking into account the Prepayment Assumption
and any required or permitted clean up calls or required liquidation provided
for in the REMIC's organizational documents,
o the present value of the expected future distributions on the
REMIC Residual Certificate at least equals the product of the
present value of the anticipated excess inclusions and the highest
corporate income tax rate in effect for the year in which the
transfer occurs and
o the transferor reasonably expects that the transferee will receive
distributions from the REMIC at or after the time at which taxes
accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes.
A significant purpose to impede the assessment or collection of tax exists
if the transferor, at the time of the transfer, either knew or should have known
that the transferee would be unwilling or unable to pay taxes due on its share
of the taxable income of the REMIC. A transferor is presumed not to have such
knowledge if:
o the transferor conducted a reasonable investigation of the
transferee and
o the transferee acknowledges to the transferor that the residual
interest may generate tax liabilities in excess of the cash flow
and the transferee represents that it intends to pay such taxes
associated with the residual interest as they become due.
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If a transfer of a Noneconomic REMIC Residual Certificate is disregarded,
the transferor would continue to be treated as the owner of the REMIC Residual
Certificate and would continue to be subject to tax on its allocable portion of
the net income of the REMIC.
Foreign Investors. The REMIC Regulations provide that the transfer of a
REMIC Residual Certificate that has a "tax avoidance potential" to a "foreign
person" will be disregarded for federal income tax purposes. This rule appears
to apply to a transferee who is not a U.S. Person unless such transferee's
income in respect of the REMIC Residual Certificate is effectively connected
with the conduct of a United States trade or business. A REMIC Residual
Certificate is deemed to have a tax avoidance potential unless, at the time of
transfer, the transferor reasonably expects that the REMIC will distribute to
the transferee amounts that will equal at least 30 percent of each excess
inclusion, and that such amounts will be distributed at or after the time the
excess inclusion accrues and not later than the end of the calendar year
following the year of accrual. If the non-U.S. Person transfers the REMIC
Residual Certificate to a U.S. Person, the transfer will be disregarded, and the
foreign transferor will continue to be treated as the owner, if the transfer has
the effect of allowing the transferor to avoid tax on accrued excess inclusions.
The provisions in the REMIC Regulations regarding transfers of REMIC Residual
Certificates that have tax avoidance potential to foreign persons are effective
for all transfers after June 30, 1992. The pooling and servicing agreement will
provide that no record or beneficial ownership interest in a REMIC Residual
Certificate may be transferred, directly or indirectly, to a non-U.S. Person
unless the person provides the trustee with a duly completed Internal Revenue
Service Form 4224 or applicable successor form adopted by the Internal Revenue
Service for such purposes and the trustee consents to the transfer in writing.
Any attempted transfer or pledge in violation of the transfer restrictions
shall be absolutely null and void and shall vest no rights in any purported
transferee. Investors in REMIC Residual Certificates are advised to consult
their own tax advisors with respect to transfers of the REMIC Residual
Certificates and, in addition, pass-through entities are advised to consult
their own tax advisors with respect to any tax which may be imposed on a
pass-through entity.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Federal
Income Tax Consequences," potential investors should consider the state income
tax consequences of the acquisition, ownership, and disposition of the offered
certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisors with respect to the various tax
consequences of investments in the offered certificates.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA")
and Section 4975 of the Internal Revenue Code, impose certain restrictions on
Plans and on persons
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who are parties in interest or disqualified persons with respect to the Plans.
Certain employee benefit plans, such as governmental plans and church plans (if
no election has been made under Section 410(d) of the Internal Revenue Code),
are not subject to the restrictions of ERISA, and assets of these plans may be
invested in the certificates without regard to the ERISA considerations
described below, subject to other applicable federal and state law. However, any
governmental or church plan that is not subject to ERISA but is qualified under
Section 401(a) of the Internal Revenue Code and exempt from taxation under
Section 501(a) of the Internal Revenue Code is subject to the prohibited
transaction rules set forth in Section 503 of the Internal Revenue Code.
Investments by Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan.
PROHIBITED TRANSACTIONS
General
Section 406 of ERISA prohibits parties in interest with respect to a Plan
from engaging in certain transactions involving a Plan and its assets unless a
statutory, regulatory or administrative exemption applies to the transaction.
Section 4975 of the Internal Revenue Code imposes excise taxes (or, in some
cases, a civil penalty may be assessed pursuant to Section 502(i) of ERISA) on
parties in interest which engage in non-exempt prohibited transactions.
The United States Department of Labor has issued a final regulation (29
C.F.R. Section 2510.3-101) containing rules for determining what constitutes the
assets of a Plan. This regulation provides that, as a general rule, the
underlying assets and properties of corporations, partnerships, trusts and
certain other entities in which a Plan makes an "equity investment" will be
deemed for purposes of ERISA to be assets of the Plan unless an exception
applies.
Under the terms of the regulation, the trust may be deemed to hold plan
assets by reason of a Plan's investment in a certificate; such plan assets would
include an undivided interest in the mortgage loans and any other assets held by
the trust. In this event, the asset seller, the master servicer, the trustee,
any insurer of the mortgage loans and mortgage-backed securities and other
persons, in providing services with respect to the assets of the trust, may be
parties in interest, subject to the fiduciary responsibility provisions of Title
I of ERISA, including the prohibited transaction provisions of Section 406 of
ERISA (and of Section 4975 of the Internal Revenue Code), with respect to
transactions involving the plan assets unless such transactions are subject to a
statutory, regulatory or administrative exemption.
The regulations contain a de minimis safe-harbor rule that exempts the
assets of any entity from plan assets status as long as the aggregate equity
investment in such entity by plans is not significant. For this purpose, equity
participation in the entity will be significant if immediately after any
acquisition of any equity interest in the entity, "benefit plan investors" in
the aggregate, own 25% or more of the value of any class of equity interest,
excluding from the calculation the value of equity interest held by persons who
have discretionary authority or control with access to the assets of the entity
or held by affiliates of such persons. "BENEFIT PLAN
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INVESTORS" include both Plans and employee benefit plans not subject to ERISA
(e.g., governmental and foreign plans). To fit within the safe harbor, the 25%
limitation must be met with respect to each class of certificates, regardless of
the portion of total equity value represented by such class, on an ongoing
basis.
Availability of Underwriter's Exemption for Certificates
The United States Department of Labor has granted to Morgan Stanley & Co.
Incorporated Prohibited Transaction Exemption 90-24, Exemption Application No.
D-8019, 55 Fed. Reg. 20548 (1990) which exempts from the application of the
prohibited transaction rules transactions relating to:
o the acquisition, sale and holding by Plans of certain certificates
representing an undivided interest in certain asset-backed
pass-through trusts, with respect to which Morgan Stanley & Co.
Incorporated or any of its affiliates is the sole underwriter or
the manager or co-manager of the underwriting syndicate; and
o the servicing, operation and management of those asset-backed
pass-through trusts, provided that the general conditions and
certain other conditions set forth in the Exemption are satisfied.
The Exemption sets forth the following general conditions which must be
satisfied before a transaction involving the acquisition, sale and holding of
the certificates or a transaction in connection with the servicing, operation
and management of the trust may be eligible for exemptive relief thereunder:
(1) The acquisition of the certificates by a Plan is on terms
(including the price for such certificates) that are at least as
favorable to the investing Plan as they would be in an arm's-length
transaction with an unrelated party;
(2) The rights and interests evidenced by the certificates acquired
by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the trust;
(3) The certificates acquired by the Plan have received a rating at
the time of such acquisition that is in one of the three highest
generic rating categories from any of the following rating agencies:
Duff & Phelps Inc., Fitch IBCA, Inc., Moody's Investors Service,
Inc. and Standard & Poor's Ratings Group.
(4) The trustee is not an affiliate of the underwriter, the asset
seller, the master servicer, any insurer of the mortgage loans and
mortgage-backed securities, any borrower whose obligations under one
or more mortgage loans constitute more than 5% of the aggregate
unamortized principal balance of the assets in the trust, or any of
their respective affiliates (the "RESTRICTED GROUP");
(5) The sum of all payments made to and retained by the underwriter
in connection with the distribution of the certificates represents
not more than reasonable compensation for underwriting such
certificates; the sum of all
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payments made to and retained by the asset seller pursuant to the
sale of the mortgage loans to the trust represents not more than the
fair market value of such mortgage loans; the sum of all payments
made to and retained by each servicer represents not more than
reasonable compensation for such servicer's services under the
pooling and servicing agreement and reimbursement of such servicer's
reasonable expenses in connection therewith; and
(6) The Plan investing in the certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of 1933
as amended.
The trust fund must also meet the following requirements:
(i) the corpus of the trust fund must consist solely of assets of a
type that have been included in other investment pools;
(ii) certificates evidencing interests in such other investment
pools must have been rated in one of the three highest rating categories
of a rating agency for at least one year prior to the Plan's acquisition
of the securities; and
(iii) certificates evidencing interests in such other investment
pools must have been purchased by investors other than Plans for at least
one year prior to any Plan's acquisition of the securities.
On July 21, 1997, Labor published in the Federal Register an amendment to
the Exemption, which extends exemptive relief to certain mortgage-backed and
asset-backed securities transactions using pre-funding accounts for trusts
issuing pass-through certificates. The amendment generally allows mortgage loans
or other secured receivables supporting payments to certificateholders, and
having a value equal to no more than twenty-five percent (25%) of the total
principal amount of the certificates being offered by the trust, to be
transferred to the trust within a 90-day or three-month pre-funding period
following the closing date, instead of requiring that all such receivables be
either identified or transferred on or before the closing date. The relief is
available when the following conditions are met:
(1) The ratio of the amount allocated to the pre-funding account to
the total principal amount of the certificates being offered (the
"PRE-FUNDING LIMIT") must not exceed twenty-five percent (25%).
(2) All receivables transferred after the closing date (the
"ADDITIONAL OBLIGATIONS") must meet the same terms and conditions for
eligibility as the original receivables used to create the trust, which
terms and conditions have been approved by a rating agency.
(3) The transfer of such additional obligations to the trust during
the pre-funding period must not result in the certificates to be covered
by the Exemption receiving a lower credit rating from a rating agency upon
termination of the pre-funding period than the rating that was obtained at
the time of the initial issuance of the certificates by the trust.
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(4) Solely as a result of the use of pre-funding, the weighted
average annual percentage interest rate for all of the receivables in the
trust at the end of the pre-funding period must not be more than 100 basis
points lower than the average interest rate for the receivables
transferred to the trust on the closing date.
(5) in order to insure that the characteristics of the additional
obligations are substantially similar to the original receivables which
were transferred to the trust fund:
(i) the characteristics of the additional obligations must be
monitored by an insurer or other credit support provider that is
independent of Morgan Stanley Capital I Inc.; or
(ii) an independent accountant retained by Morgan Stanley
Capital I Inc. must provide Morgan Stanley Capital I Inc. with a
letter (with copies provided to each rating agency rating the
certificates, the related underwriter and the related trustee)
stating whether or not the characteristics of the additional
obligations conform to the characteristics described in the related
prospectus or prospectus supplement and/or pooling and servicing
agreement. In preparing such letter, the independent accountant must
use the same type of procedures as were applicable to the
receivables transferred to the trust as of the closing date.
(6) The pre-funding period must end no later than three months or 90
days after the closing date or earlier if the pre-funding account falls
below the minimum level specified in the pooling and servicing agreement
or an Event of Default occurs.
(7) Amounts transferred to any pre-funding account and/or
capitalized interest account used in connection with the pre-funding may
be invested only in certain permitted investments.
(8) The related prospectus or prospectus supplement must describe:
(i) any pre-funding account and/or capitalized interest
account used in connection with a pre-funding account;
(ii) the duration of the pre-funding period;
(iii) the percentage and/or dollar amount of the pre-funding
limit for the trust; and
(iv) that the amounts remaining in the pre-funding account at
the end of the pre-funding period will be remitted to
certificateholders as repayments of principal.
(9) The related pooling and servicing agreement must describe the
permitted investments for the pre-funding account and/or capitalized
interest account and, if not disclosed in the related prospectus or
prospectus supplement, the terms and conditions for eligibility of
additional obligations.
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Moreover, the Exemption provides relief from certain self-dealing/conflict
of interest prohibited transactions that may occur when any person who has
discretionary authority or renders investment advice with respect to the
investment of plan assets causes a Plan to acquire certificates in a trust
holding receivables on which that person or an affiliate is an obligor, provided
that, among other requirements: (i) such person (or its affiliate) is an obligor
with respect to five percent or less of the fair market value of the obligations
or receivables contained in the trust; (ii) no member of the Restricted Group
(as defined below) is the "plan sponsor" (as defined in Section 3(16)(B) of
ERISA) of the Plan; (iii) in the case of an acquisition in connection with the
initial issuance of certificates, at least fifty percent of each class of
certificates in which Plans have invested and at least fifty percent of the
aggregate interest in the trust fund is acquired by persons independent of the
Restricted Group; (iv) a Plan's investment in certificates of any class does not
exceed twenty-five percent of all of the certificates of that class outstanding
at the time of the acquisition; and (v) immediately after the acquisition, no
more than twenty-five percent of the assets of any Plan with respect to which
such person has discretionary authority or renders investment advice are
invested in certificates representing an interest in one or more trusts
containing assets sold or serviced by the same entity. The Exemption does not
apply to Plans sponsored by the seller, Morgan Stanley Capital I Inc., Morgan
Stanley & Co. Incorporated and the other underwriters set forth in the related
prospectus supplement, the trustee, the master servicer, any pool insurer, any
obligor with respect to obligations included in the trust fund constituting more
than five percent of the aggregate unamortized principal balance of the assets
in the trust fund, or any affiliate of any of such parties (the "Restricted
Group").
Before purchasing a certificate, a fiduciary of a Plan should itself
confirm (a) that the certificates constitute "certificates" for purposes of the
Exemption and (b) that the specific and general conditions set forth in the
Exemption and the other requirements set forth in the Exemption would be
satisfied. The prospectus supplement for each series of certificates will
specify whether there is a "pre-funding period" and whether such additional
conditions will be satisfied.
REVIEW BY PLAN FIDUCIARIES
Any Plan fiduciary considering whether to purchase any certificates on
behalf of a Plan should consult with its counsel regarding the applicability of
the fiduciary responsibility and prohibited transaction provisions of ERISA and
the Internal Revenue Code to such investment. Among other things, before
purchasing any certificates, a fiduciary of a Plan should make its own
determination as to the availability of the exemptive relief provided in the
Exemption, and also consider the availability of any other prohibited
transaction exemptions. In particular, in connection with a contemplated
purchase of certificates representing a beneficial ownership interest in a pool
of single family residential first mortgage loans, such Plan fiduciary should
consider the availability of the Exemption or Prohibited Transaction Class
Exemption 83-1 ("PTCE 83-1") for certain transactions involving mortgage pool
investment trusts. PTCE 83-1 does not apply to pools containing loans secured by
shares issued by a cooperative association. The prospectus supplement with
respect to a series of certificates may contain additional information regarding
the application of the Exemption, PTCE 83-1, or any other exemption, with
respect to the certificates offered thereby.
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LEGAL INVESTMENT
Each class of offered certificates will be rated at the date of issuance
in one of the four highest rating categories by at least one rating agency.
Unless otherwise described in the related prospectus supplement, each class that
is rated in one of the two highest rating categories by at least one rating
agency will constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984, as amended and, as such, will
constitute legal investments for persons, trusts, corporations, partnerships,
associations, business trusts and business entities including, but not limited
to, depository institutions, insurance companies, trustees and pension funds
created pursuant to or existing under the laws of the United States or of any
state, including the District of Columbia and Puerto Rico, whose authorized
investments are subject to state regulation to the same extent that, under
applicable law, obligations issued by or guaranteed as to principal and interest
by the United States or any agency or instrumentality thereof constitute legal
investments for such entities. Pursuant to SMMEA, a number of states enacted
legislation, on or before the October 3, 1991 cutoff for such enactments,
limiting to varying extents the ability of certain entities, in particular,
insurance companies, to invest in mortgage related securities, in most cases by
requiring the affected investors to rely solely upon existing state law, and not
SMMEA. Accordingly, investors affected by the legislation will be authorized to
invest in SMMEA certificates only to the extent provided in such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in "mortgage related
securities" without limitation as to the percentage of their assets represented
thereby, federal credit unions may invest in such securities, and national banks
may purchase such securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
ss. 24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority may prescribe. In this connection, the Office of
the Comptroller of the Currency amended 12 C.F.R. Part I to authorize national
banks to purchase and sell for their own account, without limitation as to a
percentage of the bank's capital and surplus (but subject to compliance with
certain general standards in 12 C.F.R. ss. 1.5 concerning "safety and soundness"
and retention of credit information), certain "Type IV securities," defined in
12 C.F.R. ss. 1.2(1) to include certain "residential mortgage-related
securities." As so defined, "residential mortgage-related security" means, in
relevant part, "mortgage related security" within the meaning of SMMEA. The
National Credit Union Administration has adopted rules, codified at 12 C.F.R.
Part 703, which permit federal credit unions to invest in "mortgage related
securities" under certain limited circumstances, other than stripped mortgage
related securities, residual interests in mortgage related securities, and
commercial mortgage related securities, unless the credit union has obtained
written approval from the National Credit Union Administration to participate in
the "investment pilot program" described in 12 C.F.R. ss. 703.140. The Office of
Thrift Supervision has issued Thrift Bulletin 13a (December 1, 1998),
"Management of Interest Rate Risk, Investment securities and Derivative
Activities," which thrift institutions subject to the jurisdiction of the Office
of Thrift Supervision should consider before investing in any of the offered
certificates.
All depository institutions considering an investment in the offered
certificates shall review the "Supervisory Policy Statement on Investment
Securities and End User Derivatives
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Activities" of the Federal Financial Institutions Examination Council, which has
been adopted by the Board of Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation, the Office of the Comptroller of the
Currency and the Office of Thrift Supervision effective May 26, 1998, and by the
National Credit Union Administration, effective October 1, 1998. The
"Supervisory Policy Statement on Investment Securities and End User Derivatives
Activities" sets forth general guidelines which depository institutions must
follow in managing risks, including market, credit, liquidity, operational
(transaction), and legal risks applicable to all securities, including mortgage
pass-through securities and mortgage-derivative products, used for investment
purposes.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any offered
certificates, as certain series or classes may be deemed to be unsuitable
investments, or may otherwise be restricted, under such rules, policies or
guidelines, in certain instances irrespective of SMMEA.
If specified in the related prospectus supplement, other classes of
offered certificates offered pursuant to this Prospectus will not constitute
"mortgage related securities" under SMMEA. The appropriate characterization of
those offered certificates under various legal investment restrictions, and thus
the ability of investors subject to these restrictions to purchase such offered
certificates, may be subject to significant interpretive uncertainties.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying," and, with regard to any offered certificates issued
in book-entry form, provisions which may restrict or prohibit investments in
securities which are issued in book-entry form.
Except as to the status of SMMEA certificates identified in the prospectus
supplement for a series as "mortgage related securities" under SMMEA, no
representations are made as to the proper characterization of the offered
certificates for legal investment purposes, financial institution regulatory
purposes, or other purposes, or as to the ability of particular investors to
purchase any offered certificates under applicable legal investment
restrictions. The uncertainties described in this section and any unfavorable
future determinations concerning legal investment or financial institution
regulatory characteristics of the offered certificates may adversely affect the
liquidity of the offered certificates. Accordingly, all investors whose
investment activities are subject to legal investment laws and regulations,
regulatory capital requirements or review by regulatory authorities should
consult with their own legal advisors in determining whether and to what extent
the offered certificates of any class constitute legal investments or are
subject to investment, capital or other restrictions, and, if applicable,
whether SMMEA has been overridden in any jurisdiction relevant to such investor.
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PLAN OF DISTRIBUTION
The offered certificates offered hereby and by the supplements to this
prospectus will be offered in series. The distribution of the certificates may
be effected from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices to be
determined at the time of sale or at the time of commitment therefor. If so
specified in the related prospectus supplement, the offered certificates will be
distributed in a firm commitment underwriting, subject to the terms and
conditions of the underwriting agreement, by Morgan Stanley & Co. Incorporated
acting as underwriter with other underwriters, if any, named therein. In such
event, the prospectus supplement may also specify that the underwriters will not
be obligated to pay for any offered certificates agreed to be purchased by
purchasers pursuant to purchase agreements acceptable to Morgan Stanley Capital
I Inc. In connection with the sale of offered certificates, underwriters may
receive compensation from Morgan Stanley Capital I Inc. or from purchasers of
offered certificates in the form of discounts, concessions or commissions. The
prospectus supplement will describe any such compensation paid by Morgan Stanley
Capital I Inc.
Alternatively, the prospectus supplement may specify that offered
certificates will be distributed by Morgan Stanley & Co. Incorporated acting as
agent or in some cases as principal with respect to offered certificates that it
has previously purchased or agreed to purchase. If Morgan Stanley & Co.
Incorporated acts as agent in the sale of offered certificates, Morgan Stanley &
Co. Incorporated will receive a selling commission with respect to the offered
certificates, depending on market conditions, expressed as a percentage of the
aggregate certificate balance or notional amount of the offered certificates as
of the cut-off date. The exact percentage for each series of certificates will
be disclosed in the related prospectus supplement. To the extent that Morgan
Stanley & Co. Incorporated elects to purchase offered certificates as principal,
Morgan Stanley & Co. Incorporated may realize losses or profits based upon the
difference between its purchase price and the sales price. The prospectus
supplement with respect to any series offered other than through underwriters
will contain information regarding the nature of such offering and any
agreements to be entered into between Morgan Stanley Capital I Inc. and
purchasers of offered certificates of such series.
Morgan Stanley Capital I Inc. will indemnify Morgan Stanley & Co.
Incorporated and any underwriters against certain civil liabilities, including
liabilities under the Securities Act of 1933, or will contribute to payments
Morgan Stanley & Co. Incorporated and any underwriters may be required to make
in respect thereof.
In the ordinary course of business, Morgan Stanley & Co. Incorporated and
Morgan Stanley Capital I Inc. may engage in various securities and financing
transactions, including repurchase agreements to provide interim financing of
Morgan Stanley Capital I Inc.'s mortgage loans pending the sale of such mortgage
loans or interests therein, including the certificates.
Offered certificates will be sold primarily to institutional investors.
Purchasers of offered certificates, including dealers, may, depending on the
facts and circumstances of the purchases, be deemed to be "underwriters" within
the meaning of the Securities Act of 1933 in connection with reoffers and sales
by them of offered certificates. Certificateholders should consult with their
legal advisors in this regard prior to any such reoffer or sale.
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If specified in the prospectus supplement relating to certificates of a
particular series offered hereby, Morgan Stanley Capital I Inc., any affiliate
thereof or any other person or persons specified therein may purchase some or
all of the certificates of any series from Morgan Stanley & Co. Incorporated and
any other underwriters thereof. This purchaser may thereafter from time to time
offer and sell, pursuant to this prospectus and the related prospectus
supplement, some or all of the certificates so purchased, directly, through one
or more underwriters to be designated at the time of the offering of the
certificates, through dealers acting as agent and/or principal or in such other
manner as may be specified in the related prospectus supplement. The offering
may be restricted in the manner specified in such prospectus supplement. The
transactions may be effected at market prices prevailing at the time of sale, at
negotiated prices or at fixed prices. Any underwriters and dealers participating
in the purchaser's offering of the certificates may receive compensation in the
form of underwriting discounts or commissions from such purchaser and such
dealers may receive commissions from the investors purchasing the certificates
for whom they may act as agent (which discounts or commissions will not exceed
those customary in those types of transactions involved). Any dealer that
participates in the distribution of the certificates may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any commissions and
discounts received by such dealer and any profit on the resale or such
certificates by such dealer might be deemed to be underwriting discounts and
commissions under the Securities Act.
All or part of any class of certificates may be reacquired by Morgan
Stanley Capital I Inc. or acquired by an affiliate of Morgan Stanley Capital I
Inc. in a secondary market transaction or from an affiliate, including Morgan
Stanley & Co. Incorporated. Such certificates may then be included in a trust
fund, the beneficial ownership of which will be evidenced by one or more classes
of mortgage-backed certificates, including subsequent series of certificates
offered pursuant to this prospectus and a prospectus supplement.
As to each series of certificates, only those classes rated in an
investment grade rating category by any rating agency will be offered hereby.
Any non-investment-grade class may be initially retained by Morgan Stanley
Capital I Inc., and may be sold by Morgan Stanley Capital I Inc. at any time in
private transactions.
LEGAL MATTERS
Certain legal matters in connection with the certificates, including
certain federal income tax consequences, will be passed upon for Morgan Stanley
Capital I Inc. by Cadwalader, Wickersham & Taft, Brown & Wood LLP or Latham &
Watkins.
FINANCIAL INFORMATION
A new trust fund will be formed with respect to each series of
certificates and no trust fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series of
certificates. Accordingly, no financial statements with respect to any trust
fund will be included in this prospectus or in the related prospectus
supplement.
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RATING
It is a condition to the issuance of any class of offered certificates
that they shall have been rated not lower than investment grade, that is, in one
of the four highest rating categories, by a rating agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage loans
and the credit quality of the guarantor, if any. ratings on mortgage
pass-through certificates do not represent any assessment of the likelihood of
principal prepayments by borrowers or of the degree by which such prepayments
might differ from those originally anticipated. As a result, certificateholders
might suffer a lower than anticipated yield, and, in addition, holders of
stripped interest certificates in extreme cases might fail to recoup their
initial investments.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating.
INCORPORATION OF INFORMATION BY REFERENCE
The SEC allows Morgan Stanley Capital I Inc. to "incorporate by reference"
information it files with the SEC, which means that Morgan Stanley Capital I
Inc. can disclose important information to you by referring you to those
documents. The information incorporated by reference is considered to be part of
this prospectus. Information that Morgan Stanley Capital I Inc. files later with
the SEC will automatically update the information in this prospectus. In all
cases, you should rely on the later information rather than on any different
information included in this prospectus or the accompanying prospectus
supplement. Morgan Stanley Capital I Inc. incorporates by reference any future
annual, monthly and special SEC reports filed by or on behalf of the trust until
the termination of the offering of the certificates.
As a recipient of this prospectus, you may request a copy of any document
Morgan Stanley Capital I Inc. incorporates by reference, except exhibits to the
documents, unless the exhibits are specifically incorporated by reference, at no
cost, by writing or calling Morgan Stanley Capital I Inc. at Morgan Stanley &
Co. Incorporated, 1585 Broadway, 37th Floor, New York, New York 10036,
Attention: Mortgage Securities, telephone number (212) 761-4700.
Morgan Stanley Capital I Inc. filed a registration statement relating to
the certificates with the Securities and Exchange Commission. This prospectus is
part of the registration statement, but the registration statement includes
additional information.
Copies of the registration statement may be obtained from the Public
Reference Section of the Securities and Exchange Commission, Washington, D.C.
20549 upon payment of the prescribed charges, or may be examined free of charge
at the Securities and Exchange Commission's offices, 450 Fifth Street N.W.,
Washington, D.C. 20549 or at the regional offices of the Securities and Exchange
Commission located at Suite 1300, 7 World Trade Center, New York, New York 10048
and Suite 1400, Citicorp Center, 500 West Madison Street, Chicago,
131
<PAGE>
Illinois 60661-2511. The Securities and Exchange Commission also maintains a
site on the World Wide Web at "http://www.sec.gov" at which you can view and
download copies of reports, proxy and information statements and other
information filed electronically through the Electronic Data Gathering Analysis
and Retrieval system. Morgan Stanley Capital I Inc. has filed the registration
statement, including all exhibits, through the EDGAR system and the materials
should be available by logging onto the Securities and Exchange Commission's Web
site. The Securities and Exchange Commission maintains computer terminals
providing access to the EDGAR system at each of the offices referred to above.
Copies of any documents incorporated to this prospectus by reference will be
provided to each person to whom a Prospectus is delivered upon written or oral
request directed to Morgan Stanley & Co. Incorporated, 1585 Broadway, 37th
Floor, New York, New York 10036, Attention: Mortgage Securities, telephone
number (212) 761-4700.
132
<PAGE>
GLOSSARY OF TERMS
The certificates will be issued pursuant to the Agreement. The following
Glossary of Terms is not complete. You should also refer to the prospectus
supplement and the Agreement for additional or more complete definitions. If you
send a written request to the trustee at its corporate office, the trustee will
provide to you without charge a copy of the Agreement (without exhibits and
schedules).
Unless the context requires otherwise, the definitions contained in this
Glossary of Terms apply only to this series of certificates.
"Agreement" means the pooling and servicing agreement or the trust
agreement, as applicable.
"Amortizable Bond Premium Regulations" means final regulations issued by
the Internal Revenue Service which deal with the amortizable bond premium.
"Available Distribution Amount" means for each distribution date, the sum
of the following amounts:
o the total amount of all cash on deposit in the related certificate
account as of the corresponding determination date, exclusive of:
o all scheduled payments of principal and interest collected
but due on a date subsequent to the related Due Period;
o unless the related prospectus supplement provides
otherwise, all prepayments, together with related payments
of the interest thereon and related prepayment premiums,
liquidation proceeds, insurance proceeds and other
unscheduled recoveries received subsequent to the related
Due Period; and
o all amounts in the certificate account that are due or
reimbursable to Morgan Stanley Capital I Inc., the
trustee, an asset seller, a subservicer, the master
servicer or any other entity as specified in the related
prospectus supplement or that are payable in respect of
certain expenses of the related trust fund;
o if the related prospectus supplement so provides, interest or
investment income on amounts on deposit in the certificate
account, including any net amounts paid under any cash flow
agreements;
o all advances made by a servicer or any other entity as specified
in the related prospectus supplement with respect to the
distribution date;
o if and to the extent the related prospectus supplement so
provides, amounts paid by a servicer or any other entity as
specified in the related
133
<PAGE>
prospectus supplement with respect to interest shortfalls
resulting from prepayments during the related prepayment
period; and
o unless the related prospectus supplement provides otherwise, to
the extent not on deposit in the related certificate account as of
the corresponding determination date, any amounts collected under,
from or in respect of any credit support with respect to the
distribution date.
"Contributions Tax" means a tax on the trust fund equal to 100% of the
value of the contributed property.
"Deferred Interest" means interest deferred by reason of negative
amortization.
"Determination Date" means the close of business on the date specified in
the related prospectus supplement.
"Due Period" means the period which will commence on the second day of the
month in which the immediately preceding distribution date occurs, or the day
after the cut-off date in the case of the first Due Period, and will end on the
first day of the month of the related distribution date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Events of Default" means, with respect to the master servicer under the
pooling and servicing agreement, any one of the following events:
o any failure by the master servicer to distribute or cause to be
distributed to certificateholders, or to remit to the trustee for
distribution to certificateholders, any required payment.
o any failure by the master servicer duly to observe or perform in
any material respect any of its other covenants or obligations
under the pooling and servicing agreement which continues
unremedied for thirty days after written notice of such failure
has been given to the master servicer by the trustee or Morgan
Stanley Capital I Inc., or to the master servicer, Morgan Stanley
Capital I Inc., and the trustee by the holders of certificates
evidencing not less than 25% of the voting rights;
o any breach of a representation or warranty made by the master
servicer under the pooling and servicing agreement which
materially and adversely affects the interests of
certificateholders and which continues unremedied for thirty days
after written notice of such breach has been given to the master
servicer by the trustee or Morgan Stanley Capital I Inc., or to
the master servicer, Morgan Stanley Capital I Inc. and the trustee
by the holders of certificates evidencing not less than 25% of the
voting rights; and
134
<PAGE>
o certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings and certain actions
by or on behalf of the master servicer indicating its insolvency
or inability to pay its obligations.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"Mark-to-Market Regulations" means the finalized Internal Revenue Service
regulations which provide that a REMIC Residual Certificate acquired after
January 3, 1995 cannot be marked to market.
"New Regulations" means the regulations issued by the Treasury Department
on October 6, 1997.
"OID Regulations" means the special rules of the Internal Revenue Code
relating to original issue discount (currently Internal Revenue Code Sections
1271 through 1273 and 1275) and Treasury regulations issued on January 27, 1994.
"Payment Lag Certificates" means certain of the REMIC Regular Certificates.
"Permitted Investments" means United States government securities and
other investment grade obligations specified in the Pooling and servicing
agreement.
"Plans" means employee benefit plans subject to ERISA and certain other
similar plans and arrangements, including but not limited to individual
retirement accounts and annuities.
"Prepayment Assumption" means the original yield to maturity of the
grantor trust certificate calculated based on a reasonable assumed prepayment
rate for the mortgage loans underlying the grantor trust certificates.
"Prohibited Transaction Tax" means the tax the Internal Revenue Code
imposes on REMICs equal to 100% of the net income derived from "prohibited
transactions."
"Purchase Price" means, with respect to any mortgage loan and to the
extent set forth in the related prospectus supplement, the amount that is equal
to the sum of the unpaid principal balance, plus unpaid accrued interest at the
mortgage rate from the date as to which interest was last paid to the due date
in the Due Period in which the relevant purchase is to occur, plus certain
servicing expenses that are reimbursable to the master servicer.
"Record Date" means the last business day of the month immediately
preceding the month in which the distribution date for a class of certificates
occurs.
"Related Proceeds" means related recoveries on the mortgage loans,
including amounts received under any form of credit support, for which advances
were made.
"REMIC Certificates" means a certificate issued by a trust fund relating
to a series of certificate where an election is made to treat the trust fund as
a REMIC.
135
<PAGE>
"REMIC Provisions" means provisions of the federal income tax law relating
to real estate mortgage investment conduits, which appear at Section 860A
through 860G of Subchapter M of Chapter 1 of the Internal Revenue Code of 1986,
as amended from time to time, and related provisions, and regulations (including
any proposed regulations) and rulings promulgated thereunder, as the foregoing
may be in effect from time to time.
"REMIC Regular Certificates" means REMIC Certificates issued by the trust
fund that qualify as REMIC Certificates and are considered to be regular
interests.
"REMIC Regular Certificateholders" means holders of REMIC and Regular
Certificates.
"REMIC Regulations" means the REMIC Regulations promulgated by the
Treasury Department.
"REMIC Residual Certificate" means the sole class of residual interests in
the REMIC.
"REMIC Residual Certificateholders" means holders of the REMIC Regular
Certificates.
"REO Tax" means a tax on "net income from foreclosure property," within
the meaning of Section 857(b)(4)(B) of the Internal Revenue Code.
"Restricted Group" means the underwriter, the asset seller, the master
servicer, any insurer of the mortgage loans and mortgage-backed securities, any
borrower whose obligations under one or more mortgage loans constitute more than
5% of the aggregate unamortized principal balance of the assets in the trust, or
any of their respective.
"RICO" means the Racketeer Influenced and Corrupt Organizations statute.
"Servicing Standard" means:
o the standard for servicing the servicer must follow as defined by
the terms of the related pooling and servicing agreement and any
related hazard, business interruption, rental interruption or
general liability insurance policy or instrument of credit support
included in the related trust fund as described in this prospectus
under "Description of Credit Support" and in the prospectus
supplement;
o applicable law; and
o the general servicing standard specified in the related prospectus
supplement or, if no such standard is so specified, its normal
servicing practices.
"SMMEA" means the Secondary Mortgage Market Enhancement Act of 1984, as
amended.
"Stripped ARM Obligations" means original issue discount on grantor trust
certificates attributable to adjustable rate loans.
136
<PAGE>
"Stripped Bond Certificates" means a class of grantor trust certificates
that represents the right to principal and interest, or principal only, on all
or a portion of the mortgage loans and mortgage-backed securities, if a trust
fund is created with two classes of grantor trust certificates.
"Stripped Coupon Certificates" means a class of grantor trust certificates
that represents the right to some or all of the interest on a portion of the
mortgage loans and mortgage-backed securities, if a trust fund is created with
two classes of grantor trust certificates.
"Stripped Interest Certificates" means certificates which are entitled to
interest distributions with disproportionately low, nominal or no principal
distributions.
"Stripped Principal Certificates" means certificates which are entitled to
principal distributions with disproportionately low, or no interest
distributions.
"Super-Premium Certificates" means certain REMIC Regular Certificates to
be issued at prices significantly exceeding their principal amounts or based on
notional principal balances.
"Title V" means Title V of the depository Institutions Deregulation and
Monetary Control Act of 1980.
"U.S. Person" means a citizen or resident of the United States, a
corporation or a partnership organized in or under the laws of the United States
or any political subdivision thereof (other than a partnership that is not
treated as a U.S. Person under any applicable Treasury regulations), an estate
the income of which from sources outside the United States is included in gross
income for federal income tax purposes regardless of its connection with the
conduct of a trade or business within the United States or a trust if a court
within the United States is able to exercise primary supervision of the
administration of the trust and one or more U.S. Persons have the authority to
control all substantial decisions of the trust. In addition, certain trusts
treated as U.S. Persons before August 20, 1996 may elect to continue to be so
treated to the extent provided in regulations.
"Value" means:
o with respect to any mortgaged property other than a mortgaged
property securing a refinance loan, generally the lesser of
o the appraised value determined in an appraisal obtained by
the originator at origination of that loan, and
o the sales price for that property; and
o with respect to any refinance loan, unless otherwise specified in
the related prospectus supplement, the appraised value determined
in an appraisal obtained at the time of origination of the
refinance loan.
137
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement and the prospectus to which it reltes
shall not constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
(version 2)
SUBJECT TO COMPLETION, DATED _______________, 199_
Prospectus Supplement
(To Prospectus dated ________________ __, 199_)
[$ ] (APPROXIMATE)
MORGAN STANLEY CAPITAL I TRUST 199__-__,
ISSUER
MORGAN STANLEY CAPITAL I INC.,
DEPOSITOR
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES __________
-----------
Morgan Stanley Capital I Inc. is offering __ classes of its Series
199_-___ Commercial Mortgage Pass-Through Certificates which represent
beneficial ownership interests in a trust fund. The trust fund's assets will
primarily be ___ [fixed rate] [adjustable rate] mortgage loans secured by [first
and/or junior] liens on ___ [multifamily] [commercial] properties, [mortgage
participations, mortgage pass-through certificates, mortgaged-backed securities
[and] [ direct obligations of the United States or other governmental agencies].
The Series 199_-___ Certificates are not obligations of Morgan Stanley
Capital I Inc. or any of its affiliates, and neither the certificates nor the
underlying mortgage loans are insured or guaranteed by any governmental agency.
-----------
Morgan Stanley Capital I Inc. will not list the certificates offered to
you on any national securities exchange or on any automated quotation system of
any registered securities association such as NASDAQ.
-----------
INVESTING IN THE CERTIFICATES OFFERED TO YOU INVOLVES RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE S-17 IN THIS PROSPECTUS SUPPLEMENT AND PAGE 13 OF THE
PROSPECTUS.
-----------
CHARACTERISTICS OF THE CERTIFICATES OFFERED TO YOU INCLUDE:
<TABLE>
<CAPTION>
APPROXIMATE
INITIAL
CERTIFICATE EXPECTED RATED
BALANCE OR INITIAL FINAL FINAL
NOTIONAL PASS-THROUGH RATE RATINGS DISTRIBUTION DISTRIBUTION
CLASS AMOUNT RATE DESCRIPTION ([ ]/[ ]) DATE DATE
- -------- ------------ ------------ ----------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Class [ ]..$................%...... Fixed
Class [ ]..$................%...... Fixed
Class [I/O].$................%...... [WAC/IO]
Class [ ]..$................%...... [WAC]
</TABLE>
-----------
The Securities and Exchange Commission and state securities regulators
have not approved or disapproved the certificates offered to you or determined
if this prospectus supplement or the accompanying prospectus are truthful or
complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated will purchase the certificates
offered to you from Morgan Stanley Capital I Inc. and will offer them to the
public at negotiated prices determined at the time of sale. Morgan Stanley & Co.
Incorporated expects to deliver the certificates to purchasers on _____________
__, 199_. Morgan Stanley Capital I Inc. expects to receive from this offering
approximately [ ]% of the initial principal balance of the certificates offered
to you, plus accrued interest from ___________ __, 199_, before deducting
expenses payable by Morgan Stanley Capital I Inc.
-----------
MORGAN STANLEY DEAN WITTER
__________________ __, 199_
<PAGE>
With respect to the table on the cover page:
o The amounts under the column "Approximate Initial Certificate
Balance or Notional Amount" are approximate and may vary by up to
5%.
o In the column "Rate Description," "WAC" means the weighted average
coupon as described in this prospectus supplement and "Fixed"
means fixed rate coupon. "WAC" and "Fixed" are descriptions of the
type of pass-through rates borne by the related classes and "IO"
designates that the related class is entitled only to
distributions of interest.
o The Class [I/O] Certificates will not have a principal amount and
will not be entitled to receive distributions of principal.
Interest will accrue on the Class [I/O] Certificates at their
pass-through rate on their notional amount. The notional amount of
the Class [I/O] Certificates is initially $[ ], [which is equal to
the aggregate initial principal balance of the Class [ ], Class [
], Class [ ] and Class [ ] Certificates. ]
o The expected final distribution date is the date on which the
class of certificates is expected to be paid in full, assuming
timely payments will be made, no principal prepayments will be
made, and otherwise based on certain maturity assumptions.
o The rated final distribution date is the distribution date in
_________. It is a date at least 36 months after the amortization
term of the mortgage loan in the trust fund that has the longest
amortization term.
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
Information about the certificates offered to you is contained in two
separate documents that progressively provide more detail: (a) the accompanying
prospectus, which provides general information, some of which may not apply to
the certificates offered to you; and (b) this prospectus supplement, which
describes the specific terms of the offered certificates. IF THE TERMS OF THE
CERTIFICATES OFFERED TO YOU VARY BETWEEN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN THIS PROSPECTUS
SUPPLEMENT.
You should rely only on the information contained in this prospectus
supplement and the accompanying prospectus. Morgan Stanley Capital I Inc. has
not authorized anyone to provide you with information that is different from
that contained in this prospectus supplement and the prospectus.
This prospectus supplement and the accompanying prospectus include
cross references to sections in these materials where you can find further
related discussions. The tables of contents in this prospectus supplement and
the prospectus identify the pages where these sections are located.
-----------
Until ninety days after the date of this prospectus supplement, all
dealers that buy, sell or trade the certificates offered by this prospectus
supplement, whether or not participating in this offering, may be required to
deliver a prospectus supplement and the accompanying prospectus. This is in
addition to the dealers' obligation to deliver a prospectus supplement and the
accompanying prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
S-2
<PAGE>
TABLE OF CONTENTS
PAGE
----
Executive Summary...........................................................S-4
Summary Of Prospectus Supplement............................................S-6
Risk Factors...............................................................S-17
Mortgage Pool [MBS] Characteristics........................................S-41
General..................................................................S-41
[The Mortgage Backed Securities (MBS)]...................................S-41
[The Index]..............................................................S-42
Characteristics of the Mortgage Loans....... ...........................S-42
Underwriting Standards...................................................S-52
Additional Information...................................................S-52
Description Of The Offered Certificates....................................S-52
General.................................................................S-52
Distributions............................................................S-54
Subordination............................................................S-57
Appraisal Reductions....................................................S-58
Delivery, Form and Denomination..........................................S-58
Book-Entry Registration..................................................S-59
Definitive Certificates..................................................S-60
Transfer Restrictions....................................................S-61
Yield, Prepayment And Maturity Considerations...............................S-61
Yield....................................................................S-61
[Yield on the Offered Certificates]......................................S-63
[Rated Final Distribution Date]..........................................S-65
Weighted Average Life of Offered Certificates............................S-65
The Pooling Agreement......................................................S-69
General..................................................................S-69
Assignment of the Mortgage Loans.........................................S-69
The Master Servicer......................................................S-70
[Special Servicers]......................................................S-71
[Certificate Account]....................................................S-71
Servicing and Other Compensation and Payment of Expenses.................S-71
Reports to Certificateholders............................................S-72
[Voting Rights]..........................................................S-72
Optional Termination.....................................................S-72
Legal Aspects Of The Mortgage Loans.........................................S-73
Use Of Proceeds.............................................................S-73
Federal Income Tax Consequences.............................................S-73
ERISA Considerations........................................................S-75
Legal Investment............................................................S-77
Plan Of Distribution........................................................S-78
Validity Of Offered Certificates............................................S-79
Ratings.....................................................................S-79
Glossary Of Terms...........................................................S-80
Appendix I.................................................................A-I-1
Appendix II...............................................................A-II-1
Appendix III.............................................................A-III-1
S-3
<PAGE>
EXECUTIVE SUMMARY
This Executive Summary highlights selected information regarding the
certificates offered to you and underlying mortgage loans. It does not contain
all of the information you need to consider in making your investment decision.
TO UNDERSTAND ALL OF THE TERMS OF THIS OFFERING AND THE UNDERLYING MORTGAGE
LOANS, YOU SHOULD READ THIS ENTIRE PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS CAREFULLY.
CERTIFICATE STRUCTURE
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
INITIAL PERCENT OF
APPROXIMATE CERTIFICATE RATINGS TOTAL
CREDIT SUPPORT CLASS BALANCE ([ ]/[ ]) CERTIFICATES
- -------------- ----------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C>
CLASS [I/O] CLASS [ ] $ %
$ [ ]
% (approximate notional CLASS [ ] $ %
amount)
% CLASS [ ] $ %
% CLASS [ ] $ %
% CLASS [ ] $ %
% CLASS [ ] $ %
</TABLE>
o The percentages indicated under the columns "Approximate Credit
Support" and "Approximate Percent of Total Certificates" with
respect to the Class [ ] and Class [ ] Certificates represent the
approximate credit support or total certificates, as applicable,
for the Class [ ] and Class [ ] Certificates in the aggregate.
o The Class [ ], Class [ ] and Class [ ] Certificates are not
being offered to you.
o The Series 1999-__-____ Class [R] and Class [LR] Certificates
also represent ownership interests in the trust fund. These
certificates are not being offered to you and are not represented
in this table.
S-4
<PAGE>
<TABLE>
CERTIFICATE SUMMARY
<CAPTION>
INITIAL
CERTIFICATE INITIAL
RATINGS PRINCIPAL OR % OF PASS-THROUGH WTD. AVG. PRINCIPAL
CLASS [ ]/[ ] NOTIONAL AMOUNT TOTAL DESCRIPTION RATE LIFE (YRS.) WINDOW
----- ------- --------------- ----- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Offered Certificates
[ ] $ % Fixed Rate %
[ ] $ % Fixed Rate %
[I/O] $ N/A [Interest Only: % N/A N/A
Weighted Average Coupon]
[ ] $ % [Weighted Average Coupon] %
Non-Offered Certificates
[ ] $ % [Weighted Average Coupon] %
[ ] $ % [Weighted Average Coupon] %
[ ] $ % [Weighted Average Coupon] %
</TABLE>
With respect to the table above:
o The Class [ ], Class [ ] and Class [ ] Certificates are not
represented in this table.
o The initial certificate balances may vary by up to 5%.
o With respect to the column entitled "Description," "Weighted
Average Coupon" and "Fixed Rate" are descriptions of the type of
pass-through rates borne by the related classes and "Interest
Only" designates that the related class is entitled only to
distributions of interest.
o The columns entitled "weighted average life" and "principal
window" reflect the period during which distributions of principal
are anticipated to be received, based on the assumption that the
mortgage loans suffer no losses and are fully paid on their
respective maturity dates.
o The Class [I/O] Certificates will not have a principal amount
and will not be entitled to receive distributions of principal.
Interest will accrue on the Class [I/O] Certificates at its
pass-through rate on its notional amount. The notional amount of
the Class [I/O] Certificates is initially $[ ], which is equal to
the [aggregate initial principal amount of the Class [ ], Class
[ ], Class [ ] and Class [ ] Certificates. ]
S-5
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
This summary highlights selected information from this prospectus
supplement. It does not contain all of the information you need to consider in
making your investment decision. TO UNDERSTAND ALL OF THE TERMS OF THE OFFERING
OF THE CERTIFICATES, READ THIS ENTIRE DOCUMENT AND THE ACCOMPANYING PROSPECTUS
CAREFULLY.
WHAT YOU WILL OWN
CERTIFICATES...................Your certificates represent beneficial interests
in a trust fund created by Morgan Stanley
Capital I Inc. All payments to you will come
only from the amounts received in connection
with the assets of the trust fund. The trust
fund's assets will primarily consist of:
o [ ] [fixed rate] [adjustable rate]
mortgage loans secured by [first and/or
junior] liens on ___ [multifamily]
[commercial] properties;
o [mortgage participations];
o [mortgage pass-through certificates];
o [mortgaged-backed securities; and]
o [direct obligations of the United States
or other governmental agencies].
TITLE OF CERTIFICATES...........Mortgage Pass-Through Certificates, Series
199_-__
MORTGAGE POOL...................The mortgage pool consists of approximately [ ]
mortgage loans with an aggregate principal
balance as of _____, 199_ of approximately $
_____. As of _______ __, 199_, the outstanding
principal balances of the mortgage loans in the
mortgage pool ranged from $[ ] to $[ ] and the
mortgage loans had an average balance of $[ ].
RELEVANT PARTIES AND DATES
ISSUER..........................Morgan Stanley Capital I 199__-__ Trust.
DEPOSITOR.......................Morgan Stanley Capital I Inc., a wholly-owned
subsidiary of Morgan Stanley Group Inc.
MASTER SERVICER................._____________________, a _____________________.
[SUB-SERVICERS.................._____________________, a _____________________.]
[SPECIAL SERVICER..............._____________________, a _____________________.]
TRUSTEE........................._____________________, a _____________________.
MORTGAGE LOAN SELLER............_____________________, a _____________________.
CUT-OFF DATE...................___________ __, 199_.
======= =
CLOSING DATE....................___________ __, 199_.
DISTRIBUTION DATE...............The ____ business day of each month, commencing
in __________, 199_.
S-6
<PAGE>
RECORD DATE.....................With respect to each distribution date, the
close of business on the last business day of
the preceding month.
OFFERED CERTIFICATES
GENERAL.........................Morgan Stanley Capital I Inc. is offering the
following [ ] classes of its Series 199__
Commercial Mortgage Pass-Through Certificates:
o Class [ ]
o Class [ ]
o Class [ ]
o Class [ ]
The entire series will consist of a total of [ ]
classes. The Class [ ], Class [ ], Class [ ] and
Class [ ] are not being offered by this
prospectus supplement and the accompanying
prospectus.
PRINCIPAL AND NOTIONAL AMOUNTS..Your certificates will have the approximate
aggregate initial principal amount set forth in
the chart below, which may vary by up to 5%:
Class [ ] $ Principal Amount
Class [ ] $ Principal Amount
Class [ ] $ Principal Amount
Class [ ] $ Principal Amount
The Class [I/O] Certificates will have the
approximate aggregate notional amount generally
equal to:
o the sum of the certificate balances of the
Class [ ], Class [ ], Class [ ] and Class
[ ] Certificates,
o plus the amount of any unpaid interest on
the above classes of certificates.
PASS-THROUGH RATES
A. CERTIFICATES OFFERED TO YOU
(OTHER THAN CLASS [I/O]).....Your certificates will accrue interest at an
annual rate called a pass-through rate. The
following table lists the pass-through rates
for all but the Class [I/O] Certificates.
Class [ ] [ ]%
Class [ ] [ ]%
Class [ ] [WAC Rate minus [ %]]
Class [ ] [WAC Rate]
Interest on the certificates offered to you,
including the Class [ I/O] Certificates, will be
calculated based on a 360-day year consisting of
twelve 30-day months, also referred to in this
prospectus supplement as a 30/360 basis.
The weighted average coupon, or the WAC Rate for
a particular distribution date is a weighted
average of the mortgage loan interest
S-7
<PAGE>
rates in effect as of the first day of the
preceding month, minus the annual servicing fee
rate of [ ]% , which includes the trustee fee
rate. This average is then weighted by the
principal balances of the mortgage loans.
[Describe any other method used to calculate the
pass-through rate.]
B. INTEREST ONLY CERTIFICATES..The Class [I/O] Certificate is an interest only
certificate. A holder of this certificate will
only receive distributions of interest.
[The Class [I/O] Certificate is issued in a
notional amount equal to the sum of the balance
of components, which correspond to the
certificate balance of one of the Class [ ],
Class [ ], Class [ ], and Class [ ]
Certificates. Each component is assigned an
interest rate. The pass-through rate of the
Class [I/O] Certificate is the weighted average
of the rates for each of the components,
weighted by the balance of the component.]
[The Class [I/O] Certificate is issued in a
notional amount equal to the sum of the
principal balances of the outstanding mortgage
loans. The pass-through rate of the Class [I/O]
Certificate is equal to the weighted average
interest rate of the mortgage loans minus the
weighted average pass-through rates of the
certificates which have a principal balance.]
[Describe any other method used to calculate the
pass-through rate.]
[The components used to determine the Class [ ]
pass-through rate and the specified rates on
those components are as follows:
Class [ ] Component [ ]% [WAC Rate minus
pass-through rate on Class
[ ] Certificates]
Class [ ] Component [ ]% [WAC Rate minus
pass-through rate on Class
[ ] Certificates]
Class [ ] Component [ ]%
DISTRIBUTIONS
A. AMOUNT AND ORDER OF
DISTRIBUTIONS On each distribution date, the funds received
from the mortgage loans minus specific trust
fund expenses will be distributed to the holders
of the certificates in the following amounts and
priority:
Step 1/Class [ ] and Class [ ]: To interest on
the Class [ ] and Class [ ], pro rata, based on
their interest entitlements.
Step 2/Class [ ]: If funds are available for
principal, to principal on Classes [ ] and [ ],
in that order, until reduced to zero. If each
class of certificates other than Class [ ] has
been reduced to zero, funds available for
principal will be distributed to Classes [ ] and
[ ], pro rata, rather than sequentially.
Step 3/ Class [ ]: After each class of
certificates other than Class [ ] has been
reduced to zero, to reimburse Classes [ ] and [
], pro rata, for any previously unreimbursed
losses on the mortgage loans allocable to
principal that were previously borne by those
classes, together with interest.
Step 4/Class [ ]: To Class [ ] as follows: (a)
to interest on Class [ ] in the amount of its
interest entitlement; (b) if funds are available
for
S-8
<PAGE>
principal, to principal on Class [ ] until
reduced to zero; and (c) to reimburse Class [ ]
for any previously unreimbursed losses on the
mortgage loans allocable to principal that were
previously borne by that class, together with
interest.
Step 5/Class [ ]: To Class [ ] in a manner
analogous to the Class [ ] allocations of Step
4.
Step 6/Private Certificates: In the amounts and
order of priority described in this prospectus
supplement.
B. INTEREST AND PRINCIPAL
ENTITLEMENTS.................A description of each class' interest
entitlement can be found in "Description of the
Offered Certificates--Distributions" in this
prospectus supplement. [As described in that
section, there are = ==== circumstances relating
to the timing of prepayments in which a class'
interest entitlement for a distribution date
could be less than one full month's interest at
the pass-through rate on the certificate's
principal amount or notional amount.]
The amount of principal required to be
distributed to the classes entitled to principal
on a particular distribution date will, in
general, be equal to:
o the principal portion of all scheduled
payments, other than balloon payments,
whether or not received, due during the
related collection period;
o all principal prepayments and the
principal portion of balloon payments
received during the related collection
period;
o the principal portion of other collections
on the mortgage loans received during the
related collection period including,
liquidation proceeds, condemnation
proceeds, insurance proceeds and income on
"real estate owned" property; and
o the principal portion of proceeds of
mortgage loan repurchases received during
the related collection period.
C. PREPAYMENT PREMIUMS..........The manner in which any prepayment premiums and
yield maintenance premiums received during a
particular collection period will be allocated
to the Class [I/O] Certificates, on the one
hand, and the classes of certificates entitled
to principal, on the other hand, is described in
"Description of Offered
Certificates--Distributions" in this prospectus
supplement.
[D. DEFERRED INTEREST...........As further described in this prospectus
supplement, some of the mortgage loans provide
that after a specified date, they will bear
interest at an increased rate and will require
excess cash flow from the related mortgaged
property or properties to be used to repay
principal on the mortgage loan. The interest
that accrues at the increased rate that is in
excess of the interest that would have accrued
at the initial rate will not be paid until the
principal balance of the mortgage loan has been
reduced to zero, but that unpaid amount of
interest will accrue interest at the increased
interest rate.]
S-9
<PAGE>
SUBORDINATION
A. GENERAL......................The chart below describes the manner in which
the rights of various classes will be senior to
the rights of other classes. Entitlement to
receive principal and interest [,other than
deferred interest,] on any distribution date is
depicted in descending order--top to bottom. The
manner in which mortgage loan losses are
allocated is depicted in ascending order--bottom
to top. However, no principal payments or loan
losses will be allocated to the Class [ ]
Certificates.
Class [ ], Class [ ], Class [ ]
Class [ ]
Class [ ]
Class [ ]
Class [ ]
NO OTHER FORM OF CREDIT ENHANCEMENT WILL BE
AVAILABLE TO YOU AS A HOLDER OF CERTIFICATES.
B. SHORTFALLS IN AVAILABLE
FUNDS........................The following types of shortfalls in available
funds will be allocated in the same manner as
mortgage loan losses:
o shortfalls resulting from additional
compensation, other than the servicing
fee, which the master servicer or special
servicer is entitled to receive;
o shortfalls resulting from interest on
advances made by the master servicer and
the trustee, to the extent not covered by
Default Interest paid by the borrower;
o shortfalls resulting from extraordinary
expenses of the trust fund;
o shortfalls resulting from a reduction
of a mortgage loan's interest rate by a
bankruptcy court or from other
unanticipated or default-related expenses
of the trust fund; and
o shortfalls in mortgage loan interest
as a result of the timing of prepayments,
net of the master servicer's servicing fee
payable on the related distribution date.
INFORMATION ABOUT THE MORTGAGE POOL
A. GENERAL......................All numerical information provided in this
prospectus supplement with respect to the
mortgage loans is approximate. All weighted
average information regarding the mortgage loans
reflects weighting of the
S-10
<PAGE>
mortgage loans based upon their outstanding
principal balances as of _________, 1999.
B. PRINCIPAL BALANCES...........The trust fund's primary assets will be _____
mortgage loans with an aggregate principal
balance of $__________ as of _________ __, 199_.
As of that date, the outstanding principal
balances of the mortgage loans in the mortgage
pool ranged from $[ ] to $[ ] and the mortgage
loans had an average balance of $[ ].
C. NON-RECOURSE.................Substantially all of the mortgage loans are
[recourse] [non-recourse] obligations. [No
mortgage loan will be insured or guaranteed by
any governmental entity , private insurer, or
any other person.]
D. FEE SIMPLE/LEASEHOLD.........Each mortgage loan is secured by a [first and/or
junior] mortgage lien on the borrower's [fee
simple or leasehold estate in an
income-producing real property.
E. PROPERTY TYPES...............The following table shows how the mortgage loans
are distributed among different types of
properties.
Percentage of Number of
Initial Pool Mortgage
Property Type Balance Loans
------------- ------------- ----------
Multifamily __%
Retail __%
Industrial __%
Office __%
Senior Housing __%
Self-Storage __%
Hospitality __%
Manufactured Housing __%
Mixed Use __%
F. PROPERTY LOCATION............The following table shows the states that have
the largest concentration of the mortgage loans.
Percentage of
Initial Pool Number of Mortgage
State Balance Loans
----- ------------- ------------------
--%
--%
--%
The remaining mortgaged properties are located
throughout [ ] other states. No other state has
a concentration of mortgaged properties that
represents security for more than [ ]% of the
initial pool balance.
[G. BALLOON LOANS...............[ ] of the mortgage loans, representing [ ]% of
the initial pool balance, are balloon loans.
These types of loans have a significant amount
of principal due at the time of their maturity.
The large final principal payment is the result
of one of the following:
S-11
<PAGE>
o Monthly payments based on amortization
schedules significantly longer than their
respective terms to maturity. There are [
] mortgage loans with this characteristic,
representing [ ]% of the initial pool
balance;
o Monthly payments that provide for payment
of interest only for a period after
_______, 1999 and then payments of
interest and principal based on
amortization schedules significantly
longer than their respective terms to
maturity. There are [ ] mortgage loans
with this characteristic, representing [
]% of the initial pool balance; or
o Increases in the mortgage rate and/or
principal amortization at a date prior to
stated maturity that create an incentive
for the related borrower to prepay the
loan. There are [ ] mortgage loans with
this characteristic, representing [ ]% of
the initial pool balance; these mortgage
loans will have substantial payments
payable on their respective maturity
dates, but balloon payments on these
mortgage loans are anticipated to be made
on the date prior to stated maturity that
these increases occur unless the loans are
prepaid.
[The remaining [ ] mortgage loans, representing
[ ]% of the initial pool balance, have an
expected balloon balance equal to less than [ ]%
of the original principal balance of each loan.]
H. PREPAYMENT PROVISIONS...... As of __________ __, 199__, all of the mortgage
loans restricted voluntary prepayments of
principal as follows:
o [ ] mortgage loans, representing [ ]% of
the initial pool balance, contain a
defeasance provision, whereby the related
borrower is permitted, after an initial
period during which voluntary prepayments
are prohibited and until generally 90 days
prior to maturity, to substitute direct,
non-callable United States Treasury
obligations for the mortgaged property
securing the mortgage loan, thereby
releasing the mortgage from its property
without prepaying the mortgage loan.
o [ ] mortgage loans, representing [ ]% of
the initial pool balance, prohibit
voluntary prepayments for a period ending
on a date specified in the related
mortgage note and, in most cases,
thereafter impose prepayment premiums
until a specified date prior to maturity;
o [ ] mortgage loans, representing [ ]% of
the initial = pool balance, do not provide
for initial lockout periods but impose
prepayment premiums in connection with
voluntary principal prepayments made prior
to a specified date, generally zero to
three months, but in [ ] cases,
representing [ ]% of the initial pool
balance, [ ] to [ ] months prior to
maturity.
o [ ] mortgage loans, representing [ ]% of
the initial pool balance, permit voluntary
principal prepayments of up to [ ]% of the
original principal balance of the mortgage
loan in any calendar year without the
imposition of a prepayment premium.
S-12
<PAGE>
I. MORTGAGE LOAN RANGES AND
WEIGHTED AVERAGES...........As of __________ __, 199__, the mortgage loans
will have the following additional
characteristics:
I. MORTGAGE RATES o Interest rates ranging from [ ]% per annum
to [ ]% per annum, and a weighted average
rate of [ ]% per annum;
II. REMAINING TERMS o Remaining terms to scheduled maturity
ranging from [ ] months to [ ] months, and
a weighted average remaining term to
scheduled maturity of [ ] months;
III. REMAINING
AMORTIZATION TERMS o Remaining amortization terms ranging from
[ ] months to [ ] months, and a weighted
average remaining amortization term of [ ]
months--for the amortizing loans;
IV. LOAN-TO-VALUE
RATIOS o Loan-to-value ratios ranging from [ ]% to
[ ]% and a weighted average loan-to-value
ratio, calculated as described in this
prospectus supplement , of [ ]%; and
V. DEBT SERVICE
COVERAGE RATIOS o Debt service coverage ratios ranging from
[ ]x to [ ]x and a weighted average debt
service coverage ratio, calculated as
described in this prospectus supplement ,
of [ ]x.
ADVANCES OF PRINCIPAL AND INTEREST
A. GENERAL......................The master servicer is required to "advance"
delinquent monthly mortgage loan payments. The
master servicer will not be required to advance
any additional interest accrued as a result of
the imposition of any default rate. The master
servicer also is not required to advance
prepayment or yield maintenance premiums, or
balloon payments. With respect to any balloon
payment, the master servicer will instead be
required to advance an amount equal to the
scheduled payment that would have been due, had
there not been a balloon payment. If the master
servicer does make an advance it will not
advance its servicing fee, but will advance the
trustee fee.
If the master servicer fails to make a required
advance, the trustee will be required to make
the advance, subject to the same limitations,
and with the same rights of the master servicer.
All advances made by the master servicer or the
trustee will accrue interest at a rate equal to
the "prime rate" as reported in The Wall Street
Journal.
Neither the master servicer nor the trustee will
be obligated to make an advance if it reasonably
determines that the advance would not be
recoverable.
B. ADVANCES DURING AN
APPRAISAL REDUCTION EVENT...The occurrence of certain adverse events
affecting a mortgage loan will require the
special servicer to obtain a new appraisal or
other valuation of the related mortgaged
property. If the value of the mortgaged
S-13
<PAGE>
property decreases, as determined by an
appraisal or other valuation, an "appraisal
reduction" may be created as described in this
prospectus supplement. If there exists an
appraisal reduction for any mortgage loan, the
amount required to be advanced in respect of
interest on that mortgage loan will be
proportionately reduced to the extent of the
appraisal reduction. This will reduce the funds
available to pay interest on the most
subordinate class or classes then-outstanding.
ADDITIONAL ASPECTS OF CERTIFICATES
RATINGS........................The certificates offered to you will not be
issued unless each of the classes of
certificates being offered by this prospectus
supplement receives the following ratings :
RATINGS
CLASS [ ]/[ ]
===== =======
Class [ ] and [ ] [ ]/[ ]
=======
Class [ ] [ ]/[ ]
=======
Class [ ] [ ]/[ ]
=======
Class [ ] [ ]/[ ]
=======
Class [ ] [ ]/[ ]
=======
Class [ ] [ ]/[ ]
=======
A rating agency may lower or withdraw a security
rating at any time.
See "Ratings" in this prospectus supplement and
the prospectus for a discussion of the basis
upon which ratings are given, the limitations of
and restrictions on the ratings and the
conclusions you should not draw from a rating.
OPTIONAL TERMINATION............On any distribution date on which the aggregate
principal balance of the mortgage loans
remaining in the trust fund is less than [ ]% of
the aggregate unpaid balance of the mortgage
loans as of [the Cut-off Date], Morgan Stanley
Capital I Inc., the master servicer, the
sub-servicer, the special servicer, the majority
holders of the controlling class and any holder
of a majority interest in the Class [ R]
Certificate will have the option to purchase all
of the remaining mortgage loans at a price
specified in this prospectus supplement.
Exercise of this option will terminate the trust
fund and retire the then-outstanding
certificates.
DENOMINATIONS..................The certificates offered to you [,other than the
Class [ ] Certificates,] will be offered in
minimum denominations of $10,000 initial
principal amount. [The Class [ ] Certificates
will be offered in minimum denominations of
$100,000 initial notional amount.] If you wish
to purchase more than the minimum denominations,
you may do so in multiples of $1.
REGISTRATION, CLEARANCE AND
SETTLEMENT.....................Your certificates will be registered in the name
of CEDE & Co., as nominee of the Depository
Trust Company, and will not be registered in
your name. You will not receive a definitive
certificate representing your interest, except
in very limited circumstances described in this
prospectus supplement. As a result, you will
hold your certificates only in book-entry form
and will not be a certificateholder of record.
You will receive distributions on your
certificates and reports relating to
S-14
<PAGE>
distributions only through DTC, CEDEL or
Euroclear or through participants in DTC, CEDEL
or Euroclear.
You may hold your certificates through:
o DTC in the United States; or
o CEDEL or Euroclear in Europe.
Transfers within DTC, CEDEL or Euroclear will be
made in accordance with the usual rules and
operating procedures of those systems.
Cross-market transfers between persons holding
directly through DTC, CEDEL or Euroclear will be
effected in DTC through the relevant
depositories of CEDEL or Euroclear.
Morgan Stanley Capital I Inc. may elect to
terminate the book-entry system through DTC for
all or any portion of any class of the
certificates offered to you.
Morgan Stanley Capital I Inc. expects that the
certificates offered to you will be delivered in
book-entry form through the facilities of DTC,
CEDEL or Euroclear on or about __________ __,
199_.
TAX STATUS......................[An election will be made to treat a portion of
the trust fund as [two] [three] separate "real
estate mortgage investment conduits" [REMIC I,
REMIC II and REMIC III]. In the opinion of
counsel, the trust fund will qualify for this
treatment and each class of certificates offered
to you will constitute "regular interests" in
the [REMIC III].
Pertinent federal income tax consequences of an
investment in the certificates offered to you
include:
o The regular interests will be treated as
newly originated debt instruments for
federal income tax purposes.
o As a beneficial owner, you will be
required to report income on your
certificates in accordance with the
accrual method of accounting.
o The Class [ ], Class [ ], Class [ ] and
Class [ ] Certificates, along with the
Class [ ] and Class [ ] Certificates, will
represent undivided beneficial interests
in portions of the deferred interest. That
portion of the trust fund will be treated
as part of a grantor trust for federal
income tax purposes. Deferred interest
will be reportable as income as it
accrues, commencing after the [effective
maturity date] of the related mortgage
loan.
o The Class [ ] Certificates will be issued
with original issue discount. The other
classes of certificates being offered to
you will not.
ERISA CONSIDERATIONS........... Subject to the satisfaction of important
conditions described under "ERISA
Considerations" in this prospectus supplement
and in the accompanying prospectus, the Class [
] and Class [ ] Certificates may be purchased by
persons investing assets of employee benefit
plans or individual retirement accounts.
S-15
<PAGE>
THE CLASS [ ], CLASS [ ], CLASS [ ] AND CLASS [
] CERTIFICATES MAY NOT BE PURCHASED BY, OR
TRANSFERRED TO, AN EMPLOYEE BENEFIT PLAN OR
INDIVIDUAL RETIREMENT ACCOUNT OR ANY PERSON
INVESTING THE ASSETS OF AN EMPLOYEE BENEFIT PLAN
OR INDIVIDUAL RETIREMENT ACCOUNT, UNLESS THE
TRANSACTION IS COVERED BY A PROHIBITED
TRANSACTION CLASS EXEMPTION ISSUED BY THE U.S.
DEPARTMENT OF LABOR (PTCE 95-60, SECTIONS I AND
II).
LEGAL INVESTMENT................The Class [ ], Class [ ], Class [ ] and Class
[ ] Certificates will constitute "mortgage
related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of
1984, as amended ("SMMEA"),
For purposes of any applicable legal investment
restrictions, regulatory capital requirements or
other similar purposes, neither the prospectus
nor this prospectus supplement make any
representation to you regarding the proper
characterization of the certificates offered by
this prospectus supplement. Regulated entities
should consult with their own advisors regarding
these matters.
S-16
<PAGE>
RISK FACTORS
[Description will depend on the particulars of the mortgage loans and MBS]
You should carefully consider the risks involved in owning a
certificate before purchasing a certificate. In particular, the timing of
payments and payments you receive on your certificates will depend on payments
received and other recoveries with respect to the mortgage loans. Therefore, you
should carefully consider the risk factors relating to the mortgage loans and
the mortgaged properties.
The risks and uncertainties described in this section "Risk Factors,"
together with those risks described in the prospectus under "Risk Factors"
summarize the material risks relating to your certificates. If any of the
following risks actually occur, your investment could be materially and
adversely affected.
YOUR INVESTMENT IS NOT INSURED
OR GUARANTEED AND YOUR SOURCE
OF REPAYMENT IS LIMITED TO
PAYMENTS UNDER THE MORTGAGE
LOANS Payments under the mortgage loans are not
guaranteed by any person or entity. You should
consider all of the mortgage loans to be
nonrecourse loans. If a default occurs, the
lender's remedies generally are limited to
foreclosing against the specific property and
other assets pledged to secure the loan. These
remedies may be insufficient to provide a full
return on your investment.
CONVERTING COMMERCIAL PROPERTIES
TO ALTERNATIVE USES MAY BE
EXPENSIVE AND COULD REDUCE
PAYMENTS ON YOUR
CERTIFICATES Some of the mortgaged properties may not be
readily convertible to alternative uses. This is
because:
o converting commercial properties to
alternate uses generally requires
substantial capital expenditures; and
o alternative uses may be restricted by
zoning or other restrictions.
The liquidation value of a property not readily
convertible to an alternative use may be
substantially less than would be the case if the
property were readily adaptable to other uses.
If this type of property were liquidated and a
lower liquidation value were obtained, less
funds would be available for distribution to
certificateholders.
TENANT CONCENTRATION INCREASES
THE RISK THAT CASH FLOW WILL BE
INTERRUPTED WHICH COULD
REDUCE PAYMENTS ON YOUR
CERTIFICATES [ ] mortgage loans, representing [ ]% of the
initial pool balance, are secured by mortgaged
properties leased to single tenants.
The deterioration in the financial condition of
a tenant can be particularly significant if a
mortgaged property is leased to a single tenant,
or a small number of tenants because rent
interruptions by a tenant may cause the borrower
to default on its obligations to the lender.
Mortgaged properties leased to a single tenant,
or a small number of tenants, are also more
susceptible to interruptions of cash flow if a
tenant fails to renew its lease. This is so
because: more time may be required to re-lease
the space which could cause an interruption
S-17
<PAGE>
in rental payments. In addition, substantial
capital costs may be required to make the space
appropriate for replacement tenants.
Another factor you should consider is that
retail or office properties with a concentration
of a particular type of tenant will be
susceptible to interruptions of cash flow if
there is a downturn in a particular industry or
if a particular type of retail business goes out
of favor with consumers.
FLUCTUATIONS IN CREDIT RATINGS
OR TENANT DEFAULTS FOR CREDIT
LEASE LOANS MAY REDUCE
PAYMENTS ON YOUR CERTIFICATES [ ] mortgage loans, representing [ ]% of the
initial pool balance, are credit lease loans.
Credit lease loans are secured by net lease
obligations of a rated tenant or guarantor. In
reliance on the ratings, credit lease loans are
generally underwritten to lower debt service
coverage ratios and/or higher loan-to-value
ratios than would be acceptable had the related
mortgage properties been leased to less
creditworthy tenants. In the event that a tenant
defaults in its obligations under a credit lease
it can not be assured that the mortgaged
property will be relet for sufficiently high
rent to support debt service on the related
credit lease loan nor can it be assured that the
funds received in liquidation of the mortgaged
property will be sufficient to satisfy the
borrower's obligations under the credit lease
loan.
The rating assigned to a credit tenant or
guarantor by a rating agency will reflect only
the rating agency's assessment of the long-term
unsecured debt obligations of the entity. The
rating does not suggest:
o that the credit leases will not be
terminated pursuant to their terms or
otherwise;
o that the credit lease loans will not be
prepaid; or
o that if a credit lease loan is prepaid,
that any prepayment premium will be paid
or, if paid, that the prepayment premium
will be sufficient to provide you with the
yield on your certificates that you
anticipated.
LEASING MORTGAGED PROPERTIES
TO MULTIPLE TENANTS MAY RESULT IN
HIGHER RE-LEASING COSTS WHICH
COULD REDUCE PAYMENTS
ON YOUR CERTIFICATES If a mortgaged property has multiple tenants,
the costs involved in re-leasing the space may
be higher than in a mortgaged property with
fewer tenants. These costs may necessitate a
borrower to default in its obligations to
lender, thereby reducing the cash flow available
for debt service payments. Multi-tenanted
mortgaged properties also may experience higher
continuing vacancy rates and greater volatility
in rental income and expenses.
LOSSES ON LARGER LOANS MAY
ADVERSELY AFFECT PAYMENTS ON
YOUR CERTIFICATES The effect of loan losses will be more severe
if:
S-18
<PAGE>
o the pool is comprised of a small number of
loans, each with a relatively large
principal amount; or
o the losses relate to loans that account
for a disproportionately large percentage
of the pool's aggregate principal balance.
The total principal balance of the [five]
largest loans in the trust fund equals $[ ],
which amount represents [ ]% of the initial pool
balance. Losses on any of these loans could
reduce payments on your certificates.
LOANS TO THE SAME OR RELATED
BORROWERS INCREASES THE
POSSIBILITY OF LOSS WHICH COULD
REDUCE PAYMENTS ON YOUR
CERTIFICATES Loans to the same borrower or related borrowers
can also pose increased risks to you. For
example, if the person that owns or controls
several mortgaged properties experiences
financial difficulty at one mortgaged property,
it could defer maintenance at another mortgaged
property in order to satisfy current expenses
with respect to the first mortgaged property, or
it could attempt to avert foreclosure by filing
a bankruptcy petition that might have the effect
of interrupting monthly payments of debt service
for an indefinite period on all of the related
mortgage loans.
In this pool of mortgage loans, several groups
of mortgage loans were made to the same borrower
or to borrowers related through common ownership
, where, in general, the related mortgaged
properties are managed by the same entity. The
three largest of these groups represent [ ]%,
[ ]%, and [ ]% , respectively, of the mortgage
pool.
A CONCENTRATION OF MORTGAGED
PROPERTIES IN A LIMITED NUMBER OF
LOCATIONS MAY ADVERSELY
AFFECT PAYMENTS ON YOUR CERTIFICATES
The concentration of mortgaged properties in one
or a few geographic areas may increase the
frequency and severity of losses on mortgage
loans secured by those mortgaged properties.
This is because there are adverse situations
that could affect a particular location or area
that could prevent a borrower from paying his
debt in a timely manner. The following are some
factors which may cause adverse conditions:
o poor economic conditions generally or in
regions where the borrowers and the
mortgage properties are located;
o downturns in the real estate markets where
the mortgage properties are located;
o changes in governmental rules and fiscal
policies;
o acts of nature, which may result in
uninsured losses; and
o other factors beyond the control of the
borrowers.
The mortgaged properties are located in [ ]
states. Approximately [ ]% of the mortgaged
properties, representing [ ]% of the initial
pool balance are located in [ ] states. The
following states have concentrations of 5% or
more of the initial pool balance.
S-19
<PAGE>
o [ ]..............................[ ]%.
o [ ]..............................[ ]%.
A LARGE CONCENTRATION OF
MULTIFAMILY PROPERTIES IN THE
MORTGAGE POOL WILL SUBJECT YOUR
INVESTMENT TO THE SPECIAL RISKS
OF MULTIFAMILY PROPERTIES Multifamily properties secure [ ] of the
underlying mortgage loans, representing [ ]% of
the initial pool balance.
A large number of factors may adversely affect
the value and successful operation of a
multifamily property, which in turn would result
in a reduction of the amount of funds available
for distribution to the certificateholders. Some
of these factors include:
o the physical attributes of the apartment
building, for example, its age, appearance
and construction quality;
o the location of the property, for example,
a change in the neighborhood over time;
o the ability of management to provide
adequate maintenance and insurance;
o the types of services the property
provides;
o the property's reputation;
o the level of mortgage interest rates,
which may encourage tenants to purchase
rather than rent housing;
o the presence of competing properties;
o adverse local or national economic
conditions;
o state and local regulations; and
o government assistance/rent subsidy
programs.
A LARGE CONCENTRATION OF RETAIL
PROPERTIES IN THE MORTGAGE POOL
WILL SUBJECT YOUR INVESTMENT TO
THE SPECIAL RISKS OF RETAIL
PROPERTIES Retail properties secure [ ] of the underlying
mortgage loans, representing [ ]% of the initial
pool balance. The quality and success of the
tenants significantly affect the property's
value. If sales were to decline:
o the rent received from tenants who pay
rent tied to a percentage of gross sales
may be insufficient for the borrower to
make payments to the lender; and
o tenants may default in rental payments due
to the borrower.
In addition, anchor tenants often play a key
role in generating customer traffic and making a
retail property desirable for other tenants.
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<PAGE>
Therefore, the economic performance of a retail
property will consequently be adversely affected
by:
o an anchor tenant's failure to renew its
lease;
o termination of an anchor tenant's lease;
o the bankruptcy or economic decline of an
anchor tenant or self-owned anchor; and
o the cessation of the business of a
self-owned anchor or of an anchor tenant,
notwithstanding its continued payment of
rent.
The closing of an anchor tenant store may
adversely affect payments on your certificates
because:
o the borrower may be unable to replace the
anchor tenant without expending
significant re-letting costs; or
o some of the smaller stores at the retail
property may have co-tenancy clauses in
their leases or operating agreements which
permit those stores to cease operating if
specific other stores, generally anchor
tenants, are not operated at the retail
property.
Retail properties face competition from sources
including:
o other retail properties in close
proximity, including newly built or newly
renovated retail properties;
o factory outlet centers;
o discount shopping centers and clubs;
o catalogue retailers;
o home shopping networks;
o internet web sites; and
o telemarketing.
The continued growth of these alternative retail
outlets, which often have lower operating costs,
could adversely affect the rents collectible at
the retail properties , as well as the market
value of the retail properties.
A LARGE CONCENTRATION OF
INDUSTRIAL PROPERTIES IN THE
MORTGAGE POOL WILL SUBJECT YOUR
INVESTMENT TO THE SPECIAL RISKS
OF INDUSTRIAL PROPERTIES Industrial properties secure [ ] of the
underlying mortgage loans, representing [ ]% of
the initial pool balance. Various factors may
adversely affect the economic performance of an
industrial property, which could adversely
affect payments on your certificates, including:
o reduced demand for industrial space
because of a decline in a particular
industry segment;
S-21
<PAGE>
o a property becoming functionally obsolete;
o the unavailability of labor sources;
o changes in access, energy prices, strikes,
relocation of highways, the construction
of additional highways or other factors;
o a change in the proximity of supply
sources; and
o environmental hazards.
A LARGE CONCENTRATION OF OFFICE
PROPERTIES IN THE MORTGAGE POOL
WILL SUBJECT YOUR INVESTMENT TO
THE SPECIAL RISKS OF OFFICE
PROPERTIES
Office properties secure [ ] of the underlying
mortgage loans, representing [ ]% of the initial
pool balance.
A large number of factors may adversely affect
the value of office properties, including:
o the quality of an office building's
tenants;
o the diversity of an office building's
tenants or reliance on a single or
dominant tenant;
o the physical attributes of the building in
relation to competing buildings, e.g.,
age, condition, design, location, access
to transportation and ability to offer
sophisticated amenities;
o the desirability of the area as a business
location; and
o the strength and nature of the local
economy, including labor costs and
quality, tax environment and quality of
life for employees.
Moreover, the cost of refitting office space for
a new tenant is often higher than the cost of
refitting other types of property.
A LARGE CONCENTRATION OF SENIOR
HOUSING PROPERTIES IN THE
MORTGAGE POOL WILL SUBJECT YOUR
INVESTMENT TO THE SPECIAL RISKS
OF SENIOR HOUSING PROPERTIES Congregate care, senior care and assisted living
facilities secure [ ] of the underlying mortgage
loans, representing [ ]% of the initial pool
balance. Of those loans, [ ] of the mortgage
loans, representing [ ]% of the initial pool
balance, are secured by facilities that
typically depend upon a portion of their
revenues from government reimbursement programs,
primarily Social Security, Medicaid and
Medicare. Social Security, Medicaid and Medicare
are subject to various regulatory changes, rate
adjustments, rulings, delays in payment and
government restrictions, all of which can
adversely affect revenues from operations of
facilities. In addition, government payors have
employed measures that limit payments to health
care providers.
Providers of long-term nursing care and other
medical services are highly regulated , subject
to licensing requirements, facility inspections,
rate setting and reimbursement policies and are
subject to laws relating to the adequacy of
medical care, distribution of pharmaceuticals,
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<PAGE>
equipment, personnel operating policies and
maintenance of and additions to facilities and
services. These factors can increase the cost of
operations, limit growth and in extreme cases,
require or result in suspension or cessation of
operations.
In addition, in the event that the trustee or
another party forecloses on a senior care
facility:
o it is generally not entitled Social
Security, Medicare and Medicaid payments
for services rendered prior to the
foreclosure; and
o it may have to apply in its own name for
licenses and government approvals. There
can be no assurance that a new license
could be obtained or that new approvals
would be granted. This uncertainty may
adversely affect the liquidation value of
the facility.
Other factors that may adversely effect the
value and successful operation of a senior
housing facility include:
o increasing governmental regulation and
supervision, as to those facilities not
already subject to it;
o a decline in the financial health, skills
or reputation of the operator;
o increased operational expenses; and
o competing facilities owned by non-profit
organizations or government agencies
supported by endowments, charitable
contributions, tax revenues and other
sources.
A LARGE CONCENTRATION OF
SELF-STORAGE FACILITIES IN THE
MORTGAGE POOL WILL SUBJECT YOUR
INVESTMENT TO THE SPECIAL RISKS
OF SELF-STORAGE FACILITIES Self-storage facilities secure [ ] of the
underlying mortgage loans, representing [ ]% of
the initial pool balance. Various factors may
adversely affect the value and successful
operation of a self-storage facility, including:
o competition because both acquisition and
development costs and break-even occupancy
are relatively low;
o conversion of a self-storage facility to
an alternative use generally requires
substantial capital expenditures;
o security concerns; and
o user privacy and ease of access to
individual storage space may increase
environmental risks, although lease
agreements generally prohibit users from
storing hazardous substances in the units.
[The environmental assessments conducted with
respect to most of the mortgaged properties and
discussed in this prospectus supplement did not
include an inspection of the contents of the
self-storage units of the self-storage
properties. Accordingly, there is no assurance
that all of the units included in the
self-storage properties are free from hazardous
substances or will remain so in the future.]
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<PAGE>
A LARGE CONCENTRATION OF
HOSPITALITY PROPERTIES IN THE
MORTGAGE POOL WILL SUBJECT YOUR
INVESTMENT TO THE SPECIAL RISKS
OF HOSPITALITY PROPERTIES
Hospitality properties, such as hotel, motel or
resort properties, secure [ ] of the underlying
mortgage loans, representing [ ]% of the initial
pool balance. Various factors may adversely
affect the economic performance of a hotel,
including:
o adverse economic and social conditions,
either local, regional or national which
may limit the amount that can be charged
for a room and reduce occupancy levels;
o the construction of competing hotels or
resorts;
o continuing expenditures for modernizing,
refurbishing, and maintaining existing
facilities prior to the expiration of
their anticipated useful lives;
o a deterioration in the financial strength
or managerial capabilities of the owner
and operator of a hotel; and
o changes in travel patterns caused by
changes in access, energy prices, strikes,
relocation of highways, the construction
of additional highways or other factors.
Because hotel rooms generally are rented for
short periods of time, the financial performance
of hotels tends to be affected by adverse
economic conditions and competition more quickly
than other types of commercial properties.
Moreover, the hotel and lodging industry is
generally seasonal in nature. This seasonality
can be expected to cause periodic fluctuations
in a hotel property's revenues, occupancy
levels, room rates and operating expenses.
THE AFFILIATION OF SOME OF THE
PROPERTIES WITH A FRANCHISE OR
HOTEL MANAGEMENT COMPANY MAY
ADVERSELY AFFECT PAYMENTS
ON YOUR CERTIFICATES
Some of the hospitality properties are
franchises of national hotel chains or managed
by a hotel management company. The performance
of a hotel property affiliated with a franchise
or hotel management company depends in part on:
o the continued existence and financial
strength of the franchiser or hotel
management company;
o the public perception of the franchise or
hotel chain service mark; and
o the duration of the franchise licensing or
agreements.
The transferability of franchise license
agreements may be restricted. In the event of a
foreclosure, the lender or its agent may not
have the right to use the franchise license
without the franchiser's consent. Conversely, in
the case of some mortgage loans, the lender may
be
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<PAGE>
unable to remove a franchiser or a hotel
management company that it desires to replace
following a foreclosure.
Further, in the event of a foreclosure, the
trustee or a purchaser of the mortgaged property
probably would not be entitled to the rights
under any liquor license for the mortgaged
property. The trustee or purchaser would be
required to apply in its own right for a
license, and Morgan Stanley Capital I Inc.
cannot assure you that a new license could be
obtained.
If a particular hotel chain or management
company, suffers economic decline, your
certificates will be affected if the mortgage
pool contains a large concentration of that
hotel chain or management company. The largest
concentration is as follows:
o [ ] mortgaged properties, representing
approximately [ ]% of the initial pool
balance, are operated as hotels under the
________________ franchise; and
o [ ] mortgaged properties, representing
approximately [ ]% of the initial pool
balance, are operated by the [ ]
management company.
A LARGE CONCENTRATION OF
MANUFACTURED HOUSING COMMUNITIES
IN THE MORTGAGE POOL WILL SUBJECT
YOUR INVESTMENT TO THE SPECIAL
RISKS OF MANUFACTURED HOUSING
COMMUNITIES
Manufactured housing communities secure [ ] of
the underlying mortgage loans, representing [ ]%
of the initial pool balance. Various factors may
adversely affect the value and successful
operation of a manufactured housing community
including:
o the number of competing manufactured
housing communities and other residential
developments, including, apartment
buildings and single family homes, in the
local market;
o the age, appearance and reputation of the
community;
o the ability of management to provide
adequate maintenance and insurance; and
o the types of services and amenities it
provides.
Other factors you should consider regarding
manufactured housing communities:
o they are a property type that is not
easily converted to another property type;
and
o some manufactured housing communities may
lease sites to non-permanent recreational
vehicles, which occupancy is often very
seasonal in nature.
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<PAGE>
RELIANCE ON TENANTS INCREASES
THE RISK THAT CASH FLOW WILL BE
INTERRUPTED WHICH MAY ADVERSELY
AFFECT PAYMENTS ON
YOUR CERTIFICATES The income from, and market value of, the
mortgaged properties leased to various tenants
would be adversely affected if:
o space in the mortgaged properties could
not be leased or re-leased;
o tenants were unable to meet their lease
obligations;
o a significant tenant were to become a
debtor in a bankruptcy case; or
o rental payments could not be collected for
any other reason.
Repayment of the mortgage loans secured by
retail and office properties will be affected by
the expiration of leases and the ability of the
respective borrowers to renew the leases or
relet the space on comparable terms.
Even if vacated space is successfully relet, the
costs associated with reletting, including
tenant improvements and leasing commissions,
could be substantial and could reduce cash flow
from the mortgaged properties. Moreover, if a
tenant defaults in its obligations to a
borrower, the borrower may incur substantial
costs and experience significant delays
associated with enforcing its rights and
protecting its investment, including costs
incurred in renovating and reletting the
property.
ENVIRONMENTAL ISSUES RELATING TO
SPECIFIC PROPERTIES MAY ADVERSELY
AFFECT PAYMENTS ON
YOUR CERTIFICATES [All] [Some] of the mortgaged properties have
been subject to recent environmental site
assessments, including Phase I site assessments
or updates of previously performed Phase I site
assessments. In several cases, Phase II site
assessments also have been performed. These
assessments were intended to evaluate the
environmental condition of the mortgaged
properties and generally included a site visit,
a review of certain records and public
information concerning the mortgaged properties,
and the preparation of a written report. Some of
the assessments included sampling or analysis of
soil, groundwater or other environmental media
or subsurface investigations. [ The
environmental assessments on properties securing
[ ] of the underlying mortgage loans,
representing [ ]% of the initial pool balance,
are more than [ ] months old but in no event
more than [ ] months old.] Morgan Stanley
Capital I Inc. cannot assure you that the
environmental reports revealed all existing or
potential environmental conditions or risks.
Some of the environmental assessments identified
environmental conditions which have impacted, or
may impact, some of the mortgaged properties.
Those conditions include the presence of ACMs,
leaks from chemical storage tanks and on-site
spills. Some mortgaged properties presently have
or formerly had landfills, waste disposal areas,
historic industrial use, oil wells, gasoline
stations and/or dry cleaning businesses located
on or near the premises. Corrective action, as
required by the regulatory agencies, has been
undertaken and, in
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<PAGE>
some cases, the related borrowers have made
deposits into environmental reserve accounts or
have assigned rights to existing reserve
accounts. However, Morgan Stanley Capital I Inc.
cannot assure you that the reserve amounts will
be sufficient to remediate the environmental
conditions or that all the environmental
conditions have been identified.
Some of the mortgaged properties are in the
vicinity of sites containing leaking underground
storage tanks or other potential sources of
groundwater contamination. Although the owners
of those mortgaged properties and the trust may
not have legal liability for contamination from
those off-site sources, the enforcement of
rights against third parties may result in
additional transaction costs and Morgan Stanley
Capital I Inc. cannot assure you that these
factors will not impact your certificates.
ACMs have been detected through sampling by
environmental consultants at several mortgaged
properties and suspected at others. ACMs found
or suspected at these mortgaged properties are
not expected to present a significant risk as
long as the property continues to be properly
managed. Nonetheless, the value of a mortgaged
property as collateral for the mortgage loan
could be adversely affected and Morgan Stanley
Capital I Inc. cannot assure you that these
factors will not impact your certificates.
The environmental assessments have not revealed
any environmental liability that Morgan Stanley
Capital I Inc., as depositor, believes would
have a material adverse effect on the borrowers'
businesses, assets or results of operations
taken as a whole. [For several mortgaged
properties, the site assessments recommend
limited further investigations or minor repairs;
however, based on the information currently
available to Morgan Stanley Capital I Inc. and
reviews performed by Morgan Stanley Capital I
Inc.'s environmental consultants, Morgan Stanley
Capital I Inc. does not believe any of these
other issues would have a material adverse
effect on the related mortgaged properties.]
Nevertheless, there may be material
environmental liabilities of which Morgan
Stanley Capital I Inc. is unaware. Moreover,
Morgan Stanley Capital I Inc. CANNOT assure you
that:
o future laws, ordinances or regulations
will not impose any material environmental
liability; or
o the current environmental condition of a
mortgaged property will not be adversely
affected by tenants , by land conditions
or by operations in the vicinity of that
property, such as underground storage
tanks.
DELAYS IN OBTAINING
ENVIRONMENTAL REPORTS IN THE
FUTURE MAY ADVERSELY AFFECT
PAYMENT ON YOUR CERTIFICATES Before the special servicer acquires title to a
property on behalf of the trust fund or assumes
operation of the property, it must obtain an
environmental assessment of the property. This
requirement will decrease the likelihood that
the trust fund will become liable under any
environmental law. However, Morgan Stanley
Capital I Inc. cannot assure you that this will
effectively insulate the trust fund from
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<PAGE>
potential liability. In addition, this
requirement may effectively preclude foreclosure
until a satisfactory environmental assessment is
obtained or until any required remedial action
is taken. There is some risk that the mortgaged
property will decline in value while this
assessment is being obtained. Morgan Stanley
Capital I Inc. cannot assure you the mortgaged
property will not decline in value during this
time.
IF A BORROWER IS UNABLE TO REPAY
ITS LOAN ON ITS MATURITY
DATE, YOU MAY EXPERIENCE A
LOSS [ ] of the mortgage loans, representing [ ]% of
the initial pool balance, are expected to have
substantial remaining principal balances, equal
to or greater than [ ]% of the original
principal balance of each respective mortgage
loan, as of their effectiv maturity dates or
stated maturity dates. Morgan Stanley Capital I
Inc. cannot assure you that each borrower will
have the ability to repay the remaining
principal balances on its maturity or effective
maturity date. Mortgage loans with substantial
remaining principal balances at their stated
maturity, also called balloon loans, involve
greater risk than fully amortizing loans because
if a borrower is unable to pay the balloon
payment on the maturity date, the loan will be
in default. A borrower's ability to repay a loan
on its maturity date or effective maturity date,
also called effective maturity date loans,
typically will depend upon its ability either to
refinance the loan or to sell the mortgaged
property at a price sufficient to permit
repayment. Although a borrower is not required
to repay an anticipated repayment date loan on
the effective maturity date, if you assumed that
effective maturity date loans would be paid in
full on the effective maturity date, you may
experience delays in payment or unanticipated
yield.
Morgan Stanley Capital I Inc. cannot assure you
that each borrower will have the ability to
repay the remaining principal balances on its
maturity date or effective maturity date.
A BORROWER'S ORGANIZATIONAL
STRUCTURE MAY ADVERSELY AFFECT
PAYMENT ON YOUR CERTIFICATES If a borrower is not limited to owning the
mortgaged property in the trust fund, that
borrower may be subject to other debts which
could force the borrower into bankruptcy. To
avoid borrower bankruptcy, it is prudent to
have:
o the business activities of a borrower
limited to owning their mortgaged
property; and
o a borrower with an independent director
whose consent would be required to file a
voluntary bankruptcy petition on behalf of
the borrower.
The organizational documents for some of the
borrowers do not limit the business activities
of that borrower. With respect to [most/all] of
those borrowers, however, the loan documents
contain covenants customarily employed to ensure
that a borrower is a special purpose entity,
such as:
o limitations on indebtedness;
o limitations on affiliate transactions; and
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<PAGE>
o restrictions on the borrower's ability to
dissolve, liquidate, consolidate, merge,
sell all of its assets or amend its
organizational documents.
However, Morgan Stanley Capital I Inc. cannot
assure you that these provisions will prevent
borrower bankruptcy or that they will be
enforceable.
In addition, the borrowers under [ ] of the
mortgage loans, which represent [ ]% of the
initial pool balance, do not have an independent
director . It is anticipated that an independent
director would prevent a bankruptcy filing where
the filing is intended solely to benefit an
affiliate of the borrower and is not justified
by the borrower's own economic circumstances.
However, Morgan Stanley Capital I Inc. cannot
assure you that the independent director will
act in this manner or that the existence of an
independent director will reduce the likelihood
of a borrower bankruptcy.
A BORROWER'S OTHER LOANS MAY
REDUCE THE CASH FLOW AVAILABLE TO
THE MORTGAGED PROPERTY WHICH MAY
ADVERSELY AFFECT
PAYMENTS ON YOUR CERTIFICATES [ ] of the mortgage loans, representing [ ]% of
the initial pool balance, permit the borrower to
incur additional indebtedness , in addition to
that in the ordinary course of business, or to
utilize the mortgaged property as collateral for
junior loans. Generally, prior to a borrower
incurring any additional indebtedness,
especially prior to the granting of a junior
lien, certain conditions specified in the loan
documents must be met. Substantially all of the
mortgage loans permit the related borrower to
incur limited indebtedness in the ordinary
course of business.
When a mortgage loan borrower, or its
constituent members have other outstanding
loans, even if the other loans are junior to the
loan in the trust fund or a loan to a parent of
the borrower, the trust fund will be subjected
to additional risk, such as:
o the existence of another loan may make it
more difficult for the borrower to
refinance the loan in the mortgage pool,
thereby jeopardizing repayment of the
mortgage loan; and
o the need to service additional debt may
reduce the cash flow available to the
borrower to operate and maintain the
mortgaged property.
Additionally, if the borrower or the parent of
the borrower defaults on any junior or mezzanine
loan, actions taken by other lenders could
impair the security available to the trust fund.
If a junior lender files an involuntary petition
for bankruptcy against the borrower or the
borrower files a voluntary petition to stay
enforcement by a junior lender, the trust fund's
ability to foreclose would be automatically
stayed, and principal and interest payments
might not be made during the course of the
bankruptcy case. The bankruptcy of another
lender also may operate to stay foreclosure by
the trust fund.
Further, if another loan secured by the
mortgaged property is in default, the other
lender may foreclose on the mortgaged property,
absent an
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<PAGE>
agreement to the contrary, thereby causing a
delay in payments and/or an involuntary
repayment of the mortgage loan prior to
maturity. The trust fund may also be subject to
the costs and administrative burdens of
involvement in foreclosure proceedings or
related litigation.
THE ABSENCE OF LOCKBOXES ENTAILS
RISKS THAT COULD ADVERSELY AFFECT
PAYMENT ON
YOUR CERTIFICATES With respect to [ ] of the mortgage loans,
representing [ ]% of the initial pool balance,
there is no requirement that the borrower
deposit or have deposited rents and other
proceeds into a lockbox account controlled by
lender. If rental payments are not required to
be made directly into a lockbox account, there
is a risk that the borrower will divert those
funds.
With respect to [ ] of the mortgage loans,
representing [ ]% of the initial pool balance,
the lender requires that all rent and other
proceeds be deposited into a lockbox account.
However, with respect to [ ] of the mortgage
loans, representing [ ]% of the initial pool
balance, the borrower has access to the funds in
the lockbox account, [generally the business day
after it is deposited], and may withdraw these
funds at any time, generally, until one or more
of the following occur, as specified in the
related loan documents:
(1) a default under the mortgage loan;
(2) it is a specified number of days prior to
the effective maturity date; or
(3) the "debt service coverage ratio" is less
than a specified amount.
In addition, with respect to [ ] of the mortgage
loans, representing [ ] of the initial pool
balance, the loan documents provide that the
borrower is not required to have rents and other
proceeds directly deposited into the lockbox
account until the occurrence of one or more of
the events listed in (1), (2) or (3) above.
RESERVES TO FUND CAPITAL
EXPENDITURES MAY BE INSUFFICIENT
WHICH MAY ADVERSELY AFFECT
PAYMENTS ON
YOUR CERTIFICATES The mortgage loans require that funds be put
aside for specific reserves. [Add particulars
from the mortgage loans.]
Morgan Stanley Capital I Inc. cannot assure you
that the reserve amounts will be great enough to
cover the actual costs of the items for which
the reserves were established. Morgan Stanley
Capital I Inc. also cannot assure you that cash
flow from the properties will be great enough to
fully fund the ongoing monthly reserve
requirements.
INADEQUACY OF TITLE INSURANCE
MAY ADVERSELY AFFECT PAYMENTS
ON YOUR CERTIFICATES Title insurance for a mortgaged property
generally insures a lender against risks
relating to a borrower not having good title to
a mortgaged property, and in some cases can
insure a lender against specific other risks.
The protection afforded by title insurance
depends on the ability
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<PAGE>
of the title insurer to pay claims made upon it.
Morgan Stanley Capital I Inc. cannot assure you
that
o a title insurer will have the ability to
pay title insurance claims made upon it;
o the title insurer will maintain its
present financial strength; or
o a title insurer will not contest claims
made upon it.
THE ABSENCE OF OR INADEQUACY
OF INSURANCE COVERAGE ON THE
PROPERTY MAY ADVERSELY AFFECT
PAYMENTS ON YOUR CERTIFICATES The mortgaged properties may suffer casualty
losses due to risks which are not covered by
insurance , for which insurance coverage is
inadequate or for which insurance coverage is
not available at commercially reasonable rates.
In addition, some of the mortgaged properties
are located in [California and Texas], states
that have historically been at greater risk
regarding acts of nature, including, hurricanes,
floods and earthquakes, than other states.
Morgan Stanley Capital I Inc. CANNOT assure you
that the borrowers
o purchased adequate insurance;
o will be able to maintain adequate
insurance; or
o will be successful in claims against
insurers to recover following losses.
Moreover, if reconstruction or major repairs are
required following a casualty, changes in laws
that have occurred since the time of original
construction may significantly increase costs
and affect the borrower's ability to reconstruct
or repair the property.
As a result of any of these factors, the amount
available to make distributions on the
certificates could be reduced.
CLAIMS UNDER BLANKET INSURANCE
POLICIES MAY ADVERSELY AFFECT
THE PAYMENTS ON YOUR
CERTIFICATES Some of the mortgaged properties are covered by
blanket insurance policies which also cover
other properties of the related borrower or its
affiliates. If those policies are drawn on to
cover losses on those other properties, the
amount of available insurance coverage would be
reduced and could be insufficient to cover each
mortgaged property's insurable risks.
PROPERTY INSPECTIONS AND
ENGINEERING REPORTS MAY NOT
REFLECT ALL CONDITIONS THAT
REQUIRE REPAIR ON THE PROPERTY An engineering report dated on or after [ ], was
obtained from an engineer or consultant in
connection with the origination of [ ] of the
mortgage loans, representing [ ]% of the initial
pool balance. These engineering reports were
prepared in order to assess items such as
structure, exterior walls, roofing, interior
construction, mechanical and electrical systems
and general condition of the site, buildings and
other improvements. However, Morgan Stanley
Capital I Inc. cannot
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<PAGE>
assure you that all conditions requiring
repair or replacement were identified.
APPRAISALS MAY INACCURATELY
REFLECT THE VALUE OF THE
MORTGAGE LOANS In connection with the origination or
acquisition of [each/some] of the mortgage
loans, the related mortgaged property was
appraised by an [independent appraiser] or an
[employee of the originator who was a state
certified appraiser]. [With respect to [ ]% of
the mortgaged properties , representing
approximately [ ]% of the initial pool balance,
which have appraisals that were dated [ ] or
later, the estimates of value in the appraisals
were used in the calculations of the
loan-to-value ratios for these mortgage loans].
You should consider the following issues when
considering the appraised value of a property:
o An appraisal is an estimate which
represents the analysis and opinion of the
person performing the appraisal. It is not
a guarantee of present or future values.
o The value of a property may change
significantly from the time an appraisal
or market study was performed.
o An appraisal seeks to establish the amount
a typically motivated buyer would pay a
typically motivated seller. It does not
consider that the amount determined to be
the value could be significantly higher
than the amount that could be obtained
from the sale of the property in a
liquidation sale.
[With respect to [ ] of the mortgaged
properties, representing approximately [ ]% of
the initial pool balance, which have appraisals
that were dated prior to [ ], loan-to-value
ratios were determined using a capitalization
rate applied to the underwritten cash flow of
the property to determine the value of the
property]. [With respect to [ ] of the mortgaged
properties, representing approximately [ ]% of
the initial pool balance, which have market
studies, for purposes of calculating the
loan-to-value ratios, value was defined as the
purchase price].
SUBORDINATION OF SOME
CERTIFICATES MAY AFFECT THE TIMING
OF PAYMENTS AND THE APPLICATION OF
LOSSES ON YOUR
CERTIFICATES As described in this prospectus supplement,
unless your certificates are Class [ ], Class [
] or Class [ ] Certificates, your rights to
receive distributions of amounts collected or
advanced on or in respect of the mortgage loans
will be subordinated to those of the holders of
certificates with an earlier alphabetical
designation.
THE TIMING OF MORTGAGE LOAN
AMORTIZATION MAY ADVERSELY
AFFECT PAYMENTS ON YOUR
CERTIFICATES As principal payments or prepayments are made on
mortgage loans, the remaining mortgage pool may
be subject to increased concentrations of
property types, geographic locations and other
pool characteristics of the mortgage loans and
the mortgaged properties, some of which may be
unfavorable. Classes of certificates that have a
lower payment priority are more likely to be
exposed to this concentration risk than are
certificate classes with a higher payment
priority. This occurs because
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<PAGE>
realized losses are allocated to the class
outstanding at any time with the lowest payment
priority and principal on the certificates
entitled to principal is generally payable in
sequential or alphabetical order, with such
classes generally not being entitled to receive
principal until the principal amount of the
preceding class or classes entitled to receive
principal has been retired.
THE OPERATION OF THE MORTGAGED
PROPERTY UPON FORECLOSURE OF THE
MORTGAGE LOAN MAY AFFECT THE TAX
STATUS OF THE TRUST AND MAY
ADVERSELY AFFECT PAYMENTS ON
YOUR CERTIFICATES If the trust fund acquires a mortgaged property
pursuant to a foreclosure or deed in lieu of
foreclosure, the special servicer must retain an
independent contractor to operate the property.
Any net income from the operation of an acquired
mortgaged property, other than qualifying "rents
from real property", or any rental income based
on the net profits of a tenant or sub-tenant or
allocable to a non-customary service, will
subject the trust fund to a federal tax on the
income at the highest marginal corporate tax
rate, which is currently [35]%, and, in
addition, possibly state or local tax. In this
event, the net proceeds available for
distribution to certificateholders will be
reduced. The special servicer may permit the
trust fund to earn "net income from foreclosure
property" that is subject to tax if it
determines that the net after-tax benefit to
certificateholders is greater than under another
method of operating or leasing the mortgaged
property.
STATE LAWS APPLICABLE TO
FORECLOSURE ACTIONS MAY AFFECT THE
TIMING OF PAYMENTS ON
YOUR CERTIFICATES Some states [including California and
Washington] have laws prohibiting more than one
"judicial action" to enforce a mortgage
obligation. Some courts have construed the term
"judicial action" broadly. In the case of a
mortgage loan secured by mortgaged properties
located in multiple states, the master servicer
or special servicer may be required to foreclose
first on mortgaged properties located in states
where "one action" rules apply--and where
non-judicial foreclosure is permitted--before
foreclosing on properties located in states
where judicial foreclosure is the only permitted
method of foreclosure. As a result, the ability
to realize upon the mortgage loans may be
limited by the application of state laws.
MORTGAGE LOANS SECURED BY
LEASEHOLD MORTGAGES ARE RISKIER
THAN THOSE SECURED BY FEE
MORTGAGES [ ] of the mortgaged properties, representing
approximately [ ]% of the initial pool balance,
are secured solely by mortgages on borrowers'
leasehold interests under ground leases.
o [ ] mortgaged properties, representing
approximately [ ]% of the initial pool
balance, are secured by mortgages on both
the borrower's leasehold interest in a
portion of the related mortgaged property
and the borrower's fee simple interest in
the remaining portion of the related
mortgaged property.
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<PAGE>
o [ ] mortgage loans, representing
approximately [ ]% of the initial pool
balance, are secured by both the related
borrower's leasehold interest in the
related mortgaged property and the fee
interest of the person/entity which owns
the related mortgaged property.
The execution of these types of mortgages by the
related fee owner may be subject to challenge as
a fraudulent conveyance by creditors of the fee
owner in an action brought outside a bankruptcy
case or, if this fee owner were to become a
debtor in a bankruptcy case, by the creditors of
the fee owner. This would subject the trust fund
to the same risks described in this prospectus
supplement with respect to
cross-collateralization arrangements.
Leasehold mortgage loans are subject to risks
not associated with mortgage loans secured by a
lien on the fee estate of the borrower. The most
significant of these risks is that if the
borrower's leasehold were to be terminated upon
a lease default, the lender would lose its
security. Generally, the related ground lease
requires the lessor to
o give the lender notice of borrower
defaults and an opportunity to cure them;
and
o permit the leasehold estate to be assigned
to the lender or a purchaser at a
foreclosure sale.
In addition, the ground leases generally contain
other protective provisions typically included
in a "mortgageable" ground lease.
Upon the bankruptcy of a lessor or a lessee
under a ground lease, the debtor entity has the
right to assume or reject the lease. If a debtor
lessor rejects the lease, the lessee/borrower
has the right to remain in possession of the
leased premises at the current rent and for the
term of the lease, including renewals. If a
debtor lessee/borrower rejects any or all of its
leases, the lender could succeed to the
lessee/borrower's position under the lease only
if the lessor specifically grants the lender
this right. As a result, the lender may lose its
security. If both the lessor and the
lessee/borrower are involved in bankruptcy
proceedings, the trustee may be unable to
enforce the bankrupt lessee/borrower's
obligation to refuse to treat a ground lease
rejected by a bankrupt lessor as terminated. In
these circumstances, a lease could be terminated
notwithstanding lender protection provisions
contained in the lease or in the mortgage and
the lender could lose its security. Some of the
ground leases securing the mortgaged properties
provide that the ground rent payable under the
lease increases during the term of the lease.
These increases may adversely affect the cash
flow and net income of the borrower from the
mortgaged property.
CROSS-COLLATERALIZATION OF
GROUPS OF MORTGAGE LOANS COULD
LEAD TO REDUCED
PAYMENTS ON YOUR CERTIFICATES The mortgage pool includes [ ] groups of
mortgage loans, the largest of which
collectively represents [ ]% of the initial pool
balance, under which an aggregate amount of
indebtedness is evidenced by multiple
obligations that are cross-defaulted and
cross-collateralized among multiple mortgaged
properties.
S-35
<PAGE>
Cross-collateralization arrangements involving
more than one borrower could be challenged as
fraudulent conveyances by creditors of the
related borrower in an action brought outside a
bankruptcy case or, if such borrower were to
become a debtor in a bankruptcy case, by the
borrower or its creditors. Specifically, a lien
granted by a borrower entity for the benefit of
another borrower or borrowers in a
cross-collateralization arrangement could be
avoided if a court were to determine that:
o the borrower entity was insolvent when it
granted the lien, was rendered insolvent
by the granting of the lien or was left
with inadequate capital, or was not able
to pay its debts as they matured; and
o the borrower entity did not receive fair
consideration or reasonably equivalent
value when it allowed its mortgaged
property or properties to be encumbered by
a lien benefiting the other borrowers.
Among other things, a legal challenge to the
granting of the liens may focus on the benefits
realized by a borrower entity from the
respective mortgage loan proceeds, as well as
the overall cross-collateralization. If a court
were to conclude that the granting of the liens
was an avoidable fraudulent conveyance, that
court could subordinate all or part of the
pertinent mortgage loan to existing or future
indebtedness of that borrower. The court also
could recover payments made under that mortgage
loan or take other actions detrimental to the
holders of the certificates, including, under
certain circumstances, invalidating the loan or
the mortgages that are subject to the
cross-collateralization.
THE BANKRUPTCY OR INSOLVENCY OF
ANY AFFILIATED BORROWERS MAY
ADVERSELY AFFECT PAYMENTS
ON YOUR CERTIFICATES [ ] groups of mortgage loans--including
cross-collateralized mortgage loan groups--the
largest of which represents [ ]% of the initial
pool balance, were made to borrowers which are
affiliated through common ownership of
partnership or other equity interests and where,
in general, the related mortgaged properties are
commonly managed.
The bankruptcy or insolvency of any affiliated
borrowers could have an adverse effect on the
operation of all of the related mortgaged
properties and an adverse effect on the ability
of the related mortgaged properties to produce
sufficient cash flow to make required payments
on the related mortgage loans. For example, if a
person that owns or controls several mortgaged
properties experiences financial difficulty at
one such property, it could defer maintenance at
one or more other mortgaged properties in order
to satisfy current expenses with respect to the
mortgaged property experiencing financial
difficulty, or it could attempt to avert
foreclosure by filing a bankruptcy petition that
might have the effect of interrupting monthly
payments for an indefinite period on all the
related mortgage loans.
S-35
<PAGE>
TENANT LEASES MAY HAVE PROVISIONS
THAT COULD ADVERSELY AFFECT
PAYMENTS ON YOUR
CERTIFICATES In some jurisdictions, if tenant leases are
subordinate to the liens === created by the
mortgage and do not contain attornment or
subordination provisions, the leases may
terminate upon the transfer of the property to a
foreclosing lender or purchaser at foreclosure.
Attornment or subordination provisions in a
lease provide that a tenant will recognize a
successor owner as landlord under the lease
following foreclosure. Not all leases were
reviewed to ascertain the existence of
attornment or subordination provisions.
Accordingly, if a mortgaged property is located
in a jurisdiction that requires an attornment or
subordination provision and the property or
portions of the property are leased to one or
more desirable tenants under leases that are
subordinate to the mortgage but do not contain
attornment provisions, these mortgaged
properties could experience a decline in value
if these tenants' leases were terminated. This
is particularly likely if the tenants were
paying above-market rents or could not be easily
replaced.
If a lease is not subordinate to a mortgage, the
trust fund will not possess the right to
dispossess the tenant upon foreclosure of the
mortgaged property, unless it has otherwise
agreed with the tenant. If the lease contains
provisions inconsistent with the mortgage, for
example, provisions relating to application of
insurance proceeds or condemnation awards, or
which could affect the enforcement of the
lender's rights, for example, a right of first
refusal to purchase the property, the provisions
of the lease will take precedence over the
provisions of the mortgage. Some of the leases
at the [retail] properties included in the trust
fund may not be subordinate to the related
mortgage.
CONFLICTS OF INTEREST MAY HAVE
AN ADVERSE EFFECT ON YOUR
CERTIFICATES Conflicts between various certificateholders.
The special servicer is given considerable
latitude in determining whether and in what
manner to liquidate or modify defaulted mortgage
loans. [The operating adviser will have the
right to replace the special servicer upon
satisfaction of certain conditions. At any given
time, the operating adviser will be controlled
generally by the holders of the most
subordinated, or, under certain circumstances,
the next most subordinated, class of
certificates--that is, the controlling
class--outstanding from time to time, and such
holders may have interests in conflict with
those of the holders of the other certificates.
For instance, the holders of certificates of the
controlling class might desire to mitigate the
potential for loss to that class from a troubled
mortgage loan by deferring enforcement in the
hope of maximizing future proceeds. However, the
interests of the trust may be better served by
prompt action, since delay followed by a market
downturn could result in less proceeds to the
trust than would have been realized if earlier
action had been taken. ]
Conflicts between borrowers and property
managers. Substantially all of the property
managers for the mortgaged properties, or their
affiliates, manage additional properties,
including properties that may compete with the
mortgaged properties. Affiliates of the
managers, and some of the managers themselves,
also may own other properties,
S-36
<PAGE>
including competing properties. The managers of
the mortgaged properties may accordingly
experience conflicts of interest in the
management of the mortgaged properties in the
trust fund.
Conflicts between parties to the Pooling
Agreement and Certificateholders. Related
parties, including the master servicer, the
special servicer or affiliates of the borrowers
may purchase certificates. A purchase by the
master servicer or special servicer could cause
a conflict between that entity's duties pursuant
to the Pooling Agreement and its interest as a
holder of a certificate, especially to the
extent that its actions have a disproportionate
effect on one or more classes of certificates.
However, the Pooling Agreement provides that the
mortgage loans will be administered in
accordance with the servicing standard as set
forth in the Pooling Agreement, without regard
to whether the master servicer, the special
servicer or any affiliate owns any certificates.
YOU BEAR THE RISK OF BORROWER
DEFAULTS The rate and timing of delinquencies or defaults
on the mortgage loans will affect:
o the aggregate amount of distributions on
the certificates offered to you;
o their yield to maturity;
o the rate of principal payments; and
o their weighted average life.
The rights of holders of each class of
subordinate certificates to receive payments of
principal and interest otherwise payable on
their certificates will be subordinated to the
rights of the holders of the more senior
certificates having an earlier alphabetical
class designation. Losses on the mortgage loans
will be allocated to the Class [ ], Class [ ],
Class [ ], Class [ ], Class [ ], Class [ ],
Class [ ], Class [ ], Class [ ], Class [ ],
Class [ ] and Class [ ] Certificates, in that
order, reducing amounts otherwise payable to
each class. Any remaining losses would then be
allocated to the Class [ ] Certificates.
If losses on the mortgage loans exceed the
aggregate principal amount of the class of most
subordinate certificates, the excess will be
absorbed by the remainder of the classes
starting with the most subordinate up to the
outstanding principal amount of each class.
If you calculate your anticipated yield based on
assumed rates of default and losses that are
lower than the default rate and losses actually
experienced and those losses are allocable to
your certificates, your actual yield to maturity
will be lower than the assumed yield. Under
specific extreme scenarios, the yield could be
negative. In general, the earlier a loss borne
by you on your certificates occurs, the greater
the effect on your yield to maturity.
Even if losses on the mortgage loans are not
borne by your certificates, those losses may
affect the weighted average life and yield to
maturity of your certificates. This may be so
because those losses lead to your certificates
having a higher percentage ownership interest in
the trust
S-37
<PAGE>
and related distributions of principal payments
on the mortgage loans than would otherwise have
been the case. The effect on the weighted
average life and yield to maturity of your
certificates will depend upon the
characteristics of the remaining mortgage loans.
Additionally, delinquencies and defaults on the
mortgage loans may significantly delay the
receipt of distributions by you on your
certificates, unless advances are made to cover
delinquent payments or the subordination of
another class of certificates fully offsets the
effects of any delinquency or default.
COMPENSATION TO THE MASTER
SERVICER, THE SPECIAL SERVICER AND
THE TRUSTEE MAY HAVE AN ADVERSE
EFFECT ON THE PAYMENT
OF YOUR CERTIFICATES To the extent described in this prospectus
supplement, the master servicer, the special
servicer or the trustee, as applicable, will be
entitled to receive interest on unreimbursed
advances. This interest will generally accrue
from the date on which the related advance is
made or the related expense is incurred through
the date of reimbursement. In addition, under
specific circumstances, including delinquencies
in the payment of principal and interest, a
mortgage loan will be specially serviced and the
special servicer is entitled to compensation for
special servicing activities. The right to
receive interest on advances or special
servicing compensation is senior to the rights
of certificateholders to receive distributions.
INTEREST RATES BASED ON WAC RATE
ENTAIL RISKS WHICH MAY ADVERSELY
AFFECT PAYMENT ON
YOUR CERTIFICATES The interest rates on the Class [ ], Class [ ],
Class [ ] and Class [ ] Certificates are based
on a weighted average of the mortgage loan
interest rates, which is calculated based upon
the respective principal balances of those
mortgage loans. This "weighted average" rate is
further described in this prospectus supplement
under the definition of WAC Rate. All of those
classes of certificates which are either fully
or partially based upon "weighted average" rate
will be affected by disproportionate principal
payments, prepayments, defaults and other
unscheduled payments on the mortgage loans.
Because some mortgage loans will amortize their
principal more quickly than others, the rate
will fluctuate over the life of those classes of
certificates.
PASS-THROUGH RATE VARIABILITY
CONSIDERATIONS MAY ADVERSELY
AFFECT PAYMENT ON YOUR
CERTIFICATES The interest rate of the Class [ ] Certificates
is based on the WAC Rate of the mortgage loans.
In general, mortgage loans with relatively high
mortgage interest rates are more likely to
prepay than mortgage loans with relatively low
mortgage interest rates. Varying rates of
principal payments on mortgage loans having
mortgage interest rates above the weighted
average of the rates of the mortgage loans will
have the effect of reducing the interest rate of
the certificates.
S-38
<PAGE>
COMPUTER PROGRAMMING PROBLEMS
RELATED TO THE YEAR 2000 MAY HAVE
AN ADVERSE EFFECT ON THE PAYMENT
OF YOUR CERTIFICATES Morgan Stanley Capital I Inc. is aware of the
issues associated with the programming code in
existing computer systems as the year 2000
approaches. The "year 2000 problem" is pervasive
and complex: virtually every computer operation
will be affected in some way by the rollover of
the two-digit year value to 00. The issue is
whether computer systems will properly recognize
date-sensitive information when the year changes
to 2000. Systems that do not properly recognize
the information could generate erroneous data,
fail or cause another system to fail. Systems
include all hardware, networks, system and
application software, commercial "off-the-shelf"
software, data and voice communication devices,
and embedded technology including, data-impacted
processors in automated systems such as
elevators, telephone systems, security systems,
vault systems, heating and cooling systems and
others.
The depositor has been advised by each of the
master servicer, the special servicer, the
sub-servicer and the trustee that they will use
commercially reasonable efforts to either
implement modifications to their respective
existing systems to the extent required to cause
them to be year 2000 compliant or to acquire
computer systems that are year 2000 compliant,
in both cases prior to January 1, 2000. However,
neither Morgan Stanley Capital I Inc. nor any
affiliate of Morgan Stanley Capital I Inc. has
made any independent investigation of the
computer systems of the master servicer, the
special servicer, the sub-servicer or the
trustee. In the event that computer problems
arise out of a failure of the efforts to be
completed on time, or in the event that the
computer systems of the master servicer, the
special servicer, the sub-servicer or the
trustee are not fully year 2000 compliant, the
resulting disruptions in the collection or
distribution of sums collected or required to be
advanced on the mortgage loans could materially
and adversely affect the holders of the
certificates.
DTC has informed its participants and other
members of the financial community that it has
developed and is implementing a program so that
its systems, as the same relate to the timely
payment of distributions, including principal
and interest payments to securityholders,
book-entry deliveries, and settlement of trades
within DTC, continue to function appropriately.
This program includes a technical assessment and
a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing
phase, which is expected to be completed within
appropriate time frames.
However, DTC's ability to perform properly its
services is also dependent upon other parties,
including but not limited to issuers and their
agents, as well as third party vendors from whom
DTC licenses software and hardware, and third
party vendors on whom DTC relies for information
or the provision of services, including
telecommunication and electrical utility service
providers, among others. DTC has informed DTC
participants and other members of the financial
community that it is contacting, and will
continue to contact, third party vendors from
whom DTC acquires services to impress upon them
the importance of their services being year 2000
compliant and to
S-39
<PAGE>
determine the extent of their efforts for year
2000 remediation and, as appropriate, testing of
their services. In addition, DTC is in the
process of developing contingency plans as it
deems appropriate.
According to DTC, the foregoing information with
respect to DTC has been provided to DTC
participants and other members of the financial
community for informational purposes only and is
not intended to serve as a representation,
warranty or contract modification of any kind.
In the event that computer problems arise out of
a failure of the efforts described above to be
completed on time, or in the event that the
systems of the trustee, the master servicer, the
special servicer, the sub-servicer or DTC are
not fully year 2000 compliant, any resulting
disruptions in the collection and distribution
of receipts on or in respect of the mortgage
loans could materially adversely affect your
certificates.
------------------------------------------------------------
This prospectus supplement also contains forward-looking statements that involve
risks and uncertainties. Actual results could differ materially from those
anticipated in these forward-looking statements as a result of a variety of
factors, including the risks described above in the "Risk Factors" section and
elsewhere in this prospectus supplement.
S-40
<PAGE>
MORTGAGE POOL [MBS] CHARACTERISTICS
Capitalized terms are defined in the "Glossary of Terms"
beginning on page 80.
GENERAL
The trust fund will consist primarily of:
o [ ] [fixed interest] [adjustable interest] rate mortgage loans
with an aggregate principal balance as of the Cut- off Date,
after deducting payments of principal due on that date, of $[ ];
o MBS; and
o government securities.
Each mortgage loan is evidenced by a mortgage note and secured by a
mortgage creating a [first][junior] [fee][leasehold] lien on a mortgaged
property. The mortgaged properties consist of [description of commercial or
multifamily residential properties]. [Because no evaluation of any borrower's
financial condition has been conducted, investors should consider all of the
mortgage loans to be non-recourse loans so that, in the event of borrower
default, recourse may be had only against the specific property and the limited
other assets as have been pledged to secure the mortgage loan, and not against
the borrower's other assets.] All percentages of the mortgage loans described in
this prospectus supplement are approximate percentages, except as otherwise
indicated, by aggregate principal balance as of the Cut- off Date.
[The mortgage loans to be included in the trust fund will have been
originated or acquired by the mortgage loan seller and will comply with the
underwriting criteria described in this prospectus supplement. Morgan Stanley
Capital I Inc. will purchase the mortgage loans to be included in the Mortgage
Pool on or before the Closing Date from the mortgage loan seller pursuant to a
Seller's Agreement.
Under the Seller's Agreement, _______________, as seller of the mortgage
loans to Morgan Stanley Capital I Inc., will make representations, warranties
and covenants to Morgan Stanley Capital I Inc. relating to, among other things,
the due execution and enforceability of the Seller's Agreement and certain
characteristics of the mortgage loans, and will be obligated to repurchase or
substitute for any mortgage loans as to which there exists deficient
documentation or an uncured material breach of a representation, warranty or
covenant. Under the Pooling Agreement Morgan Stanley Capital I Inc. will assign
all its right, title and interest in these representations, warranties and
covenants, including [the Seller's] repurchase or substitution obligation, to
the trustee for the trust fund. Morgan Stanley Capital I Inc. will make no
representations or warranties with respect to the mortgage loans and will have
no obligation to repurchase or substitute for mortgage loans with deficient
documentation or which are otherwise defective. _____________, as seller of the
mortgage loans to Morgan Stanley Capital I Inc., is selling these mortgage loans
without recourse and, accordingly, in this capacity, will have no obligations
with respect to the certificates other than pursuant to these representations,
warranties, covenants and repurchase obligations. See "Description of the
Agreements--Representations and Warranties; Repurchases" in the prospectus.
[THE MORTGAGE BACKED SECURITIES (MBS)]
[Title and issuer of underlying securities, amount deposited or
pledged, amount originally issued, maturity date, interest rate, [redemption
provisions], together with description of other material terms.]
[Description of principal and interest distributions on the MBS.]
[Description of advances by the servicer of the mortgage loans underlying
the MBS.]
[Description of effect on the MBS of allocation of losses on the underlying
mortgage loans.]
S-41
<PAGE>
As to each series of Mortgage Backed Securities included in the trust
fund, the various classes of certificates from these series [ including classes
not in the trust fund but from the same series as classes that are in the trust
fund] are listed, together with the related pass-through rates and certain other
applicable information applicable , in [Appendix II to this prospectus
supplement.]
[THE INDEX]
[As of any Payment Adjustment Date, the Index applicable to the
determination of the related mortgage rate will be a per annum rate equal to
______________, as most recently available as of the date [ ] days prior to the
Payment Adjustment Date. These average yields reflect the yields for the week
prior to that week in which the information is reported. In the event that the
Index is no longer available, an Index reasonably acceptable to the trustee that
is based on comparable information will be selected by the master servicer.
The Index is currently calculated based on information reported in
___________. Listed below are the weekly average yields on actively traded
______________ as reported in ____________ on the date that would have been
applicable to mortgage loans having the following adjustment dates for the
indicated years. Average yields may fluctuate significantly from week to week as
well as over longer periods and may not increase or decrease in a constant
pattern from period to period. The following does not purport to be
representative of future average yields. No assurance can be given as to the
average yields on _______________ on any Payment Adjustment Date or during the
life of any mortgage loan.]
<TABLE>
[NAME OF INDEX]
<CAPTION>
Adjustment Date 1990 1991 1992 1993 1994 1995
- --------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
January [ ].....................................
February [ ] ...................................
March [ ].......................................
April [ ].......................................
May [ ].........................................
June [ ]........................................
July [ ]........................................
August [ ]......................................
September [ ]...................................
October [ ].....................................
November [ ]....................................
December [ ]....................................
</TABLE>
CHARACTERISTICS OF THE MORTGAGE LOANS
[Approximately ___% of the mortgage loans have Due Dates that occur on
the ___ day of each month; approximately ___% of the mortgage loans have Due
Dates that occur on the ___ day of each month; approximately _____% of the
mortgage loans have Due Dates that occur on the ___ day of each month; and the
remainder of the mortgage loans have Due Dates that occur on the __________ day
of each month.]
[As of the Cut- off Date, the mortgage loans had the following
characteristics:
o mortgage rates ranging from _____% per annum to _______% per
annum;
o a weighted average mortgage rate of ______% per annum;
o Gross Margins ranging from ____ basis points to ______ basis
points;
o weighted average Gross Margin of ____ basis points;
o Cut-off Date principal balances ranging from $_______ to $______;
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<PAGE>
o an average principal balance of $_________;
o original terms to maturity ranging from _____ months to _________
months;
o a weighted average original term to maturity of _____ months;
o remaining terms to maturity ranging from ____ months to _____
months;
o a weighted average remaining term to maturity of ________ months;
o LTV Ratios as of the Cut-off Date ranging from ______% to
________%;
o a weighted average Cut- off Date LTV Ratio of _____%;
o as to the [ ]mortgage loans, representing [ ]% of the initial
pool balance, to which this characteristic applies, (A) minimum
lifetime mortgage rates ranging from ____% per annum to ______ %
per annum and (B) a weighted average minimum lifetime mortgage
rate of _______% per annum;
o as to the [ ]mortgage loans, representing [ ]% of the initial
pool balance, to which this characteristic applies and for which
it may be currently calculated, (A) maximum lifetime mortgage
rate ranging from _______% per annum to ________% per annum and
(B) a weighted average maximum lifetime mortgage rate of
_________% per annum;
o Debt Service Coverage Ratios as of the Cut-off Date ranging from
______% to _____%; and
o a weighted average Cut- off Date Debt Service Coverage Ratio of
_________%.]
[ % of the mortgage loans provide for Balloon Payments on their
respective maturity dates. Loans providing for Balloon Payments involve a
greater degree of risk than self-amortizing loans. See "Risk Factors--Borrowers
May Be Unable To Repay The Remaining Principal Balance On Its Maturity Date
Which Would Adversely Affect Payment On Your Certificates" in the prospectus.]
[The mortgage rate on each mortgage loan is subject to adjustment on
each Interest Rate Adjustment Date by adding the related Gross Margin to the
value of the Index, as most recently announced a specified number of days prior
to this Interest Rate Adjustment Date, subject, in the case of substantially all
of the mortgage loans, to minimum and maximum lifetime mortgage rates, with
ranges specified below. The mortgage rates on the mortgage loans generally are
adjusted monthly; however, some of the mortgage loans may provide for Interest
Rate Adjustment Dates to occur
o quarterly, ___% of the mortgage loans,
o semi-annually, __ % of the mortgage loans, or
o annually, ____% of the mortgage loans.
Other statistics are as follows:
o [[Each] of the mortgage loans provided for an initial fixed
interest rate period.]
o [ mortgage loans, representing ___% of the initial pool balance,
have not experienced their first Interest Rate Adjustment Date.]
o [The latest initial Interest Rate Adjustment Date for any
mortgage loan is to occur in , subject to the Payment Caps
described in this prospectus supplement, the amount of the
monthly payment on each mortgage loan adjusts periodically on
each Payment Adjustment Date to an amount that would fully
amortize the principal balance of the mortgage loan over its then
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<PAGE>
remaining amortization schedule and pay interest at the mortgage
rate in effect during the one month period preceding this Payment
Adjustment Date.]
o [Approximately __% of the mortgage loans provide that an
adjustment of the amount of the monthly payment on a Payment
Adjustment Date is subject to a Payment Cap; however, certain of
those mortgage loans also provide that the Payment Cap will not
apply on certain Payment Adjustment Dates or if the application
thereof would result in the principal balance of the mortgage
loan exceeding, through negative amortization, by a specified
percentage the original principal balance thereof.]
o [Generally, the related mortgage note provides that if, as a
result of negative amortization, the respective principal balance
of the mortgage loan reaches an amount specified in the mortgage
note, which as to most mortgage loans is not greater than _% of
the mortgage loan principal balance as of the origination date
thereof, the amount of the monthly payments due thereunder will
be increased as necessary to prevent further negative
amortization.]
o [Only in the case of _____% of the mortgage loans does a Payment
Adjustment Date immediately follow each Interest Rate Adjustment
Date. As a result, and because application of Payment Caps may
limit the amount by which the monthly payments due on certain of
the mortgage loans may adjust, the amount of a monthly payment
may be more or less than the amount necessary to amortize the
mortgage loan principal balance over the then remaining
amortization schedule at the applicable mortgage rate.
Accordingly, mortgage loans may be subject to slower
amortization, if the monthly payment due on a Due Date is
sufficient to pay interest accrued to this Due Date at the
applicable mortgage rate but is not sufficient to reduce
principal in accordance with the applicable amortization
schedule, to negative amortization if interest accrued to a Due
Date at the applicable mortgage rate is greater than the entire
monthly payment due on this Due Date or to accelerated
amortization, if the monthly payment due on a Due Date is greater
than the amount necessary to pay interest accrued to this Due
Date at the applicable mortgage rate and to reduce principal in
accordance with the applicable amortization schedule.]
o [No mortgage loan currently prohibits principal prepayments;
however, some of the mortgage loans impose prepayment premiums in
connection with full or partial prepayments. Although prepayment
premiums are payable to the master servicer as additional
servicing compensation, the master servicer may waive the payment
of any prepayment premium only in connection with a principal
prepayment that is proposed to be made during the three month
period prior to the scheduled maturity of the related mortgage
loan, or under certain other limited circumstances.]
The following table sets forth the range of mortgage rates on the
mortgage loans as of the Cut- off Date:
S-44
<PAGE>
<TABLE>
MORTGAGE RATES AS OF THE CUT-OFF DATE
<CAPTION>
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Mortgage Rate Loans Number the Cut-off Date the Cut-off Date
- ------------- ------ ------- ------------------ ----------------
<S> <C> <C> <C>
Total 100.00% $ 100.00%
=========== ======== ============== =======
Weighted Average
Mortgage Rate:
</TABLE>
Note: Percentage totals may not add due to rounding.
The following table sets forth the types of mortgaged properties
securing the mortgage loans:
<TABLE>
PROPERTY TYPE
<CAPTION>
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Type Loans Number the Cut-off Date the Cut-off Date
- ------------- ------ ------- ------------------ ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
=========== ======== ============== =======
</TABLE>
Note: Percentage totals may not add due to rounding.
[The following table sets forth the range of Gross Margins for the mortgage
loans:]
<TABLE>
[GROSS MARGINS]
<CAPTION>
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Mortgage Rate Loans Number the Cut-off Date the Cut-off Date
- ------------- ------ ------- ------------------ ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
=========== ======== ============== =======
Weighted Average
Gross Margin:
</TABLE>
Note: Percentage totals may not add due to rounding.
S-45
<PAGE>
[The following table sets forth the frequency of adjustments to the
mortgage rates on the mortgage loans as of the Cut- off Date:]
<TABLE>
[FREQUENCY OF ADJUSTMENTS TO MORTGAGE RATES]
<CAPTION>
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Frequency(A) Loans Number the Cut-off Date the Cut-off Date
- ------------- ------ ------- ------------------ ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
=========== ======== ============== =======
Weighted Average
Frequency of
Adjustments to
Mortgage Rate:
</TABLE>
Note: Percentage totals may not add due to rounding.
(A) _______ or ___% of mortgage loans have not experienced their first Interest
Rate Adjustment Date.
[The following table sets forth the frequency of adjustments to the
monthly payments on the mortgage loans as of the Cut- off Date:]
<TABLE>
[FREQUENCY OF ADJUSTMENTS TO MONTHLY PAYMENTS]
<CAPTION>
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Frequency (A) Loans Number the Cut-off Date the Cut-off Date
- ------------- ------ ------- ------------------ ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
=========== ======== ============== =======
Weighted Average
Frequency of
Adjustments to
Monthly Payments:
</TABLE>
Note: Percentage totals may not add due to rounding.
S-46
<PAGE>
[The following table sets forth the range of maximum lifetime mortgage
rates for the mortgage loans:]
<TABLE>
[MAXIMUM LIFETIME MORTGAGE RATES]
<CAPTION>
Percent by
Aggregate Aggregate
Maximum Number of Percent Principal Principal
Lifetime Mortgage by Balance as of Balance as of
Mortgage Rate Loans Number the Cut- off Date the Cut- off Date
- ------------- ------ ------- ------------------ ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
=========== ======== ============== =======
</TABLE>
Weighted Average
Maximum Lifetime
Mortgage Rate:
Note: Percentage totals may not add due to rounding.
(A) Represents mortgage loans without a lifetime rate cap.
(B) The lifetime rate caps for these mortgage loans are based upon the Index as
determined at a future point in time plus a fixed percentage. Therefore,
the rate is not determinable as of the Cut- off Date.
(C) This calculation does not include the ____ mortgage loans without a
lifetime rate cap or the mortgage loans with lifetime rate caps which are
currently not determinable.
[The following table sets forth the range of minimum lifetime mortgage
rates on the mortgage loans:]
<TABLE>
[MINIMUM LIFETIME MORTGAGE RATES]
<CAPTION>
Percent by
Aggregate Aggregate
Minimum Number of Percent Principal Principal
Lifetime Mortgage by Balance as of Balance as of
Mortgage Rate Loans Number the Cut-off Date the Cut-off Date
- ------------- ------ ------- ------------------ ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
=========== ======== ============== =======
Weighted Average
Minimum Lifetime
Mortgage Rate:
</TABLE>
Note: Percentage totals may not add due to rounding.
(A) Represents mortgage loans without interest rate floors.
(B) This calculation does not include the mortgage loans without interest rate
floors.
S-47
<PAGE>
The following table sets forth the range of principal balances of the
mortgage loans as of the Cutoff Date:
PRINCIPAL BALANCES AS OF THE CUT- OFF DATE
<TABLE>
<CAPTION>
Percent by
Principal Aggregate Aggregate
Balance Number of Percent Principal Principal
as of the Mortgage by Balance as of Balance as of
Cut-Off Date Loans Number the Cut-off Date the Cut-off Date
- ------------- ------ ------- ------------------ ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
=========== ======== ============== =======
</TABLE>
Average Principal Balance
as of the
Cut-off Date:
Note: Percentage totals may not add due to rounding.
The following tables set forth the original and remaining terms to
maturity, in months, of the mortgage loans:
ORIGINAL TERM TO MATURITY IN MONTHS
<TABLE>
<CAPTION>
Percent by
Aggregate Aggregate
Original Number of Percent Principal Principal
Term in Mortgage by Balance as of Balance as of
Months Loans Number the Cut-off Date the Cut-off Date
- ------------- ------ ------- ------------------ ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
=========== ======== ============== =======
</TABLE>
Weighted Average
Original Term to Maturity:
Note: Percentage totals may not add due to rounding.
S-48
<PAGE>
REMAINING TERM TO MATURITY IN MONTHS
<TABLE>
<CAPTION>
Percent by
Aggregate Aggregate
Remaining Number of Percent Principal Principal
Term in Mortgage by Balance as of Balance as of
Months Loans Number the Cut-off Date the Cut-off Date
- ------------- ------ ------- ------------------ ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
=========== ======== ============== =======
</TABLE>
Weighted Average Remaining
Term to Maturity:
Note: Percentage totals may not add due to rounding.
The following tables set forth the respective years in which the
mortgage loans were originated and are scheduled to mature:
MORTGAGE LOAN YEAR OF ORIGINATION
<TABLE>
<CAPTION>
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Year Loans Number the Cut-off Date the Cut-off Date
- ------------- ------ ------- ------------------ ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
=========== ======== ============== =======
</TABLE>
Note: Percentage totals may not add due to rounding.
MORTGAGE LOAN YEAR OF SCHEDULED MATURITY
<TABLE>
<CAPTION>
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Year Loans Number the Cut-off Date the Cut-off Date
- ------------- ------ ------- ------------------ ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
=========== ======== ============== =======
</TABLE>
Note: Percentage totals may not add due to rounding.
The following table sets forth the range of Original LTV Ratios of the
mortgage loans. There can be no assurance that the value, determined through an
appraisal or otherwise, of a mortgaged property determined after origination of
the related mortgage loan will be equal to or greater than the value thereof,
determined through an appraisal or otherwise, obtained in connection with the
origination . As a result, there can be no assurance that the
S-49
<PAGE>
loan-to-value ratio for any mortgage loan determined at any time following
origination thereof will be lower than the Original LTV Ratio, notwithstanding
any positive amortization of the mortgage loan.
ORIGINAL LTV RATIOS
<TABLE>
<CAPTION>
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Original Mortgage by Balance as of Balance as of
LTV Ratio Loans Number the Cut-off Date the Cut-off Date
- ------------- ------ ------- ------------------ ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
=========== ======== ============== =======
Weighted Average Original
LTV Ratio:
</TABLE>
Note: Percentage totals may not add due to rounding
The following table sets forth the range of Debt Service Coverage
Ratios for the mortgage loans. The annual operating statements for the mortgaged
properties used in preparing the following table were obtained from the
respective borrowers. The information contained in the operating statements was
unaudited, and Morgan Stanley Capital I Inc. has made no attempt to verify its
accuracy. The last day of the twelve-month period covered by each operating
statement is set forth in Appendix II with respect to the related mortgage loan.
[Some of the mortgaged properties have relatively short operating histories, and
this performance may be less indicative of future performance than in the case
of a property with a stable operating history over an extended period of time.
However, even with respect to mortgaged properties with longer operating
histories, operating income produced by mortgaged properties in the past should
not be construed as indicative of the future performance of any mortgaged
property. [Annual operating statements for any year following 19__ could not be
obtained with respect to _______ of the mortgaged properties and, consequently,
the Debt Service Coverage Ratios for the related mortgage loans were not
calculated. As a result, no conclusions should be drawn as to those mortgage
loans on the basis of the information set forth in the charts below.]
S-50
<PAGE>
DEBT SERVICE COVERAGE RATIOS AS OF THE CUT- OFF DATE
<TABLE>
<CAPTION>
Percent by
Aggregate Aggregate
Debt Service Number of Percent Principal Principal
Coverage Mortgage by Balance as of Balance as of
Ratio Loans Number the Cut- off Date the Cut- off Date
----- ----- ------ ----------------- -----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
======= ======= ======= =======
</TABLE>
Weighted Average
Debt Service Coverage
Ratio:
Note: Percentage totals may not add due to rounding.
(A) The debt service coverage ratios for these loans were not calculated due to
a lack of operating statements with respect to years after 19__.
(B) This calculation does not include the ____ mortgage loans where debt
service coverage ratios were not calculated.
The mortgage loans are secured by mortgaged properties in different
states. The table below sets forth the states in which the mortgaged properties
are located:
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
State Loans Number the Cut- off Date the Cut- off Date
----- ----- ------ ----------------- -----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
======= ======= ======= =======
</TABLE>
Note: Percentage totals may not add due to rounding.
[regional breakdown to be provided as appropriate]
S-51
<PAGE>
[ % of the mortgage loans provide that upon any principal prepayment of
a mortgage loan, whether made voluntarily or involuntarily, the related borrower
will be required to pay a prepayment premium in the amount set forth in the
following table.]
[MORTGAGE LOAN PREPAYMENT PREMIUMS]
<TABLE>
<CAPTION>
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Prepayment Mortgage by Balance as of Balance as of
Premium Loans Number the Cut- off Date the Cut- off Date
------- ----- ------ ----------------- -----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
======= ======= ======= =======
</TABLE>
Note: Percentage totals may not add due to rounding.
[ Certain individual characteristics of the mortgage loans are set
forth in Appendix II to this prospectus supplement.]
UNDERWRITING STANDARDS
All of the mortgage loans were originated or acquired by _______,
generally in accordance with the underwriting criteria described in this
prospectus supplement.
[Description of underwriting standards.]
ADDITIONAL INFORMATION
The description in this prospectus supplement of the Mortgage Pool and
the mortgaged properties is based upon the Mortgage Pool as expected to be
constituted at the close of business on the Cut- off Date, as adjusted for the
scheduled principal payments due on or before this date. Prior to the issuance
of the Class [ ] Certificates, a mortgage loan may be removed from the Mortgage
Pool as a result of incomplete documentation or otherwise, if Morgan Stanley
Capital I Inc. deems removal necessary or appropriate and may be prepaid at any
time. A limited number of other mortgage loans may be included in the Mortgage
Pool prior to the issuance of the Class [ ] Certificates unless including the
mortgage loans would materially alter the characteristics of the Mortgage Pool
as described in this prospectus supplement. Morgan Stanley Capital I Inc.
believes that the information set forth in this prospectus supplement will be
representative of the characteristics of the Mortgage Pool as it will be
constituted at the time the Class [ ] Certificates are issued, although the
range of mortgage rates and maturities and other characteristics of the mortgage
loans in the Mortgage Pool may vary.
A Current Report on Form 8-K will be available to purchasers of the
Class [ ] Certificates and will be filed, together with the Pooling Agreement,
with the Securities and Exchange Commission within fifteen days after the
initial issuance of the Class [ ] certificates. In the event mortgage loans are
removed from or added to the Mortgage Pool as set forth in the preceding
paragraph, this removal or addition will be noted in the Form 8-K.
DESCRIPTION OF THE OFFERED CERTIFICATES
GENERAL
The certificates will be issued pursuant to the Pooling Agreement and
will consist of [ ] classes to be designated as the Class [ ] Certificates and
the Class [ ] Certificates. The Class [ ] Certificates, the Class [ ]
Certificates, the Class [ ] Certificates, the Class [ ] Certificates, the Class
[ ] Certificates, the Class [ ] Certificates, the Class
S-52
<PAGE>
[ ] Certificates, the Class [ ] Certificates, the Class [ ] Certificates and the
Class [ ] Certificates. The Class [ ], Class [ ], Class [ ], Class [ ] and Class
[ ] Certificates are not offered hereby.
The certificates represent in the aggregate the entire beneficial
ownership interest in a trust fund consisting of:
o the mortgage loans and all payments under and proceeds of the
mortgage loans due after the Cut-off Date;
o REO Property;
o any funds or assets as from time to time are deposited in the
REO Account;
o the rights of the lender under all insurance policies with
respect to the mortgage loans;
o rights and remedies under the [Seller's Agreement]; and
o all of the lender's right, title and interest in the [Reserve
Accounts and the Lockbox Accounts]. The certificates do not
represent an interest in or obligation of the [ depositor,
[ ], [the master servicer,] [the special servicer,] [the
trustee,] [the underwriter,] the borrowers or any of their
respective affiliates.
[Upon initial issuance, the Principal Balance Certificates, which are
comprised of the Class [ ], Class [ ], Class [ ], Class [ ], Class [ ], Class [
], Class [ ] and Class [ ] Certificates, and the Class [ ] Certificates will
have the following Certificate Balance or Notional Amount, in each case, subject
to a variance of plus or minus 5%:]
INITIAL CERTIFICATE BALANCE
CLASS OR NOTIONAL AMOUNT
-------------------------------------- ----------------------------
Class [ ]............................. $
Class [ ].............................
Class [ ].............................
Class [ ].............................
Class [ ].............................
Class [ ].............................
[The Certificate Balance of any class of Principal Balance Certificates
outstanding at any time represents the maximum amount which the holders thereof
are entitled to receive as distributions allocable to principal from the cash
flow on the mortgage loans and the other assets in the trust fund; provided,
however, that in the event that Realized Losses previously allocated to a class
of certificates in reduction of their Certificate Balances are recovered
subsequent to the reduction of the Certificate Balance of the class to zero,
this class may receive distributions in respect of recoveries in accordance with
the priorities set forth under "--Distributions--Payment Priorities" in this
prospectus supplement. The respective Certificate Balance of each class of
certificates entitled to distributions of principal will in each case be reduced
by amounts actually distributed thereon that are allocable to principal and by
any Realized Losses allocated to those classes of certificates.]
[The Class [ ] will not have a Certificate Balance. This class will
represent the right to receive distributions of interest accrued as described in
this prospectus supplement on a Notional Amount. For convenience in describing
interest distributions, the Class [ ] Certificates will be deemed to consist of
[ ] components, the "Class [ ] Component", the "Class [ ] Component" and the
"Class [ ] Component", each of which will have a Component Notional Amount equal
to the Certificate Balance of the related class of certificates and will be
reduced by distributions allocable to principal and by any Realized Losses
allocated to those classes of certificates. The Notional Amount of the Class [ ]
Certificates will be reduced to the extent of all reductions in the aggregate of
the Certificate Balance of the Class [ ], Class [ ], Class [ ], Class [ ] and
Class [ ] Certificates.]
[None of the Class [ ] Certificates are offered by this prospectus
supplement.]
S-53
<PAGE>
DISTRIBUTIONS
Method, Timing and Amount. Distributions on or with respect to the
certificates will be made, to the extent of Available Funds, on each
Distribution Date commencing in ___________. All distributions, other than the
final distribution on any certificate, will be made by the [ master servicer]
[trustee] to the persons in whose names the certificates are registered at the
close of business on [the last day of the month] immediately preceding the month
in which the related Distribution Date occurs, or if this day is not a Business
Day, the immediately preceding Business Day. The distributions will be made
o by wire transfer in immediately available funds to the account
specified by the certificateholder at a bank or other entity
having appropriate facilities therefor, if the
certificateholder provides the trustee with wiring
instructions no less than [five Business Days] prior to the
related Record Date, or otherwise
o by check mailed to the certificateholder.
[The final distribution on any offered certificates will be made in
like manner, but only upon presentment or surrender--for notation that the
Certificate Balance or the Notional Amount, as the case may be, of the offered
certificates has been reduced to zero-- of the certificate at the location
specified in the notice to the certificateholder of the final distribution.]
[All distributions made with respect to a class of certificates on each
Distribution Date will be allocated [pro rata] among the outstanding
certificates of the class based on their respective Percentage Interests.] [The
aggregate distribution to be made on the certificates on any Distribution Date
will equal the Available Funds. The Available Funds for a Distribution Date will
be the sum of:
1) [all monthly payments or other receipts on account of principal
and interest on or in respect of the mortgage loans-- including
Unscheduled Payments and Net REO Proceeds, if any--received by the
master servicer in the related Collection Period;]
2) [all other amounts required to be deposited in the Collection
Account by the master servicer pursuant to the Pooling Agreement
in respect of the Distribution Date that are allocable to the
mortgage loans, including all P&I Advances made by the master
servicer or the trustee, as applicable, in respect of the
Distribution Date, and any interest or other income earned on
funds in the Interest Reserve Account;] and
3) [any late payments of the items set forth in clause (1) above
received after the end of the Collection Period relating to the
Distribution Date but prior to the related Master Servicer
Remittance Date;]
[but excluding the following:]
a) amounts permitted to be used to reimburse the master
servicer, the special servicer or the trustee, as
applicable, for previously unreimbursed Advances and
interest thereon as described in this prospectus
supplement under "The Pooling Agreement--Advances";]
b) [the aggregate amount of Servicing Compensation;]
c) [all amounts representing scheduled monthly payments
due after the related Due Date;]
d) [to the extent permitted by the Pooling Agreement,
that portion of liquidation proceeds, insurance
proceeds, condemnation proceeds or the Repurchase
Price received with respect to a mortgage loan which
represents any unpaid Servicing Compensation as
described in this prospectus supplement, to which the
master servicer, the special servicer or the trustee
is entitled;]
e) [all amounts representing certain unanticipated or
default related expenses reimbursable or payable to
the master servicer, the special servicer or the
trustee and other amounts permitted to be retained by
the master servicer or withdrawn pursuant to the
Pooling Agreement in respect of various items,
including indemnities;]
f) [prepayment premiums;]
S-54
<PAGE>
g) [Default Interest;]
h) [Deferred Interest;]
i) [all amounts received with respect to each mortgage
loan previously purchased or repurchased pursuant to
the Pooling Agreement during the related Collection
Period and subsequent to the date as of which the
amount required to effect the purchase or repurchase
was determined;] and
j) [the amount reasonably determined by the trustee to
be necessary to pay any applicable federal, state or
local taxes imposed on the [Master REMIC or the
Subsidiary REMIC] under the circumstances and to the
extent described in the Pooling Agreement.]
Payment Priorities. On each Distribution Date [prior to the Cross-over
Date], the Available Funds for this Distribution Date will be distributed in the
following amounts and order of priority:
o [First, pro rata, in respect of interest, to the Class [ ] and
Class [ ] Certificates, up to an amount equal to, and pro rata
as among these classes in accordance with, the Interest
Distribution Amounts of these classes;
o Second, to the Class [ ] Certificates, in reduction of their
respective Certificate Balances in the following order: first,
to the Class [ ] Certificates and, second, to the Class [ ]
Certificates, in each case up to an amount equal to the lesser
of (1) the Certificate Balance of the Certificates and (2) the
Principal Distribution Amount for the Distribution Date;
o Third, to the Class [ ] Certificates, in respect of interest,
up to an amount equal to the aggregate Interest Distribution
Amount of this class;
o Fourth, to the Class [ ] Certificates, in reduction of the
Certificate Balance of the Certificates, up to an amount equal
to the Principal Distribution Amount less the portion of the
Principal Distribution Amount distributed pursuant to all
prior clauses, until the Certificate Balance of the
Certificates is reduced to zero;
o Fifth, to the Class [ ] Certificates, an amount equal to the
aggregate of unreimbursed Realized Losses previously allocated
to this class, plus interest on the Certificates at the
pass-through rate for the class compounded monthly from the
date the related Realized Loss was allocated to this class;
o Sixth, to the Class [ ] Certificates, in respect of interest,
up to an amount equal to the aggregate Interest Distribution
Amount of the class;
o Seventh, to the Class [ ] Certificates in reduction of the
Certificate Balance of the Certificates, up to an amount equal
to the Principal Distribution Amount less the portion of the
Principal Distribution Amount distributed pursuant to all
prior clauses, until the Certificate Balance of the
Certificates is reduced to zero;
o Eighth, to the Class [ ] Certificates, an amount equal to the
aggregate of unreimbursed Realized Losses previously allocated
to the class, plus interest on the Certificates at the
pass-through rate for the class compounded monthly from the
date the related Realized Loss was allocated to the class; and
o Ninth, to the Class [ ] Certificates, any amounts remaining in
the Master Distribution Account, and to the Class [ ]
Certificates, any amounts remaining in the Subsidiary
Distribution Account.]
[On each Distribution Date occurring on and after the Cross-over Date,
regardless of the allocation of principal payments described in priority Second
above, an amount equal to the aggregate of the Principal Distribution Amounts
will be distributed, first, to the Class [ ] and Class [ ] Certificates, pro
rata, based on their respective Certificate Balances, in reduction of their
respective Certificate Balances, until the Certificate Balance of each class is
reduced to zero, and, second, to the Class [ ] and Class [ ] Certificates for
unreimbursed amounts of
S-55
<PAGE>
Realized Losses previously allocated to these classes, pro rata in accordance
with the amount of the unreimbursed Realized Losses so allocated, plus interest
on the Certificates at the pass-through rates for these classes compounded
monthly from the date the related Realized Losses were allocated for these
classes.]
[All references to "pro rata" in the preceding clauses, to the extent
set forth, mean pro rata based upon the amount distributable pursuant to this
clause.]
Prepayment Premiums. [On any Distribution Date, Prepayment Premiums
collected during the related Collection Period will be distributed to the
holders of the certificates as described in this prospectus supplement.]
[If any Class [ ] Certificate remains outstanding on this Distribution
Date, holders of the classes of Principal Balance Certificates entitled to
distributions of principal on this Distribution Date will be entitled to
distributions with respect to the applicable Prepayment Premium in an aggregate
amount, allocable among these classes if more than one class remains
outstanding, as described in this prospectus supplement, equal to the product of
o the amount of the Prepayment Premium, multiplied by
o a fraction, expressed as a percentage, the numerator of which
is equal to the excess, if any, of the then current
pass-through rate applicable to the most senior of these
classes of Principal Balance Certificates or, in the case of
both classes of Class [ ] Certificates remaining outstanding,
the one with the earliest payment priority, over the relevant
Discount Rate, and the denominator of which is equal to the
excess, if any, of the mortgage rate for the prepaid mortgage
loan over the relevant Discount Rate.
[If there is more than one class of Principal Balance Certificates entitled to
distributions of principal on this Distribution Date, the aggregate amount
described in the preceding sentence will be allocated among these classes on a
pro rata basis, in accordance with the relative amounts of distributions of
principal.] Any portion of this Prepayment Premium that is not so distributed to
the holders of these Principal Balance Certificates will be distributed to the
Class [ ] Certificates.]
If no Class [ ] Certificate remains outstanding on the Distribution
Date, holders of the Class [ ] Certificates will be entitled to a distribution
with respect to the applicable Prepayment Premium equal to the product of the
Prepayment Premium, multiplied by a fraction, the numerator of which is equal to
the sum of the Servicing Fee Rate and the Component pass-through rate related to
the class of certificates with the earliest class designation which has a Class
Prepayment Percentage greater than zero, and the denominator of which is the
greater of
o the excess, if any, of the mortgage rate of the mortgage loan
that prepaid over the Discount Rate, and
o the sum of the Component pass-through rate and the Servicing
Fee Rate.
Any portion of this Prepayment Premium that is not so distributed to the holders
of the Class [ ] Certificates will be distributed to the holders of one or more
of the Class [ ], Class [ ], Class [ ] and Class [ ] Certificates in an amount
equal to the product of
o the related Class Prepayment Percentage for the Distribution
Date and
o the remaining portion of the Prepayment Premium.
[See "Legal Aspects of the Mortgage Loans and the Leases--Default
Interest, Prepayment Premiums and Prepayments" in the prospectus regarding the
enforceability of Prepayment Premiums.]
[Deferred Interest. On each Distribution Date, the trustee shall
distribute any Deferred Interest received with respect to any mortgage loan
during the related Collection Period to holders of the following classes of
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certificates in the following percentages: [ ] to the Class [ ] Certificates,
[ ] to the Class [ ] Certificates, [ ] to the Class [ ] Certificates and [ ] to
the Class [ ] Certificates.]
Class [ ] Distributions. On each Distribution Date, [Net Default
Interest] received in the related Collection Period with respect to a default on
a mortgage loan will be distributed [solely] to the [Class [ ] Certificates], to
the extent set forth in the Pooling Agreement. The Class [ ] Certificates are
not entitled to any other distributions.]
[Realized Losses. The Certificate Principal Amount of each class of
certificates entitled to distributions of principal will be reduced without
distribution on any Distribution Date as a write-off to the extent of any
Realized Loss allocated to the class on this Distribution Date. Any write-offs
will be applied to the classes of certificates in the following order, until
each is reduced to zero: first, to the Class [ ] Certificates; second, to the
Class [ ] Certificates; third, to the Class [ ] Certificates; fourth, and,
finally, pro rata, to the Class [ ] and Class [ ] Certificates, based on their
respective Certificate Balances.]
[Shortfalls in Available Funds resulting from additional servicing
compensation other than the Servicing Fee, interest on Advances to the extent
not covered by Default Interest, extraordinary expenses of the trust fund, a
reduction of the interest rate of a mortgage loan by a bankruptcy court pursuant
to a plan of reorganization or pursuant to any of its equitable powers or other
unanticipated or default-related expenses will be allocated to each class of
certificates in the same manner as Realized Losses. The Notional Amount of the
Class [ ] Certificates will be reduced to reflect reductions in the Certificate
Balance of the Class [ ], Class [ ], Class [ ], Class [ ] and Class [ ]
Certificates resulting from allocations of Realized Losses. Excess Prepayment
Interest Shortfalls will be allocated to reduce the interest entitlement of the
classes of certificates in the following order of priority: first, to the Class
[ ] Certificates; second, to the Class [ ] Certificates; third, to the Class [ ]
Certificates; fourth, and finally to the Class [ ], Class [ ] and Class [ ]
Certificates, pro rata.]
[Appraisal Reduction Amounts. In the event that an Appraisal Reduction
Event occurs with respect to a mortgage loan,
o the amount advanced by the [ master servicer] with respect to
delinquent payments of interest with respect to the related
mortgage loan will be reduced as described under "The Pooling
Agreement--Advances" below, and
o the Voting Rights of certain classes will be reduced as
described under "The Pooling Agreement--Amendment" in this
prospectus supplement.
The reduction of interest advanced by the [ master servicer] will have the
effect of reducing the amount available to be distributed as interest on the
then most subordinate class or classes of certificates.]
[The Certificate Balance of each of the Class [ ], Class [ ] and Class
[ ] Certificates will be notionally reduced, solely for purposes of determining
the Voting Rights of the related classes, on any Distribution Date to the extent
of any Appraisal Reduction Amounts allocated to this class on this Distribution
Date. If the aggregate of the Appraisal Reduction Amounts for any Distribution
Date exceed the Certificate Balance, the excess will be applied, subject to any
reversal described in this prospectus supplement, to notionally reduce the
Certificate Balance of the next most subordinate class of certificates on the
next Distribution Date. Any reductions will be applied in the following order of
priority: first, to the Class [ ] Certificates; second, to the Class [ ]
Certificates; third, to the Class [ ] Certificates; and finally, to the Class
[ ] Certificates, provided in each case that no Certificate Balance in respect
of the class may be notionally reduced below zero. See "--Payment Priorities"
above and "--Appraisal Reductions" below.]
SUBORDINATION
As a means of providing a certain amount of protection to the holders
of the Class [ ], Class [ ] and Class [ ] Certificates against losses associated
with delinquent and defaulted mortgage loans, the rights of the holders of the
Class [ ], Class [ ] and Class [ ] Certificates to receive distributions of
interest, other than Deferred Interest, and principal, as applicable, will be
subordinated to the rights of the holders of the Class [ ], Class [ ] and Class
[ ] Certificates. This subordination will be effected in two ways:
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(1) by the preferential right of the holders of a class of certificates
to receive on any Distribution Date the amounts of interest and principal
distributable in respect of these certificates on the date prior to any
distribution being made on the Distribution Date in respect of any classes of
certificates subordinate thereto and
(2) by the allocation of Realized Losses first, to the Class [ ]
Certificates; second, to the Class [ ] Certificates; third, to the Class [ ]
Certificates; fourth to the Class [ ] Certificates; fifth, to the Class [ ]
Certificates; and, finally, to the Class [ ] and Class [ ] Certificates, pro
rata, based on their respective Certificate Balances.
No other form of credit enhancement will be available for the benefit
of the holders of the offered certificates.
APPRAISAL REDUCTIONS
Upon the occurrence of an Appraisal Reduction Event, an Appraisal
Reduction Amount will be calculated. [Within [ ] days after the [special
servicer] receives notice or is otherwise aware of an Appraisal Reduction Event,
the [ special servicer] will be required to obtain an independent MAI appraisal,
the cost of which will be paid by the [ master servicer] as a Property Advance.]
[On the first Distribution Date occurring on or after the delivery of this
independent MAI appraisal, the special servicer will be required to adjust the
Appraisal Reduction Amount to take into account this appraisal--regardless of
whether the independent MAI appraisal is higher or lower than the [ special
servicer's Appraisal Reduction Estimate]).] Annual updates of this independent
MAI appraisal will be obtained during the continuance of an Appraisal Reduction
Event and the Appraisal Reduction Amount will be adjusted accordingly.]
Upon payment in full or liquidation of any mortgage loan for which an
Appraisal Reduction Amount has been determined, this Appraisal Reduction Amount
will be eliminated.]
DELIVERY, FORM AND DENOMINATION
The offered certificates, other than the Class [ ] Certificates, will
be issued, maintained and transferred in the book-entry form only in
denominations of $[ ] initial Certificate Balance, and in multiples of $1 in
excess thereof, and the Class [ ] Certificates will be issued, maintained and
transferred in the book-entry form only in denominations of $[ ] initial
Notional Amount, and in multiples of $1 in excess thereof.
The offered certificates will initially be represented by one or more
Global Certificates for each class registered in the name of the nominee of DTC.
Morgan Stanley Capital I Inc. has been informed by DTC that DTC's nominee will
be Cede & Co. No holder of an offered certificate will be entitled to receive a
definitive certificate representing its interest in this class, except under the
limited circumstances described in this prospectus supplement under
"--Definitive Certificates." Unless and until definitive certificates are
issued, all references to actions by holders of the offered certificates will
refer to actions taken by DTC upon instructions received from holders of offered
certificates through its participating organizations, and all references in this
prospectus supplement to payments, notices, reports, statements and other
information to holders of offered certificates will refer to payments, notices,
reports and statements to DTC or Cede & Co., as the registered holder of the
offered certificates, for distribution to holders of offered certificates
through its Participants in accordance with DTC procedures; provided, however,
that to the extent that the party to the Pooling Agreement responsible for
distributing any report, statement or other information has been provided with
the name of the beneficial owner of a certificate, or the prospective transferee
of this beneficial owner, the report, statement or other information will be
provided to this beneficial owner, or prospective transferee.
Until definitive certificates are issued in respect of the offered
certificates, interests in the offered certificates will be transferred on the
book-entry records of DTC and its Participants. The trustee will initially serve
as certificate registrar for purposes of recording and otherwise providing for
the registration of the offered certificates.
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BOOK-ENTRY REGISTRATION
Holders of offered certificates may hold their certificates through
DTC, in the United States, or CEDEL or Euroclear, in Europe, if they are
participants of DTC or CEDEL or Euroclear, or indirectly through organizations
that are participants in these systems. CEDEL and Euroclear will hold omnibus
positions on behalf of the CEDEL participants and the Euroclear participants,
respectively, through customers' securities accounts in CEDEL's and Euroclear's
names on the books of their respective depositories which in turn will hold
these positions in customers' securities accounts in the depositories' names on
the books of DTC. DTC is a limited purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to Section 17A of the Securities Exchange Act of
1934, as amended. DTC was created to hold securities for its participants and to
facilitate the clearance and settlement of securities transactions between
participants through electronic computerized book-entries, thereby eliminating
the need for physical movement of certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations. Indirect
access to the DTC system also is available to indirect participants such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
Transfers between DTC participants will occur in accordance with DTC
rules. Transfers between CEDEL participants and Euroclear participants will
occur in accordance with their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly through CEDEL participants or
Euroclear participants, on the other, will be effected in DTC in accordance with
DTC rules on behalf of the relevant European international clearing system by
its Depository; however, these cross-market transactions will require delivery
of instructions to the relevant European international clearing system by the
counterparty in the system in accordance with its rules and procedures. If the
transaction complies with all relevant requirements, Euroclear or CEDEL, as the
case may be, will then deliver instructions to the Depository to take action to
effect final settlement on its behalf.
Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a DTC participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and these credits or any transactions in
these securities settled during the processing will be reported to the relevant
CEDEL participant or Euroclear participant on that business day. Cash received
in CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
participant or a Euroclear participant to a DTC participant will be received
with value on the DTC settlement date but will be available in the relevant
CEDEL or Euroclear cash account only as of the business day following settlement
in DTC.
The holders of offered certificates that are not participants or
indirect participants but desire to purchase, sell or otherwise transfer
ownership of, or other interests in, offered certificates may do so only through
participants and indirect participants. In addition, holders of offered
certificates will receive all distributions of principal and interest from the
trustee through the participants who in turn will receive them from DTC. Under a
book-entry format, holders of offered certificates may experience some delay in
their receipt of payments, since the payments will be forwarded by the trustee
to Cede & Co., as nominee for DTC. DTC will forward the payments to its
participants, which thereafter will forward them to indirect participants or
beneficial owners of offered certificates.
Under the rules creating and affecting DTC and its operations, DTC is
required to make book-entry transfers of offered certificates among participants
on whose behalf it acts with respect to the offered certificates and to receive
and transmit distributions of principal of, and interest on, the offered
certificates. Participants and indirect participants with which the holders of
offered certificates have accounts with respect to the offered certificates
similarly are required to make book-entry transfers and receive and transmit
these payments on behalf of their respective holders of offered certificates.
Accordingly, although the holders of offered certificates will not possess the
offered certificates, the rules provide a mechanism by which participants will
receive payments on offered certificates and will be able to transfer their
interest.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and certain banks, the ability of a holder of
offered certificates to pledge the certificates to persons or entities that do
not
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participate in the DTC system, or to otherwise act with respect to these
certificates, may be limited due to the lack of a physical certificate for these
certificates.
DTC has advised Morgan Stanley Capital I Inc. that it will take any
action permitted to be taken by a holder of an offered certificate under the
Pooling Agreement only at the direction of one or more participants to whose
accounts with DTC the offered certificates are credited. DTC may take
conflicting actions with respect to other undivided interests to the extent that
the actions are taken on behalf of participants whose holdings include these
undivided interests.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for the CEDEL participants and facilitates
the clearance and settlement of securities transactions between CEDEL
participants through electronic book-entry changes in accounts of CEDEL
participants, thereby eliminating the need for physical movement of
certificates.
Euroclear was created in 1968 to hold securities for Euroclear
participants and to clear and settle transactions between Euroclear participants
through simultaneous electronic book-entry delivery against payment.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear
(the "Terms and Conditions") and the related Operating Procedures of the
Euroclear System and applicable Belgian law. The Terms and Conditions govern
transfers of securities and cash within the Euroclear system, withdrawal of
securities and cash from the Euroclear system, and receipts of payments with
respect to securities in the Euroclear system.
Although DTC, Euroclear and CEDEL have implemented the foregoing
procedures in order to facilitate transfers of interests in Global Certificates
among participants of DTC, Euroclear and CEDEL, they are under no obligation to
perform or to continue to comply with these procedures, and these procedures may
be discontinued at any time. None of Morgan Stanley Capital I Inc., the trustee,
the master servicer, the special servicer or the underwriter will have any
responsibility for the performance by DTC, Euroclear or CEDEL or their
respective direct or indirect participants of their respective obligations under
the rules and procedures governing their operations. The information in this
prospectus supplement concerning DTC, CEDEL and Euroclear and their book-entry
systems has been obtained from sources believed to be reliable, but Morgan
Stanley Capital I Inc. takes no responsibility for the accuracy or completeness
thereof.
DEFINITIVE CERTIFICATES
Definitive certificates will be delivered to certificate owners if:
o DTC is no longer willing or able properly to discharge its
responsibilities as depository with respect to the offered
certificates, and Morgan Stanley Capital I Inc. is unable to
locate a qualified successor;
o Morgan Stanley Capital I Inc. or the trustee, at its sole
option, elects to terminate the book-entry system through DTC;
or
o after the occurrence of an Event of Default under the Pooling
Agreement, certificate owners representing a majority in
principal amount of the offered certificates of any class then
outstanding advise DTC through DTC Participants in writing
that the continuation of a book-entry system through DTC, or a
successor thereto, is no longer in the best interest of the
certificate owners.
Upon the occurrence of any of the events described in clauses (1)
through (3) in the immediately preceding paragraph, DTC is required to notify
all affected DTC participants of the availability through DTC of definitive
certificates. Upon delivery of definitive certificates, the trustee, certificate
registrar and master servicer will recognize the holders of definitive
certificates as holders. Distributions of principal of and interest on the
definitive certificates will be made by the trustee directly to holders of
definitive certificates in accordance with the procedures set forth in the
Pooling Agreement.
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Upon the occurrence of any of the events described in clauses (1)
through (3) of the second preceding paragraph, requests for transfer of
definitive certificates will be required to be submitted directly to the
certificate registrar in a form acceptable to the certificate registrar--such as
the forms which will appear on the back of the certificate representing a
definitive certificate--signed by the holder or the holder's legal
representative and accompanied by the definitive certificate or certificates for
which transfer is being requested.
TRANSFER RESTRICTIONS
The Class [ ], Class [ ], Class [ ] and Class [ ] Certificates, will
bear a legend substantially to the effect that these certificates (the
"Subordinated Offered Certificates") may not be purchased by a transferee that
is:
o an employee benefit plan or other retirement arrangement,
including an individual retirement account or a Keogh plan,
which is subject to Title I of ERISA, or Section 4975 of the
Code, or a "governmental plan," as defined in Section 3(32) of
ERISA, that is subject to any federal, state or local law
which is, to a material extent, similar to the fiduciary
responsibility or prohibited transaction provisions of ERISA
or the Code, or
o a collective investment fund in which Plans are invested, an
insurance company using assets of separate accounts or general
accounts which include assets of Plans, or which are deemed
pursuant to ERISA or any similar law to include assets of
Plans or other person acting on behalf of the Plan or using
the assets of this Plan, other than an insurance company using
the assets of its general account under circumstances whereby
the purchase and the subsequent holding of the certificate by
the insurance company would be exempt from the prohibited
transaction provisions of ERISA and the Code under Section I
and III of Prohibited Transaction Class Exemption 95-60.
Holders of Subordinated Offered Certificates that are in book-entry
form will be deemed to have represented that they are not persons or entities
referred to in clause (A) or (B) of the legend described in the preceding
paragraph. In the event that holders of the Subordinated Offered Certificates
become entitled to receive definitive certificates under the circumstances
described above under "--Definitive Certificates", each prospective transferee
of a Subordinated Offered Certificate that is a definitive certificate will be
required to either deliver to the seller, the certificate registrar and the
trustee a representation letter substantially in the form set forth as an
exhibit to the Pooling Agreement stating that the transferee is not a person or
entity referred to in clause (A) or (B) of the legend or provide an opinion to
the seller, the certificate registrar and the trustee as described in the
Pooling Agreement. Any transfer of a Subordinated Offered Certificate that would
result in a prohibited transaction under ERISA or Section 4975 of the Code, or a
materially similar characterization under any similar law will be deemed
absolutely null and void ab initio.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
YIELD
The yield to maturity on the offered certificates will depend upon the
price paid by the certificateholders, the rate and timing of the distributions
in reduction of Certificate Balance or Notional Amount, as applicable, of the
related classes of certificates and the rate, timing and severity of losses on
the mortgage loans and the extent to which these losses are allocable in
reduction of the Certificate Balance or Notional Amount, as applicable, of these
classes of certificates, as well as prevailing interest rates at the time of
payment or loss realization.
The rate of distributions in reduction of the Certificate Balance or
Notional Amount, as applicable, of any class of offered certificates, the
aggregate amount of distributions on any class of offered certificates and the
yield to maturity of any class of offered certificates will be directly related
to the rate of payments of principal--both scheduled and unscheduled--on the
mortgage loans and the amount and timing of borrower defaults. In addition,
these distributions in reduction of Certificate Balance or Notional Amount, as
applicable, may result from repurchases of mortgage loans made by [Seller] due
to
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o missing or defective documentation or breaches of
representations and warranties with respect to the mortgage
loans as described in this prospectus supplement under
"Description of the Agreements--Representations and
Warranties; Repurchase" in the prospectus, or
o purchases of the mortgage loans in the manner described above
under "The Pooling Agreement--Optional Termination."
Disproportionate principal payments, whether resulting from differences
in amortization terms, prepayments following expirations of the respective
Lockout Periods or otherwise, on the mortgage loans affect the pass-through
rates of the Class [ ], Class [ ] and Class [ ] Certificates for one or more
future periods and therefore the yield on these classes.
[The Certificate Balance of any class of offered certificates may be
reduced without distributions thereon as a result of the occurrence and
allocation of Realized Losses, reducing the maximum amount distributable in
respect of Certificate Balance, if applicable, as well as the amount of interest
that would have accrued on these certificates in the absence of this reduction.
In general, a Realized Loss occurs when the aggregate principal balance of a
mortgage loan is reduced without an equal distribution to applicable
certificateholders in reduction of the Certificate Balances of the certificates.
Realized Losses are likely to occur only in connection with a default on a
mortgage loan and the liquidation of the related mortgaged properties or a
reduction in the principal balance of a mortgage loan by a bankruptcy court.
Because the Notional Amount of the Class [I/O] Certificates is based
upon the Certificate Balance of the Class [ ], Class [ ], Class [ ], Class [ ]
and Class [ ] Certificates, the yield to maturity on the Class [I/O]
Certificates will be extremely sensitive to the rate and timing of prepayments
of principal, including both voluntary and involuntary prepayments,
delinquencies, defaults and liquidations on the mortgage loans and any
repurchase with respect to breaches of representations and warranties with
respect to the mortgage loans to the extent these payments of principal are
allocated to this class in reduction of the Certificate Balance of the
certificates. The rate at which voluntary prepayments occur on the mortgage
loans will be affected by a variety of factors, including, without limitation,
the terms of the mortgage loans, the length of any Lockout Period, the level of
prevailing interest rates, the availability of mortgage credit, the occurrence
of casualties or natural disasters and economic, demographic, tax, legal and
other factors, and no representation is made as to the anticipated rate of
prepayments on the mortgage loans.
Although the payment of a Prepayment Premium is required in connection
with a voluntary prepayment of certain of the mortgage loans during certain
periods of time, there can be no assurance that the related borrowers would
refrain from prepaying the mortgage loans due to the existence of the Prepayment
Premium, or that the Prepayment Premium would be held to be enforceable if
challenged.
Certificateholders are not entitled to receive distributions of monthly
payments when due except to the extent they are either covered by an Advance or
actually received. Consequently, any defaulted monthly payment for which no
Advance is made will tend to extend the weighted average lives of the
certificates, whether or not a permitted extension of the maturity date of the
related mortgage loan has been effected.
The rate of payments, including voluntary and involuntary prepayments,
on pools of mortgage loans is influenced by a variety of economic, geographic,
social and other factors, including the level of mortgage interest rates and the
rate at which borrowers default on their mortgage loans. The terms of the
mortgage loans, in particular, the term of any Lockout Period, the extent to
which a Prepayment Premium is due with respect to any principal prepayments, the
right of the lender to apply condemnation and casualty proceeds to prepay the
mortgage loan, the availability of certain rights to defease all or a portion of
the mortgage loan, and any increase in the interest rate and the application of
excess cash flow, if applicable, to prepay the related mortgage loan, may affect
the rate of principal payments on mortgage loans, and consequently, the yield to
maturity of the classes of offered certificates. See "Mortgage Pool [MBS]
Characteristics" in this prospectus supplement.
The timing of changes in the rate of prepayment on the mortgage loans
may significantly affect the actual yield to maturity experienced by an investor
even if the average rate of principal payments experienced over time is
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consistent with the investor's expectation. In general, the earlier a prepayment
of principal on the mortgage loans, the greater the effect on the investor's
yield to maturity. As a result, the effect on the investor's yield of principal
payments occurring at a rate higher or lower than the rate anticipated by the
investor during the period immediately following the issuance of the offered
certificates would not be fully offset by a subsequent like reduction or
increase in the rate of principal payments.
No representation is made as to the rate of principal payments on the
mortgage loans or as to the yield to maturity of any class of offered
certificates. In addition, although Excess Cash Flow is applied to reduce
principal of the respective mortgage loans after their respective Effective
Maturity Dates, there can be no assurance that any of the mortgage loans will be
prepaid on that date or any date prior to maturity. An investor is urged to make
an investment decision with respect to any class of offered certificates based
on the anticipated yield to maturity of the class of offered certificates
resulting from its purchase price and the investor's own determination as to
anticipated mortgage loan prepayment rates under a variety of scenarios. The
extent to which any class of offered certificates is purchased at a discount or
a premium and the degree to which the timing of payments on the class of offered
certificates is sensitive to prepayments will determine the extent to which the
yield to maturity of the class of offered certificates may vary from the
anticipated yield. An investor should carefully consider the associated risks,
including, in the case of any offered certificates purchased at a discount, the
risk that a slower than anticipated rate of principal payments on the mortgage
loans could result in an actual yield to the investor that is lower than the
anticipated yield and, in the case of any offered certificates purchased at a
premium, the risk that a faster than anticipated rate of principal payments
could result in an actual yield to the investor that is lower than the
anticipated yield.
An investor should consider the risk that rapid rates of prepayments on
the mortgage loans, and therefore of amounts distributable in reduction of the
Certificate Balance of offered certificates entitled to distributions of
principal, may coincide with periods of low prevailing interest rates. During
these periods, the effective interest rates on securities in which an investor
may choose to reinvest these amounts distributed to it may be lower than the
applicable pass-through rate. Conversely, slower rates of prepayments on the
mortgage loans, and therefore, of amounts distributable in reduction of
Certificate Balance of the offered certificates entitled to distributions of
principal, may coincide with periods of high prevailing interest rates. During
these periods, the amount of principal distributions resulting from prepayments
available to an investor in these certificates for reinvestment at these high
prevailing interest rates may be relatively small.]
[The effective yield to holders of offered certificates will be lower
than the yield otherwise produced by the applicable pass-through rate and
applicable purchase prices because while interest will accrue during each
Interest Accrual Period, the distribution of interest will not be made until the
Distribution Date immediately following this Interest Accrual Period, and
principal paid on any Distribution Date will not bear interest during the period
from the end of this Interest Accrual Period to the Distribution Date that
follows.]]
[YIELD ON THE OFFERED CERTIFICATES]
[The yield to maturity of offered certificates will be sensitive to the
rate and timing of principal payments, including voluntary and involuntary
prepayments and repurchases, delinquencies and liquidations on the mortgage
loans.
[The following tables indicate the assumed purchase price before adding
accrued interest, if any, expressed as a percentage of the applicable
[Certificate Balance, and the hypothetical pre-tax yield to maturity on the
offered certificates, stated on a corporate bond equivalent basis, based on
certain hypothetical scenarios]. The pre-tax yields to maturity set forth in the
tables below were calculated by determining the monthly discount rate that, when
applied to the assumed stream of cash flows to be paid on the offered
certificates, would cause the discounted present value of the assumed cash flows
to equal the assumed purchase price thereof, plus accrued interest, if any, as
basis points and by converting the monthly rates to corporate bond equivalent
rates. These calculations of yield do not take into account variations that may
occur in the interest rates at which investors may be able to reinvest funds
received by them as distributions on the [ offered certificates] and
consequently, do not purport to reflect the return on any investment in the
offered certificates when these reinvestment rates are considered.]
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[In the case of Scenario 1 below, it is assumed that all of the
mortgage loans are prepaid in full on their respective Effective Maturity Dates.
In the case of Scenario 2, it is assumed that the mortgage loans are prepaid in
full on the first Due Dates on which prepayments in full can be made without
payment of any Prepayment Premium and without defeasance. Scenarios 1 and 2 are
collectively referred to as the "Scenarios."
CLASS [ ]
ASSUMED SCENARIO SCENARIO
PURCHASE PRICE (%) 1 2
------------------ ------------------ ------------------
% %
CLASS [ ]
ASSUMED SCENARIO SCENARIO
PURCHASE PRICE (%) 1 2
------------------ ------------------ ------------------
% %
CLASS [ ]
ASSUMED SCENARIO SCENARIO
PURCHASE PRICE (%) 1 2
------------------ ------------------ ------------------
% %
CLASS [ ]
ASSUMED SCENARIO SCENARIO
PURCHASE PRICE (%) 1 2
------------------ ------------------ ------------------
% %
CLASS [ ]
ASSUMED SCENARIO SCENARIO
PURCHASE PRICE (%) 1 2
------------------ ------------------ ------------------
% %
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CLASS [ ]
ASSUMED SCENARIO SCENARIO
PURCHASE PRICE (%) 1 2
------------------ ------------------ ------------------
% %
CLASS [ ]
ASSUMED SCENARIO SCENARIO
PURCHASE PRICE (%) 1 2
------------------ ------------------ ------------------
% %
[It is highly unlikely that principal of the mortgage loans will be
repaid consistent with the assumptions underlying any one of the Scenarios. The
mortgage loans will not have all of the characteristics assumed for purposes of
the Scenarios. Yield will be affected by prepayment rates and may differ
significantly from the Mortgage Loan Assumptions. There can be no assurance that
the pre-tax yields, on the offered certificates will correspond to any of the
pre-tax yields or discounted margins, as applicable, shown in this prospectus
supplement or that the aggregate purchase prices of the offered certificates
will be as assumed. Investors must make their own decisions as to the
appropriate prepayment assumptions to be used in deciding whether to purchase
the offered certificates.]
[RATED FINAL DISTRIBUTION DATE]
[ Because some of the mortgage loans have maturity dates that occur
earlier than the latest maturity date, and because some of the mortgage loans
may be prepaid prior to maturity, it is possible that the Certificate Balance of
each class of offered certificates will be reduced to zero significantly earlier
than the Rated Final Distribution Date. However, delinquencies on mortgage loans
could result in final distributions in reduction of the Certificate Balance of
one or more classes after the Rated Final Distribution Date of the class or
classes.]
WEIGHTED AVERAGE LIFE OF OFFERED CERTIFICATES
[Weighted average life refers to the average amount of time that will
elapse from the date of determination to the date of distribution or allocation
to the investor of each dollar in reduction of Certificate Balance. The weighted
average lives of the offered certificates will be influenced by, among other
things, the rate at which principal of the mortgage loans is paid, which may
occur as a result of scheduled amortization, voluntary or involuntary
prepayments or liquidations.]
[The weighted average lives of the offered certificates may also be
affected to the extent that additional distributions in reduction of the
Certificate Balance of the certificates occur as a result of the repurchase or
purchase of mortgage loans from the trust fund as described under "The Pooling
Agreement--Representations and Warranties; Repurchase" or "--Optional
Termination; Optional Mortgage Loan Purchase" in this prospectus supplement.
Such a repurchase or purchase from the trust fund will have the same effect on
distributions to the holders of certificates as if the related mortgage loans
had prepaid in full, except that no Prepayment Premiums are made in respect
thereof. The tables of "Percentage of Initial Certificate Balance Outstanding
For Each Designated Scenario" set forth below indicate the weighted average life
of each class of offered certificates, other than the Class [ ] Certificates,
and set forth the percentage of the initial Certificate Balance of the offered
certificates that would be outstanding after each of the dates shown based on
the assumptions for each of the designated Scenarios described above under
"--Yield on the Offered Certificates." The tables have also been prepared on the
basis of the Mortgage Loan Assumptions described under "--Yield on the Offered
Certificates." The Mortgage Loan
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Assumptions made in preparing the previous and following tables are expected to
vary, and may vary significantly, from the actual performance of the mortgage
loans. It is highly unlikely that principal of the mortgage loans will be repaid
consistent with the assumptions underlying any one of the Scenarios. Investors
are urged to conduct their own analysis concerning the likelihood that the
mortgage loans may pay or prepay on any particular date.]
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING FOR EACH DESIGNATED SCENARIO
CLASS [ ]
SCENARIO SCENARIO
DISTRIBUTION DATE 1 2
----------------- ----------------- -----------------
Initial Percent
Weighted Average Life
(in years)
- ------------------
(1) Assuming that the [ ] day of each of the months indicated is the
Distribution Date occurring in this month.
(2) [The weighted average life of the Class [ ] Certificates is determined by
(1) multiplying the amount of each distribution or allocation in reduction
of Certificate Balance of this class by the number of years from the date
of determination to the related Distribution Date, (2) adding the results
and (3) dividing the sum by the aggregate distributions or allocations in
reduction of Certificate Balance referred to in clause (1).]
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING FOR EACH DESIGNATED SCENARIO
CLASS [ ]
SCENARIO SCENARIO
DISTRIBUTION DATE 1 2
----------------- ----------------- -----------------
Initial Percent
Weighted Average Life
(in years)
- ------------------
(1) Assuming that the [ ] day of each of the months indicated is the
Distribution Date occurring in this month.
(2) [The weighted average life of the Class [ ] Certificates is determined by
(1) multiplying the amount of each distribution or allocation in reduction
of Certificate Balance of this class by the number of years from the date
of determination to the related Distribution Date, (2) adding the results
and (3) dividing the sum by the aggregate distributions or allocations in
reduction of Certificate Balance referred to in clause (1).]
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PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING FOR EACH DESIGNATED SCENARIO
CLASS [ ]
SCENARIO SCENARIO
DISTRIBUTION DATE 1 2
----------------- ----------------- -----------------
Initial Percent
Weighted Average Life
(in years)
- ------------------
(1) Assuming that the [ ] day of each of the months indicated is the
Distribution Date occurring in this month.
(2) [The weighted average life of the Class [ ] Certificates is determined by
(1) multiplying the amount of each distribution or allocation in reduction
of Certificate Balance of this class by the number of years from the date
of determination to the related Distribution Date, (2) adding the results
and (3) dividing the sum by the aggregate distributions or allocations in
reduction of Certificate Balance referred to in clause (1).]
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING FOR EACH DESIGNATED SCENARIO
CLASS [ ]
SCENARIO SCENARIO
DISTRIBUTION DATE 1 2
----------------- ----------------- -----------------
Initial Percent
Weighted Average Life
(in years)
- ------------------
(1) Assuming that the [ ] day of each of the months indicated is the
Distribution Date occurring in this month.
(2) [The weighted average life of the Class [ ] Certificates is determined by
(1) multiplying the amount of each distribution or allocation in reduction
of Certificate Balance of this class by the number of years from the date
of determination to the related Distribution Date, (2) adding the results
and (3) dividing the sum by the aggregate distributions or allocations in
reduction of Certificate Balance referred to in clause (1).]
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PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING FOR EACH DESIGNATED SCENARIO
CLASS [ ]
SCENARIO SCENARIO
DISTRIBUTION DATE 1 2
----------------- ----------------- -----------------
Initial Percent
Weighted Average Life
(in years)
- ------------------
(1) Assuming that the [ ] day of each of the months indicated is the
Distribution Date occurring in this month.
(2) [The weighted average life of the Class [ ] Certificates is determined by
(1) multiplying the amount of each distribution or allocation in reduction
of Certificate Balance of this class by the number of years from the date
of determination to the related Distribution Date, (2) adding the results
and (3) dividing the sum by the aggregate distributions or allocations in
reduction of Certificate Balance referred to in clause (1).]
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING FOR EACH DESIGNATED SCENARIO
CLASS [ ]
SCENARIO SCENARIO
DISTRIBUTION DATE 1 2
----------------- ----------------- -----------------
Initial Percent
Weighted Average Life
(in years)
- ------------------
(1) Assuming that the [ ] day of each of the months indicated is the
Distribution Date occurring in this month.
(2) [The weighted average life of the Class [ ] Certificates is determined by
(1) multiplying the amount of each distribution or allocation in reduction
of Certificate Balance of this class by the number of years from the date
of determination to the related Distribution Date, (2) adding the results
and (3) dividing the sum by the aggregate distributions or allocations in
reduction of Certificate Balance referred to in clause (1).]
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<PAGE>
THE POOLING AGREEMENT
GENERAL
The certificates will be issued pursuant to a Pooling Agreement to be
dated as of __________ __, 199__, by and among the [depositor, the master
servicer, the special servicer and the trustee].
Morgan Stanley Capital I Inc. will provide to a prospective or actual
holder of an offered certificate without charge, upon written request, a copy
(without exhibits) of the Pooling Agreement. Requests should be addressed to
Morgan Stanley Capital I Inc., ______________________________; Attention:
_______________________, (___) ________.
ASSIGNMENT OF THE MORTGAGE LOANS
On or prior to the Closing Date, Morgan Stanley Capital I Inc. will
assign or cause to be assigned the mortgage loans, without recourse, to the
trustee for the benefit of the certificateholders. Prior to the Closing Date,
Morgan Stanley Capital I Inc. will, as to each mortgage loan, deliver to the
trustee, or the custodian , among other things, the following documents:
1) the original or, if accompanied by a "lost note" affidavit, a copy
of the mortgage note, endorsed by ____________________ which
transferred the mortgage loan, without recourse, in blank or to
the order of trustee;
2) the original mortgage or a certified copy of the mortgage, and any
intervening assignments , or certified copies of the intervening
assignments, in each case with evidence of recording thereon;
3) originals or certified copies of any related assignment of leases,
rents and profits and any related security agreement--if, in
either case, the item is a document separate from the
mortgage--and any intervening assignments of each document or
instrument;
4) an assignment of the mortgage, executed by the
____________________ which transferred the mortgage loan, in blank
or to the order of the trustee, in recordable form;
5) assignments of any related assignment of leases, rents and profits
and any related security agreement if, in either case, the item is
a document separate from the mortgage, executed by
____________________ which transferred the mortgage loan, in blank
or to the order of the trustee;
6) originals or certified copies of all assumption, modification and
substitution agreements in those instances where the terms or
provisions of the mortgage or mortgage note have been modified or
the mortgage or mortgage note has been assumed; and
7) the originals or certificates of a lender's title insurance policy
issued on the date of the origination of the mortgage loan or,
with respect to each mortgage loan not covered by a lender's title
insurance policy, an attorney's opinion of title given by an
attorney licensed to practice law in the jurisdiction where the
mortgaged property is located.
The Pooling Agreement will require Morgan Stanley Capital I Inc.
promptly, and in any event within _____ days of the Closing Date, to cause each
assignment of the mortgage described in clause (4) above to be submitted for
recording in the real property records of the jurisdiction in which the related
mortgaged property is located. Any assignment delivered in blank will be
completed to the order of the trustee prior to recording. The Pooling Agreement
will also require Morgan Stanley Capital I Inc. to cause the endorsements on the
mortgage notes delivered in blank to be completed to the order of the trustee.
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<PAGE>
THE MASTER SERVICER
General. ____________________, a __________________ corporation, will
act as master servicer for the certificates pursuant to the Pooling Agreement.
The master servicer[, a wholly-owned subsidiary of ,] [is engaged in the
mortgage banking business and originates, purchases, sells and services mortgage
loans. _________________ primarily originates mortgage loans through a branch
system consisting of _______________________ offices in __________ states, and
through mortgage loan brokers.]
The executive offices of the master servicer are located at
_______________, telephone number (__)__________.
Delinquency and Foreclosure Experience. The following tables set forth
information concerning the delinquency experience, including pending
foreclosures, on [multifamily][commercial] mortgage loans included in the master
servicer's servicing portfolio, which includes mortgage loans that are
subserviced by others. The indicated periods of delinquency are based on the
number of days past due on a contractual basis. No mortgage loan is considered
delinquent for these purposes until 31 days past due on a contractual basis.
<TABLE>
<CAPTION>
As of December 31, 19 As of December 31, 19 As of , 19
---------------------- ---------------------- ----------
By Dollar By Dollar By Dollar
By No. of Amount of By No. of Amount of By No. of Amount of
Loans Loans Loans Loans Loans Loans
Dollar Amount in Thousands
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio ________ $_______ ________ $_______ ________ $_______
Period of Delinquency
31 to 59 days
60 to 89 days
90 days or more ________ ________ ________ ________ ________ ________
Total Delinquent Loans ________ $_______ _________ $_______ ________ $_______
Percent of Portfolio % % % % % %
Foreclosures pending (1)
Percent of Portfolio % % % % % %
Foreclosures
Percent of Portfolio % % % % % %
</TABLE>
- ------------------
(1) Includes bankruptcies which preclude foreclosure.
There can be no assurance that the delinquency and foreclosure
experience of the mortgage loans comprising the Mortgage Pool will correspond to
the delinquency and foreclosure experience of the master servicer's mortgage
portfolio set forth in the foregoing tables. The aggregate delinquency and
foreclosure experience on the mortgage loans comprising the Mortgage Pool will
depend on the results obtained over the life of the Mortgage Pool.
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<PAGE>
[SPECIAL SERVICERS]
[The [ master servicer] is permitted, at its own expense, to utilize
agents or attorneys in performing any of its obligations under the Pooling
Agreement, but will not thereby be relieved of its obligation, and will be
responsible for the acts and omissions of its agents or attorneys.
The [ master servicer currently] intends to engage [ ] ("__________"),
a _____________ corporation, as its agent to perform servicing functions
primarily related to property inspections, foreclosure and the operation and
sale of REO Property. See "Description of the Agreements--Realization Upon
Defaulted Whole Loans" in the prospectus. ____________________________ is
[describe organization] of [multifamily][commercial] properties and has
extensive experience in the [describe relevant experience] of [multifamily]
[commercial] properties.]
[CERTIFICATE ACCOUNT]
[The master servicer is required to deposit on a daily basis all
amounts received with respect to the mortgage loans of the Mortgage Pool, net of
its servicing compensation, into a separate Certificate Account maintained with
____________. Interest or other income earned on funds in the Certificate
Account will be paid to the master servicer as additional servicing
compensation. See "Description of the Trust Funds--Mortgage Loans"and "--MBS"
and "Description of the Agreements--Certificate Account and Other Collection
Accounts" in the prospectus.]
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
[Include description of Servicing Standard]
The compensation to be paid to the master servicer in respect of its
master servicing activities will be the Servicing Fee. The Servicing Fee will be
payable monthly only from amounts received in respect of interest on each
mortgage loan, will accrue at the Servicing Fee Rate and will be computed on the
basis of the same principal balance and for the same period respecting which any
related interest payment on the mortgage loan is computed. The [weighted
average] Servicing Fee Rate [with respect to each mortgage loan] equals % per
annum. [The principal compensation to be paid to the special servicer in respect
of its special servicing activities will be the Special Servicing Fee. The
Special Servicing Fee will be payable monthly only from amounts received in
respect of interest on each Specially Serviced Mortgage Loan, will accrue at the
Special Servicing Fee Rate and will be computed on the basis of the same
principal amount for the same period respecting which any related interest
payment on the mortgage loan is computed. The Special Servicing Fee Rate with
respect to each Specially Serviced Mortgage Loan equals ___% per annum.] [As
further compensation for its servicing activities, the special servicer shall
also be entitled to receive
o the Liquidation Fee for the procurement, directly or through
an agent thereof, of a purchaser in connection with the
liquidation of a mortgaged property securing any defaulted
mortgage loan, out of related liquidation proceeds, provided
that the payment of the Liquidation Fee would not be a
violation of, and would not subject the trustee or the trust
fund to liability under, any state or local statute,
regulation or other requirement, including without limitation,
those governing the licensing of real estate brokers or
salesmen, and
o the Management Fee in connection with the operation and
management of any REO Property, out of related revenues.
Any Liquidation Fee payable to the special servicer will be equal to __%, if the
relevant sale occurs at a foreclosure sale, trustee's sale or other similar
proceeding, or __% , if the relevant sale occurs subsequent to the mortgaged
property's having become an REO Property, as applicable, of the gross
liquidation proceeds. The Management Fee in respect of any REO Property is
payable to the special servicer monthly and is equal to __% of the gross
revenues derived from this REO Property.]
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<PAGE>
As additional servicing compensation, the master servicer is entitled
to retain all assumption fees, prepayment penalties and late payment charges, to
the extent collected from borrowers, together with any interest or other income
earned on funds held in the Certificate Account and any escrow accounts. The
Servicing Standard requires the master servicer to, among other things,
diligently service and administer the mortgage loans on behalf of the trustee
and in the best interests of the certificateholders, but without regard to the
master servicer's right to receive the additional servicing compensation. The
master servicer is obligated to pay certain ongoing expenses associated with the
Mortgage Pool and incurred by the master servicer in connection with its
responsibilities under the Agreement. See "Description of the
Agreements--Retained Interest; Servicing Compensation and Payment of Expenses"
in the prospectus for information regarding other possible compensation payable
to the master servicer and for information regarding expenses payable by the
master servicer [and "Federal Income Tax Consequences" in this prospectus
supplement regarding certain taxes payable by the master servicer].
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date the master servicer shall furnish to each
certificateholder, to Morgan Stanley Capital I Inc., to the trustee and to the
Rating Agency a statement setting forth information with respect to the mortgage
loans and the certificates required pursuant to the Pooling Agreement. In
addition, within a reasonable period of time after each calendar year, the
master servicer shall furnish to each person who at any time during the calendar
year was the holder of a certificate a statement containing information with
respect to the certificates required pursuant to the Pooling Agreement,
aggregated for the calendar year or a portion of the calendar year during which
the person was a certificateholder. See "Description of the
Certificates--Reports to Certificateholders" in the prospectus.
[VOTING RIGHTS]
At all times during the term of this Agreement, the Voting Rights shall
be allocated among the classes of certificateholders in proportion to the
respective Certificate Balances of their certificates [,net, in the case of the
Class [ ], Class [ ] and Class [ ] Certificates, of any uncovered portion of the
related Certificate Balance]. Voting Rights allocated to a class of
certificateholders shall be allocated among these certificateholders in
proportion to the Percentage Interests evidenced by their respective
certificates.]
OPTIONAL TERMINATION
[The obligations created by the Pooling Agreement will terminate
following the earliest of
o the final payment or other liquidation of the last mortgage
loan or REO Property subject thereto, and
o the purchase of all of the assets of the trust fund by the
master servicer.
Written notice of termination of the Pooling Agreement will be given to each
certificateholder, and the final distribution will be made only upon surrender
and cancellation of the certificates at the office of the certificate registrar
specified in the notice of termination. In no event, however, will the trust
fund created by the Pooling Agreement continue beyond the expiration of [21
years] from the death of the survivor of certain persons named in the Pooling
Agreement.]
[Any purchase by the master servicer of all the mortgage loans and
other assets in the trust fund is required to be made at a price equal to the
greater of
o the aggregate fair market value of all the mortgage loans and
REO Properties then included in the trust fund, as mutually
determined by the master servicer and the trustee, and
o the excess of (1) the sum of (a) the aggregate Purchase Price
of all the mortgage loans then included in the trust fund and
(b) the fair market value of all REO Properties then included
in the trust fund, as determined by an appraiser mutually
agreed upon by the master servicer and the trustee, over (2)
the aggregate of amounts payable or reimbursable to the master
servicer under the
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<PAGE>
Pooling Agreement. The purchase will effect early retirement
of the then outstanding Class [ ] Certificates, but the right
of the master servicer to effect the termination is subject to
the requirement that the aggregate Stated Principal Balance of
the mortgage loans then in the trust fund is less than __% of
the aggregate principal balance of the mortgage loans as of
the Cut- off Date. [In addition, the master servicer may at
its option purchase any class or classes of Class [ ]
Certificates with a Certificate Balance less than __% of the
original balance thereof at a price equal to the Certificate
Balance plus accrued interest through .]]
LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans which are general in nature.
o [ ], approximately [ ]% of the mortgage
loans by Cut-off Date Allocated Loan Amount;
o [ ], approximately [ ]% of the mortgage
loans by Cut-off Date Allocated Loan Amount;
o [ ], approximately [ ]% of the mortgage
loans by Cut-off Date Allocated Loan Amount;
o [ ], approximately [ ]% of the mortgage
loans by Cut-off Date Allocated Loan Amount; and
o [ ], approximately [ ]% of the mortgage
loans by Cut-off Date Allocated Loan Amount.
The summaries do not purport to be complete and are qualified in their entirety
by reference to the applicable federal and state laws governing the mortgage
loans.
[ , , , , and and various other states have imposed statutory
prohibitions or limitations that limit the remedies of a lender under a mortgage
or a beneficiary under a deed of trust. All of the mortgage loans are
nonrecourse loans as to which, in the event of default by a borrower, recourse
may be had only against the specific property pledged to secure the mortgage
loan and not against the borrower's other assets. Even if recourse is available
pursuant to the terms of the mortgage loan, certain states have adopted statutes
which impose prohibitions against or limitations on recourse. The limitations
described in this prospectus supplement and similar or other restrictions in
other jurisdictions where mortgaged properties are located may restrict the
ability of the master servicer or the special servicer, as applicable, to
realize on the mortgage loans and may adversely affect the amount and timing of
receipts on the mortgage loans.]
[Describe specific state laws]
USE OF PROCEEDS
The net proceeds from the sale of offered certificates will be used by
Morgan Stanley Capital I Inc. to pay the purchase price of the mortgage loans.
FEDERAL INCOME TAX CONSEQUENCES
[Elections will be made to treat the portion of the trust fund
exclusive of the [Deferred Interest, the Deferred Interest Distribution Account,
the Default Interest, and the Class [ ] Distribution Account,] and, in the
opinion of __________________________, special tax counsel to Morgan Stanley
Capital I Inc., the portion of the trust fund will qualify, [as two separate
REMICs, the "Master REMIC" and the "Subsidiary REMIC", respectively,]
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<PAGE>
within the meaning of Code Section 860D. The [Subsidiary REMIC] will hold the
mortgage loans, exclusive of the Deferred Interest and the Default Interest,
proceeds therefrom, the Collection Account, the Subsidiary Distribution Account
and any REO Property, and will issue
o Subsidiary Regular Interests to the [Master REMIC] and
o the Class [ ] Certificates, which will represent the sole
class of residual interests in the [Subsidiary REMIC].
The [Master REMIC] will hold the [Subsidiary Regular Interests, and the Master
Distribution Account] in which distributions thereon will be deposited and will
issue
o classes of regular interests represented by the Regular
Certificates and
o the Class [ ] Certificates, which will represent the sole
class of residual interests in the [Master REMIC].
In addition, the Class [ ], Class [ ] and Class [ ] Certificates will represent
pro rata undivided beneficial interests in designated portions of the Deferred
Interest and the related portions of the Deferred Interest Distribution Account,
which portion of the trust fund will be treated as part of a grantor trust for
federal income tax purposes. Although holders of these classes of certificates
will be required to allocate their purchase price between their interests in the
regular interests in the [Master REMIC] and their beneficial interests in
Deferred Interest based on the relative fair market values of each, it is
anticipated that the rights to Deferred Interest will have negligible value as
of the Closing Date. The Class [ ] Certificates will represent pro rata
undivided beneficial interests in the portion of the trust fund consisting of
Default Interest, subject to an obligation to pay interest on Advances to the [
master servicer, special servicer or trustee], as the case may be, in respect of
the mortgage loans and the Class [ ] Distribution Account, and the portion will
be treated as part of the grantor trust for federal income tax purposes.
[The offered certificates will be treated as "real estate assets" under
Code Section 856(c)(4)(A), to the extent that the assets of the REMICs are so
treated. The interest on the offered certificates will be "interest on
obligations secured by mortgages on real property" described in Code Section
856(c)(3)(B) for a real estate investment trust, in the same proportion that the
income of the REMICs is so treated.]
[A beneficial owner's interest in an offered certificate will qualify
for the foregoing treatments under Sections 856(c)(4)(A) and 856(c)(3)(B) in
their entirety if at least 95% of the REMICs' assets qualify for this treatment,
and otherwise will qualify to the extent of the REMICs' percentage of the
assets. The preceding three sentences do not apply to a beneficial owner's
interest in the offered certificates, other than the Class [ ], Class [ ] and
Class [ ] Certificates, to the extent allocable to the right to receive Deferred
Interest. However, a beneficial owner's interest in Deferred Interest will
separately qualify under these sections. A mortgage loan that has been defeased
with U.S. Treasury securities will not qualify for the foregoing treatments.
[The Subsidiary REMIC and the Master REMIC will be treated as one REMIC solely
for the purpose of making the foregoing determinations.]
[The regular interests represented by the offered certificates
generally will be treated as newly originated debt instruments for federal
income tax purposes. Beneficial owners of the offered certificates will be
required to report income on the regular interests represented by the offered
certificates in accordance with the accrual method of accounting. Deferred
Interest will be required to be reported as income by the beneficial owners of
the certificates, to the extent these amounts do not represent a recovery of a
portion of the owner's adjusted basis in the certificates, if any, as these
amounts are accrued by the trust fund, commencing after the Effective Maturity
Dates on the related mortgage loans.]
It is anticipated that the regular interests represented by the Class [
] Certificates will be issued at a premium for federal income tax purposes. See
"Federal Income Tax Consequences--REMICs--Taxation of Owners of REMIC Regular
Certificates--General" in the prospectus.
[Although unclear for federal income tax purposes, it is anticipated
that the Class [ ] Certificates will be treated as issued with original issue
discount in an amount equal to the excess of all distributions of interest
expected to be received thereon over their respective issue prices, including
accrued interest. Any "negative" amounts of
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<PAGE>
original issue discount on the Class [ ] Certificates attributable to rapid
prepayment with respect to the mortgage loans will not be deductible currently,
but may be offset against future positive accruals of original issue discount,
if any. Finally, a holder of a Class [ ] Certificate may be entitled to a loss
deduction to the extent it becomes certain that the holder will not recover a
portion of its basis in the certificate, assuming no further prepayments. In the
alternative, it is possible that rules similar to the "noncontingent bond
method" of the contingent interest rules in the OID Regulations, as amended on
June 12, 1996, may be promulgated with respect to the Class [ ] Certificates.
Under the noncontingent bond method, if the interest payable for any period is
greater or less than the amount projected, the amount of income included for
that period would be either increased or decreased accordingly. Any net
reduction in the income accrual for the taxable year below zero, a Negative
Adjustment, would be treated by a certificateholder as ordinary loss to the
extent of prior income accruals and would be carried forward to offset future
interest accruals. At maturity, any remaining Negative Adjustment would be
treated as a loss on retirement of the certificate. The legislative history of
relevant Code provisions indicates, however, that negative amounts of original
issue discount on an instrument such as a REMIC regular interest may not give
rise to taxable losses in any accrual period prior to the instrument's
disposition or retirement. Thus, it is not clear whether any losses resulting
from a Negative Adjustment would be recognized currently or be carried forward
until disposition or retirement of the debt obligation. However, unless and
until otherwise required under applicable regulations, Morgan Stanley Capital I
Inc. does not intend to treat the payments of interest on the Class [ ]
Certificates as contingent interest.]
The prepayment assumption that will be used to accrue original issue
discount or to amortize premium of an initial owner will be Scenario 1 as
described under "Yield, Prepayment and Maturity Considerations--Yield on the
Offered Certificates" above.
[Although not free from doubt, it is anticipated that any prepayment
premiums will be treated as ordinary income to the extent allocable to
beneficial owners of the offered certificates as these amounts become due to the
beneficial owners.]
ERISA CONSIDERATIONS
[The purchase by or transfer to an employee benefit plan or other
retirement arrangement, including an individual retirement account or a Keogh
plan, which is subject to Title I of the Employee Retirement Income Security Act
of 1974, as amended, or Section 4975 of the Code, or a "governmental plan," as
defined in Section 3(32) of ERISA, that is subject to any federal, state or
local law which is, to a material extent, similar to these provisions of ERISA
or the Code, or a collective investment fund in which these Plans are invested,
an insurance company using the assets of separate accounts or general accounts
which include assets of Plans, or which are deemed pursuant to ERISA or similar
law to include assets of Plans, or other persons acting on behalf of the Plan or
using the assets of the Plan of the Class [ ], Class [ ] and Class [ ]
Certificates is restricted. See "Description of the Offered
Certificates--Transfer Restrictions" in this prospectus supplement. Accordingly,
except as specifically referenced in this prospectus supplement, the following
discussion does not purport to discuss the considerations under ERISA or Section
4975 of the Code with respect to the purchase, holding or disposition of the
Subordinated Offered Certificates. For purposes of the following discussion all
references to the offered certificates, unless otherwise indicated, shall be
deemed to exclude the Subordinated Offered Certificates.]
As described in the prospectus under "ERISA Considerations", Title I of
ERISA and Section 4975 of the Code impose certain duties and restrictions on
Plans and certain persons who perform services for Plans. For example, unless
exempted, investment by a Plan in the offered certificates may constitute or
give rise to a prohibited transaction under ERISA or the Code. There are certain
exemptions issued by the United States Department of Labor that may be
applicable to an investment by a Plan in the offered certificates. The United
States Department of Labor has granted to the underwriter an administrative
exemption-- Prohibited Transaction Exemption 90-24, 55 Fed. Reg. 20548 (May 17,
1990))--referred to in this prospectus supplement as the Exemption for certain
mortgage-backed and asset-backed certificates underwritten in whole or in part
by the underwriter. The Exemption might be applicable to the initial purchase,
the holding, and the subsequent resale by a Plan of certain certificates, such
as the offered certificates, underwritten by the underwriter, representing
interests in pass-through trusts that consist of certain receivables, loans and
other obligations, provided that the conditions and requirements of the
Exemption are satisfied. The loans described in the Exemption include mortgage
loans such as the mortgage loans. However, it
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<PAGE>
should be noted that in issuing the Exemption, the United States Department of
Labor may not have considered interests in pools of the exact nature as some of
the offered certificates.
[Among the conditions that must be satisfied for the Exemption to apply
are the following:
(1) [The acquisition of offered certificates by a Plan is on
terms, including the price for the Offered Certificates,
that are at least as favorable to the Plan as they would be
in an arm's length transaction with an unrelated party;]
(2) [The rights and interests evidenced by offered certificates
acquired by the Plan are not subordinated to the rights and
interests evidenced by other certificates of the trust
fund;]
(3) [The offered certificates acquired by the Plan have received
a rating at the time of the acquisition that is in one of
the three highest generic rating categories from any of
Standard & Poor's Structured Rating Groups, Moody's Investor
Services Inc., Duff & Phelps Credit Rating Co. or Fitch
IBCA, Inc.;]
(4) [The trustee must not be an affiliate of any other member of
the Restricted Group;]
(5) [The sum of all payments made to and retained by the
underwriter in connection with the distribution of offered
certificates represents not more than reasonable
compensation for underwriting the Offered Certificates. The
sum of all payments made to and retained by Morgan Stanley
Capital I Inc. pursuant to the assignment of the mortgage
loans to the trust fund represents not more than the fair
market value of the mortgage loans. The sum of all payments
made to and retained by the master servicer and anyother
servicer represents not more than reasonable compensation
for the person's services under the Pooling Agreement and
reimbursement of the person's reasonable expenses in
connection therewith;] and
(6) [The Plan investing in the offered certificates is an
"accredited investor" as defined in Rule 501(a)(1) of
Regulation D of the Securities and Exchange Commission under
the Securities Act of 1933.]]
[The trust fund must also meet the following requirements:
(a) the corpus of the trust fund must consist solely of assets
of the type that have been included in other investment
pools;
(b) certificates evidencing interests in these other investment
pools must have been rated in one of the three highest
rating categories of a Rating Agency for at least one year
prior to the Plan's acquisition of the offered certificates
pursuant to the Exemption; and
(c) certificates evidencing interests in these other investment
pools must have been purchased by investors other than Plans
for at least one year prior to any Plan's acquisition of the
offered certificates pursuant to the Exemption.]
[If all of the conditions of the Exemption are met, whether or not a
Plan's assets would be deemed to include an ownership interest in the mortgage
loans in the Mortgage Pool, the acquisition, holding and resale of the offered
certificates by Plans would be exempt from certain of the prohibited transaction
provisions of ERISA and the Code.]
[Moreover, the Exemption can provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur if a
Plan fiduciary causes a Plan to acquire certificates in a trust fund holding
receivables, loans or obligations on which the fiduciary or its affiliate is an
obligor provided that, among other requirements:
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o in the case of an acquisition in connection with the initial
issuance of certificates, at least fifty percent of each class
of certificates in which Plans have invested is acquired by
persons independent of the Restricted Group and at least fifty
percent of the aggregate interest in the trust fund is
acquired by persons independent of the Restricted Group;
o the fiduciary, or its affiliate, is an obligor with respect to
five percent or less of the fair market value of the
obligations contained in the trust fund;
o a Plan's investment in certificates of any class does not
exceed [twenty-five percent] of all of the certificates of
that class outstanding at the time of the acquisition; and
o immediately after the acquisition no more than twenty-five
percent of the assets of any Plan with respect to which the
person is a fiduciary are invested in certificates
representing an interest in one or more trust funds containing
assets sold or serviced by the same entity. Borrowers who are
acting on behalf of Plans or who are investing assets of
Plans, and any affiliates of these borrowers, should not
purchase any of the offered certificates, unless the
conditions described in this paragraph are met.]
[The Exemption does not apply to the purchasing or holding of offered
certificates by Plans sponsored by the Restricted Group.]
[The underwriter believes that the conditions to the applicability of
the Exemption will generally be met with respect to the offered certificates,
other than those conditions which are dependent on facts unknown to the
underwriter or which it cannot control, such as those relating to the
circumstances of the Plan purchaser or the Plan fiduciary making the decision to
purchase the class of offered certificates. However, before purchasing an
offered certificate, a fiduciary of a Plan should make its own determination as
to the availability of the exemptive relief provided by the Exemption or the
availability of any other prohibited transaction exemptions, and whether the
conditions of the exemption will be applicable to the offered certificates. THE
CLASS [ ], CLASS [ ] AND CLASS [ ] CERTIFICATES ARE SUBORDINATE TO ONE OR MORE
OTHER CLASSES OF CERTIFICATES AND, ACCORDINGLY, THE CERTIFICATES MAY NOT BE
PURCHASED BY OR TRANSFERRED TO A PLAN OR ANY PERSON ACTING ON BEHALF OF OR
INVESTING THE ASSETS OF A PLAN, UNLESS THE PERSON IS AN INSURANCE COMPANY
INVESTING THE ASSETS OF ITS GENERAL ACCOUNT UNDER CIRCUMSTANCES WHEREBY THE
PURCHASE AND HOLDING OF THE CERTIFICATE WOULD BE EXEMPT FROM THE PROHIBITED
TRANSACTION PROVISIONS OF ERISA AND THE CODE UNDER SECTION I and III OF
PROHIBITED TRANSACTION CLASS EXEMPTION 95-60.]
[Any fiduciary of a Plan considering whether to purchase an offered
certificate should also carefully review with its own legal advisors the
applicability of the fiduciary duty and prohibited transaction provisions of
ERISA and the Code to the investment. See "ERISA Considerations" in the
prospectus. A fiduciary of a governmental plan should make its own determination
as to the need for and the availability of any exemptive relief under similar
law.]
[The sale of offered certificates to a Plan is in no respect a
representation by Morgan Stanley Capital I Inc. or the underwriter that this
investment meets all relevant legal requirements with respect to investments by
Plans generally or any particular Plan, or that this investment is appropriate
for Plans generally or any particular Plan.]
LEGAL INVESTMENT
The Class [ ] Certificates will constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984, as amended, so long as they are rated in at least the second highest
rating category by the Rating Agency, and, as such, will be legal investments
for certain entities to the extent provided in SMMEA. However, institutions
subject to the jurisdiction of the Office of the Comptroller of the Currency,
the Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation, the Office of Thrift Supervision, the National Credit
Union Administration or federal or state banking, insurance or other regulatory
authorities should review applicable rules, supervisory policies and guidelines,
since some restrictions may apply to investments in the certificates. It should
also be noted that certain states have enacted legislation limiting to varying
extents the ability of certain entities, in particular insurance companies, to
invest in
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mortgage related securities. Investors should consult with their own
legal advisors in determining whether, and to what extent, the Class [ ]
Certificates constitute legal investments for these investors.
The Class [ ] Certificates will not constitute "mortgage related
securities" under SMMEA. The appropriate characterization of the Class [ ]
Certificates under various legal investment restrictions, and thus the ability
of investors subject to these restrictions to purchase Class [ ] Certificates,
may be subject to significant interpretive uncertainties. All investors whose
investment authority is subject to legal restrictions should consult their own
legal advisors to determine whether, and to what extent, the Class [ ]
Certificates will constitute legal investments for them.
[Except as to the status of the Class [ ] Certificates as "mortgage
related securities," no] [No] representations as to the proper characterization
of the certificates for legal investment, financial regulatory or other
purposes, or as to the ability of particular investors to purchase the
certificates under applicable legal investment restrictions. The uncertainties
described above, and any unfavorable future determinations concerning legal
investment or financial institution regulatory characteristics of the
certificates, may adversely affect the liquidity of the certificates.
See "Legal Investment" in the prospectus.
PLAN OF DISTRIBUTION
[Subject to the terms and conditions of the Underwriting Agreement
between Morgan Stanley Capital I Inc. and the underwriter, the offered
certificates will be purchased from Morgan Stanley Capital I Inc. by the
underwriter, an affiliate of Morgan Stanley Capital I Inc. and [ ], upon
issuance. Distribution of the offered certificates will be made by the
underwriter from time to time in negotiated transactions or otherwise at varying
prices to be determined at the time of sale. Proceeds to Morgan Stanley Capital
I Inc. from the sale of the offered certificates will be approximately [ ]% of
the initial aggregate Certificate Balance of the offered certificates, plus
accrued interest, if any, from __________, 199__, before deducting expenses
payable by Morgan Stanley Capital I Inc..]
[In connection with the purchase and sale of the offered certificates,
the underwriter may be deemed to have received compensation from Morgan Stanley
Capital I Inc. in the form of underwriting discounts. One or more affiliates of
the underwriter have entered into and may, in the future, enter into other
financing arrangements with affiliates of some or all of the borrowers.]
[ Affiliates of the underwriter, including [ ], engage in, and intend
to continue to engage in, the acquisition, development, operation, financing and
disposition of real estate-related assets in the ordinary course of their
business, and are not prohibited in any way from engaging in business activities
similar to or competitive with those of the borrowers. See "Risk
Factors--Conflicts of Interest May Have An Adverse Effect On Your Certificates"
in this prospectus supplement.]
[Morgan Stanley Capital I Inc. has agreed to indemnify the underwriter
against, or make contributions to the underwriter with respect to, certain
liabilities, including liabilities under the Securities Act of 1933.]
[In connection with the offering, the underwriter may purchase and sell
the offered certificates in the open market. These transactions may include
purchases to cover short positions created by the underwriter in connection with
the offering. Short positions created by the underwriter involve the sale by the
underwriter of a greater number of certificates than they are required to
purchase from Morgan Stanley Capital I Inc. in the offering. The underwriter
also may impose a penalty bid, whereby selling concessions allowed to
broker-dealers in respect of the securities sold in the offering may be
reclaimed by the underwriter if the certificates are repurchased by the
underwriter in covering transactions. These activities may maintain or otherwise
affect the market price of the certificates, which may be higher than the price
that might otherwise prevail in the open market; and these activities, if
commenced, may be discontinued at any time. These transactions may be effected
in the over-the-counter market or otherwise.]
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[This prospectus supplement and the prospectus may only be issued or
passed on in the United Kingdom to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom this prospectus supplement and
the prospectus may otherwise lawfully be issued or passed on.]
[The trust fund described in this prospectus supplement may only be
promoted, whether by the issuing or passing on of documents as referred to in
the foregoing restriction or otherwise, by an authorized person under Chapter
III of the Financial Services Act of 1986 of the United Kingdom to a person in
the United Kingdom if that person is of a kind described in section 76(2) of the
FSA or as permitted by the Financial Services (Promotion of Unregulated Schemes)
Regulation 1991, as amended.]
VALIDITY OF OFFERED CERTIFICATES
The validity of the offered certificates will be passed upon for Morgan
Stanley Capital I Inc. and for the underwriter by __________________________,
______________. The material federal income tax consequences of the offered
certificates will be passed upon for Morgan Stanley Capital I Inc.
_____________________________.
RATINGS
It is a condition to issuance that the Class [ ] Certificates be rated
[not lower than] "______" by ________________. However, no person is obligated
to maintain the rating on the Class [ ] Certificates, and _______________ is not
obligated to monitor its rating following the Closing Date.
________________'s ratings on mortgage pass-through certificates
address the likelihood of the receipt by holders thereof of payments to which
they are entitled. _____________'s ratings take into consideration the credit
quality of the mortgage pool, structural and legal aspects associated with the
certificates, and the extent to which the payment stream in the mortgage pool is
adequate to make payments required under the certificates. _________________'s
rating on the Class [ ] Certificates does not, however, constitute a statement
regarding frequency of prepayments on the mortgage loans. [The rating of the
Class [ ] Certificates does not address the possibility that the holders of
these certificates may fail to fully recover their initial investments.] See
"Risk Factors" in this prospectus supplement.
There can be no assurance as to whether any rating agency not requested
to rate the Class [ ] Certificates will nonetheless issue a rating and, if so,
what the rating would be. A rating assigned to the Class [ ] Certificates by a
rating agency that has not been requested by Morgan Stanley Capital I Inc. to do
so may be lower than the rating assigned by ________________'s pursuant to
Morgan Stanley Capital I Inc.'s request.
The rating of the Class [ ] Certificates should be evaluated
independently from similar ratings on other types of securities. A security
rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by the assigning rating agency.
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GLOSSARY OF TERMS
The certificates will be issued pursuant to the Pooling Agreement. The
following Glossary of Terms is not complete. You should also refer to the
prospectus and the Pooling Agreement for additional definitions. If you send a
written request to the trustee at its corporate office, the trustee will provide
to you without charge a copy of the Pooling Agreement, without exhibits and
schedules.
Unless the context requires otherwise, the definitions contained in
this Glossary of Terms apply only to this series of certificates and will not
necessarily apply to any other series of certificates the trust fund may issue.
"Advances" means Servicing Advances and P&I Advances, collectively.
"Advance Rate" means a rate equal to the "Prime Rate" as reported in
The Wall Street Journal from time to time.
"Allocated Loan Amount" means, for each mortgage loan secured by more
than one mortgaged property, the principal amount of that mortgage loan
allocated to each mortgaged property secured by the mortgage loan.
"Appraisal Reduction Amount" means, for any Distribution Date and for
any mortgage loan as to which any Appraisal Reduction Event has occurred, an
amount equal to:
o the excess of the outstanding Stated Principal Balance of the
mortgage loan as of the last day of the related Collection
Period
over the excess of:
o [ ]% of the sum of the appraised values of the
related mortgaged properties as determined by
independent MAI appraisals, the costs of which shall
be paid by the master servicer as an Advance
o over the sum of:
o to the extent not previously advanced by the master
servicer or the trustee, all unpaid interest on the
mortgage loan at a per annum rate equal to the
mortgage rate,
o all unreimbursed Advances and interest thereon at the
Advance Rate in respect of the mortgage loan and
o all currently due and unpaid real estate taxes and
assessments and insurance premiums and all other
amounts, including, if applicable, ground rents, due
and unpaid under the mortgage loan, which taxes,
premiums and other amounts have not been the subject
of an Advance.
If no independent MAI appraisal has been obtained within [ ] months
prior to the first Distribution Date on or after an Appraisal Reduction Event
has occurred, the special servicer will be required to estimate the value of the
related mortgaged properties and the estimate will be used for purposes of
determining the Appraisal Reduction Amount.
"Appraisal Reduction Event" means the first Distribution Date following
the earliest of:
o the third anniversary of the date on which an extension of the
maturity date of a mortgage loan becomes effective as a result
of a modification of the mortgage loan by the [special
servicer], which extension does not change the amount of
monthly payments on the mortgage loan;
o [ ] days after an uncured delinquency occurs in respect of a
mortgage loan;
o [ ] days after the date on which a reduction in the amount of
monthly payments on a mortgage loan, or a change in any other
material economic term of the mortgage loan, becomes effective
as a result of a modification of the mortgage loan by the
[special servicer];
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o [ ] days after a receiver has been appointed or after the
commencement of an involuntary bankruptcy proceeding;
o immediately after a borrower declares bankruptcy; and
o immediately after a mortgage loan becomes an REO Mortgage
Loan.
"Assumed Scheduled Payment" mean an amount deemed due in respect of
o any Balloon Loan that is delinquent in respect of its Balloon
Payment beyond the first Determination Date that follows its
original stated maturity date or
o any mortgage loan as to which the related mortgaged property
has become an REO Property.
The Assumed Scheduled Payment deemed due on any Balloon Loan on its
original stated maturity date and on each successive Due Date that it remains or
is deemed to remain outstanding will equal the Scheduled Payment that would have
been due on this date if the related Balloon Payment had not come due, but
rather the mortgage loan had continued to amortize in accordance with its
amortization schedule in effect immediately prior to maturity. With respect to
any mortgage loan as to which the related mortgaged property has become an REO
Property, the Assumed Scheduled Payment deemed due on each Due Date for so long
as the REO Property remains part of the trust fund, equals the Scheduled Payment
or Assumed Scheduled Payment due on the last Due Date prior to the acquisition
of the REO Property.
"Available Funds" means, for a Distribution Date, the sum of:
o all monthly payments or other receipts on account of principal
and interest on or in respect of the mortgage loans, including
Unscheduled Payments and Net REO Proceeds, if any, received by
the master servicer in the related Collection Period;
o all other amounts required to be deposited in the Collection
Account by the master servicer pursuant to the Pooling
Agreement in respect of the Distribution Date that are
allocable to the mortgage loans, including all P&I Advances
made by the master servicer or the trustee, as applicable, in
respect of the Distribution Date, and any interest or other
income earned on funds in the Interest Reserve Account; and
o any late payments received after the end of the Collection
Period relating to the Distribution Date but prior to the
related Master Servicer Remittance Date;
but excluding the following:
o amounts permitted to be used to reimburse the master
servicer, the special servicer or the trustee, as
applicable, for previously unreimbursed Advances and
interest thereon as described in this prospectus
supplement under "The Pooling Agreement--Advances";
o the aggregate amount of Servicing Compensation;
o all amounts representing scheduled monthly payments
due after the related Due Date;
o to the extent permitted by the Pooling Agreement,
that portion of liquidation proceeds, insurance
proceeds, condemnation proceeds or the Repurchase
Price received with respect to a mortgage loan which
represents any unpaid Servicing Compensation as
described in this prospectus supplement, to which the
master servicer, the special servicer or the trustee
is entitled;
o all amounts representing certain unanticipated or
default related expenses reimbursable or payable to
the master servicer, the special servicer or the
trustee and other amounts permitted to be retained by
the master servicer or withdrawn pursuant to the
Pooling Agreement in respect of various items,
including indemnities;
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o prepayment premiums;
o Default Interest;
o Deferred Interest;
o all amounts received with respect to each mortgage
loan previously purchased or repurchased pursuant to
the Pooling Agreement during the related Collection
Period and subsequent to the date as of which the
amount required to effect the purchase or repurchase
was determined; and
o the amount reasonably determined by the trustee to be
necessary to pay any applicable federal, state or
local taxes imposed on the [Master REMIC or the
Subsidiary REMIC] under the circumstances and to the
extent described in the Pooling Agreement.
"Balloon Loans" means mortgage loans which provide for Scheduled
Payments based on amortization schedules significantly longer than their terms
to maturity and which are expected to have remaining principal balances equal to
or greater than [ ]% of the original principal balance of each mortgage loan as
of their respective stated maturity date.
"Balloon Payment" means, with respect to the Balloon Loans, the
principal payments and scheduled interest due and payable on the relevant
maturity dates.
"CEDEL Participants" means the participating organizations for which
CEDEL holds securities.
"Certificate" means any of the Class [ ], Class [ ], Class [ ] or Class
[ ] Certificates.
"Certificate Balance" means the then maximum amount that the holder of
each Principal Balance Certificate will be entitled to receive in respect of
principal out of future cash flow on the mortgage loans and other assets
included in the trust fund.
"Certificateholder" or "holder" means a Person in whose name a
certificate is registered in the Certificate Registrar or a Person in whose name
ownership of an uncertificated certificate is recorded in the books and records
of the trustee.
"Certificate Owners" means a Person acquiring an interest in an offered
certificate.
"Certificate Registrar" means the trustee who will initially serve as
certificate registrar for purposes of recording and otherwise providing for the
registration of the offered certificates.
"Class Prepayment Percentage" means, with respect to any class of
certificates, other than the Class [ ], Class [ ] and Residual Certificates, and
any Distribution Date, a fraction, expressed as a percentage,
o the numerator of which is the portion of the Principal
Distribution Amount to be distributed to the holders of the
class of certificates on the Distribution Date, and
o the denominator of which is the total Principal Distribution
Amount for the Distribution Date.]
"Closing Date" means [ ].
"Collection Account" means a trust account or accounts created and
maintained by the servicer and established pursuant to the terms of the Pooling
Agreement.
"Collection Period" means, with respect to any Distribution Date, the
period beginning with the day after the Determination Date in the month
preceding this Distribution Date, or in the case of the first Distribution Date,
the Cut-off Date, and ending with the Determination Date occurring in the month
in which this Distribution Date occurs.
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"Component Notional Amount" means the Certificate Balance of the
related class of certificates for each component of the Class [ ] Certificates
reduced by distributions allocable to principal and by any Realized Losses
allocated to the class of certificates.
"Cross-over Date" means the Distribution Date on which the Certificate
Balance of each class of certificates entitled to distributions of
principal--other than the Class [ ] and Class [ ] Certificates-- has been
reduced to zero.]
"Cut-off Date" means ______________________________.
"Debt Service Coverage Ratio" means, for any mortgage loan, the ratio
of Net Operating Income produced by the related mortgaged property for the
period covered by the annual operating statement to the amounts of principal,
interest and other sums due under the mortgage loan for the same period.
"Default Interest" means, with respect to each mortgage loan, the per
annum rate at which interest accrues on the mortgage loan following any event of
default.
"Deferred Interest" means, with respect to the EMD Loans, the excess
interest that accrues after the Effective Maturity Date, but is not paid until
the principal balance of the mortgage loan is paid in full.
"Definitive Certificate" means a fully registered physical certificate.
"Depositor" means [ ].
"Depositories" means the depositories for CEDEL and Euroclear. CEDEL
and Euroclear will hold omnibus positions on behalf of the CEDEL Participants
and the Euroclear Participants, respectively, through customers' securities
accounts in CEDEL's and Euroclear's names on the books of the depositories.
"Determination Date" means, with respect to any Distribution Date, the
[ ] business day prior to the related Distribution Date.
"Discount Rate" means the rate which, when compounded monthly, is
equivalent to the Treasury Rate when compounded semi-annually.
"Distribution Date" means the [ ] business day of each month or, if
this day is not a Business Day, the next succeeding Business Day, commencing
__________, 199__ .
"Due Dates" means dates upon which the related Scheduled Payments are
due and occur on the first day of each month.
"Effective Maturity Date" means, with respect to an EMD Loan, the date
o on which interest begins to accrue at a higher rate,
o on or prior to which the loan may be prepaid without any
prepayment penalty, and
o on which it is anticipated the related borrower will repay its
mortgage loan.
"Effective Maturity Date Loan" or "EMD Loan" means a loan that
o substantially fully amortizes until its respective maturity
date,
o generally accrues interest at a higher rate beginning on a
date prior to the maturity date, and
o may be prepaid, without any prepayment penalty, on or prior to
a date prior to the maturity date.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Euroclear Participants" means the participants of the Euroclear system
for which Euroclear hold securities.
"Excess Cash Flow" means, with respect to EMD Loans, the excess amounts
that otherwise would be returned to the borrower that, after the Effective
Maturity Date, are used to repay the EMD Loan.
"Excess Prepayment Interest Shortfall" means with respect to any
Distribution Date, the aggregate amount by which the Prepayment Interest
Shortfall with respect to all Principal Prepayments received during the related
Collection Period exceeds the aggregate Servicing Fee, minus the Trustee Fee,
available to be paid to the master servicer for this Distribution Date.
"Excess Servicing Fee" means an additional fee payable to [ ], as set
forth in the Pooling Agreement, which is assignable and non-terminable.
"Extended Monthly Payment" means, with respect to any extension of a
mortgage loan that is delinquent in the payment of any principal balance and
accrued interest remaining unpaid on its maturity date,
o the principal portion of a revised monthly payment, which will
be calculated based on an amortization schedule that does not
extend past the date occurring two years prior to the Rated
Final Distribution Date, and an interest rate no less than the
Mortgage Rate for the related mortgage loan, plus
o interest at the applicable rate of Default Interest, unless
otherwise agreed to by the [special] servicer, as long as the
rate is not less than the applicable Mortgage Rate.
"FSA" means the Financial Services Act of 1986 of the United Kingdom.
"Global Certificates" means the certificates held through a depository.
"Government Securities" means direct obligations of the United States,
agencies of the United States or agencies created by the United States.
"Gross Margin" means that fixed percentage, generally, as specified in
the loan documents, that is added to the Index upon which the interest rate is
based to determine the interest rate for an adjustable rate mortgage loan.
"Index" means [ ].
"Indirect Participants" means the banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly.
"Initial Pool Balance" means the aggregate principal balance of the
mortgage loans as of the Cut-off Date, which is equal to $ [ ], subject to a
permitted variance of plus or minus 5%.
"Interest Accrual Amount" means, with respect to any Distribution Date
and any class of Principal Balance Certificates, interest for the related
Interest Accrual Period at the pass-through rate for this class on the related
Certificate Balance, provided, that for interest accrual purposes, any
distributions in reduction of Certificate Balance or reductions in Certificate
Balance as a result of allocations of Realized Losses on the Distribution Date
occurring in an Interest Accrual Period will be deemed to have been made on the
first day of this Interest Accrual Period. With respect to any Distribution Date
and the Class [ ] Certificates, Interest Accrual Amount is equal to interest for
the related Interest Accrual Period at the pass-through rate for the class for
this Interest Accrual Period on the Notional Amount, provided, that for interest
accrual purposes, any distributions in reduction of notional amount or
reductions in Notional Amount as a result of allocations of Realized Losses on
the Distribution Date occurring in an Interest Accrual Period shall be deemed to
have been made on the first day of this Interest Accrual Period of this
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class. Calculations of interest on the certificates, will be made on the basis
of a 360-day year consisting of twelve 30-day months.
"Interest Accrual Period" means, with respect to any Distribution Date
and with respect to any class of certificates, the calendar month immediately
preceding the month in which this Distribution Date occurs.
"Interest Distribution Amount" means, with respect to any Distribution
Date and each class of Regular Certificates:
o the sum of the Interest Accrual Amount for this Distribution
Date; and
o the Interest Shortfall, if any, for this Distribution Date;]
o less any Excess Prepayment Interest Shortfall allocated to
this class on this Distribution Date.
"Interest Rate Adjustment Date" means the date on which the interest
rate for an adjustable rate mortgage loan will be adjusted, generally, as
specified in the related note.
"Interest Reserve Account" means an account that the trustee has
established and will maintain for the benefit of the holders of the
certificates.
"Interest Shortfall" means, with respect to any Distribution Date for
any class of Regular Certificates, the sum of:
o the excess, if any, of the Interest Distribution Amount for
this class for the immediately preceding Distribution Date;
over
o all distributions of interest, other than Deferred Interest,
made with respect to this class of certificates on the
immediately preceding Distribution Date; and
to the extent permitted by applicable law,
o other than in the case of the Class [ ] Certificates,
one month's interest on any excess at the
pass-through rate applicable to this class of
certificates for the current Distribution Date; and
o in the case of the Class [ ] Certificates, one
month's interest on any excess at the WAC Rate for
this Distribution Date.
"Liquidation Fee" means the liquidation fee payable to the special
servicer equal to __% of the gross liquidation proceeds, if the relevant sale
occurs at a foreclosure sale, trustee's sale or other similar proceeding or __%
of the gross liquidation proceeds, if the relevant sale occurs subsequent to
this mortgaged property's having become an REO Property.
"Liquidation Proceeds" means proceeds from the sale or liquidation of a
mortgage loan or related REO Property, net of expenses and any related Advances
and interest thereon.
"Lockout Period" means the period during which voluntary prepayments of
a mortgage loan are prohibited.
"LTV Ratios" means Loan-to-Value Ratios.
"Management Fee" means, in respect of any REO Property, the fee payable
to the special servicer, monthly, equal to __% of the gross revenues derived
from this REO Property.
"Master Servicer" means [ ]
"Master Servicer Remittance Date" means the business day immediately
prior to each Distribution Date.
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"MBS" means the mortgage participations, mortgage pass-through
certificates or mortgaged-backed securities evidencing interests in those
participations, certificates or securities or secured by those participations,
certificates or securities included in a trust fund.
"Mortgage File" means the following documents, among other things,
which Morgan Stanley Capital I Inc. will, as to each mortgage loan, deliver to
the trustee:
o the original or, if accompanied by a "lost note" affidavit, a
copy of the mortgage note, endorsed by ____________________
which transferred the mortgage loan, without recourse, in
blank or to the order of trustee; and the original mortgage or
a certified copy of the mortgage, and any intervening
assignments, or certified copies of the intervening
assignments, in each case with evidence of recording;
o originals or certified copies of any related assignment of
leases, rents and profits and any related security agreement,
if, in either case, the item is a document separate from the
mortgage, and any intervening assignments of each document or
instrument;
o an assignment of the mortgage, executed by the
____________________ which transferred the mortgage loan, in
blank or to the order of the trustee, in recordable form;
o assignments of any related assignment of leases, rents and
profits and any related security agreement, if, in either
case, the item is a document separate from the mortgage,
executed by ____________________ which transferred the
mortgage loan, in blank or to the order of the trustee;
o originals or certified copies of all assumption, modification
and substitution agreements in those instances where the terms
or provisions of the mortgage or mortgage note have been
modified or the mortgage or mortgage note has been assumed;
and
o the originals or certificates of a lender's title insurance
policy issued on the date of the origination of the mortgage
loan or, with respect to each mortgage loan not covered by a
lender's title insurance policy, an attorney's opinion of
title given by an attorney licensed to practice law in the
jurisdiction where the mortgaged property is located.
The Pooling Agreement will require Morgan Stanley Capital I Inc.
promptly, and in any event within _____ days of the Closing Date, to cause each
assignment of the mortgage described above to be submitted for recording in the
real property records of the jurisdiction in which the related mortgaged
property is located. Any assignment delivered in blank will be completed to the
order of the trustee prior to recording. The Pooling Agreement will also require
Morgan Stanley Capital I Inc. to cause the endorsements on the mortgage notes
delivered in blank to be completed to the order of the trustee.
"Mortgage" means a mortgage, deed of trust or other similar security
instrument.
"Mortgaged Property" means the real property, together with
improvements to the real property, securing the indebtedness of the borrower
under the related mortgage loan.
"Mortgage Loans" and collectively, the "Mortgage Pool", means the [ ]
mortgage loans in the trust fund with an aggregate principal balance as of the
Cut-off Date of $ [ ], subject to a permitted variance of plus or minus 5%.
"Mortgage Loan Seller" means [ ]
"Mortgage Note" or "Note" means a promissory note evidencing a
respective mortgage loan.
"Mortgage Rate" means, with respect to any mortgage loan, the per annum
interest rate at which interest accrues on the mortgage loan.
S-86
<PAGE>
"Negative Adjustment" means any net reduction in the income accrual for
the taxable year below zero treated by a certificateholder as ordinary loss to
the extent of prior income accruals and carried forward to offset future
interest accruals.
"Net Default Interest" means any default interest collected, less
amounts required to pay the master servicer, the special servicer or the
trustee, as applicable, interest on Advances.
"Net Mortgage Rate" means, with respect to any mortgage loan, a per
annum rate equal to the related mortgage rate in effect from time to time minus
the Servicing Fee Rate. However, for purposes of calculating pass-through rates,
the Net Mortgage Rate of the mortgage loan shall be determined without regard to
any modification, waiver or amendment of the terms, whether agreed to by the
special servicer or resulting from a bankruptcy, insolvency or similar
proceeding involving the related borrower.
"Net Operating Income" means:
o generally, the rent from all leases under which the tenants
have taken occupancy at the time of calculation;
o less operating expenses, such as utilities, administrative
expenses, repairs and maintenance; and
o less fixed expenses, such as insurance, real estate and other
taxes to be paid by the borrower.
"Net REO Proceeds" means REO Proceeds net of any insurance premiums,
taxes, assessments and other costs and expenses.
"Notional Amount" means [the aggregate Certificate Balance of each of
the Class [ ], Class [ ], Class [ ] and Class [ ] Certificates outstanding from
time to time, plus the amount of any unpaid Interest Shortfall on these classes]
or [the sum of the balance of components which correspond to the Certificate
Balance of the Class [ ], Class [ ], Class [ ] and Class [ ] Certificates].
"Original LTV Ratio" is a fraction, expressed as a percentage:
o the numerator of which is the principal balance of a mortgage
loan on the date of its origination, and the
o denominator of which is [in general] the lesser of
o the appraised value of the related mortgaged property as
determined by an appraisal of the mortgaged property obtained
in connection with the origination of the mortgage loan and
o the sale price of the mortgaged property at the time of the
origination.
"P&I Advances" means the amount of any Scheduled Payments or Assumed
Scheduled Payment, net of the related Servicing Fees and Excess Servicing Fees,
other than any Balloon Payment, on the mortgage loans that are delinquent as of
the close of business on the preceding Determination Date.
"Pass-Through Rate" means, for any class of Regular Certificates for
any Interest Accrual Period, the per annum rate at which interest accrues on the
certificates of this class during this Interest Accrual Period.
The pass-through rate for the certificates is as follows:
o The pass-through rate on the Class [ ] Certificates will be
equal to [ ]%.
o The pass-through rate on the Class [ ] Certificates will be
equal to [ ]%.
o The pass-through rate on the Class [ ] Certificates is equal
to the WAC Rate minus [ ]%.]
S-87
<PAGE>
o [The pass-through rate on the Class [I/O] Certificates is a
per annum rate equal to the weighted average of the
pass-through rates on the Class [ ] Component, the Class [ ]
Component, the Class [ ] Component, the Class [ ] Component
and the Class [ ] Component, weighted on the basis of their
respective Component Notional Amounts].
o The pass-through rate on the Class [ ] Component is a per
annum rate equal to the WAC Rate minus the pass-through rate
on the Class [ ] Certificates.
o The pass-through rate on the Class [ ] Component is a per
annum rate equal to the WAC Rate minus the pass-through rate
on the Class [ ] Certificates.
o The pass-through rate on the Class [ ] Component is a per
annum rate equal to [ ]%.
o The pass-through rate on the Class [ ] Component is a per
annum rate equal to [ ]%.
o The pass-through rate on the Class [ ] Component is a per
annum rate equal to [ ]%.]
"Participants" means DTC's participating organizations, including CEDEL
and Euroclear.
"Payment Adjustment Date" means the date on which the monthly payment
on an adjustable mortgage loan will be adjusted, generally, as specified in the
related loan documents.
"Payment Cap" means the provisions in the Pooling Agreement which
provide that the adjustment of the amount of the monthly payment on a Payment
Adjustment Date may not result in a monthly payment that increases by more than
___% --or, in some cases, decreases by more than ____%-- of the amount of the
monthly payment in effect immediately prior to the Payment Adjustment Date.
"Percentage Interest" is equal to the initial denomination of an
offered certificate as of the Closing Date divided by the initial Certificate
Balance of the related class.
"Plan" means an employee benefit plan or other retirement arrangement,
including an individual retirement account or a Keogh plan, which is subject to
Title I of ERISA, or Section 4975 of the Code, or a "governmental plan," as
defined in Section 3(32) of ERISA, that is subject to any federal, state or
local law which is, to a material extent, similar to the fiduciary
responsibility or prohibited transaction provisions of ERISA or the Code.
"Pooling Agreement" means the Pooling Agreement to be dated as of
__________ __, 199__, by and among Morgan Stanley Capital I Inc., the master
servicer, the special servicer and the trustee.
"Prepayment Interest Shortfall" means, with respect to any Distribution
Date and any mortgage loan, the amount of any shortfall in collections of
interest, adjusted to the applicable Net Mortgage Rate, resulting from a
Principal Prepayment on this mortgage loan during the related Collection Period
and prior to the Due Date in the Collection Period. The shortfall may result
because interest on a Principal Prepayment in full is paid by the related
borrower only to the date of prepayment.
"Prepayment Premiums" means with respect to any Distribution Date, the
aggregate of all yield maintenance penalties or prepayment premiums, if any,
received during the related Collection Period in connection with Principal
Prepayments.
"Principal Balance Certificates" means the Class [ ], Class [ ], Class
[ ], Class [ ], Class [ ], Class [ ], Class [ ] and Class [ ] Certificates, and
the Class [ ] Certificates.
"Principal Prepayments" means the payments and collections with respect
to principal of the mortgage loans including all voluntary and involuntary
prepayments of principal made prior to their scheduled due dates.
"Private Certificates" means [ ].
S-88
<PAGE>
"Principal Distribution Amount" means, for any Distribution Date, the
sum, without duplication, of:
o the principal component of all scheduled monthly payments due
on the Due Date immediately preceding the Distribution
Date--if received, or advanced by the master servicer or
trustee, in respect of the Distribution Date-- with respect to
the mortgage loans;
o the principal component of all Extended Monthly Payments due
on the related Due Date--if received, or advanced by the
master servicer or trustee, in respect of the Distribution
Date--with respect to the mortgage loans;
o the principal component of any payment on any mortgage loan
received on or after the maturity date of the mortgage loan in
the related Collection Period; and
o the portion of Unscheduled Payments allocable to principal of
any mortgage loan received or applied during the related
Collection Period, net of the principal portion of any
unreimbursed P&I Advances related to the mortgage loan.
"Rated Final Distribution Date" means the Distribution Date occurring
[3 years] after the latest maturity date of any mortgage loan.
"Rating Agency" means Standard & Poor's Structured Rating Groups,
Moody's Investor Services Inc., Duff & Phelps Credit Rating Co. or Fitch IBCA,
Inc.
"Realized Loss" means losses arising from the inability of the master
servicer, the trustee or the special servicer to collect all amounts due and
owing under any defaulted mortgage loan, including by reason of any
modifications to the terms of a mortgage loan, bankruptcy of the related
borrower or a casualty of any nature at the related mortgaged property, to the
extent not covered by insurance. The Realized Loss, if any, in respect of a
liquidated mortgage loan or related REO Property, will generally equal the
excess, if any, of:
o the outstanding principal balance of the mortgage loan as of
the date of liquidation, together with all accrued and unpaid
interest on the mortgage loan at the related mortgage rate,
over
o the aggregate amount of Liquidation Proceeds, if any,
recovered in connection with liquidation, net of any portion
of the Liquidation Proceeds that is payable or reimbursable in
respect of related liquidation and other servicing expenses.
If the mortgage rate on any mortgage loan is reduced or a
portion of the debt due under any mortgage loan is forgiven,
whether in connection with a modification, waiver or amendment
granted or agreed to by the special servicer or in connection
with a bankruptcy or similar proceeding involving the related
borrower, the resulting reduction in interest paid and the
principal amount so forgiven, as the case may be, also will be
treated as a Realized Loss.
"Regular Certificates" means the Class [ ], Class [ ], Class [ ] and
Class [ ] Certificates.
"REO Account" means the [Collection Account,] [the Subsidiary
Distribution Account,] [the Master Distribution Account,] [the Deferred Interest
Distribution Account,] [the Class [ ] Distribution Account] and any account
established in connection with REO Properties in which funds or assets are
deposited from time to time.
"REO Mortgage Loan" means any mortgage loan as to which the related
mortgaged property has become an REO Property.
"REO Proceeds" means all revenues received by the special servicer with
respect to each REO Mortgage Loan, other than proceeds from a liquidation of the
related property.
"REO Property" means any mortgaged property acquired on behalf of the
trust fund in respect of a defaulted mortgage loan through foreclosure, deed in
lieu of foreclosure or otherwise.
S-89
<PAGE>
"Restricted Group" means Morgan Stanley Capital I Inc., the
underwriter, the trustee, any servicer, any obligor with respect to mortgage
loans included in the trust fund constituting more than five percent of the
aggregate unamortized principal balance of the assets in the trust fund, or any
affiliate of these parties.
"Scheduled Payment" means, in general, for any mortgage loan on any Due
Date, the amount of the scheduled payment of principal and interest, or interest
only, due on the mortgage loan on this date, taking into account any waiver,
modification or amendment of the terms of the mortgage loan subsequent to the
Closing Date, whether agreed to by the special servicer or occurring in
connection with a bankruptcy proceeding involving the related borrower.
"Seller's Agreement" means the seller's agreement, to be dated as of
[ ], 1999 to be assigned to [ ], as trustee, pursuant to the
Pooling Agreement. [ ], in its capacity as master servicer, will
service the mortgage loans pursuant to the Pooling Agreement.
"Servicing Advances" means, in general, customary, reasonable and
necessary "out-of-pocket" costs and expenses required to be incurred by the
master servicer in connection with the servicing of a mortgage loan after a
default, whether or not a payment default, delinquency or other unanticipated
event, or in connection with the administration of any REO property.
"Servicing Compensation" means the aggregate amount of the Servicing
Fee, which includes the fees for both the trustee and the master servicer,
payable to the master servicer and the amounts payable to the special servicer
described in this prospectus supplement under "The Pooling Agreement--Special
Servicer" in each case in respect of the Distribution Date, and all amounts in
the nature of late fees, loan modification fees, extension fees, loan service
transaction fees, demand fees, beneficiary statement charges, assumption fees,
modification fees and similar fees, and reinvestment earnings on payments
received with respect to the mortgage loans which the master servicer or special
servicer is entitled to receive as additional servicing compensation pursuant to
the terms of the Pooling Agreement.
"Servicing Fee" means the monthly amount, based on the Servicing Fee
Rate, to which the master servicer is entitled in compensation for servicing the
mortgage loans.
"Servicing Fee Rate" means [ ] per annum each month payable with
respect to a mortgage loan in connection with the Servicing Fee.
"SMMEA" means the Secondary Mortgage Market Enhancement Act of 1984, as
amended.
"Special Servicer's Appraisal Reduction Estimate" means the special
servicer's estimate of the value of mortgaged properties if no independent MAI
appraisal has been obtained within twelve months prior to the first Distribution
Date on or after an Appraisal Reduction Event has occurred, which will be used
for purposes of determining the Appraisal Reduction Amount.
"Stated Principal Balance" means, for any mortgage loan, other than an
REO Mortgage Loan, at any date of determination:
o the principal balance as of the Cut-off Date of the mortgage
loan, minus
the sum of
o the principal portion of each monthly payment or, if
applicable, Extended Monthly Payment due on the
mortgage loan after the Cut-off Date and prior to
this date of determination, if received from the
borrower or advanced by the master servicer or
trustee;
o all voluntary and involuntary principal prepayments
and other unscheduled collections of principal
received with respect to the mortgage loan, to the
extent distributed to holders of the certificates or
applied to other payments required under the Pooling
Agreement before this date of determination; and
S-90
<PAGE>
o any adjustment to the principal balance as a result
of a reduction of principal by a bankruptcy court or
as a result of a modification reducing the principal
balance due on the mortgage loan.
"Stated Principal Balance" means, for any REO Mortgage Loan,
o the principal balance of the mortgage loan outstanding on the
date on which title is acquired less
o any Net REO Proceeds allocated to principal on the mortgage
loan.
"Stated Principal Balance" means, for any defaulted mortgage loan where
the master servicer or the special servicer have determined it has received all
amounts it expects to receive, zero.
"Subordinated Offered Certificates" means the Class [ ], Class [ ],
Class [ ] and Class [ ] Certificates.
"Subsidiary Regular Interests" means certain uncertificated classes of
regular interests issued by a trust fund to the [Master REMIC].
"Trust Fund" means the trust fund created by the Pooling Agreement
consisting primarily of:
o the mortgage loans and all payments under and proceeds of the
mortgage loans received after the Cut-off Date, exclusive of
principal prepayments received prior to the Cut-off Date and
scheduled payments of principal and interest due on or before
the Cut-off Date;
o MBS; and
o government securities.
"Treasury Rate" means the yield calculated by the linear interpolation
of the yields, as reported in Federal Reserve Statistical Release H.15--Selected
Interest Rates ("Release H.15") under the heading "U.S. Government
Securities/Treasury constant maturities" for the week ending prior to the date
of the relevant principal prepayment, of U.S. Treasury constant maturities with
a maturity date--one longer and one shorter--most nearly approximating the
maturity of the mortgage loan prepaid. If Release H.15 is no longer published,
the trustee will select a comparable publication to determine the Treasury Rate.
"Unscheduled Payment" means any payment that may be received in
connection with a liquidation, casualty, repurchase of a mortgage loan or other
payments received but not scheduled to be made.
"WAC Rate" means, for any Distribution Date, the weighted average of
the Net Mortgage Rates in effect for the mortgage loans as of their Due Date in
the [month preceding the month] in which the Distribution Date occurs weighted
on the basis of their respective Stated Principal Balances on the Due Date.
S-91
<PAGE>
APPENDIX I
[CHARACTERISTICS OF THE MORTGAGE LOANS]
[Attach mortgage loan Schedule that details relevant and available information
regarding the mortgage loans, such as the information included under the
following headings:
1. Loan ID number
2. Original balance
3. Current balance
4. Current rate
5. Current payment
6. Note date
7. Original term
8. Remaining term
9. Maturity date
10. Amortization
11. Origination appraisal
12. Borrowing entity
13. Property name
14. Street
15. City
16. State
17. Zip code
18. Rate Index
19. First rate change
20. Next rate change
21. First payment change
22. Next payment change
23. Rate adjustment frequency
24. Payment adjustment frequency
A-I-1
<PAGE>
25. Period payment cap
26. Life rate cap
27. Life rate floor
28. Negative amortization cap
amount
29. annualized recent net
operating cost
30. Annualized recent net
operating income
31. Most recent net operating
income year
32. Most recent debt service
coverage ratio
33. LTV and current balance based
upon the Appraised Value
A-I-2
<PAGE>
APPENDIX II
[CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS AND MBS]
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CUT-OFF DATE: [ ] MORTGAGE POOL BALANCE AS OF THE CUT-OFF DATE: $[ ]
DATE OF INITIAL ISSUANCE: [ ] REFERENCE DATE BALANCE: $[ ]
RELATED TRUSTEE: [ ] PERCENT OF ORIGINAL MORTGAGE POOL REMAINING [ ]%
AS OF REFERENCE DATE:
MATURITY DATE: [ ]
</TABLE>
<TABLE>
<CAPTION>
CLASS PASS-THROUGH INITIAL CERTIFICATE
OF CERTIFICATES RATE BALANCE FEATURES
<S> <C> <C> <C> <C>
[ ] [ ]% $[ ] [ ]
</TABLE>
[First MBS Distribution Date on which the MBS may receive a portion of
prepayments: [date]
MINIMUM SERVICING FEE RATE:* [ ]% per annum
MAXIMUM SERVICING FEE RATE:* [ ]% per annum
<TABLE>
<CAPTION>
AS OF DATE OF
INITIAL ISSUANCE
<S> <C> <C>
* Combined Related Master Servicing and Subservicing Fee Rate SPECIAL HAZARD AMOUNT: $[ ]
FRAUD LOSS AMOUNT: $[ ]
BANKRUPTCY AMOUNT: $[ ]
</TABLE>
AS OF DATE OF AS OF
INITIAL ISSUANCE DELIVERY DATE
SENIOR PERCENTAGE: [ ]% [ ]%
SUBORDINATE PERCENTAGE: [ ]% [ ]%
CLASS RATING AGENCY VOTING RIGHTS:
RATINGS: [ ] [ ] [ ]
[ ] [ ]
[ ] [ ]
<PAGE>
APPENDIX III
[LARGE LOAN SUMMARY]
<PAGE>
Information contained in this Prospectus is subject to completion or amendment.
A registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement and the prospectus to which it relates
shall not constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED _____, 199__ (Version 2)
PROSPECTUS
MORGAN STANLEY CAPITAL I INC.,
DEPOSITOR
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES BY SEPARATE TRUSTS)
---------------
Morgan Stanley Capital I Inc. will periodically offer certificates in
one or more series. The certificates will be issued in series, and each
series of certificates will represent beneficial ownership interests in a
different trust fund.
Each trust fund will consist primarily of one or more segregated pools of:
1) multifamily or commercial mortgage loans;
2) mortgage participations, mortgage pass- through certificates and/or
mortgage-backed securities;
3) direct obligations of the United States or other governmental
agencies; or
4) any combination of the 1-3, above, as well as other property as
described in the accompanying prospectus supplement.
5) as to some or all of the mortgage loans , assignments of the leases
of the related mortgaged properties and/or assignments of the rental
payments due under those leases.
---------------
INVESTING IN THE CERTIFICATES OFFERED TO YOU INVOLVES RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 13 IN THIS PROSPECTUS AND ON PAGE S-17 OF THE RELATED
PROSPECTUS SUPPLEMENT.
---------------
The certificates of any series may consist of one or more classes. A given
class may:
o provide for the accrual of interest based on fixed, variable or
adjustable rates;
o be senior or subordinate to one or more other classes in respect of
distributions;
o be entitled to principal distributions, with disproportionately low,
nominal or no interest distributions;
o be entitled to interest distributions, with disproportionately low,
nominal or no principal distributions;
o provide for distributions of accrued interest commencing only
following the occurrence of certain events, such as the retirement
of one or more other classes;
o provide for sequential distributions of principal; and/or
o provide for distributions based on a combination of any of the
foregoing characteristics.
---------------
Distributions on the certificates will be made only from the assets of the
related trust fund. The certificates of each series will not be an obligation of
Morgan Stanley Capital I Inc. or any of its affiliates. Neither the certificates
nor any assets in the related trust fund will be insured or guaranteed by any
governmental agency or instrumentality or any other person unless the related
prospectus supplement so provides.
---------------
This prospectus may be used to offer and sell any series of certificates
only if accompanied by the prospectus supplement for that series. The
information in this prospectus is not complete and may be changed. This
prospectus is not an offer to sell these securities in any state where the offer
or sale is not permitted.
---------------
The Securities and Exchange Commission and state securities regulators
have not approved or disapproved of the certificates to be offered to you or
determined if this prospectus or the accompanying prospectus supplement are
truthful or complete. Any representation to the contrary is a criminal offense.
---------------
MORGAN STANLEY DEAN WITTER
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS SUPPLEMENT
Information about the certificates being offered to you is contained in
two separate documents that progressively provide more detail: (a) this
prospectus, which provides general information, some of which may not apply to a
particular series of certificates; and (b) the accompanying prospectus
supplement, which describes the specific terms of your series of certificates,
including:
o the timing of interest and principal payments;
o applicable interest rates;
o information about the trust fund's assets;
o information about any credit support or cash flow agreement;
o the rating for each class of certificates;
o information regarding the nature of any subordination;
o any circumstance in which the trust fund may be subject to early
termination;
o whether any elections will be made to treat the trust fund or a
designated portion thereof as a "real estate mortgage investment
conduit" for federal income tax purposes;
o the aggregate principal amount of each class of certificates;
o information regarding any master servicer, sub-servicer or special
servicer; and
o whether the certificates will be initially issued in definitive or
book entry form.
IF THE TERMS OF THE CERTIFICATES OFFERED TO YOU VARY BETWEEN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT, YOU SHOULD RELY ON THE
INFORMATION IN THE PROSPECTUS SUPPLEMENT. Further, you should rely only on the
information contained in this prospectus and the accompanying prospectus
supplement. Morgan Stanley Capital I Inc. has not authorized anyone to provide
you with information that is different.
This prospectus and the accompanying prospectus supplement include cross
references to sections in these materials where you can find further related
discussions. The Tables of Contents in this prospectus and the prospectus
supplement identify the pages where these sections are located.
Morgan Stanley Capital I Inc.'s principal executive office is located at
1585 Broadway, 37th Floor, New York, New York 10036, and the telephone number is
(212) 761-4700.
---------------------------------------------
Until 90 days after the date of each prospectus supplement, all dealers
that buy, sell or trade the certificates offered by that prospectus supplement,
whether or not participating in the offering, may be required to deliver a
prospectus supplement and this prospectus. This is in addition to the dealers'
obligation to deliver a prospectus supplement and the accompanying prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
-2-
<PAGE>
TABLE OF CONTENTS
PAGE
----
Important Notice About Information Presented in this Prospectus
and the Accompanying Prospectus Supplement.................................2
Summary of Prospectus........................................................5
Risk Factors................................................................13
Description of the Trust Funds..............................................27
Assets...................................................................27
Mortgage Loans...........................................................27
MBS......................................................................32
Government Securities....................................................33
Accounts.................................................................33
Credit Support...........................................................33
Cash Flow Agreements.....................................................34
Use of Proceeds.............................................................34
Yield Considerations........................................................34
General..................................................................34
Pass-Through Rate........................................................34
Timing of Payment of Interest............................................34
Payments of Principal; Prepayments.......................................35
Prepayments--Maturity and Weighted Average Life..........................36
Other Factors Affecting Weighted Average Life............................36
The Depositor...............................................................37
Description of the Certificates.............................................37
General..................................................................37
Distributions............................................................38
Available Distribution Amount............................................38
Distributions of Interest on the Certificates............................39
Distributions of Principal of the Certificates...........................40
Components...............................................................40
Distributions on the Certificates of Prepayment Premiums or in
Respect of Equity Participations.......................................40
Allocation of Losses and Shortfalls......................................40
Advances in Respect of Delinquencies.....................................41
Reports to Certificateholders............................................41
Termination..............................................................44
Book-Entry Registration and Definitive Certificates......................45
Description of the Agreements...............................................46
Assignment of Assets; Repurchases........................................46
Representations and Warranties; Repurchases..............................48
Certificate Account and Other Collection Accounts........................49
Collection and Other Servicing Procedures................................52
Subservicers.............................................................53
Special Servicers........................................................53
Realization Upon Defaulted Whole Loans...................................54
Hazard Insurance Policies................................................56
Rental Interruption Insurance Policy.....................................57
Fidelity Bonds and Errors and Omissions Insurance........................58
Due-on-Sale and Due-on-Encumbrance Provisions............................58
Retained Interest; Servicing Compensation and Payment of
Expenses...............................................................58
Evidence as to Compliance................................................59
Matters Regarding a Master Servicer and the Depositor....................59
Events of Default........................................................60
Rights Upon Event of Default.............................................61
Amendment................................................................61
The Trustee..............................................................62
Duties of the Trustee....................................................62
Matters Regarding the Trustee............................................62
Resignation and Removal of the Trustee...................................63
Description of Credit Support...............................................63
General..................................................................63
Subordinate Certificates.................................................64
Cross-Support Provisions.................................................64
Insurance or Guarantees for the Whole Loans..............................64
Letter of Credit.........................................................64
Insurance Policies and Surety Bonds......................................65
Reserve Funds............................................................65
Credit Support for MBS...................................................65
Legal Aspects of the Mortgage Loans and the Leases..........................66
General..................................................................66
Types of Mortgage Instruments............................................66
Interest in Real Property................................................67
Leases and Rents.........................................................67
Personality..............................................................67
Foreclosure..............................................................68
Bankruptcy Laws..........................................................72
Junior Mortgages; Rights of Senior Lenders or Beneficiaries..............74
Environmental Legislation................................................76
Due-on-Sale and Due-on-Encumbrance.......................................78
Subordinate Financing....................................................79
Default Interest, Prepayment Premiums and Prepayments....................79
Acceleration on Default..................................................79
Applicability of Usury Laws..............................................80
Laws and Regulations; Types of Mortgaged Properties......................80
Americans With Disabilities Act..........................................80
Soldiers' and Sailors' Civil Relief Act of 1940..........................81
Forfeitures in Drug and RICO Proceedings.................................81
Federal Income Tax Consequences.............................................81
General..................................................................82
-3-
<PAGE>
Grantor Trust Funds......................................................82
REMICs...................................................................90
Prohibited Transactions and Other Taxes.................................104
Liquidation and Termination.............................................105
Administrative Matters..................................................105
Tax-Exempt Investors....................................................105
Residual Certificate Payments--Non-U.S. Persons.........................105
Tax-Related Restrictions on Transfers of REMIC Residual
Certificates..........................................................106
State Tax Considerations...................................................108
ERISA Considerations.......................................................108
General.................................................................108
Prohibited Transactions.................................................108
Review by Plan Fiduciaries..............................................111
Legal Investment...........................................................111
Plan of Distribution.......................................................113
Legal Matters..............................................................114
Financial Information......................................................114
Rating.....................................................................114
Incorporation of Information by Reference..................................114
Glossary of Terms..........................................................116
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SUMMARY OF PROSPECTUS
This summary highlights selected information from this prospectus. It does not
contain all of the information you need to consider in making your investment
decision. TO UNDERSTAND ALL OF THE TERMS OF AN OFFERING OF CERTIFICATES, READ
THIS ENTIRE DOCUMENT AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT CAREFULLY.
WHAT YOU WILL OWN
TITLE OF CERTIFICATES....... Mortgage Pass-Through Certificates, issuable in
series.
MORTGAGE POOL............... Each trust fund will consist primarily of one or
more segregated pools of:
1) multifamily or commercial mortgage
loans;
2) mortgage participations, mortgage
pass-through certificates and/or
mortgage-backed securities;
3) direct obligations of the United States
or other governmental agencies; or
4) any combination of 1-3 above, as well as
other property as described in the
accompanying prospectus supplement.
5) as to some or all of the mortgage loans,
assignments of the leases of the related
mortgaged properties and/or assignments
of the rental payments due under those
leases.
Each trust fund for a series of certificates may
also include:
o letters of credit, insurance policies,
guarantees, reserve funds or other types
of credit support; and
o currency or interest rate exchange
agreements and other financial assets.
RELEVANT PARTIES AND DATES
ISSUER...................... Morgan Stanley Capital I 199__-__ Trust.
DEPOSITOR................... Morgan Stanley Capital I Inc., a wholly-owned
subsidiary of Morgan Stanley Group Inc.
MASTER SERVICER............. The master servicer, if any, for each series of
certificates will be named in the related
prospectus supplement. The master servicer may
be an affiliate of Morgan Stanley Capital I Inc..
SPECIAL SERVICER............ The special servicer, if any, for each series of
certificates will be named, or the circumstances in
accordance with which a special servicer will be
appointed will be described, in the related
prospectus supplement. The special servicer may
be an affiliate of Morgan Stanley Capital I Inc..
TRUSTEE..................... The trustee for each series of certificates will be
named in the related prospectus supplement.
ORIGINATOR.................. The originator or originators of the mortgage loans
will be named in the related prospectus
supplement. An originator may be an affiliate of
Morgan Stanley Capital I Inc.. Morgan Stanley
Capital I Inc. will purchase the mortgage loans
and/or MBS on or before the issuance of the related
series of
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certificates.
INFORMATION ABOUT THE MORTGAGE POOL
THE TRUST FUND ASSETS...... Each series of certificates will represent in the
aggregate the entire beneficial ownership interest
in a trust fund consisting primarily of:
(A) MORTGAGE ASSETS... The mortgage loans and/or MBS with respect to each
series of certificates will consist of a pool of:
o multifamily and/or commercial mortgage
loans;
o mortgage participations, mortgage
pass-through certificates or other
mortgage-backed securities evidencing
interests in or secured by mortgage
loans; or
o a combination of mortgage loans and MBS.
The mortgage loans will not be guaranteed or
insured by :
o Morgan Stanley Capital I Inc. or any of
its affiliates; and
o unless the prospectus supplement so
provides, any governmental agency or
instrumentality or other person.
The mortgage loans will be secured by first liens
or junior liens on, or security interests in:
o residential properties consisting of
five or more rental or
cooperatively-owned dwelling units; or
o office buildings, shopping centers,
retail stores, hotels or motels, nursing
homes, hospitals or other health-care
related facilities, mobile home parks,
warehouse facilities, mini-warehouse
facilities or self-storage facilities,
industrial plants, congregate care
facilities, mixed use commercial
properties or other types of commercial
properties.
Unless otherwise provided in the prospectus
supplement, the mortgage loans:
o will be secured by properties located in
any of the fifty states, the District of
Columbia or the Commonwealth of Puerto
Rico;
o will have individual principal balances
at origination of at least $25,000 ;
o will have original terms to maturity of
not more than 40 years; and
o will be originated by persons other than
Morgan Stanley Capital I Inc..
Each mortgage loan may provide for the following
payment terms:
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o Each mortgage loan may provide for no
accrual of interest or for accrual of
interest at a fixed or adjustable rate
or at a rate that may be converted from
adjustable to fixed, or vice versa, from
time to time at the borrower's election.
Adjustable mortgage rates may be based
on one or more indices.
o Each mortgage loan may provide for
scheduled payments to maturity or
payments that adjust from time to time
to accommodate changes in the interest
rate or to reflect the occurrence of
certain events.
o Each mortgage loan may provide for
negative amortization or accelerated
amortization.
o Each mortgage loan may be fully
amortizing or require a balloon payment
due on the loan's stated maturity date.
o Each mortgage loan may contain
prohibitions on prepayment or require
payment of a premium or a yield
maintenance penalty in connection with a
prepayment.
o Each mortgage loan may provide for
payments of principal, interest or both,
on due dates that occur monthly,
quarterly, semi-annually or at another
interval as specified in the related
prospectus supplement.
(B) GOVERNMENT If the related prospectus supplement so specifies,
SECURITIES............ the trust fund may include direct obligations of
the United States, agencies thereof or agencies
created thereby which provide for payment of
interest and/or principal.
(C) COLLECTION Each trust fund will include one or more accounts
ACCOUNTS.............. established and maintained on behalf of the
certificateholders. The person(s) designated in the
related prospectus supplement will, to the extent
described in this prospectus and the prospectus
supplement, deposit into this account all payments
and collections received or advanced with respect
to the trust fund's assets. The collection account
may be either interest bearing or non-interest
bearing, and funds may be held therein as cash or
invested in short-term, investment grade
obligations.
(D) CREDIT SUPPORT.... If the related prospectus supplement so specifies,
one or more classes of certificates may be provided
with partial or full protection against certain
defaults and losses on a trust fund's mortgage
loans and/or MBS.
This protection may be provided by one or more of
the following means:
o subordination of one or more other
classes of certificates,
o letter of credit,
o insurance policy,
o guarantee,
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<PAGE>
o reserve fund or
o another type of credit support, or a
combination thereof.
The related prospectus supplement will describe the
amount and types of credit support, the entity
providing the credit support, if applicable, and
related information. If a particular trust fund
includes MBS, the related prospectus supplement
will describe any similar forms of credit support
applicable to those MBS.
(E) CASH FLOW If the related prospectus supplement so provides,
AGREEMENTS............ the trust fund may include guaranteed investment
contracts pursuant to which moneys held in the
collection accounts will be invested at a specified
rate. The trust fund also may include agreements
designed to reduce the effects of interest rate or
currency exchange rate fluctuations on the trust
fund's assets or on one or more classes of
certificates.
Agreements of this sort may include:
o interest rate exchange agreements,
o interest rate cap or floor agreements,
o currency exchange agreements or similar
agreements. Currency exchange
agreements might be included in a trust
fund if some or all of the mortgage
loans and/or MBS, such as mortgage
loans secured by mortgaged properties
located outside the United States are
denominated in a non-United States
currency.
The related prospectus supplement will describe the
principal terms of any guaranteed investment
contract or other agreement and provide information
with respect to the obligor. If a particular trust
fund includes MBS, the related prospectus
supplement will describe any guaranteed investment
contract or other agreements applicable to those
MBS.
DISTRIBUTIONS ON Each series of certificates will have the following
CERTIFICATES................ characteristics:
o if the certificates evidence an
interest in a trust fund that includes
mortgage loans, the certificates will
be issued pursuant to a pooling
agreement;
o if the certificates evidence an
interest in a trust fund that does not
include mortgage loans, the
certificates will be issued pursuant to
a trust agreement;
o each series of certificates will
include one or more classes of
certificates;
o each series of certificates, including
any class or classes not offered by
this prospectus, will represent, in the
aggregate, the entire beneficial
ownership interest in the related trust
fund;
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o each class of certificates being
offered to you, other than certain
stripped interest certificates, will
have a stated principal amount;
o each class of certificates being
offered to you, other than certain
stripped principal certificates, will
accrue interest based on a fixed,
variable or adjustable interest rate.
The related prospectus supplement will specify the
principal amount, if any, and the interest rate, if
any, for each class of certificates. In the case of
a variable or adjustable interest rate, the related
prospectus supplement will specify the method for
determining the rate.
The certificates will not be guaranteed or insured
by Morgan Stanley Capital I Inc. or any of its
affiliates. The certificates also will not be
guaranteed or insured by any governmental agency or
instrumentality or by any other person, unless the
related prospectus supplement so provides.
(A) INTEREST.......... Each class of certificates offered to you, other
than stripped principal certificates and certain
classes of stripped interest certificates, will
accrue interest at the rate indicated in the
prospectus supplement. Interest will be distributed
to you as provided in the related prospectus
supplement.
Interest distributions:
o on stripped interest certificates may
be made on the basis of the notional
amount for that class, as described in
the related prospectus supplement;
o may be reduced to the extent of certain
delinquencies, losses, prepayment
interest shortfalls, and other
contingencies described in this
prospectus and the related prospectus
supplement.
(B) PRINCIPAL......... The certificates of each series initially will have
an aggregate principal balance no greater than the
outstanding principal balance of the trust fund's
assets as of the close of business on the first day
of the month during which the trust fund is formed,
after application of scheduled payments due on or
before that date, whether or not received. The
related prospectus supplement may provide that the
principal balance of the trust fund's assets will
be determined as of a different date. The principal
balance of a certificate at a given time represents
the maximum amount that the holder is then entitled
to receive of principal from future cash flow on
the assets in the related trust fund.
Unless the prospectus supplement provides
otherwise, distributions of principal:
o will be made on each distribution date
to the holders of the class or classes
of certificates entitled to principal
distributions, until the principal
balances of those certificates have
been reduced to zero; and
o will be made on a pro rata basis among
all of the certificates
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of a given class or by random
selection, as described in the
prospectus supplement or otherwise
established by the trustee.
Stripped interest or interest-only certificates
will not have a principal balance and will not
receive distributions of principal.
ADVANCES.................... Unless the related prospectus supplement otherwise
provides, if a scheduled payment on a mortgage loan
is delinquent and the master servicer determines
that an advance would be recoverable, the master
servicer will, in most cases, be required to
advance the shortfall. Neither Morgan Stanley
Capital I Inc. nor any of its affiliates will have
any responsibility to make those advances.
The master servicer:
o will be reimbursed for advances from
subsequent recoveries from the
delinquent mortgage loan or from other
sources, as described in this
prospectus and the related prospectus
supplement; and
o will be entitled to interest on
advances, if specified in the related
prospectus supplement.
If a particular trust fund includes MBS, the
prospectus supplement will describe any advance
obligations applicable to those MBS.
TERMINATION................. The related prospectus supplement may provide for
the optional early termination of the series of
certificates through repurchase of the trust fund's
assets by a specified party, under specified
circumstances.
The related prospectus supplement may provide for
the early termination of the series of certificates
in various ways including:
o optional early termination where a
party identified in the prospectus
supplement could repurchase the trust
fund assets pursuant to circumstances
specified in the prospectus supplement;
o termination through the solicitation of
bids for the sale of all or a portion
of the trust fund assets in the event
the principal amount of a specified
class or classes declines by a
specified percentage amount on or after
a specified date.
REGISTRATION OF
CERTIFICATES................ If the related prospectus supplement so provides,
one or more classes of the certificates being
offered to you will initially be represented by one
or more certificates registered in the name of Cede
& Co., as the nominee of DTC. If the certificate
you purchase is registered in the name of Cede &
Co., you will not be entitled to receive a
definitive certificate , except under the limited
circumstances described in this prospectus.
TAX STATUS OF THE The certificates of each series will constitute
CERTIFICATES................ either:
o "regular interests" and "residual
interests" in a trust treated as a real
estate mortgage investment
conduit--known as a
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<PAGE>
REMIC--under Sections 860A through 860G
of the Internal Revenue Code; or
o interests in a trust treated as a
grantor trust under applicable
provisions of the Internal Revenue
Code.
(A) REMIC............. The regular certificates of the REMIC generally
will be treated as debt obligations of the
applicable REMIC for federal income tax purposes.
Some of the regular certificates of the REMIC may
be issued with original issue discount for federal
income tax purposes.
A portion or, in certain cases, all of the income
from REMIC Residual Certificates:
o may not be offset by any losses from
other activities of the holder of those
certificates;
o may be treated as unrelated business
taxable income for holders of the
residual certificates of the REMIC that
are subject to tax on unrelated
business taxable income, as defined in
Section 511 of the Internal Revenue
Code; and
o may be subject to foreign withholding
rules.
To the extent described in this prospectus and the
related prospectus supplement, the certificates
offered to you will be treated as:
o assets described in section
7701(a)(19)(C) of the Internal Revenue
Code; and
o "real estate assets" within the meaning
of section 856(c)(4)(A) of the Internal
Revenue Code.
(B) GRANTOR TRUST..... If no election is made to treat the trust fund
relating to a series of certificates as a REMIC,
the trust fund will be classified as a grantor
trust and not as an association taxable as a
corporation for federal income tax purposes. If the
trust fund is a grantor trust, you will be treated
as an owner of an undivided pro rata interest in
the mortgage pool or pool of securities and any
other assets held by the trust fund.
Investors are advised to consult their tax advisors
and to review "Federal Income Tax Consequences" in
this prospectus and the related prospectus
supplement.
ERISA CONSIDERATIONS........ If you are subject to Title I of the Employee
Retirement Income Security Act of 1974, as
amended--also known as ERISA, or Section 4975 of
the Internal Revenue Code, you should carefully
review with your legal advisors whether the
purchase or holding of certificates could give rise
to a transaction that is prohibited or is not
otherwise permissible under either statute.
In general, the related prospectus supplement will
specify that some of the classes of certificates
may not be transferred unless the trustee and
Morgan Stanley Capital I Inc. receive a letter of
representations or an opinion of counsel to the
effect that:
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<PAGE>
o the transfer will not result in a
violation of the prohibited transaction
provisions of ERISA or the Internal
Revenue Code;
o the transfer will not cause the assets
of the trust fund to be deemed "plan
assets" for purposes of ERISA or the
Internal Revenue Code; and
o the transfer will not subject the
trustee, Morgan Stanley Capital I Inc.
or any servicer to additional
obligations.
LEGAL INVESTMENT............ The related prospectus supplement will specify
whether any classes of the offered certificates
will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended. If your
investment authority is subject to legal
restrictions, you should consult your legal
advisors to determine whether any restrictions
apply to an investment in these certificates.
RATING...................... At the date of issuance, each class of certificates
of each series that are offered to you will be
rated not lower than investment grade by one or
more nationally recognized statistical rating
agencies.
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RISK FACTORS
You should carefully consider the risks involved in owning a certificate
before purchasing a certificate. In particular, the timing and payments you
receive on your certificates will depend on payments received on and other
recoveries with respect to the mortgage loans. Therefore, you should carefully
consider the risk factors relating to the mortgage loans and the mortgaged
properties.
The risks and uncertainties described below under "Risk Factors," together
with those described in the related prospectus supplement under "Risk Factors,"
summarize the material risks relating to your certificates.
THE LACK OF A SECONDARY
MARKET MAY MAKE IT
DIFFICULT FOR YOU TO
RESELL YOUR
CERTIFICATES Secondary market considerations may make your
certificates difficult to resell or less valuable
than you anticipated for a variety of reasons,
including:
o there may not be a secondary market for the
certificates;
o if a secondary market develops, we cannot
assure you that it will continue or will
provide you with the liquidity of investment
you may have anticipated. Lack of liquidity
could result in a substantial decrease in the
market value of your certificates;
o the market value of your certificates will
fluctuate with changes in interest rates;
o the secondary market for certificates backed
by residential mortgages may be more liquid
than the secondary market for certificates
backed by multifamily and commercial mortgages
so if your liquidity assumptions were based on
the secondary market for certificates backed
by residential mortgages, your assumptions may
not be correct;
o certificateholders have no redemption rights;
and
o secondary market purchasers are limited to
this prospectus, the related prospectus
supplement and to the reports delivered to
certificateholders for information concerning
the certificates.
Morgan Stanley & Co. Incorporated currently
expects to make a secondary market in your
certificates, but it has no obligation to do so.
THE TRUST FUND'S
ASSETS MAY BE
INSUFFICIENT TO ALLOW
FOR REPAYMENT IN FULL
ON YOUR
CERTIFICATES Unless the related prospectus supplement so
specifies, the sole source of payment on your
certificates will be proceeds from the assets
included in the trust fund for each series of
certificates and any form of credit enhancement
specified in the related prospectus supplement.
You will not have any claim against, or security
interest in, the trust fund for any other series.
In addition, in general, there is no recourse to
Morgan Stanley Capital I Inc. or any other entity,
and neither the certificates nor the underlying
mortgage loans are guaranteed or insured by any
governmental agency or instrumentality or any
other entity.
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<PAGE>
Therefore, if the trust fund's assets are
insufficient to pay you your expected return, in
most situations you will not receive payment from
any other source. Exceptions include:
o loan repurchase obligations in connection with
a breach of certain of the representations and
warranties ; and
o advances on delinquent loans, to the extent
the master servicer deems the advance will be
recoverable.
Because some of the representations and warranties
with respect to the mortgage loans and/or MBS may
have been made and/or assigned in connection with
transfers of the mortgage loans and/or MBS prior
to the closing date, the rights of the trustee and
the certificateholders with respect to those
representations or warranties will be limited to
their rights as assignees. Unless the related
prospectus supplement so specifies, neither Morgan
Stanley Capital I Inc., the master servicer nor
any affiliate thereof will have any obligation
with respect to representations or warranties made
by any other entity.
There may be accounts, as described in the related
prospectus supplement, maintained as credit
support. The amounts in these accounts may be
withdrawn, under conditions described in the
related prospectus supplement. Any withdrawn
amounts will not be available for the future
payment of principal or interest on the
certificates.
If a series of certificates consists of one or
more classes of subordinate certificates, the
amount of any losses or shortfalls in collections
of assets on any distribution date will be borne
first by one or more classes of the subordinate
certificates, as described in the related
prospectus supplement. Thereafter, those losses or
shortfalls will be borne by the remaining classes
of certificates, in the priority and manner and
subject to the limitations specified in the
related prospectus supplement.
PREPAYMENTS AND
REPURCHASES MAY REDUCE
THE YIELD ON YOUR
CERTIFICATES The yield on your certificates may be reduced by
prepayments on the mortgage loans and/or MBS
because prepayments affect the average life of the
certificates. Prepayments can be voluntary, if
permitted, and involuntary, such as prepayments
resulting from casualty or condemnation, defaults
and liquidations or repurchases upon breaches of
representations and warranties. The investment
performance of your certificates may vary
materially and adversely from your expectation if
the actual rate of prepayment is higher or lower
than you anticipated.
Voluntary prepayments may require the payment of a
yield maintenance or prepayment premium.
Nevertheless, we cannot assure you that the
existence of the prepayment premium will cause a
borrower to refrain from prepaying its mortgage
loan nor can we assure you of the rate at which
prepayments will occur. Morgan Stanley Mortgage
Capital Inc., under certain circumstances, may be
required to repurchase a mortgage loan from the
trust fund if there has been a breach of a
representation or warranty. The repurchase price
paid will be passed through to you, as a
certificateholder, with the same effect as if the
mortgage loan had been prepaid in part or in full,
except that no prepayment premium or yield
maintenance charge would be payable.
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<PAGE>
Such a repurchase may therefore adversely affect
the yield to maturity on your certificates.
In a pool of mortgage loans, the rate of
prepayment is unpredictable as it is influenced by
a variety of factors including:
o the terms of the mortgage loans;
o the length of any prepayment lockout period;
o the prevailing interest rates;
o the availability of mortgage credit;
o the applicable yield maintenance charges or
prepayment premiums;
o the servicer's ability to enforce those yield
maintenance charges or prepayment premiums;
o the occurrence of casualties or natural
disasters; and
o economic, demographic, tax, legal or other
factors.
There can be no assurance that the rate of
prepayments will conform to any model described in
this prospectus or in the related prospectus
supplement.
Some of the certificates may be more sensitive to
prepayments than other certificates and in certain
cases, the certificateholder holding these
certificates may fail to recoup its original
investment. You should carefully consider the
specific characteristics of the certificates you
purchase, as well as your investment approach and
strategy. For instance, if you purchase a
certificate at a premium, a prepayment may reduce
the stream of interest payments you are entitled
to receive on your certificate and your actual
yield may be lower than your anticipated yield.
Similarly, if you purchase a certificate which
provides for the payment of interest only, or a
certificate which provides for the payment of
interest only after the occurrence of certain
events, such as the retirement of one or more
other classes of certificates of a series, you
will probably be extremely sensitive to
prepayments because a prepayment may reduce the
stream of interest payments you are entitled to
receive on your certificate.
IF PREPAYMENT PREMIUMS
ARE NOT ENFORCED, YOUR
CERTIFICATES
MAY BE ADVERSELY AFFECTED The yield on your certificates may be less than
anticipated because the prepayment premium or
yield maintenance required under certain
prepayment scenarios may not be enforceable in
some states or under federal bankruptcy laws.
o Some courts may consider the prepayment
premium to be usurious.
o Even if the prepayment premium is enforceable,
we cannot assure you that foreclosure proceeds
will be sufficient to pay the prepayment
premium.
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o Although the collateral substitution
provisions related to defeasance are not
suppose to be treated as a prepayment and
should not affect your certificates, we cannot
assure you that a court will not interpret the
defeasance provisions as requiring a
prepayment premium; nor can we assure you that
if it is treated as a prepayment premium, the
court will find the defeasance income stream
enforceable.
THE TIMING OF MORTGAGE
LOAN AMORTIZATION MAY
ADVERSELY AFFECT
PAYMENT ON YOUR
CERTIFICATES As principal payments or prepayments are made on a
mortgage loan, the mortgage pool will be exposed
to concentration risks with respect to the
diversity of mortgaged properties, types of
mortgaged properties and number of borrowers.
Classes that have a later sequential designation
or a lower payment priority are more likely to be
exposed to these concentration risks than are
classes with an earlier sequential designation or
higher priority. This is so because principal on
the certificates will be payable in sequential
order, and no class entitled to a distribution of
principal will receive its principal until the
principal amount of the preceding class or classes
entitled to receive principal have been reduced to
zero.
RATINGS DO NOT GUARANTY
PAYMENT Any rating assigned by a rating agency to a class
of certificates reflects the rating agency's
assessment of the likelihood that holders of the
class of certificates will receive the payments to
which they are entitled.
o The ratings do noT assess the likelihood that
you will receive timely payments on your
certificates.
o The ratings do not assess the likelihood of
prepayments, including those caused by
defaults.
o The ratings do not assess the likelihood of
early optional termination of the
certificates.
Each rating agency rating classes of a particular
series will determine the amount, type and nature
of credit support required for that series. This
determination may be based on an actuarial
analysis of the behavior of mortgage loans in a
larger group taking into account the appraised
value of the real estate and the commercial and
multifamily real estate market.
o We cannot assure you that the historical data
supporting the actuarial analysis will
accurately reflect or predict the rate of
delinquency, foreclosure or loss that will be
experienced by the mortgage loans in a
particular series.
o We cannot assure you that the appraised value
of any property securing a mortgage loan in a
particular series will remain stable
throughout the life of your certificate.
o We cannot assure you that the real estate
market will not experience an overall decline
in property values nor can we assure you that
the outstanding balance of any mortgage loan
in a
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particular series will always be less than the
market value of the property securing the
mortgage loan.
RATINGS DO NOT GUARANTY VALUE If one or more rating agencies downgrade
certificates of a series, your certificate will
decrease in value. Because none of Morgan Stanley
Capital I Inc., the seller, the master servicer,
the trustee or any affiliate has any obligation to
maintain a rating of a class of certificates, you
will have no recourse if your certificate
decreases in value.
CASH FLOW FROM THE
PROPERTIES MAY BE
VOLATILE AND
INSUFFICIENT TO ALLOW
TIMELY PAYMENT ON
YOUR CERTIFICATES Repayment of a commercial or multifamily mortgage
loan is dependent on the income produced by the
property. Therefore, the borrower's ability to
repay a mortgage loan depends primarily on the
successful operation of the property and the net
operating income derived from the property. Net
operating income can be volatile and may be
adversely affected by factors such as:
o economic conditions causing plant closings or
industry slowdowns;
o an oversupply of available retail space,
office space or multifamily housing;
o changes in consumer tastes and preferences;
o decrease in consumer confidence;
o retroactive changes in building codes;
o the age, design and construction quality of
the property, including perceptions regarding
the attractiveness, convenience or safety of
the property;
o the age, design, construction quality and
proximity of competing properties;
o increases in operating expenses due to
external factors such as increases in heating
or electricity costs;
o increases in operating expenses due to
maintenance or improvements required at the
property;
o a decline in the financial condition of a
major tenant;
o a decline in rental rates as leases are
renewed or entered into with new tenants;
o the concentration of a particular business
type in a building;
o the length of tenant leases;
o the creditworthiness of tenants; and
o the property's "operating leverage."
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Operating leverage refers to the percentage of
total property expenses in relation to revenue,
the ratio of fixed operating expenses to those
that vary with revenue and the level of capital
expenditures required to maintain the property and
retain or replace tenants.
If a commercial property is designed for a
specific tenant, net operating income may be
adversely affected if that tenant defaults under
its obligations because properties designed for a
specific tenant often require substantial
renovation before it is suitable for a new tenant.
As a result, the proceeds from liquidating this
type of property following foreclosure might be
insufficient to cover the principal and interest
due under the loan.
It is anticipated that a substantial portion of
the mortgage loans included in any trust fund will
be nonrecourse loans or loans for which recourse
may be restricted or unenforceable. Therefore, if
a borrower defaults, recourse may be had only
against the specific property and any other assets
that have been pledged to secure the related
mortgage loan.
PROPERTY VALUE MAY BE
ADVERSELY AFFECTED EVEN
WHEN THERE IS NO CHANGE
IN CURRENT OPERATING
INCOME Various factors may adversely affect the value of
the mortgaged properties without affecting the
properties' current net operating income. These
factors include among others:
o changes in governmental regulations, fiscal
policy, zoning or tax laws;
o potential environmental legislation or
liabilities or other legal liabilities;
o the availability of refinancing; and
o changes in interest rate levels or yields
required by investors in income producing
commercial properties.
THE OPERATION OF
COMMERCIAL PROPERTIES
IS DEPENDENT UPON
SUCCESSFUL MANAGEMENT The successful operation of a real estate project
depends upon the property manager's performance
and viability. The property manager is responsible
for:
o responding to changes in the local market;
o planning and implementing the rental
structure;
o operating the property and providing building
services;
o managing operating expenses; and
o assuring that maintenance and capital
improvements are carried out in a timely
fashion.
A good property manager, by controlling costs,
providing appropriate service to tenants and
seeing to the maintenance of improvements, can
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improve cash flow, reduce vacancy, leasing and
repair costs and preserve building value. On the
other hand, management errors can, in some cases,
impair short-term cash flow and the long term
viability of an income producing property.
Properties deriving revenues primarily from
short-term sources are generally more management
intensive than properties leased to creditworthy
tenants under long-term leases.
Morgan Stanley Capital I Inc. makes no
representation or warranty as to the skills of any
present or future managers. Additionally, Morgan
Stanley Capital I Inc. cannot assure you that the
property managers will be in a financial condition
to fulfill their management responsibilities
throughout the terms of their respective
management agreements.
YOU SHOULD CONSIDER THE
NUMBER OF MORTGAGE
LOANS IN
THE POOL Assuming pools of equal aggregate unpaid principal
balances, the concentration of default,
foreclosure and loss in a trust fund containing
fewer mortgage loans will generally be higher than
that in trust fund containing more mortgage loans.
YOUR INVESTMENT IS
NOT INSURED OR
GUARANTEED AND YOUR
SOURCE
FOR REPAYMENTS IS LIMITED Payments under the mortgage loans are generally
not insured or guaranteed by any person or entity.
In general, the borrowers under the mortgage loans
will be entities created to own or purchase the
related commercial property. The borrowers are set
up this way, in significant part, to isolate the
property from the debts and liabilities of the
person creating the entity. Unless otherwise
specified, the loan will represent a nonrecourse
obligation of the related borrower secured by the
lien of the related mortgage and the related lease
assignments. Even if the loan is recourse, the
borrower generally will not have any significant
assets other than the property or properties and
the related leases, which will be pledged to the
trustee. Therefore, payments on the loans and, in
turn, payments of principal and interest on your
certificates, will depend primarily or solely on
rental payments by the lessees. Those rental
payments will, in turn, depend on continued
occupancy by, and/or the creditworthiness of,
those lessees. Both continued occupancy and
creditworthiness may be adversely affected by a
general economic downturn or an adverse change in
the lessees' financial conditions.
BORROWER MAY BE
UNABLE TO REPAY THE
REMAINING PRINCIPAL
BALANCE ON ITS MATURITY
DATE WHICH WOULD
ADVERSELY AFFECT
PAYMENT ON YOUR
CERTIFICATES Some of the mortgage loans may not be fully
amortizing over their terms to maturity and will
require substantial principal payments--i.e.,
balloon payments--at their stated maturity.
Mortgage loans with balloon payments involve a
greater degree of risk because a borrower's
ability to make a balloon payment typically will
depend upon its ability either to timely refinance
the loan or to timely sell the mortgaged property.
However, refinancing a loan or selling the
property will be affected by a number of factors,
including:
o interest rates ;
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o the borrower's equity in the property;
o the financial condition and operating history
of the borrower and the property;
o tax laws;
o renewability of operating licenses;
o prevailing economic conditions and the
availability of credit for commercial and
multifamily properties;
o with respect to certain multifamily properties
and mobile home parks, rent control laws ; and
o with respect to hospitals, nursing homes and
convalescent homes, reimbursement rates from
private and public coverage providers.
YOUR CERTIFICATES
WILL BEAR LOSSES IF
INSUFFICIENT FUNDS ARE
AVAILABLE TO SATISFY
ANY JUNIOR
MORTGAGE LOANS If the prospectus supplement so specifies, some of
the mortgage loans may be secured primarily by
junior mortgages. In the event of a liquidation,
satisfaction of a mortgage loan secured by a
junior mortgage will be subordinate to the
satisfaction of the related senior mortgage loan.
If the proceeds are insufficient to satisfy the
junior mortgage and the related senior mortgage ,
the junior mortgage loan in the trust fund would
suffer a loss and the class of certificate you own
may bear that loss. Therefore, any risks of
deficiencies associated with first mortgage loans
will be even greater in the case of junior
mortgage loans. See "--Risks Factors."
OBLIGOR DEFAULT MAY
ADVERSELY AFFECT
PAYMENT ON YOUR
CERTIFICATES If the related prospectus supplement so specifies,
a master servicer, a sub-servicer or a special
servicer will be permitted, within prescribed
parameters, to extend and modify whole loans that
are in default or as to which a payment default is
imminent. Any ability to extend or modify may
apply, in particular, to whole loans with balloon
payments. In addition, a master servicer, a
sub-servicer or a special servicer may receive a
workout fee based on receipts from, or proceeds
of, those whole loans. While any entity granting
this type of extension or modification generally
will be required to determine that the extension
or modification is reasonably likely to produce a
greater recovery on a present value basis than
liquidation, there is no assurance this will be
the case. Additionally, if the related prospectus
supplement so specifies, some of the mortgage
loans included in the mortgage pool may have been
subject to workouts or similar arrangements
following prior periods of delinquency and
default.
TENANT BANKRUPTCY MAY
ADVERSELY AFFECT
PAYMENT ON
YOUR CERTIFICATES The bankruptcy or insolvency of a major tenant, or
of a number of smaller tenants may adversely
affect the income produced by a mortgaged
property. Under the Bankruptcy Code, a tenant has
the option of assuming or rejecting any unexpired
lease. If the tenant rejects the lease, the
landlord's claim would be a general unsecured
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claim against the tenant, absent collateral
securing the claim. The claim would be limited to
the unpaid rent reserved for the periods prior to
the bankruptcy petition or the earlier surrender
of the leased premises, which are unrelated to the
rejection, plus the greater of one year's rent or
15% of the remaining rent reserved under the
lease, but not more than three years' rent to
cover any rejection related claims.
BORROWER BANKRUPTCY MAY
ADVERSELY AFFECT
PAYMENT ON
YOUR CERTIFICATES Under the Bankruptcy Code, the filing of a
petition in bankruptcy by or against a borrower
will stay the sale of the real property owned by
that borrower, as well as the commencement or
continuation of a foreclosure action. In addition,
if a court determines that the value of the
mortgaged property is less than the principal
balance of the mortgage loan it secures, the court
may prevent a lender from foreclosing on the
mortgaged property, subject to certain protections
available to the lender. As part of a
restructuring plan, a court also may reduce the
amount of secured indebtedness to the then-value
of the mortgaged property. Such an action would
make the lender a general unsecured creditor for
the difference between the then-value and the
amount of its outstanding mortgage indebtedness. A
bankruptcy court also may:
o grant a debtor a reasonable time to cure a
payment default on a mortgage loan;
o reduce monthly payments due under a mortgage
loan;
o change the rate of interest due on a mortgage
loan; or
o otherwise alter the mortgage loan's repayment
schedule.
Moreover, the filing of a petition in bankruptcy
by, or on behalf of, a junior lienholder may stay
the senior lienholder from taking action to
foreclose on the mortgaged property in a manner
that would substantially diminish the position of
the junior lien. Additionally, the borrower's
trustee or the borrower, as debtor-in-possession,
has certain special powers to avoid, subordinate
or disallow debts. In certain circumstances, the
claims of the trustee may be subordinated to
financing obtained by a debtor-in-possession
subsequent to its bankruptcy.
Under the Bankruptcy Code, the lender will be
stayed from enforcing a borrower's assignment of
rents and leases. The Bankruptcy Code also may
interfere with the lender's ability to enforce
lockbox requirements. The legal proceedings
necessary to resolve these issues can be time
consuming and may significantly delay the receipt
of rents. Rents also may escape an assignment to
the extent they are used by the borrower to
maintain the mortgaged property or for other court
authorized expenses.
As a result of the foregoing, the lender's
recovery with respect to borrowers in bankruptcy
proceedings may be significantly delayed, and the
aggregate amount ultimately collected may be
substantially less than the amount owed.
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SOPHISTICATION OF THE
BORROWER MAY ADVERSELY
AFFECT PAYMENT
ON YOUR CERTIFICATES In general, the mortgage loans will be made to
partnerships, corporations or other entities
rather than individuals. This may entail greater
risks of loss from delinquency and foreclosure
than do single family mortgage loans. In addition,
the borrowers under commercial mortgage loans may
be more sophisticated than the average single
family home borrower. This may increase the
likelihood of protracted litigation or the
likelihood of bankruptcy in default situations.
CREDIT SUPPORT MAY
NOT COVER LOSSES OR
RISKS WHICH COULD
ADVERSELY AFFECT
PAYMENT ON
YOUR CERTIFICATES Although the prospectus supplement for a series of
certificates will describe the credit support for
the related trust fund, the credit support will be
limited in amount and coverage and may not cover
all potential losses or risks. Use of credit
support will be subject to the conditions and
limitations described in the prospectus and in the
related prospectus supplement. Moreover, any
applicable credit support may not cover all
potential losses or risks. For example, credit
support may not cover fraud or negligence by a
mortgage loan originator or other parties.
A series of certificates may include one or more
classes of subordinate certificates, which may
include certificates being offered to you.
Although subordination is intended to reduce the
senior certificateholders' risk of delinquent
distributions or ultimate losses, the amount of
subordination will be limited and may decline
under certain circumstances. In addition, if
principal payments are made in a specified order
of priority, and limits exist with respect to the
aggregate amount of claims under any related
credit support, the credit support may be
exhausted before the principal of the certificate
classes with lower priority has been repaid.
Significant losses and shortfalls on the assets
consequently may fall primarily upon classes of
certificates having a lower payment priority.
Moreover, if a form of credit support covers more
than one series of certificates, holders of
certificates evidencing an interest in a covered
series will be subject to the risk that the credit
support will be exhausted by the claims of other
covered series.
The amount of any credit support supporting one or
more classes of certificates being offered to you,
including the subordination of one or more classes
will be determined on the basis of criteria
established by each pertinent rating agency. Those
criteria will be based on an assumed level of
defaults, delinquencies, other losses or other
factors. However, the loss experience on the
related mortgage loans and/or MBS may exceed the
assumed levels. See "Description of Credit
Support."
Regardless of the form of any credit enhancement,
the amount of coverage will be limited and, in
most cases, will be subject to periodic reduction,
in accordance with a schedule or formula. The
master servicer generally will be permitted to
reduce, terminate or substitute all or a portion
of the credit enhancement for any series of
certificates, if the applicable rating agency
indicates that the then-current ratings will not
be adversely affected. A rating agency may lower
the ratings of any series of certificates if the
obligations of any credit support
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<PAGE>
provider are downgraded. The ratings also may be
lowered if losses on the related mortgage loans
and/or MBS substantially exceed the level
contemplated by the rating agency at the time of
its initial rating analysis. Neither Morgan
Stanley Capital I Inc., the master servicer nor
any of their affiliates will have any obligation
to replace or supplement any credit enhancement,
or to take any other action to maintain any
ratings of any series of certificates.
INVESTORS IN
SUBORDINATE CLASSES OF
CERTIFICATES MAY BE
SUBJECT TO DELAYS IN
PAYMENT AND MAY NOT
RECOVER THEIR INITIAL
INVESTMENTS To the extent described in this prospectus, the
subordinate certificateholders' rights to receive
distributions with respect to the assets to which
they would otherwise be entitled will be
subordinate to the rights of the senior
certificateholders and of the master servicer, if
the master servicer is paid its servicing fee,
including any unpaid servicing fees with respect
to one or more prior periods, and is reimbursed
for certain unreimbursed advances and unreimbursed
liquidation expenses. As a result, investors in
subordinate certificates must be prepared to bear
the risk that they may be subject to delays in
payment and may not recover their initial
investments.
The yields on the subordinate certificates may be
extremely sensitive to the loss experience of the
assets and the timing of any losses. If the actual
rate and amount of losses experienced by the
assets exceed the rate and amount assumed by an
investor, the yields to maturity on the
subordinate certificates may be lower than
anticipated.
DIFFICULTIES IN
ENFORCEMENT OF LOAN
PROVISIONS MAY
ADVERSELY AFFECT
PAYMENT ON YOUR
CERTIFICATES The mortgage loans may contain due-on-sale
clauses, which permit a lender to accelerate the
maturity of the mortgage loan if the borrower
sells, transfers or conveys the related mortgaged
property or its interest in the mortgaged property
and debt-acceleration clauses, which permit a
lender to accelerate the loan upon a monetary or
non-monetary default by the borrower. These
clauses are generally enforceable. The courts of
all states will enforce clauses providing for
acceleration in the event of a material payment
default. The equity courts , however, may refuse
to enforce these clauses if acceleration of the
indebtedness would be inequitable, unjust or
unconscionable.
If the related prospectus supplement so specifies,
the mortgage loans will be secured by an
assignment of leases and rents. Pursuant to those
assignments, the borrower typically assigns its
right, title and interest as landlord under the
leases on the related mortgaged property and the
income derived from the leases to the lender as
further security for the related mortgage loan,
while retaining a license to collect rents as long
as there is no default. If the borrower defaults,
the license terminates and the lender is entitled
to collect rents. These assignments are typically
not perfected as security interests prior to
actual possession of the cash flows. Some state
laws may require that the lender take possession
of the mortgaged property and obtain judicial
appointment of a receiver before becoming entitled
to collect the rents. In addition, if bankruptcy
or similar proceedings are commenced by or in
respect of
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<PAGE>
the borrower, the lender's ability to collect the
rents may be adversely affected. See "Legal
Aspects of the Mortgage Loans and the
Leases--Leases and Rents."
ENVIRONMENTAL ISSUES
AT THE MORTGAGED
PROPERTIES MAY
ADVERSELY AFFECT
PAYMENT ON
YOUR CERTIFICATES Real property pledged as security for a mortgage
loan may be subject to environmental risks. Under
the laws of certain states, contamination of a
property may give rise to a lien on the property
to assure the costs of cleanup. In several states,
this type of lien has priority over the lien of an
existing mortgage against the property. Moreover,
the presence of hazardous or toxic substances, or
the failure to remediate the property, may
adversely affect the owner or operator's ability
to borrow using the property as collateral. In
addition, under the laws of some states and under
CERCLA and other federal law, a lender may be
liable, as an "owner" or "operator," for costs of
addressing releases or threatened releases of
hazardous substances that require remedy at a
property, if agents or employees of the lender
have become sufficiently involved in the
operations of the borrower. Liability may be
imposed even if the environmental damage or threat
was caused by a prior owner.
Under certain circumstances, a lender also risks
this type of liability on foreclosure of the
mortgage. Unless the related prospectus supplement
specifies otherwise, neither the master servicer,
the sub-servicer nor the special servicer may
acquire title to a mortgaged property or take over
its operation unless the master servicer has
previously determined, based upon a report
prepared by a person who regularly conducts
environmental audits, that:
o the mortgaged property is in compliance with
applicable environmental laws, and there are
no circumstances present at the mortgaged
property for which investigation, testing,
monitoring, containment, clean-up or
remediation could be required under any
federal, state or local law or regulation; or
o if the mortgaged property is not in compliance
with applicable environmental laws or
circumstances requiring any of the foregoing
actions are present, that it would be in the
best economic interest of the trust fund to
acquire title to the mortgaged property and
take the actions as would be necessary and
appropriate to effect compliance and/or
respond to those circumstances.
See "Legal Aspects of the Mortgage Loans and
Leases--Environmental Legislation."
IF YOU ARE SUBJECT TO
ERISA, YOU MAY NOT BE
ELIGIBLE TO PURCHASE
CERTIFICATES Generally, ERISA applies to investments made by
employee benefit plans and transactions involving
the assets of those plans. Due to the complexity
of regulations governing those plans, prospective
investors that are subject to ERISA are urged to
consult their own counsel regarding consequences
under ERISA of acquisition, ownership and
disposition of the offered certificates of any
series.
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<PAGE>
THE INCOME TAX
CONSIDERATIONS SHOULD
IMPACT YOUR DECISION TO
PURCHASE A REMIC
RESIDUAL
CERTIFICATE Except as provided in the prospectus supplement,
REMIC Residual Certificates are anticipated to
have "phantom income" associated with them. That
is, taxable income is anticipated to be allocated
to the REMIC Residual Certificates in the early
years of the existence of the related REMIC--even
if the REMIC Residual Certificates receive no
distributions from the related REMIC--with a
corresponding amount of losses allocated to the
REMIC Residual Certificates in later years.
Accordingly, the present value of the tax
detriments associated with the REMIC Residual
Certificates may significantly exceed the present
value of the tax benefits related thereto, and the
REMIC Residual Certificates may have a negative
"value."
Moreover, the REMIC Residual Certificates will, in
effect, be allocated an amount of gross income
equal to the non-interest expenses of the REMIC,
but those expenses will be deductible only as
itemized deductions, and will be subject to all
the limitations applicable to itemized deductions,
by holders of REMIC Residual Certificates that are
individuals. Accordingly, investment in the REMIC
Residual Certificates generally will not be
suitable for individuals or for certain
pass-through entities, such as partnerships or S
corporations, that have individuals as partners or
shareholders. In addition, REMIC Residual
Certificates are subject to restrictions on
transfer. Finally, prospective purchasers of a
REMIC Residual Certificate should be aware that
final Treasury Department regulations restrict the
ability to mark-to-market certain "negative value"
REMIC residual interests.
REQUIRED CONSENT IN
CONNECTION WITH
SERVICING THE
PROPERTIES MAY EFFECT
THE TIMING OF
PAYMENTS ON YOUR
CERTIFICATES Under certain circumstances, the consent or
approval of the holders of a specified percentage
of the aggregate principal balance of all
outstanding certificates of a series or a similar
means of allocating decision-making will be
required to direct certain actions. The actions
may include directing the special servicer or the
master servicer regarding measures to be taken
with respect to some of the mortgage loans and
real estate owned properties and amending the
relevant pooling agreement or trust agreement. The
consent or approval of these holders will be
sufficient to bind all certificateholders of the
relevant series. See "Description of the
Agreements--Events of Default," "--Rights Upon
Event of Default," and "--Amendment."
LITIGATION ARISING
OUT OF ORDINARY
BUSINESS MAY ADVERSELY
AFFECT PAYMENT ON
YOUR CERTIFICATES There may be pending or threatened legal
proceedings against the borrowers and managers of
the mortgaged properties and their respective
affiliates arising out of the ordinary business of
the borrowers, managers and affiliates. This
litigation could cause a delay in the payment on
your certificates. Therefore, we cannot assure you
that this type of litigation would not have a
material adverse effect on your certificates.
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<PAGE>
COMPLIANCE WITH THE
AMERICANS WITH
DISABILITIES ACT OF
1990 MAY BE EXPENSIVE
AND MAY ADVERSELY
AFFECT PAYMENT ON
YOUR CERTIFICATES Under the Americans with Disabilities Act of 1990,
all public accommodations are required to meet
federal requirements related to access and use by
disabled persons. Borrowers may incur costs
complying with the ADA. In addition, noncompliance
could result in the imposition of fines by the
federal government or an award of damages to
private litigants. These costs of complying with
the ADA and the possible imposition of fines for
noncompliance would result in additional expenses
on the mortgaged properties, which could have an
adverse effect on your certificates.
IF YOUR CERTIFICATE IS
BOOK-ENTRY, YOU WILL
NOT BE RECOGNIZED AS A
CERTIFICATEHOLDER BY
THE TRUSTEE If the prospectus supplement so provides, one or
more classes of the certificates offered to you
will be initially represented by one or more
certificates for each class registered in the name
of Cede & Co., the nominee for DTC. If you
purchase this type of certificate:
o your certificate will not be registered in
your name or the name of your nominee;
o you will not be recognized by the trustee as a
certificateholder; and
o you will be able to exercise your right as a
certificateholder only through DTC and its
participating organizations.
You will be recognized as a certificateholder only
if and when definitive certificates are issued.
See "Description of the Certificates--Book-Entry
Registration and Definitive Certificates."
-------------------------------------------------
This prospectus also contains forward-looking statements that involve risks and
uncertainties. Actual results could differ from those anticipated in these
forward-looking statements as a result of a variety of factors, including the
risks described above under "Risk Factors" and elsewhere in this prospectus.
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<PAGE>
DESCRIPTION OF THE TRUST FUNDS
Capitalized terms are defined in the "Glossary of
Terms" beginning on page 116.
ASSETS
Each series of certificates will represent in the aggregate the entire
beneficial ownership interest in a trust fund. The primary assets of each trust
fund will include:
o multifamily and/or commercial mortgage loans;
o mortgage participations, pass-through certificates or other
mortgage-backed securities evidencing interests in or secured by one
or more mortgage loans or other similar participations, certificates
or securities;
o direct obligations of the United States, agencies thereof or
agencies created thereby which are not subject to redemption prior
to maturity at the option of the issuer and are (a) interest-bearing
securities, (b) non-interest bearing securities, (c) originally
interest-bearing securities from which coupons representing the
right to payment of interest have been removed, or (d)
interest-bearing securities from which the right to payment of
principal has been removed; or
o a combination of mortgage loans, MBS and government securities.
The mortgage loans and/or MBS will not be guaranteed or insured by Morgan
Stanley Capital I Inc. or any of its affiliates or, unless otherwise provided in
the prospectus supplement, by any government agency or instrumentality or by any
other person. Each asset will be selected by Morgan Stanley Capital I Inc. for
inclusion in a trust fund from among those purchased, either directly or
indirectly, from a prior holder thereof, which may be an affiliate of Morgan
Stanley Capital I Inc. and, with respect to mortgage loans and/or MBS, which
prior holder may or may not be the originator of the mortgage loan or the issuer
of the MBS.
Unless otherwise specified in the related prospectus supplement, the
certificates of any series will be entitled to payment only from the assets of
the related trust fund and will not be entitled to payments in respect of the
assets of any other trust fund established by Morgan Stanley Capital I Inc. If
specified in the related prospectus supplement, the assets of a trust fund will
consist of certificates representing beneficial ownership interests in another
trust fund that contains the assets.
MORTGAGE LOANS
GENERAL
The mortgage loans will be secured by liens on, or security interests in,
mortgaged properties consisting of:
o Multifamily Properties which are residential properties consisting
of five or more rental or cooperatively-owned dwelling units in
high-rise, mid-rise or garden apartment buildings; or
o Commercial Properties which are office buildings, shopping centers,
retail stores, hotels or motels, nursing homes, hospitals or other
health care-related facilities, mobile home parks, warehouse
facilities, mini-warehouse facilities or self-storage facilities,
industrial plants, congregate care facilities, mixed use or other
types of commercial properties.
The mortgaged properties will be located in any one of the fifty states, the
District of Columbia or the Commonwealth of Puerto Rico, or, in another
location, if specified in the related prospectus supplement. The mortgage loans
in the mortgage pool will be evidenced by promissory notes secured by first or
junior mortgages or deeds of trust or other similar security instruments
creating a first or junior lien on the mortgaged property. Multifamily
Properties may include mixed commercial and residential structures and may
include apartment
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<PAGE>
buildings owned by private cooperative housing corporations. The mortgaged
properties may include leasehold interests in properties, the title to which is
held by third party lessors. Unless otherwise specified in the prospectus
supplement, the term of any leasehold will exceed the term of the related
mortgage note by at least five years. Each mortgage loan will have been
originated by a person other than Morgan Stanley Capital I Inc. The related
prospectus supplement will indicate if any originator or a mortgage loan is an
affiliate of Morgan Stanley Capital I Inc., mortgage loans will generally also
be secured by an assignment of leases and rents and/or operating or other cash
flow guarantees relating to the mortgage loan.
LEASES
If specified in the related prospectus supplement, some or all of the
mortgage loans will include assignments of the leases of the related mortgaged
properties and/or assignments of the rental payments due from lessee to lessor
under the leases. To the extent specified in the related prospectus supplement,
the commercial properties may be leased to lessees that respectively occupy all
or a portion of the properties. Pursuant to an assignment of a lease, the
related borrower may assign its rights, title and interest as lessor under each
lease and the income derived from the lease to the related lender, while
retaining a license to collect the rents for so long as there is no default. If
the borrower defaults, the license terminates and the lender or its agent is
entitled to collect the rents from the related lessee or lessees for application
to the monetary obligations of the borrower. State law may limit or restrict the
enforcement of the lease assignments by a lender until it takes possession of
the related mortgaged property and/or a receiver is appointed. See "Legal
Aspects of the Mortgage Loans and the Leases--Leases and Rents". Alternatively,
if specified in the related prospectus supplement, the borrower and the lender
may agree that payments under leases are to be made directly to the master
servicer.
If described in the related prospectus supplement, the leases may require
the lessees to pay rent that is sufficient in the aggregate to cover all
scheduled payments of principal and interest on the related mortgage loans and,
in some cases, their pro rata share of the operating expenses, insurance
premiums and real estate taxes associated with the mortgaged properties. Some of
the leases may require the borrower to bear costs associated with structural
repairs and/or the maintenance of the exterior or other portions of the
mortgaged property or provide for certain limits on the aggregate amount of
operating expenses, insurance premiums, taxes and other expenses that the
lessees are required to pay. If so specified in the related prospectus
supplement, under certain circumstances the lessees may be permitted to set off
their rental obligations against the obligations of the borrowers under the
leases. In those cases where payments under the leases, net of any operating
expenses payable by the borrowers are insufficient to pay all of the scheduled
principal and interest on the related mortgage loans, the borrowers must rely on
other income or sources, including security deposits, generated by the related
mortgaged property to make payments on the related mortgage loan.
To the extent specified in the related prospectus supplement, some
commercial properties may be leased entirely to one lessee. In these cases,
absent the availability of other funds, the borrower must rely entirely on rent
paid by the lessee in order for the borrower to pay all of the scheduled
principal and interest on the related mortgage loan. To the extent specified in
the related prospectus supplement, some of the leases may expire prior to the
stated maturity of the related mortgage loan. In these cases, upon expiration of
the leases the borrowers will have to look to alternative sources of income,
including rent payment by any new lessees or proceeds from the sale or
refinancing of the mortgaged property, to cover the payments of principal and
interest due on these mortgage loans unless the lease is renewed. As specified
in the related prospectus supplement, some of the leases may provide that upon
the occurrence of a casualty affecting a mortgaged property, the lessee will
have the right to terminate its lease, unless the borrower, as lessor, is able
to cause the mortgaged property to be restored within a specified period of
time. Some leases may provide that it is the lessor's responsibility, while
other leases provide that it is the lessee's responsibility, to restore the
mortgaged property after a casualty to its original condition. Some leases may
provide a right of termination to the related lessee if a taking of a material
or specified percentage of the leased space in the mortgaged property occurs, or
if the ingress or egress to the leased space has been materially impaired.
DEFAULT AND LOSS CONSIDERATIONS WITH RESPECT TO THE MORTGAGE LOANS
Mortgage loans secured by commercial and multifamily properties are
markedly different from owner-occupied single family mortgage loans. The
repayment of loans secured by commercial or multifamily properties is typically
dependent upon the successful operation of the property rather than upon the
liquidation value of the real estate. Unless otherwise specified in the
prospectus supplement, the mortgage loans will be non-recourse
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loans, which means that, absent special facts, the lender may look only to the
Net Operating Income from the property for repayment of the mortgage debt, and
not to any other of the borrower's assets, in the event of the borrower's
default. Lenders typically look to the Debt Service Coverage Ratio of a loan
secured by income-producing property as an important measure of the risk of
default on a loan. The "Debt Service Coverage Ratio" of a mortgage loan at any
given time is the ratio of the Net Operating Income for a twelve-month period to
the annualized scheduled payments on the mortgage loan. "Net Operating Income"
means, for any given period, to the extent set forth in the related prospectus
supplement, the total operating revenues derived from a mortgaged property
during that period, minus the total operating expenses incurred in respect of
the mortgaged property during that period other than:
o non-cash items such as depreciation and amortization;
o capital expenditures; and
o debt service on loans secured by the mortgaged property.
The Net Operating Income of a mortgaged property will fluctuate over time
and may be sufficient or insufficient to cover debt service on the related
mortgage loan at any given time.
As the primary component of Net Operating Income, rental income as well as
maintenance payments from tenant-stockholders of a cooperative is subject to the
vagaries of the applicable real estate market and/or business climate.
Properties typically leased, occupied or used on a short-term basis, such as
health care-related facilities, hotels and motels, and mini-warehouse and
self-storage facilities, tend to be affected more rapidly by changes in market
or business conditions than do properties leased, occupied or used for longer
periods, such as warehouses, retail stores, office buildings and industrial
plants. Commercial loans may be secured by owner-occupied mortgaged properties
or mortgaged properties leased to a single tenant. Accordingly, a decline in the
financial condition of the borrower or single tenant, as applicable, may have a
disproportionately greater effect on the Net Operating Income from the mortgaged
properties than would be the case with respect to mortgaged properties with
multiple tenants.
Changes in the expense components of Net Operating Income due to the
general economic climate or economic conditions in a locality or industry
segment, such as increases in interest rates, real estate and personal property
tax rates and other operating expenses, including energy costs; changes in
governmental rules, regulations and fiscal policies, including environmental
legislation; and acts of God may also affect the risk of default on the related
mortgage loan. As may be further described in the related prospectus supplement,
in some cases leases of mortgaged properties may provide that the lessee, rather
than the borrower, is responsible for payment of some or all of these expenses;
however, because leases are subject to default risks as well when a tenant's
income is insufficient to cover its rent and operating expenses, the existence
of "net of expense" provisions will only temper, not eliminate, the impact of
expense increases on the performance of the related mortgage loan. See
"--Leases" above.
While the duration of leases and the existence of any "net of expense"
provisions are often viewed as the primary considerations in evaluating the
credit risk of mortgage loans secured by certain income-producing properties,
that risk may be affected equally or to a greater extent by changes in
government regulation of the operator of the property. Examples of the latter
include mortgage loans secured by health care-related facilities and hospitals,
the income from which and the operating expenses of which are subject to state
and/or federal regulations, such as Medicare and Medicaid, and multifamily
properties and mobile home parks, which may be subject to state or local rent
control regulation and, in certain cases, restrictions on changes in use of the
property. Low-and moderate-income housing in particular may be subject to legal
limitations and regulations but, because of these regulations, may also be less
sensitive to fluctuations in market rents generally.
The Debt Service Coverage Ratio should not be relied upon as the sole
measure of the risk of default of any loan, however, since other factors may
outweigh a high Debt Service Coverage Ratio. With respect to a mortgage loan
that may not be fully amortizing over the term to maturity and, thus, will
require substantial principal payments at the stated maturity, for example, the
risk of default as a result of the unavailability of a source of funds to
finance the related balloon payment at maturity on terms comparable to or better
than those of balloon loans could be significant even though the related Debt
Service Coverage Ratio is high.
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The liquidation value of any mortgaged property may be adversely affected
by risks generally incident to interests in real property, including declines in
rental or occupancy rates. Lenders generally use the Loan-to-Value Ratio of a
mortgage loan as a measure of risk of loss if a property must be liquidated upon
a default by the borrower.
Appraised values for income-producing properties may be based on :
o the recent resale value of comparable properties at the date of the
appraisal;
o the cost of replacing the property ;
o a projection of value based upon the property's projected net cash
flow; or
o a selection from or interpolation of the values derived from the
methods listed here.
Each of these appraisal methods presents analytical challenges. It is
often difficult to find truly comparable properties that have recently been
sold; the replacement cost of a property may have little to do with its current
market value; and income capitalization is inherently based on inexact
projections of income and expense and the selection of an appropriate
capitalization rate. Where more than one of these appraisal methods are used and
create significantly different results, or where a high Loan-to-Value Ratio
accompanies a high Debt Service Coverage Ratio or vice versa, the analysis of
default and loss risks is even more difficult.
While Morgan Stanley Capital I Inc. believes that the foregoing
considerations are important factors that generally distinguish the multifamily
and commercial loans from single family mortgage loans and provide insight to
the risks associated with income-producing real estate, there is no assurance
that these factors will in fact have been considered by the originators of the
multifamily and commercial loans, or that, for any of the mortgage loans, they
are complete or relevant. See "Risk Factors--Borrower May Be Unable To Repay The
Remaining Principal Balance On Its Maturity Date Which Would Adversely Affect
Payment On Your Certificates," "--Your Certificates Will Bear Losses If
Insufficient Funds Are Available to Satisfy Any Junior Mortgage Loans," and
"--Obligor Default May Adversely Affect Payment on Your Certificates."
LOAN-TO-VALUE RATIO
The Loan-to-Value Ratio of a mortgage loan at any given time is the ratio,
expressed as a percentage, of the then outstanding principal balance of the
mortgage loan to the Value of the related mortgaged property. The Value of a
mortgaged property, other than with respect to Refinance Loans, is generally the
lesser of
o the appraised value determined in an appraisal obtained by the
originator at origination of that loan and
o the sales price for that property.
Refinance Loans are loans made to refinance existing loans. Unless the related
prospectus supplement provides otherwise, the Value of the mortgaged property
securing a Refinance Loan is the appraised value determined in an appraisal
obtained at the time of origination of the Refinance Loan. The Value of a
mortgaged property as of the date of initial issuance of the related series of
certificates may be less than the Value at origination and will fluctuate from
time to time based upon changes in economic conditions and the real estate
market.
MORTGAGE LOAN INFORMATION IN PROSPECTUS SUPPLEMENTS
Each prospectus supplement will contain information, as of the date of
that prospectus supplement or the Cut-off Date, if applicable and specifically
known to Morgan Stanley Capital I Inc., with respect to the mortgage loans,
including:
o the aggregate outstanding principal balance and the largest,
smallest and average outstanding principal balance of the mortgage
loans, unless the related prospectus supplement provides otherwise,
the close of business on the Cut-off Date, which is a day of the
month of formation of the related trust fund, as designated in the
prospectus supplement;
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o the type of property securing the mortgage loans, e.g., multifamily
property or commercial property and the type of property in each
category;
o the weighted average, by principal balance, of the original and
remaining terms to maturity of the mortgage loans;
o the earliest and latest origination date and maturity date of the
mortgage loans;
o the weighted average, by principal balance, of the Loan-to-Value
Ratios at origination of the mortgage loans;
o the mortgage rates or range of mortgage rates and the weighted
average mortgage rate borne by the mortgage loans;
o the state or states in which most of the mortgaged properties are
located;
o information with respect to the prepayment provisions, if any, of
the mortgage loans;
o the weighted average Retained Interest, if any;
o with respect to mortgage loans with adjustable mortgage rates, the
Index, the frequency of the adjustment dates, the highest, lowest
and weighted average note margin and pass-through margin, and the
maximum mortgage rate or monthly payment variation at the time of
any adjustment thereof and over the life of the adjustable rate loan
and the frequency of monthly payment adjustments;
o the Debt Service Coverage Ratio either at origination or as of a
more recent date, or both; and
o information regarding the payment characteristics of the mortgage
loans, including without limitation balloon payment and other
amortization provisions.
The related prospectus supplement will also contain certain information
available to Morgan Stanley Capital I Inc. with respect to the provisions of
leases and the nature of tenants of the mortgaged properties and other
information referred to in a general manner under "--Default and Loss
Considerations with Respect to the Mortgage Loans" above. If specific
information respecting the mortgage loans is not known to Morgan Stanley Capital
I Inc. at the time certificates are initially offered, more general information
of the nature described in the bullet points in this section will be provided in
the prospectus supplement, and specific information will be set forth in a
report which will be available to purchasers of the related certificates at or
before the initial issuance thereof and will be filed as part of a Current
Report on Form 8-K with the Securities and Exchange Commission within fifteen
days after the initial issuance.
PAYMENT PROVISIONS OF THE MORTGAGE LOANS
Unless otherwise specified in the related prospectus supplement, all of
the mortgage loans will:
o have individual principal balances at origination of not less than
$25,000;
o have original terms to maturity of not more than 40 years; and
o provide for payments of principal, interest or both, on due dates
that occur monthly, quarterly or semi-annually or at another
interval as specified in the related prospectus supplement.
Each mortgage loan may provide for no accrual of interest or for accrual
of interest thereon at a mortgage rate. Each mortgage loan may provide for
scheduled payments to maturity or payments that adjust from time to time to
accommodate changes in the mortgage rate or to reflect the occurrence of certain
events, and may provide for negative amortization or accelerated amortization,
in each case as described in the related prospectus supplement. Each mortgage
loan may be fully amortizing or require a balloon payment due on its stated
maturity date, in each case as described in the related prospectus supplement.
Each mortgage loan may contain a Lockout Period and
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Lockout Date, the date of expiration of the Lockout Period, or require payment
of a prepayment premium in connection with a prepayment, in each case as
described in the related prospectus supplement.
In the event that holders of any class or classes of the offered
certificates in this prospectus supplement will be entitled to all or a portion
of any prepayment premiums collected in respect of mortgage loans, the related
prospectus supplement will specify the method or methods by which these amounts
will be allocated. A mortgage loan may also contain provisions entitling the
lender to a share of profits realized from the operation or disposition of the
mortgaged property, as described in the related prospectus supplement. In the
event that holders of any class or classes of offered certificates will be
entitled to all or a portion of an Equity Participation, the related prospectus
supplement will specify the terms and provisions of the Equity Participation and
the method or methods by which distributions in respect thereof will be
allocated among the certificates.
MBS
Any MBS will have been issued pursuant to an MBS Agreement. A seller, the
MBS issuer, and/or the servicer of the underlying mortgage loans or Underlying
MBS will have entered into the MBS Agreement with an MBS trustee, if any, or
with the original purchaser of the interest in the underlying mortgage loans or
MBS evidenced by the MBS.
Distributions of any principal or interest, as applicable, will be made on
MBS on the dates specified in the related prospectus supplement. The MBS may be
issued in one or more classes with characteristics similar to the classes of
certificates described in this prospectus. Any principal or interest
distributions will be made on the MBS by the MBS trustee or the MBS servicer.
The MBS issuer or the MBS servicer or another person specified in the related
prospectus supplement may have the right or obligation to repurchase or
substitute assets underlying the MBS after a certain date or under other
circumstances specified in the related prospectus supplement.
Enhancement in the form of reserve funds, subordination or other forms of
credit support similar to that described for the certificates under "Description
of Credit Support" may be provided with respect to the MBS. The type,
characteristics and amount of the credit support, if any, will be a function of
certain characteristics of the mortgage loans or Underlying MBS evidenced by or
securing the MBS and other factors and generally will have been established for
the MBS on the basis of requirements of any Rating Agency that may have assigned
a rating to the MBS or the initial purchasers of the MBS.
The prospectus supplement for a series of certificates evidencing
interests in assets that include MBS will specify, to the extent available:
o the aggregate approximate initial and outstanding principal amount
or Notional Amount, as applicable, and type of the MBS to be
included in the trust fund;
o the original and remaining term to stated maturity of the MBS, if
applicable;
o whether the MBS is entitled only to interest payments, only to
principal payments or to both;
o the pass-through or bond rate of the MBS or formula for determining
the rates, if any;
o the applicable payment provisions for the MBS, including, but not
limited to, any priorities, payment schedules and subordination
features;
o the MBS issuer, MBS servicer and MBS trustee, as applicable;
o characteristics of the credit support, if any, such as
subordination, reserve funds, insurance policies, letters of credit
or guarantees relating to the related Underlying Mortgage Loans, the
Underlying MBS or directly to the MBS;
o the terms on which the MBS or the related Underlying Mortgage Loans
or Underlying MBS may, or are required to, be purchased prior to
their maturity;
o the terms on which mortgage loans or Underlying MBS may be
substituted for those originally underlying the MBS;
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o the servicing fees payable under the MBS Agreement;
o the type of information in respect of the Underlying Mortgage Loans
described under "--Mortgage Loans--Mortgage Loan Information in
Prospectus Supplements" above, and the type of information in
respect of the Underlying MBS described in this paragraph;
o the characteristics of any cash flow agreements that are included as
part of the trust fund evidenced or secured by the MBS, and
o whether the MBS is in certificated form, book-entry form or held
through a depository such as The Depository Trust Company or the
Participants Trust Company.
If specified in the prospectus supplement for a series of certificates, a
trust fund may contain one or more MBS issued by Morgan Stanley Capital I Inc.
that each represent an interest in one or more Underlying Mortgage Loans. The
prospectus supplement for a series will contain the disclosure concerning the
MBS described in the preceding paragraph and, in particular, will disclose the
Underlying Mortgage Loans appropriately in light of the percentage of the
aggregate principal balance of all assets represented by the principal balance
of the MBS.
GOVERNMENT SECURITIES
The prospectus supplement for a series of certificates evidencing
interests in assets of a trust fund that include government securities will
specify, to the extent available:
o the aggregate approximate initial and outstanding principal amounts
or Notional Amounts, as applicable, and types of the government
securities to be included in the trust fund;
o the original and remaining terms to stated maturity of the
government securities;
o whether the government securities are entitled only to interest
payments, only to principal payments or to both;
o the interest rates of the government securities or the formula to
determine the rates, if any;
o the applicable payment provisions for the government securities; and
o to what extent, if any, the obligation evidenced thereby is backed
by the full faith and credit of the United States.
ACCOUNTS
Each trust fund will include one or more accounts established and
maintained on behalf of the certificateholders into which the person or persons
designated in the related prospectus supplement will, to the extent described in
this prospectus and in the related prospectus supplement deposit all payments
and collections received or advanced with respect to the assets and other assets
in the trust fund. Such an account may be maintained as an interest bearing or a
non-interest bearing account, and funds held in that account may be held as cash
or invested in short-term, investment grade obligations, in each case as
described in the related prospectus supplement. See "Description of the
Agreements--Certificate Account and Other Collection Accounts."
CREDIT SUPPORT
If so provided in the related prospectus supplement, partial or full
protection against certain defaults and losses on the assets in the related
trust fund may be provided to one or more classes of certificates in the related
series in the form of subordination of one or more other classes of certificates
in the series or by one or more other types of credit support, such as a letter
of credit, insurance policy, guarantee, reserve fund or another type of credit
support, or a combination thereof. The amount and types of coverage, the
identification of the entity providing the coverage if applicable and related
information with respect to each type of Credit Support, if any, will be
described in the prospectus supplement for a series of certificates. See "Risk
Factors--Credit Support May Not Cover Losses Or Risks Which Could Adversely
Affect Payment On Your Certificates."
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CASH FLOW AGREEMENTS
If so provided in the related prospectus supplement, the trust fund may
include guaranteed investment contracts pursuant to which moneys held in the
funds other agreements, such as interest rate exchange agreements, interest rate
cap or floor agreements, currency exchange agreements or similar agreements
provided to reduce the effects of interest rate or currency exchange rate
fluctuations on the assets or on one or more classes of certificates. Currency
exchange agreements might be included in the trust fund if some or all of the
mortgage loans and/or MBS, such as mortgage loans secured by mortgaged
properties located outside the United States, were denominated in a non-United
States currency. The principal terms of any guaranteed investment contract or
other agreement, including, without limitation, provisions relating to the
timing, manner and amount of payments and provisions relating to termination ,
will be described in the prospectus supplement for the related series. In
addition, the related prospectus supplement will provide information with
respect to the obligor under any Cash Flow Agreement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the certificates will be
applied by Morgan Stanley Capital I Inc. to the purchase of assets and to pay
for certain expenses incurred in connection with the purchase of assets and sale
of certificates. The depositor expects to sell the certificates from time to
time, but the timing and amount of offerings of certificates will depend on a
number of factors, including the volume of assets acquired by Morgan Stanley
Capital I Inc., prevailing interest rates, availability of funds and general
market conditions.
YIELD CONSIDERATIONS
GENERAL
The yield on any offered certificate will depend on the price paid by the
certificateholder will accrue interest thereon based on a pass-through rate of
the certificate, the receipt and timing of receipt of distributions on the
certificate and the weighted average life of the assets in the related trust
fund, which may be affected by prepayments, defaults, liquidations or
repurchases. See "Risk Factors."
PASS-THROUGH RATE
Certificates of any class within a series may have fixed, variable or
adjustable pass-through rates, which may or may not be based upon the interest
rates borne by the assets in the related trust fund. The prospectus supplement
with respect to any series of certificates will specify the pass-through rate
for each class of certificates or, in the case of a variable or adjustable
pass-through rate, the method of determining the pass-through rate; the effect,
if any, of the prepayment of any mortgage loan and/or MBS on the pass-through
rate of one or more classes of certificates; and whether the distributions of
interest on the certificates of any class will be dependent, in whole or in
part, on the performance of any obligor under a Cash Flow Agreement.
The effective yield to maturity to each holder of certificates entitled to
payments of interest will be below that otherwise produced by the applicable
pass-through rate and purchase price of the certificate because, while interest
may accrue on each asset during a certain period, the distribution of interest
will be made on a day which may be several days, weeks or months following the
period of accrual.
TIMING OF PAYMENT OF INTEREST
Each payment of interest on the certificates will have a stated principal
amount in addition to the certificate Balance of a class of Accrual
Certificates, and will be distributed to certificateholders as provided in the
related prospectus supplement and will include interest accrued during the
Interest Accrual Period for that Distribution Date. As indicated in this
prospectus under "--Pass-Through Rate" above, if the Interest Accrual Period
ends on a date other than a Distribution Date for the related series, the yield
realized by the holders of the certificates may be lower than the yield that
would result if the Interest Accrual Period ended on that Distribution Date. In
addition, if so specified in the related prospectus supplement, interest accrued
for an Interest Accrual Period for one or more classes of certificates may be
calculated on the assumption that distributions of principal, additions to the
Certificate
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Balance of Accrual Certificates and allocations of losses on the assets may be
made on the first day of the Interest Accrual Period for a Distribution Date and
not on that Distribution Date. This method would produce a lower effective yield
than if interest were calculated on the basis of the actual principal amount
outstanding during an Interest Accrual Period. The Interest Accrual Period for
any class of offered certificates will be described in the related prospectus
supplement.
PAYMENTS OF PRINCIPAL; PREPAYMENTS
The yield to maturity on the certificates will be affected by the rate of
principal payments on the assets including principal prepayments on mortgage
loans resulting from both voluntary prepayments by the borrowers and involuntary
liquidations. These payments may be directly dependent upon the payments on
leases underlying the mortgage loans. The rate at which principal prepayments
occur on the mortgage loans will be affected by a variety of factors, including,
without limitation, the terms of the mortgage loans, the level of prevailing
interest rates, the availability of mortgage credit and economic, demographic,
geographic, tax, legal and other factors. In general, however, if prevailing
interest rates fall significantly below the mortgage rates on the mortgage loans
comprising or underlying the assets in a particular trust fund, the mortgage
loans are likely to be the subject of higher principal prepayments than if
prevailing rates remain at or above the rates borne by the mortgage loans. In
this regard, it should be noted that assets may consist of mortgage loans with
different mortgage rates and the stated pass-through or pay-through interest
rate of certain MBS may be a number of percentage points higher or lower than
the underlying mortgage loans. The rate of principal payments on some or all of
the classes of certificates of a series will correspond to the rate of principal
payments on the assets in the related trust fund and is likely to be affected by
the existence of Lockout Periods and Prepayment Premium provisions of the
mortgage loans underlying or comprising the assets, and by the extent to which
the servicer of any mortgage loan is able to enforce these provisions. mortgage
loans with a Lockout Period or a Prepayment Premium provision, to the extent
enforceable, generally would be expected to experience a lower rate of principal
prepayments than otherwise identical mortgage loans without these provisions,
with shorter Lockout Periods or with lower Prepayment Premiums.
If the purchaser of a certificate offered at a discount calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is faster than that actually experienced on the assets, the
actual yield to maturity will be lower than that so calculated. Conversely, if
the purchaser of a certificate offered at a premium calculates its anticipated
yield to maturity based on an assumed rate of distributions of principal that is
slower than that actually experienced on the assets, the actual yield to
maturity will be lower than that so calculated. In either case, if so provided
in the prospectus supplement for a series of certificates, the effect on yield
on one or more classes of the certificates of the series of prepayments of the
assets in the related trust fund may be mitigated or exacerbated by any
provisions for sequential or selective distribution of principal to these
classes.
When a full prepayment is made on a mortgage loan, the borrower is charged
interest on the principal amount of the mortgage loan so prepaid for the number
of days in the month actually elapsed up to the date of the prepayment. Unless
otherwise specified in the related prospectus supplement, the effect of
prepayments in full will be to reduce the amount of interest paid in the
following month to holders of certificates entitled to payments of interest
because interest on the principal amount of any mortgage loan so prepaid will be
paid only to the date of prepayment rather than for a full month. Unless
otherwise specified in the related prospectus supplement, a partial prepayment
of principal is applied so as to reduce the outstanding principal balance of the
related mortgage loan as of the Due Date in the month in which the partial
prepayment is received. As a result, to the extent set forth in the related
prospectus supplement, the effect of a partial prepayment on a mortgage loan
will be to reduce the amount of interest passed through to holders of
certificates in the month following the receipt of the partial prepayment by an
amount equal to one month's interest at the applicable pass-through rate on the
prepaid amount.
The timing of changes in the rate of principal payments on the mortgage
loans and/or MBS may significantly affect an investor's actual yield to
maturity, even if the average rate of distributions of principal is consistent
with an investor's expectation. In general, the earlier a principal payment is
received on the mortgage loans and/or MBS and distributed on a certificate, the
greater the effect on the investor's yield to maturity. The effect on an
investor's yield of principal payments occurring at a rate higher or lower than
the rate anticipated by the investor during a given period may not be offset by
a subsequent like decrease or increase in the rate of principal payments.
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PREPAYMENTS--MATURITY AND WEIGHTED AVERAGE LIFE
The rates at which principal payments are received on the assets included
in or comprising a trust fund and the rate at which payments are made from any
Credit Support or Cash Flow Agreement for the related series of certificates may
affect the ultimate maturity and the weighted average life of each class of a
series. Prepayments on the mortgage loans comprising or underlying the mortgage
loans and/or MBS in a particular trust fund will generally accelerate the rate
at which principal is paid on some or all of the classes of the certificates of
the related series.
If so provided in the prospectus supplement for a series of certificates,
one or more classes of certificates may have a final scheduled Distribution
Date, which is the date on or prior to which the certificate Balance thereof is
scheduled to be reduced to zero, calculated on the basis of the assumptions
applicable to that series set forth in the related prospectus supplement.
Weighted average life refers to the average amount of time that will
elapse from the date of issue of a security until each dollar of principal of
the security will be repaid to the investor. The weighted average life of a
class of certificates of a series will be influenced by the rate at which
principal on the mortgage loans comprising or underlying the mortgage loans
and/or MBS is paid to that class, which may be in the form of scheduled
amortization or prepayments which include prepayments, in whole or in part, and
liquidations due to default.
In addition, the weighted average life of the certificates may be affected
by the varying maturities of the mortgage loans comprising or underlying the
MBS. If any mortgage loans comprising or underlying the assets in a particular
trust fund have actual terms to maturity of less than those assumed in
calculating final scheduled Distribution Dates for the classes of certificates
of the related series, one or more classes of certificates may be fully paid
prior to their respective final scheduled Distribution Dates, even in the
absence of prepayments. Accordingly, the prepayment experience of the assets
will, to some extent, be a function of the mix of mortgage rates and maturities
of the mortgage loans comprising or underlying the assets. See "Description of
the Trust Funds."
Prepayments on loans are also commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate prepayment model. CPR
represents a constant assumed rate of prepayment each month relative to the then
outstanding principal balance of a pool of loans for the life of the loans.
Neither CPR nor any other prepayment model or assumption purports to be a
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of loans, including the mortgage
loans underlying or comprising the mortgage loans and/or MBS. Moreover, CPR was
developed based upon historical prepayment experience for single family loans.
Thus, it is likely that prepayment of any mortgage loans comprising or
underlying the mortgage loans and/or MBS for any series will not conform to any
particular level of CPR.
Morgan Stanley Capital I Inc. is not aware of any meaningful publicly
available prepayment statistics for multifamily or commercial mortgage loans.
The prospectus supplement with respect to each series of certificates will
contain tables, if applicable, setting forth the projected weighted average life
of each class of offered certificates of the series and the percentage of the
initial certificate Balance of each class that would be outstanding on specified
Distribution Dates based on the assumptions stated in the prospectus supplement,
including assumptions that prepayments on the mortgage loans comprising or
underlying the related assets are made at rates corresponding to various
percentages of CPR or at other rates specified in the prospectus supplement.
These tables and assumptions are intended to illustrate the sensitivity of
weighted average life of the certificates to various prepayment rates and will
not be intended to predict or to provide information that will enable investors
to predict the actual weighted average life of the certificates. It is unlikely
that prepayment of any mortgage loans comprising or underlying the mortgage
loans and/or MBS for any series will conform to any particular level of CPR or
any other rate specified in the related prospectus supplement.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
TYPE OF MORTGAGE ASSET
A number of mortgage loans may have balloon payments due at maturity, and
because the ability of a borrower to make a balloon payment typically will
depend upon its ability either to refinance the loan or to sell the
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related mortgaged property, there is a risk that a number of mortgage loans
having balloon payments may default at maturity, or that the servicer may extend
the maturity of this type of mortgage loan in connection with a workout. In the
case of defaults, recovery of proceeds may be delayed by, among other things,
bankruptcy of the borrower or adverse conditions in the market where the
property is located. In order to minimize losses on defaulted mortgage loans,
the servicer may, to the extent and under the circumstances set forth in the
related prospectus supplement, be permitted to modify mortgage loans that are in
default or as to which a payment default is imminent. Any defaulted balloon
payment or modification that extends the maturity of a mortgage loan will tend
to extend the weighted average life of the certificates, thereby lengthening the
period of time elapsed from the date of issuance of a certificate until it is
retired.
FORECLOSURES AND PAYMENT PLANS
The number of foreclosures and the principal amount of the mortgage loans
comprising or underlying the mortgage loans and/or MBS that are foreclosed in
relation to the number and principal amount of mortgage loans that are repaid in
accordance with their terms will affect the weighted average life of the
mortgage loans comprising or underlying the mortgage loans and/or MBS and that
of the related series of certificates. Servicing decisions made with respect to
the mortgage loans, including the use of payment plans prior to a demand for
acceleration and the restructuring of mortgage loans in bankruptcy proceedings,
may also have an effect upon the payment patterns of particular mortgage loans
and thus the weighted average life of the certificates.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE CLAUSES
Acceleration of mortgage payments as a result of transfers of or the
creation of encumbrances upon underlying mortgaged property is another factor
affecting prepayment rates that may not be reflected in the prepayment standards
or models used in the relevant prospectus supplement. A number of the mortgage
loans comprising or underlying the assets may include "due-on-sale" clauses or
"due-on-encumbrance" clauses that allow the holder of the mortgage loans to
demand payment in full of the remaining principal balance of the mortgage loans
upon sale or other transfers of or the creation of encumbrances upon the related
mortgaged property. With respect to any Whole Loans, unless otherwise provided
in the related prospectus supplement, the master servicer, on behalf of the
trust fund, will be required to exercise--or waive its right to exercise--any
rights that the trustee may have as lender to accelerate payment of the Whole
Loan in a manner consistent with the Servicing Standard. See "Legal Aspects of
the Mortgage Loans and the Leases--Due-on-Sale and Due-on-Encumbrance" and
"Description of the Agreements--Due-on-Sale and Due-on-Encumbrance Provisions."
THE DEPOSITOR
Morgan Stanley Capital I Inc., the depositor, is a direct wholly-owned
subsidiary of Morgan Stanley Group Inc. and was incorporated in the State of
Delaware on January 28, 1985. The principal executive offices of Morgan Stanley
Capital I Inc. are located at 1585 Broadway, 37th Floor, New York, New York
10036. Its telephone number is (212) 761-4700.
Morgan Stanley Capital I Inc. does not have, nor is it expected in
the future to have, any significant assets.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The certificates of each series, including any class of certificates not
offered by this prospectus, will represent the entire beneficial ownership
interest in the trust fund created pursuant to the related Agreement. Each
series of certificates will consist of one or more classes of certificates that
may:
o provide for the accrual of interest thereon based on fixed, variable
or adjustable rates;
o be senior or subordinate to one or more other classes of
certificates in respect of distributions on the certificates;
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o be entitled to principal distributions, with disproportionately low,
nominal or no interest distributions;
o be entitled to interest distributions, with disproportionately low,
nominal or no principal distributions;
o provide for distributions of accrued interest thereon commencing
only following the occurrence of events, such as the retirement of
one or more other classes of certificates of the series;
o provide for payments of principal sequentially, based on specified
payment schedules, from only a portion of the assets in the trust
fund or based on specified calculations, to the extent of available
funds, in each case as described in the related prospectus
supplement; and/or
o provide for distributions based on a combination of two or more
components thereof with one or more of the characteristics described
in this paragraph including a Stripped Principal Certificate
component and a Stripped Interest Certificate component.
Any of the foregoing may be included in the certificates being offered to you.
Each class of offered certificates of a series will be issued in minimum
denominations corresponding to the Certificate Balances or, in case of Stripped
Interest Certificates, Notional Amounts or percentage interests specified in the
related prospectus supplement. The transfer of any offered certificates may be
registered and these certificates may be exchanged without the payment of any
service charge payable in connection with the registration of transfer or
exchange, but Morgan Stanley Capital I Inc. or the trustee or any agent thereof
may require payment of a sum sufficient to cover any tax or other governmental
charge. One or more classes of certificates of a series may be issued in
definitive form or in book-entry form, as provided in the related prospectus
supplement. See "Risk Factors--If Your Certificate Is Book-Entry, You Will Not
Be Recognized As Certificateholder By The Trustee." Under limited circumstances,
definitive certificates will be exchangeable for other certificates of the same
class and series of a like aggregate Certificate Balance, Notional Amount or
percentage interest but of different authorized denominations.
DISTRIBUTIONS
Distributions on the certificates of each series will be made by or on
behalf of the trustee on each Distribution Date as specified in the related
prospectus supplement from the Available Distribution Amount for the series and
the Distribution Date. Except as otherwise specified in the related prospectus
supplement, distributions other than the final distribution will be made to the
persons in whose names the certificates are registered on the Record Date, and
the amount of each distribution will be determined as of the close of business
on the date specified in the related prospectus supplement. All distributions
with respect to each class of certificates on each Distribution Date will be
allocated pro rata among the outstanding certificates in the class or by random
selection, as described in the related prospectus supplement or otherwise
established by the related trustee. Payments will be made either by wire
transfer in immediately available funds to the account of a certificateholder at
a bank or other entity having appropriate facilities therefor, if the
certificateholder has so notified the trustee or other person required to make
the payments no later than the date specified in the related prospectus
supplement and, if so provided in the related prospectus supplement, holds
certificates in the requisite amount specified therein, or by check mailed to
the address of the person entitled thereto as it appears on the Certificate
Register; provided, however, that the final distribution in retirement of the
certificates, whether definitive certificates or book-entry certificates, will
be made only upon presentation and surrender of the certificates at the location
specified in the notice to certificateholders of the final distribution.
AVAILABLE DISTRIBUTION AMOUNT
All distributions on the certificates of each series on each Distribution
Date will be made from the Available Distribution Amount described in this
paragraph, in accordance with the terms described in the related prospectus
supplement. Unless provided otherwise in the related prospectus supplement, the
Available Distribution Amount for each Distribution Date equals the sum of the
following amounts:
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1. the total amount of all cash on deposit in the related Certificate
Account as of the corresponding Determination Date, exclusive of:
o all scheduled payments of principal and interest collected but
due on a date subsequent to the related Due Period;
o unless the related prospectus supplement provides otherwise,
all prepayments, together with related payments of the
interest thereon and related prepayment premiums, Liquidation
Proceeds, Insurance Proceeds and other unscheduled recoveries
received subsequent to the related Due Period; and
o all amounts in the Certificate Account that are due or
reimbursable to Morgan Stanley Capital I Inc., the trustee, an
asset seller, a subservicer, a special servicer, the master
servicer or any other entity as specified in the related
prospectus supplement or that are payable in respect of
certain expenses of the related trust fund;
2. if the related prospectus supplement so provides, interest or
investment income on amounts on deposit in the Certificate Account,
including any net amounts paid under any Cash Flow Agreements;
3. all advances made by a master servicer or any other entity as
specified in the related prospectus supplement with respect to the
Distribution Date;
4. if and to the extent the related prospectus supplement so provides,
amounts paid by a master servicer or any other entity as specified
in the related prospectus supplement with respect to interest
shortfalls resulting from prepayments during the related Prepayment
Period; and
5. unless the related prospectus supplement provides otherwise, to the
extent not on deposit in the related Certificate Account as of the
corresponding Determination Date, any amounts collected under, from
or in respect of any Credit Support with respect to the Distribution
Date.
The entire Available Distribution Amount will be distributed among the
related certificates, including any certificates not offered hereby, on each
Distribution Date, and accordingly will be released from the trust fund and will
not be available for any future distributions.
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Each class of certificates, other than classes of Stripped Principal
Certificates that have no pass-through rate, may have a different pass-through
rate, which will be a fixed, variable or adjustable rate at which interest will
accrue on the class or a component thereof. The related prospectus supplement
will specify the pass-through rate for each class or component or, in the case
of a variable or adjustable pass-through rate, the method for determining the
pass-through rate. Unless otherwise specified in the related prospectus
supplement, interest on the certificates will be calculated on the basis of a
360-day year consisting of twelve 30-day months.
Distributions of interest in respect of the certificates of any class will
be made on each Distribution Date--other than any class of Accrual Certificates,
which will be entitled to distributions of accrued interest commencing only on
the Distribution Date, or under the circumstances, specified in the related
prospectus supplement, and any class of Stripped Principal Certificates that are
not entitled to any distributions of interest--based on the Accrued Certificate
Interest for the class and the Distribution Date, subject to the sufficiency of
the portion of the Available Distribution Amount allocable to the class on the
Distribution Date. Prior to the time interest is distributable on any class of
Accrual Certificates, the amount of Accrued Certificate Interest otherwise
distributable on the class will be added to the Certificate Balance thereof on
each Distribution Date. Unless otherwise provided in the prospectus supplement,
Accrued Certificate Interest on Stripped Interest Certificates will be equal to
interest accrued for a specified period on the outstanding Notional Amount
thereof immediately prior to each Distribution Date, at the applicable
pass-through rate, reduced as described below in the next paragraph.
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The method of determining the Notional Amount for any class of Stripped
Interest Certificates will be described in the related prospectus supplement.
Reference to Notional Amount is solely for convenience in calculations and does
not represent the right to receive any distributions of principal. Unless
otherwise provided in the related prospectus supplement, the Accrued Certificate
Interest on a series of certificates will be reduced in the event of prepayment
interest shortfalls, which are shortfalls in collections of interest for a full
accrual period resulting from prepayments prior to the due date in the accrual
period on the mortgage loans comprising or underlying the mortgage loans and/or
MBS in the trust fund for the series. The particular manner in which these
shortfalls are to be allocated among some or all of the classes of certificates
of that series will be specified in the related prospectus supplement. The
related prospectus supplement will also describe the extent to which the amount
of Accrued Certificate Interest that is otherwise distributable on, or, in the
case of Accrual Certificates, that may otherwise be added to the Certificate
Balance of, a class of offered certificates may be reduced as a result of any
other contingencies, including delinquencies, losses and deferred interest on or
in respect of the mortgage loans comprising or underlying the mortgage loans
and/or MBS in the related trust fund. Unless otherwise provided in the related
prospectus supplement, any reduction in the amount of Accrued Certificate
Interest otherwise distributable on a class of certificates by reason of the
allocation to the class of a portion of any deferred interest on the mortgage
loans comprising or underlying the mortgage loans and/or MBS in the related
trust fund will result in a corresponding increase in the Certificate Balance of
the class. See "Risk Factors--Prepayments And Repurchases May Reduce The Yield
On Your Certificates," and "--If Prepayment Premiums Are Not Enforced, Your
Certificates May Be Adversely Affected," and "Yield Considerations."
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
The certificates of each series, other than certain classes of Stripped
Interest Certificates, will have a Certificate Balance. The outstanding
Certificate Balance of a certificate will be reduced to the extent of
distributions of principal thereon from time to time and, if and to the extent
so provided in the related prospectus supplement, by the amount of losses
incurred in respect of the related assets, may be increased in respect of
deferred interest on the related mortgage loans to the extent provided in the
related prospectus supplement and, in the case of Accrual Certificates prior to
the Distribution Date on which distributions of interest are required to
commence, will be increased by any related Accrued Certificate Interest. Unless
otherwise provided in the related prospectus supplement, the initial aggregate
Certificate Balance of all classes of certificates of a series will not be
greater than the outstanding aggregate principal balance of the related assets
as of the applicable Cut-off Date. The initial aggregate Certificate Balance of
a series and each class thereof will be specified in the related prospectus
supplement. Unless otherwise provided in the related prospectus supplement,
distributions of principal will be made on each Distribution Date to the class
or classes of certificates entitled thereto in accordance with the provisions
described in the prospectus supplement until the Certificate Balance of that
class has been reduced to zero. Stripped Interest Certificates with no
Certificate Balance are not entitled to any distributions of principal.
COMPONENTS
To the extent specified in the related prospectus supplement, distribution
on a class of certificates may be based on a combination of two or more
different components as described under "--General" above. To the extent, the
descriptions set forth under "--Distributions of Interests on the Certificates"
and "--Distributions of Principal of the Certificates" above also relate to
components of a class of certificates. In this case, references to Certificate
Balance and pass-through rate refer to the principal balance, if any, of any
component and the pass-through rate, if any, on any component, respectively.
DISTRIBUTIONS ON THE CERTIFICATES OF PREPAYMENT PREMIUMS OR IN RESPECT OF
EQUITY PARTICIPATIONS
If so provided in the related prospectus supplement, prepayment premiums
or payments in respect of Equity Participations that are collected on the
mortgage loans and/or MBS in the related trust fund will be distributed on each
Distribution Date to the class or classes of certificates entitled thereto in
accordance with the provisions described in the prospectus supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
If so provided in the prospectus supplement for a series of certificates
consisting of one or more classes of Subordinate Certificates, on any
Distribution Date in respect of which losses or shortfalls in collections on the
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mortgage loans and/or MBS have been incurred, the amount of losses or shortfalls
will be borne first by a class of Subordinate Certificates in the priority and
manner and subject to the limitations specified in the prospectus supplement.
See "Description of Credit Support" for a description of the types of protection
that may be included in a trust fund against losses and shortfalls on mortgage
loans and/or MBS comprising the trust fund.
ADVANCES IN RESPECT OF DELINQUENCIES
With respect to any series of certificates evidencing an interest in a
trust fund, unless otherwise provided in the related prospectus supplement, the
master servicer or another entity described in the prospectus supplement will be
required as part of its servicing responsibilities to advance on or before each
Distribution Date its own funds or funds held in the Certificate Account that
are not included in the Available Distribution Amount for the Distribution Date,
in an amount equal to the aggregate of payments of principal, other than any
balloon payments, and interest, net of related servicing fees and Retained
Interest, that were due on the Whole Loans in the trust fund during the related
Due Period and were delinquent on the related Determination Date, subject to the
master servicer's or another entity's good faith determination that the advances
will be reimbursable from Related Proceeds. In the case of a series of
certificates that includes one or more classes of Subordinate Certificates and
if so provided in the related prospectus supplement, the master servicer's or
another entity's advance obligation may be limited only to the portion of the
delinquencies necessary to make the required distributions on one or more
classes of Senior Certificates and/or may be subject to the master servicer's or
another entity's good faith determination that the advances will be reimbursable
not only from Related Proceeds but also from collections on other assets
otherwise distributable on one or more classes of Subordinate Certificates. See
"Description of Credit Support."
Advances are intended to maintain a regular flow of scheduled interest and
principal payments to holders of the class or classes of certificates entitled
thereto, rather than to guarantee or insure against losses. Unless otherwise
provided in the related prospectus supplement, advances of the master servicer's
or another entity's funds will be reimbursable only out of Related Proceeds and,
if so provided in the prospectus supplement, out of any amounts otherwise
distributable on one or more classes of Subordinate Certificates of the series;
provided, however, that any advance will be reimbursable from any amounts in the
Certificate Account prior to any distributions being made on the certificates to
the extent that the master servicer or another entity shall determine in good
faith that the advance is a Nonrecoverable Advance. If advances have been made
by the master servicer from excess funds in the Certificate Account, the master
servicer is required to replace the funds in the Certificate Account on any
future Distribution Date to the extent that funds in the Certificate Account on
the Distribution Date are less than payments required to be made to
certificateholders on that date. If so specified in the related prospectus
supplement, the obligations of the master servicer or another entity to make
advances may be secured by a cash advance reserve fund, a surety bond, a letter
of credit or another form of limited guaranty. If applicable, information
regarding the characteristics of, and the identity of any obligor on, any surety
bond, will be set forth in the related prospectus supplement.
If and to the extent so provided in the related prospectus supplement, the
master servicer or another entity will be entitled to receive interest at the
rate specified therein on its outstanding advances and will be entitled to pay
itself interest periodically from general collections on the assets prior to any
payment to certificateholders or as otherwise provided in the related Agreement
and described in the prospectus supplement.
The prospectus supplement for any series of certificates evidencing an
interest in a trust fund that includes MBS will describe any corresponding
advancing obligation of any person in connection with the MBS.
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise provided in the prospectus supplement, with each
distribution to holders of any class of certificates of a series, the master
servicer or the trustee, as provided in the related prospectus supplement, will
forward or cause to be forwarded to each holder, to Morgan Stanley Capital I
Inc. and to the other parties as may be specified in the related Agreement, a
statement setting forth, in each case to the extent applicable and available:
(1) the amount of the distribution to holders of certificates of that
class applied to reduce the Certificate Balance thereof;
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(2) the amount of the distribution to holders of certificates of that
class allocable to Accrued Certificate Interest;
(3) the amount of the distribution allocable to
(a) prepayment premiums and
(b) payments on account of Equity Participations;
(4). the amount of related servicing compensation received by a master
servicer and, if payable directly out of the related trust fund, by
any special servicer and any subservicer and any other customary
information as that master servicer or trustee deem necessary or
desirable, or that a certificateholder reasonably requests, to
enable certificateholders to prepare their tax returns;
(5) the aggregate amount of advances included in that distribution, and
the aggregate amount of unreimbursed advances at the close of
business on that Distribution Date;
(6) the aggregate principal balance of the assets at the close of
business on that Distribution Date;
(7) the number and aggregate principal balance of Whole Loans in respect
of which:
o one scheduled payment is delinquent,
o two scheduled payments are delinquent,
o three or more scheduled payments are delinquent and
o foreclosure proceedings have been commenced;
(8) with respect to each Whole Loan that is delinquent two or more
months:
o the loan number thereof,
o the unpaid balance thereof,
o whether the delinquency is in respect of any balloon payment,
o the aggregate amount of unreimbursed servicing expenses and
unreimbursed advances in respect thereof,
o if applicable, the aggregate amount of any interest accrued and
payable on related servicing expenses and related advances
assuming the mortgage loan is subsequently liquidated through
foreclosure,
o whether a notice of acceleration has been sent to the borrower
and, if so, the date of the notice,
o whether foreclosure proceedings have been commenced and, if so,
the date so commenced and
o if the mortgage loan is more than three months delinquent and
foreclosure has not been commenced, the reason therefor;
(9) with respect to any Whole Loan liquidated during the related Due
Period other than by payment in full:
o the loan number thereof,
o the manner in which it was liquidated and
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o the aggregate amount of liquidation proceeds received;
(10) with respect to any Whole Loan liquidated during the related Due
Period,
o the portion of the liquidation proceeds payable or reimbursable
to the master servicer, or any other entity, in respect of the
mortgage loan and
o the amount of any loss to certificateholders;
(11) with respect to each REO Property relating to a Whole Loan and
included in the trust fund as of the end of the related Due Period,
o the loan number of the related mortgage loan and
o the date of acquisition;
(12) with respect to each REO Property relating to a Whole Loan and
included in the trust fund as of the end of the related Due Period:
o the book value,
o the principal balance of the related mortgage loan immediately
following the Distribution Date, calculated as if the mortgage
loan were still outstanding taking into account certain limited
modifications to the terms thereof specified in the Agreement,
o the aggregate amount of unreimbursed servicing expenses and
unreimbursed advances in respect thereof and
o if applicable, the aggregate amount of interest accrued and
payable on related servicing expenses and related advances;
(13) with respect to any REO Property sold during the related Due Period
o the loan number of the related mortgage loan,
o the aggregate amount of sale proceeds,
o the portion of sales proceeds payable or reimbursable to the
master servicer or a special servicer in respect of the REO
Property or the related mortgage loan and
o the amount of any loss to certificateholders in respect of the
related mortgage loan;
(14) the aggregate Certificate Balance or Notional Amount, as the case
may be, of each class of certificates including any class of
certificates not offered hereby at the close of business on the
Distribution Date, separately identifying any reduction in the
Certificate Balance due to the allocation of any loss and increase
in the Certificate Balance of a class of Accrual Certificates in the
event that Accrued Certificate Interest has been added to the
balance;
(15) the aggregate amount of principal prepayments made during the
related Due Period;
(16) the amount deposited in the reserve fund, if any, on the
Distribution Date;
(17) the amount remaining in the reserve fund, if any, as of the close of
business on the Distribution Date;
(18) the aggregate unpaid Accrued Certificate Interest, if any, on each
class of certificates at the close of business on the Distribution
Date;
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(19) in the case of certificates with a variable pass-through rate, the
pass-through rate applicable to the Distribution Date, and, if
available, the immediately succeeding Distribution Date, as
calculated in accordance with the method specified in the related
prospectus supplement;
(20) in the case of certificates with an adjustable pass-through rate,
for statements to be distributed in any month in which an adjustment
date occurs, the adjustable pass-through rate applicable to the
Distribution Date and the immediately succeeding Distribution Date
as calculated in accordance with the method specified in the related
prospectus supplement;
(21) as to any series which includes Credit Support, the amount of
coverage of each instrument of Credit Support included therein as of
the close of business on the Distribution Date; and
(22) the aggregate amount of payments by the borrowers of:
o default interest,
o late charges and
o assumption and modification fees collected during the related
Due Period.
In the case of information furnished pursuant to subclauses (1)-(4) above,
the amounts shall be expressed as a dollar amount per minimum denomination of
certificates or for another specified portion thereof. In addition, in the case
of information furnished pursuant to subclauses (1), (2), (14), (18) and (19)
above, the amounts shall also be provided with respect to each component, if
any, of a class of certificates. The master servicer or the trustee, as
specified in the related prospectus supplement, will forward or cause to be
forwarded to each holder, to Morgan Stanley Capital I Inc. and to any other
parties as may be specified in the Agreement, a copy of any statements or
reports received by the master servicer or the trustee, as applicable, with
respect to any MBS. The prospectus supplement for each series of offered
certificates will describe any additional information to be included in reports
to the holders of the certificates.
Within a reasonable period of time after the end of each calendar year,
the master servicer or the trustee, as provided in the related prospectus
supplement, shall furnish to each person who at any time during the calendar
year was a holder of a certificate a statement containing the information set
forth in subclauses (1)-(4) above, aggregated for the calendar year or the
applicable portion thereof during which the person was a certificateholder. This
obligation of the master servicer or the trustee shall be deemed to have been
satisfied to the extent that substantially comparable information shall be
provided by the master servicer or the trustee pursuant to any requirements of
the Code as are from time to time in force. See "Description of the
Certificates--Book-Entry Registration and Definitive Certificates."
TERMINATION
The obligations created by the Agreement for each series of certificates
will terminate upon the payment to certificateholders of that series of all
amounts held in the Certificate Account or by the master servicer, if any, or
the trustee and required to be paid to them pursuant to the Agreement following
the earlier of
o the final payment or other liquidation of the last asset subject
thereto or the disposition of all property acquired upon foreclosure
of any Whole Loan subject thereto and
o the purchase of all of the assets of the trust fund by the party
entitled to effect the termination, under the circumstances and in
the manner set forth in the related prospectus supplement.
In no event, however, will the trust fund created by the Agreement continue
beyond the date specified in the related prospectus supplement. Written notice
of termination of the Agreement will be given to each certificateholder, and the
final distribution will be made only upon presentation and surrender of the
certificates at the location to be specified in the notice of termination.
If so specified in the related prospectus supplement, a series of
certificates may be subject to optional early termination through the repurchase
of the assets in the related trust fund by the party specified therein, under
the
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circumstances and in the manner set forth therein. If so provided in the related
prospectus supplement, upon the reduction of the Certificate Balance of a
specified class or classes of certificates by a specified percentage or amount,
the party specified therein will solicit bids for the purchase of all assets of
the trust fund, or of a sufficient portion of the assets to retire the class or
classes or purchase the class or classes at a price set forth in the related
prospectus supplement, in each case, under the circumstances and in the manner
set forth therein.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the related prospectus supplement, one or more classes
of the offered certificates of any series will be issued as book-entry
certificates, and each class will be represented by one or more single
certificates registered in the name of a nominee for the depository, DTC.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended. DTC was created to hold securities for its
Participants and facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in their
accounts, thereby eliminating the need for physical movement of certificates.
Participants include Morgan Stanley & Co. Incorporated, securities brokers and
dealers, banks, trust companies and clearing corporations and may include other
organizations. Indirect access to the DTC system also is available to Indirect
Participants. Unless otherwise provided in the related prospectus supplement,
investors that are not Participants or Indirect Participants but desire to
purchase, sell or otherwise transfer ownership of, or other interests in,
book-entry certificates may do so only through Participants and Indirect
Participants. In addition, these Certificate Owners will receive all
distributions on the book-entry certificates through DTC and its Participants.
Under a book-entry format, Certificate Owners will receive payments after the
related Distribution Date because, while payments are required to be forwarded
to Cede , as nominee for DTC, on each Distribution Date, DTC will forward the
payments to its Participants which thereafter will be required to forward them
to Indirect Participants or Certificate Owners. Unless otherwise provided in the
related prospectus supplement, the only certificateholder will be Cede, as
nominee of DTC, and the Certificate Owners will not be recognized by the trustee
as certificateholders under the Agreement. Certificate Owners will be permitted
to exercise the rights of certificateholders under the related Agreement only
indirectly through the Participants who in turn will exercise their rights
through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the book-entry certificates and is
required to receive and transmit distributions of principal of and interest on
the book-entry certificates. Participants and Indirect Participants with which
Certificate Owners have accounts with respect to the book-entry certificates
similarly are required to make book-entry transfers and receive and transmit the
payments on behalf of their respective Certificate Owners.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Certificate
Owner to pledge its interest in the book-entry certificates to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of its interest in the book-entry certificates, may be limited due to
the lack of a physical certificate evidencing the interest.
DTC has advised Morgan Stanley Capital I Inc. that it will take any action
permitted to be taken by a certificateholder under the Agreement only at the
direction of one or more Participants to whose account with DTC interests in the
book-entry certificates are credited.
Unless otherwise specified in the related prospectus supplement,
certificates initially issued in book-entry form will be issued as definitive
certificates, rather than to DTC or its nominee only if
o Morgan Stanley Capital I Inc. advises the trustee in writing that
DTC is no longer willing or able to properly discharge its
responsibilities as depository with respect to the certificates and
Morgan Stanley Capital I Inc. is unable to locate a qualified
successor , or
o Morgan Stanley Capital I Inc., at its option, elects to terminate
the book-entry system through DTC.
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Upon the occurrence of either of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of definitive certificates for the Certificate Owners.
Upon surrender by DTC of the certificate or certificates representing the
book-entry certificates, together with instructions for reregistration, the
trustee will issue, or cause to be issued, to the Certificate Owners identified
in the instructions the definitive certificates to which they are entitled, and
thereafter the trustee will recognize the holders of the definitive certificates
as certificateholders under the Agreement.
DESCRIPTION OF THE AGREEMENTS
The certificates will be offered pursuant to a Pooling Agreement or a
Trust Agreement.
o A Pooling Agreement will be used where the trust fund includes Whole
Loans. The parties to a Pooling Agreement will be Morgan Stanley
Capital I Inc., a trustee, a master servicer and any special
servicer appointed as of the date of the Pooling Agreement. If a
master servicer is not appointed, a servicer, with, generally, the
same obligations as described in this prospectus with respect to the
master servicer, unless otherwise specified in the prospectus
supplement, will be appointed. This servicer will service all or a
significant number of Whole Loans directly without a subservicer.
References in this prospectus to master servicer and its rights and
obligations, to the extent set forth in the related prospectus
supplement, shall be deemed to also be references to any servicer
servicing Whole Loans directly.
o A Trust Agreement will be used where the trust fund does not include
Whole Loans. The parties to a Trust Agreement will be Morgan Stanley
Capital I Inc. and a trustee. A manager or administrator may be
appointed pursuant to the Trust Agreement for any trust fund to
administer the trust fund.
The provisions of each Agreement will vary depending upon the nature of
the certificates to be issued thereunder and the nature of the related trust
fund. A form of a Pooling Agreement has been filed as an exhibit to the
Registration Statement of which this prospectus is a part. Any Trust Agreement
will generally conform to the form of Pooling Agreement filed herewith, but will
not contain provisions with respect to the servicing and maintenance of Whole
Loans. The following summaries describe some of the provisions that may appear
in each Agreement. The prospectus supplement for a series of certificates will
describe any provision of the Agreement relating to a series that materially
differs from the description thereof contained in this prospectus. The summaries
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of the Agreement for each trust
fund and the description of the provisions in the related prospectus supplement.
Morgan Stanley Capital I Inc. will provide a copy of the Agreement, without
exhibits, relating to any series of certificates without charge upon written
request of a holder of a certificate of a series addressed to Morgan Stanley
Capital I Inc., c/o Morgan Stanley & Co. Incorporated, 1585 Broadway, 37th
Floor, New York, New York 10036, Attention: John E. Westerfield.
ASSIGNMENT OF ASSETS; REPURCHASES
At the time of issuance of any series of certificates, Morgan Stanley
Capital I Inc. will assign or cause to be assigned to the designated trustee the
assets to be included in the related trust fund, together with all principal and
interest to be received on or with respect to the assets after the Cut-off Date,
other than principal and interest due on or before the Cut-off Date and other
than any Retained Interest. The trustee will, concurrently with the assignment,
deliver the certificates to Morgan Stanley Capital I Inc. in exchange for the
assets and the other assets comprising the trust fund for the series. Each
mortgage loan and/or MBS will be identified in a schedule appearing as an
exhibit to the related Agreement. Unless otherwise provided in the related
prospectus supplement, the schedule will include detailed information
o in respect of each Whole Loan included in the related trust fund,
including without limitation, the address of the related mortgaged
property and type of the property, the mortgage rate and, if
applicable, the applicable Index, margin, adjustment date and any
rate cap information, the original and remaining term to maturity,
the original and outstanding principal balance and
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balloon payment, if any, the Value, Loan-to-Value Ratio and the Debt
Service Coverage Ratio as of the date indicated and payment and
prepayment provisions, if applicable, and
o in respect of each MBS included in the related trust fund, including
without limitation, the MBS issuer, MBS servicer and MBS trustee,
the pass-through or bond rate or formula for determining the rate,
the issue date and original and remaining term to maturity, if
applicable, the original and outstanding principal amount and
payment provisions, if applicable.
With respect to each Whole Loan, Morgan Stanley Capital I Inc. will
deliver or cause to be delivered to the trustee or to the custodian , certain
loan documents, which to the extent set forth in the related prospectus
supplement will include the original mortgage note endorsed, without recourse,
in blank or to the order of the trustee, the original mortgage or a certified
copy thereof with evidence of recording indicated thereon and an assignment of
the mortgage to the trustee in recordable form. Notwithstanding the foregoing, a
trust fund may include mortgage loans where the original mortgage note is not
delivered to the trustee if Morgan Stanley Capital I Inc. delivers to the
trustee or the custodian a copy or a duplicate original of the mortgage note,
together with an affidavit certifying that the original thereof has been lost or
destroyed. With respect to these mortgage loans, the trustee or its nominee may
not be able to enforce the mortgage note against the related borrower. Unless
otherwise specified in the related prospectus supplement, the asset seller will
be required to agree to repurchase, or substitute for, this type of mortgage
loan that is subsequently in default if the enforcement thereof or of the
related mortgage is materially adversely affected by the absence of the original
mortgage note. Unless otherwise provided in the related prospectus supplement,
the related Agreement will require Morgan Stanley Capital I Inc. or another
party specified therein to promptly cause each assignment of mortgage to be
recorded in the appropriate public office for real property records, except in
the State of California or in other states where, in the opinion of counsel
acceptable to the trustee, recording is not required to protect the trustee's
interest in the related Whole Loan against the claim of any subsequent
transferee or any successor to or creditor of Morgan Stanley Capital I Inc., the
master servicer, the relevant asset seller or any other prior holder of the
Whole Loan.
The trustee or a custodian will review the Whole Loan documents within a
specified period of days after receipt thereof, and the trustee or a custodian
will hold the documents in trust for the benefit of the certificateholders.
Unless otherwise specified in the related prospectus supplement, if any of these
documents are found to be missing or defective in any material respect, the
trustee or custodian shall immediately notify the master servicer and Morgan
Stanley Capital I Inc., and the master servicer shall immediately notify the
relevant asset seller. If the asset seller cannot cure the omission or defect
within a specified number of days after receipt of notice, then to the extent
set forth in the related prospectus supplement, the asset seller will be
obligated, within a specified number of days of receipt of notice, to repurchase
the related Whole Loan from the trustee at the Purchase Price or substitute the
mortgage loan. There can be no assurance that an asset seller will fulfill this
repurchase or substitution obligation, and neither the master servicer nor
Morgan Stanley Capital I Inc. will be obligated to repurchase or substitute the
mortgage loan if the asset seller defaults on its obligation. Unless otherwise
specified in the related prospectus supplement, this repurchase or substitution
obligation constitutes the sole remedy available to the certificateholders or
the trustee for omission of, or a material defect in, a constituent document. To
the extent specified in the related prospectus supplement, in lieu of curing any
omission or defect in the asset or repurchasing or substituting for the asset,
the asset seller may agree to cover any losses suffered by the trust fund as a
result of this type of breach or defect.
If so provided in the related prospectus supplement, Morgan Stanley
Capital I Inc. will, as to some or all of the mortgage loans, assign or cause to
be assigned to the trustee the related lease assignments. In certain cases, the
trustee, or master servicer, as applicable, may collect all moneys under the
related leases and distribute amounts, if any, required under the lease for the
payment of maintenance, insurance and taxes, to the extent specified in the
related lease agreement. The trustee, or if so specified in the prospectus
supplement, the master servicer, as agent for the trustee, may hold the lease in
trust for the benefit of the certificateholders.
With respect to each Government Security or MBS in certificated form,
Morgan Stanley Capital I Inc. will deliver or cause to be delivered to the
trustee or the custodian the original certificate or other definitive evidence
of the Government Security or MBS, as applicable, together with bond power or
other instruments, certifications or documents required to transfer fully the
Government Security or MBS, as applicable, to the trustee for the benefit of the
certificateholders. With respect to each Government Security or MBS in
uncertificated or book-entry form or
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held through a "clearing corporation" within the meaning of the UCC, Morgan
Stanley Capital I Inc. and the trustee will cause the Government Security or MBS
to be registered directly or on the books of the clearing corporation or of a
financial intermediary in the name of the trustee for the benefit of the
certificateholders. Unless otherwise provided in the related prospectus
supplement, the related Agreement will require that either Morgan Stanley
Capital I Inc. or the trustee promptly cause any MBS and government securities
in certificated form not registered in the name of the trustee to be
re-registered, with the applicable persons, in the name of the trustee.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
Unless otherwise provided in the related prospectus supplement Morgan
Stanley Capital I Inc. will, with respect to each Whole Loan, make or assign
certain representations and warranties, as of a specified date covering, by way
of example, the following types of matters:
o the accuracy of the information set forth for the Whole Loan on the
schedule of assets appearing as an exhibit to the related Agreement;
o the existence of title insurance insuring the lien priority of the
Whole Loan;
o the authority of the Warrantying Party to sell the Whole Loan;
o the payment status of the Whole Loan and the status of payments of
taxes, assessments and other charges affecting the related mortgaged
property;
o the existence of customary provisions in the related mortgage note
and mortgage to permit realization against the mortgaged property of
the benefit of the security of the mortgage; and
o the existence of hazard and extended perils insurance coverage on
the mortgaged property.
Any Warrantying Party, if other than Morgan Stanley Capital I Inc., shall
be an asset seller or an affiliate thereof or another person acceptable to
Morgan Stanley Capital I Inc. and shall be identified in the related prospectus
supplement.
Representations and warranties made in respect of a Whole Loan may have
been made as of a date prior to the applicable Cut-off Date. A substantial
period of time may have elapsed between the date on which the representations
are made and the date of initial issuance of the related series of certificates
evidencing an interest in the Whole Loan. Unless otherwise specified in the
related prospectus supplement, in the event of a breach of any representation or
warranty, the Warrantying Party will be obligated to reimburse the trust fund
for losses caused by the breach or either cure the breach or repurchase or
replace the affected Whole Loan as described in the next paragraph. Since the
representations and warranties may not address events that may occur following
the date as of which they were made, the Warrantying Party will have a
reimbursement, cure, repurchase or substitution obligation in connection with a
breach of a representation and warranty only if the relevant event that causes
such breach occurs prior to the date on which they were made. The Warranting
Party would have no obligations if the relevant event that causes the breach
occurs after that date.
Unless otherwise provided in the related prospectus supplement, each
Agreement will provide that the master servicer and/or trustee will be required
to notify promptly the relevant Warrantying Party of any breach of any
representation or warranty made by it in respect of a Whole Loan that materially
and adversely affects the value of Whole Loan or the interests therein of the
certificateholders. If the Warrantying Party cannot cure the breach within a
specified period following the date on which the party was notified of the
breach, then
o the Warrantying Party will be obligated to repurchase the Whole Loan
from the trustee within a specified period from the date on which
the Warrantying Party was notified of the breach, at the Purchase
Price ; or
o if so provided in the prospectus supplement for a series, the
Warrantying Party, will have the option, within a specified period
after initial issuance of such series of certificates, to cause the
Whole Loan to be removed from the trust fund and substitute in its
place one or more other Whole Loans, in accordance with the
standards described in the related prospectus supplement; or.
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o if so provided in the prospectus supplement for a series, the
Warrantying Party, will have the option to reimburse the trust fund
or the certificateholders for any losses caused by the breach.
Unless otherwise specified in the related prospectus supplement, this
reimbursement, repurchase or substitution obligation will constitute the sole
remedy available to holders of certificates or the trustee for a breach of
representation by a Warrantying Party.
Neither Morgan Stanley Capital I Inc., except to the extent that it is the
Warrantying Party, nor the master servicer will be obligated to purchase or
substitute for a Whole Loan if a Warrantying Party defaults on its obligation to
do so, and no assurance can be given that Warrantying Parties will carry out
their obligations with respect to Whole Loans.
Unless otherwise provided in the related prospectus supplement the
Warrantying Party will, with respect to a trust fund that includes government
securities or MBS, make or assign certain representations or warranties, as of a
specified date, with respect to the government securities or MBS, covering
o the accuracy of the information set forth therefor on the schedule
of assets appearing as an exhibit to the related Agreement and
o the authority of the Warrantying Party to sell the assets.
The related prospectus supplement will describe the remedies for a breach
thereof.
A master servicer will make representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under, the
related Agreement. A breach of any of these representation of the master
servicer which materially and adversely affects the interests of the
certificateholders and which continues unremedied for thirty days after the
giving of written notice of the breach to the master servicer by the trustee or
Morgan Stanley Capital I Inc., or to the master servicer, Morgan Stanley Capital
I Inc. and the trustee by the holders of certificates evidencing not less than
25% of the Voting Rights to the extent set forth in the related prospectus
supplement, will constitute an Event of Default under the Agreement. See
"--Events of Default" and "--Rights Upon Event of Default," below.
CERTIFICATE ACCOUNT AND OTHER COLLECTION ACCOUNTS
GENERAL
The master servicer and/or the trustee will, as to each trust fund,
establish and maintain or cause to be established and maintained , the
Certificate Account, which must be either
o an account or accounts the deposits in which are insured by the Bank
Insurance Fund or the Savings Association Insurance Fund of the
FDIC, to the limits established by the FDIC, and the uninsured
deposits in which are otherwise secured such that the
certificateholders have a claim with respect to the funds in the
Certificate Account or a perfected first priority security interest
against any collateral securing the funds that is superior to the
claims of any other depositors or general creditors of the
institution with which the Certificate Account is maintained or
o otherwise maintained with a bank or trust company, and in a manner,
satisfactory to the Rating Agency or Agencies rating any class of
certificates of the series.
The collateral eligible to secure amounts in the Certificate Account is limited
to Permitted Investments. A Certificate Account may be maintained as an interest
bearing or a non-interest bearing account and the funds held therein may be
invested pending each succeeding Distribution Date in short-term Permitted
Investments. Unless otherwise provided in the related prospectus supplement, any
interest or other income earned on funds in the Certificate Account will be paid
to a master servicer or its designee as additional servicing compensation. The
Certificate Account may be maintained with an institution that is an affiliate
of the master servicer, if applicable, provided that the institution meets the
standards imposed by the Rating Agency or Agencies. If permitted by the Rating
Agency or Agencies and so specified in the related prospectus supplement, a
Certificate Account may contain funds relating to more than one series of
mortgage pass-through certificates and may contain other funds
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respecting payments on mortgage loans belonging to the master servicer or
serviced or master serviced by it on behalf of others.
DEPOSITS
A master servicer or the trustee will deposit or cause to be deposited in
the Certificate Account for one or more trust funds on a daily basis, unless
otherwise provided in the related Agreement, the following payments and
collections received, or advances made, by the master servicer or the trustee or
on its behalf subsequent to the Cut-off Date, other than payments due on or
before the Cut-off Date, and exclusive of any amounts representing a Retained
Interest, all payments on account of principal, including principal prepayments,
on the assets;
1) all payments on account of interest on the assets, including any
default interest collected, in each case net of any portion thereof
retained by a master servicer, a subservicer or a special servicer
as its servicing compensation and net of any Retained Interest;
2) all proceeds of the hazard, business interruption and general
liability insurance policies to be maintained in respect of each
mortgaged property securing a Whole Loan in the trust fund, to the
extent the proceeds are not applied to the restoration of the
property or released to the borrower in accordance with the normal
servicing procedures of a master servicer or the related
subservicer, subject to the terms and conditions of the related
mortgage and mortgage note, and all Insurance Proceeds and all
Liquidation Proceeds, together with the net proceeds on a monthly
basis with respect to any mortgaged properties acquired for the
benefit of certificateholders by foreclosure or by deed in lieu of
foreclosure or otherwise;
3) any amounts paid under any instrument or drawn from any fund that
constitutes Credit Support for the related series of certificates as
described under "Description of Credit Support";
4) any advances made as described under "Description of the
Certificates--Advances in Respect of Delinquencies";
5) any amounts representing prepayment premiums;
6) any amounts paid under any Cash Flow Agreement, as described under
"Description of the Trust Funds--Cash Flow Agreements";
7) all proceeds of any asset or, with respect to a Whole Loan, property
acquired in respect thereof purchased by Morgan Stanley Capital I
Inc., any asset seller or any other specified person as described
above under "--Assignment of Assets; Repurchases" and
"--Representations and Warranties; Repurchases," all proceeds of any
defaulted mortgage loan purchased as described below under
"--Realization Upon Defaulted Whole Loans," and all proceeds of any
asset purchased as described above under "Description of the
Certificates--Termination";
8) any amounts paid by a master servicer to cover certain interest
shortfalls arising out of the prepayment of Whole Loans in the trust
fund as described under "Description of the Agreements--Retained
Interest; Servicing Compensation and Payment of Expenses";
9) to the extent that any item does not constitute additional servicing
compensation to a master servicer, any payments on account of
modification or assumption fees, late payment charges, prepayment
premiums or Equity Participations on the mortgage loans and/or MBS;
10) all payments required to be deposited in the Certificate Account
with respect to any deductible clause in any blanket insurance
policy described below under "--Hazard Insurance Policies";
11) any amount required to be deposited by a master servicer or the
trustee in connection with losses realized on investments for the
benefit of the master servicer or the trustee, as the case may be,
of funds held in the Certificate Account; and
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12) any other amounts required to be deposited in the Certificate
Account as provided in the related Agreement and described in the
related prospectus supplement.
WITHDRAWALS
A master servicer or the trustee may, from time to time, unless otherwise
provided in the related Agreement and described in the related prospectus
supplement, make withdrawals from the Certificate Account for each trust fund
for any of the following purposes:
(1) to make distributions to the certificateholders on each Distribution
Date;
(2) to reimburse a master servicer for unreimbursed amounts advanced as
described above under "Description of the Certificates--Advances in
Respect of Delinquencies," the reimbursement to be made out of
amounts received which were identified and applied by the master
servicer as late collections of interest, net of related servicing
fees and Retained Interest, on and principal of the particular Whole
Loans with respect to which the advances were made or out of amounts
drawn under any form of Credit Support with respect to those Whole
Loans;
(3) to reimburse a master servicer for unpaid servicing fees earned and
certain unreimbursed servicing expenses incurred with respect to
Whole Loans and properties acquired in respect thereof, such
reimbursement to be made out of amounts that represent Liquidation
Proceeds and Insurance Proceeds collected on the particular Whole
Loans and properties, and net income collected on the particular
properties, with respect to which the fees were earned or the
expenses were incurred or out of amounts drawn under any form of
Credit Support with respect to such Whole Loans and properties;
(4) to reimburse a master servicer for any advances described in clause
(2) above and any servicing expenses described in clause (3) above
which, in the master servicer's good faith judgment, will not be
recoverable from the amounts described in clauses (2) and (3),
respectively, the reimbursement to be made from amounts collected on
other assets or, if and to the extent so provided by the related
Agreement and described in the related prospectus supplement, just
from that portion of amounts collected on other assets that is
otherwise distributable on one or more classes of Subordinate
Certificates, if any, remain outstanding, and otherwise any
outstanding class of certificates, of the related series;
(5) if and to the extent described in the related prospectus supplement,
to pay a master servicer interest accrued on the advances described
in clause (2) above and the servicing expenses described in clause
(3) above while these amounts remain outstanding and unreimbursed;
(6) to pay for costs and expenses incurred by the trust fund for
environmental site assessments with respect to, and for containment,
clean-up or remediation of hazardous wastes, substances and
materials on, mortgaged properties securing defaulted Whole Loans as
described below under "--Realization Upon Defaulted Whole Loans";
(7) to reimburse a master servicer, Morgan Stanley Capital I Inc., or
any of their respective directors, officers, employees and agents,
as the case may be, for certain expenses, costs and liabilities
incurred thereby, as and to the extent described below under
"--Matters Regarding a Master Servicer and the Depositor";
(8) if and to the extent described in the related prospectus supplement,
to pay or to transfer to a separate account for purposes of
escrowing for the payment of the trustee's fees;
(9) to reimburse the trustee or any of its directors, officers,
employees and agents, as the case may be, for certain expenses,
costs and liabilities incurred thereby, as and to the extent
described below under "--Matters Regarding the Trustee";
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(10) unless otherwise provided in the related prospectus supplement, to
pay a master servicer, as additional servicing compensation,
interest and investment income earned in respect of amounts held in
the Certificate Account;
(11) to pay the person entitled thereto any amounts deposited in the
Certificate Account that were identified and applied by the master
servicer as recoveries of Retained Interest;
(12) to pay for costs reasonably incurred in connection with the proper
operation, management and maintenance of any mortgaged property
acquired for the benefit of certificateholders by foreclosure or by
deed in lieu of foreclosure or otherwise, these payments to be made
out of income received on this type of property;
(13) if one or more elections have been made to treat the trust fund or
designated portions thereof as a REMIC, to pay any federal, state or
local taxes imposed on the trust fund or its assets or transactions,
as and to the extent described below under "Federal Income Tax
Consequences--REMICs--Prohibited
Transactions Tax and Other Taxes";
(14) to pay for the cost of an independent appraiser or other expert in
real estate matters retained to determine a fair sale price for a
defaulted Whole Loan or a property acquired in respect thereof in
connection with the liquidation of the defaulted Whole Loan or
property;
(15) to pay for the cost of various opinions of counsel obtained pursuant
to the related Agreement for the benefit of certificateholders;
(16) to pay for the costs of recording the related Agreement if
recordation materially and beneficially affects the interests of
certificateholders, provided that the payment shall not constitute a
waiver with respect to the obligation of the Warrantying Party to
remedy any breach of representation or warranty under the Agreement;
(17) to pay the person entitled thereto any amounts deposited in the
Certificate Account in error, including amounts received on any
asset after its removal from the trust fund whether by reason of
purchase or substitution as contemplated by "--Assignment of Assets;
Repurchase" and "--Representations and Warranties; Repurchases" or
otherwise;
(18) to make any other withdrawals permitted by the related Agreement and
described in the related prospectus supplement; and
(19) to clear and terminate the Certificate Account at the termination of
the trust fund.
OTHER COLLECTION ACCOUNTS
Notwithstanding the foregoing, if so specified in the related prospectus
supplement, the Agreement for any series of certificates may provide for the
establishment and maintenance of a separate collection account into which the
master servicer or any related subservicer or special servicer will deposit on a
daily basis the amounts described under "--Deposits" above for one or more
series of certificates. Any amounts on deposit in any collection account will be
withdrawn therefrom and deposited into the appropriate Certificate Account by a
time specified in the related prospectus supplement. To the extent specified in
the related prospectus supplement, any amounts which could be withdrawn from the
Certificate Account as described under "--Withdrawals" above, may also be
withdrawn from any collection account. The prospectus supplement will set forth
any restrictions with respect to any collection account, including investment
restrictions and any restrictions with respect to financial institutions with
which any collection account may be maintained.
COLLECTION AND OTHER SERVICING PROCEDURES
The master servicer, directly or through subservicers, is required to make
reasonable efforts to collect all scheduled payments under the Whole Loans and
will follow or cause to be followed the collection procedures as it would follow
with respect to mortgage loans that are comparable to the Whole Loans and held
for its own account, provided the procedures are consistent with the Servicing
Standard. In connection therewith, the master servicer
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will be permitted in its discretion to waive any late payment charge or penalty
interest in respect of a late Whole Loan payment.
Each master servicer will also be required to perform other customary
functions of a servicer of comparable loans, including maintaining, or causing
the borrower or lessee on each mortgage or lease to maintain, hazard, business
interruption and general liability insurance policies and, if applicable, rental
interruption policies as described in this prospectus and in any related
prospectus supplement, and filing and settling claims thereunder; maintaining
escrow or impoundment accounts of borrowers for payment of taxes, insurance and
other items required to be paid by any borrower pursuant to the Whole Loan;
processing assumptions or substitutions in those cases where the master servicer
has determined not to enforce any applicable due-on-sale clause; attempting to
cure delinquencies; supervising foreclosures; inspecting and managing mortgaged
properties under certain circumstances; and maintaining accounting records
relating to the Whole Loans. Unless otherwise specified in the related
prospectus supplement, the master servicer will be responsible for filing and
settling claims in respect of particular Whole Loans under any applicable
instrument of Credit Support. See "Description of Credit Support."
The master servicer may agree to modify, waive or amend any term of any
Whole Loan in a manner consistent with the Servicing Standard so long as the
modification, waiver or amendment will not
o affect the amount or timing of any scheduled payments of principal
or interest on the Whole Loan or
o in its judgment, materially impair the security for the Whole Loan
or reduce the likelihood of timely payment of amounts due thereon.
The master servicer also may agree to any modification, waiver or amendment that
would so affect or impair the payments on, or the security for, a Whole Loan if,
unless otherwise provided in the related prospectus supplement,
o in its judgment, a material default on the Whole Loan has occurred
or a payment default is imminent and
o in its judgment, that modification, waiver or amendment is
reasonably likely to produce a greater recovery with respect to the
Whole Loan on a present value basis than would liquidation.
The master servicer is required to notify the trustee in the event of any
modification, waiver or amendment of any Whole Loan.
SUBSERVICERS
A master servicer may delegate its servicing obligations in respect of the
Whole Loans to subservicer, but the master servicer will remain obligated under
the related Agreement. Each subservicing agreement must be consistent with the
terms of the related Agreement and must provide that, if for any reason the
master servicer for the related series of certificates is no longer acting in
the capacity of master servicer, the trustee or any successor master servicer
may assume the master servicer's rights and obligations under the subservicing
agreement.
Unless otherwise provided in the related prospectus supplement, the master
servicer will be solely liable for all fees owed by it to any subservicer,
irrespective of whether the master servicer's compensation pursuant to the
related Agreement is sufficient to pay those fees. However, a subservicer may be
entitled to a Retained Interest in certain Whole Loans. Each subservicer will be
reimbursed by the master servicer for certain expenditures which it makes,
generally to the same extent the master servicer would be reimbursed under an
Agreement. See "--Retained Interest; Servicing Compensation and Payment of
Expenses" below.
SPECIAL SERVICERS
To the extent so specified in the related prospectus supplement, a special
servicer may be appointed. The related prospectus supplement will describe the
rights, obligations and compensation of a special servicer. The master servicer
will only be responsible for the duties and obligations of a special servicer to
the extent set forth in the prospectus supplement.
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REALIZATION UPON DEFAULTED WHOLE LOANS
A borrower's failure to make required payments may reflect inadequate
income or the diversion of that income from the service of payments due under
the mortgage loan, and may call into question the borrower's ability to make
timely payment of taxes and to pay for necessary maintenance of the related
mortgaged property. Unless otherwise provided in the related prospectus
supplement, the master servicer is required to:
o monitor any Whole Loan which is in default,
o contact the borrower concerning the default,
o evaluate whether the causes of the default can be cured over a
reasonable period without significant impairment of the value of the
mortgaged property,
o initiate corrective action in cooperation with the borrower if cure
is likely,
o inspect the mortgaged property, and
o take any other actions as are consistent with the Servicing
Standard.
A significant period of time may elapse before the master servicer is able to
assess the success of the corrective action or the need for additional
initiatives.
The time within which the master servicer makes the initial determination
of appropriate action, evaluates the success of corrective action, develops
additional initiatives, institutes foreclosure proceedings and actually
forecloses or takes a deed to a mortgaged property in lieu of foreclosure on
behalf of the certificateholders, may vary considerably depending on the
particular Whole Loan, the mortgaged property, the borrower, the presence of an
acceptable party to assume the Whole Loan and the laws of the jurisdiction in
which the mortgaged property is located. Under federal bankruptcy law, the
master servicer in certain cases may not be permitted to accelerate a Whole Loan
or to foreclose on a mortgaged property for a considerable period of time. See
"Legal Aspects of the Mortgage Loans and the Leases."
Any Agreement relating to a trust fund that includes Whole Loans may grant
to the master servicer and/or the holder or holders of certain classes of
certificates a right of first refusal to purchase from the trust fund at a
predetermined purchase price any Whole Loan as to which a specified number of
scheduled payments thereunder are delinquent. Any such right granted to the
holder of an offered certificate will be described in the related prospectus
supplement. The related prospectus supplement will also describe any such right
granted to any person if the predetermined purchase price is less than the
Purchase Price described under "--Representations and Warranties; Repurchases."
Unless otherwise specified in the related prospectus supplement, the
master servicer may offer to sell any defaulted Whole Loan described in the
preceding paragraph and not otherwise purchased by any person having a right of
first refusal with respect thereto, if and when the master servicer determines,
consistent with the Servicing Standard, that this sale would produce a greater
recovery on a present value basis than would liquidation through foreclosure or
similar proceeding. The related Agreement will provide that any sale of this
type be made in a commercially reasonable manner for a specified period and that
the master servicer accept the highest cash bid received from any person
including itself, an affiliate of the master servicer or any certificateholder
that constitutes a fair price for the defaulted Whole Loan. In the absence of
any bid determined in accordance with the related Agreement to be fair, the
master servicer shall proceed with respect to the defaulted mortgage loan as
described in the paragraphs below. Any bid in an amount at least equal to the
Purchase Price described under "--Representations and Warranties; Repurchases"
will in all cases be deemed fair.
If a default on a Whole Loan has occurred or, in the master servicer's
judgment is imminent, and the action is consistent with the servicing standard,
the master servicer, on behalf of the trustee, may at any time:
o institute foreclosure proceedings,
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o exercise any power of sale contained in any mortgage,
o obtain a deed in lieu of foreclosure, or
o otherwise acquire title to a mortgaged property securing the Whole
Loan.
Unless otherwise specified in the related prospectus supplement, the master
servicer may not acquire title to any related mortgaged property or take any
other action that would cause the trustee, for the benefit of
certificateholders, or any other specified person to be considered to hold title
to, to be a "mortgagee-in-possession" of, or to be an "owner" or an "operator"
of that mortgaged property within the meaning of federal environmental laws,
unless the master servicer has previously determined, based on a report prepared
by a person who regularly conducts environmental audits, which report will be an
expense of the trust fund, that either:
o the mortgaged property is in compliance with applicable
environmental laws, and there are no circumstances present at the
mortgaged property relating to the use, management or disposal of
any hazardous substances, hazardous materials, wastes, or
petroleum-based materials for which investigation, testing,
monitoring, containment, clean-up or remediation could be required
under any federal, state or local law or regulation; or
o if the mortgaged property is not so in compliance or such
circumstances are so present, then it would be in the best economic
interest of the trust fund to acquire title to the mortgaged
property and further to take the actions as would be necessary and
appropriate to effect the compliance and/or respond to the
circumstances, the cost of which actions will be an expense of the
trust fund.
Unless otherwise provided in the related prospectus supplement, if title
to any mortgaged property is acquired by a trust fund as to which a REMIC
election has been made, the master servicer, on behalf of the trust fund, will
be required to sell the mortgaged property prior to the close of the third
calendar year following the year of acquisition of the mortgaged property by the
trust fund, unless
o the Internal Revenue Service grants an extension of time to sell the
property or
o the trustee receives an opinion of independent counsel to the effect
that the holding of the property by the trust fund subsequent to
that period will not result in the imposition of a tax on the trust
fund or cause the trust fund to fail to qualify as a REMIC under the
Code at any time that any certificate is outstanding.
Subject to the foregoing, the master servicer will be required to
o solicit bids for any mortgaged property so acquired by the trust
fund as will be reasonably likely to realize a fair price for the
property and
o accept the first and, if multiple bids are contemporaneously
received, the highest cash bid received from any person that
constitutes a fair price.
If the trust fund acquires title to any mortgaged property, the master
servicer, on behalf of the trust fund, may retain an independent contractor to
manage and operate the property. The retention of an independent contractor,
however, will not relieve the master servicer of any of its obligations with
respect to the management and operation of that property. Unless otherwise
specified in the related prospectus supplement, any property acquired by the
trust fund will be managed in a manner consistent with the management and
operation of similar property by a prudent lending institution.
The limitations imposed by the related Agreement and the REMIC Provisions
of the Code, if a REMIC election has been made with respect to the related trust
fund, on the operations and ownership of any mortgaged property acquired on
behalf of the trust fund may result in the recovery of an amount less than the
amount that would otherwise be recovered. See "Legal Aspects of the Mortgage
Loans and the Leases--Foreclosure."
If recovery on a defaulted Whole Loan under any related instrument of
Credit Support is not available, the master servicer nevertheless will be
obligated to follow or cause to be followed normal practices and procedures as
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it deems necessary or advisable to realize upon the defaulted Whole Loan. If the
proceeds of any liquidation of the property securing the defaulted Whole Loan
are less than the outstanding principal balance of the defaulted Whole Loan plus
interest accrued thereon at the mortgage rate plus the aggregate amount of
expenses incurred by the master servicer in connection with such proceedings and
which are reimbursable under the Agreement, the trust fund will realize a loss
in the amount of that difference. The master servicer will be entitled to
withdraw or cause to be withdrawn from the Certificate Account out of the
Liquidation Proceeds recovered on any defaulted Whole Loan, prior to the
distribution of the Liquidation Proceeds to certificateholders, amounts
representing its normal servicing compensation on the Whole Loan, unreimbursed
servicing expenses incurred with respect to the Whole Loan and any unreimbursed
advances of delinquent payments made with respect to the Whole Loan.
If any property securing a defaulted Whole Loan is damaged and proceeds,
if any, from the related hazard insurance policy are insufficient to restore the
damaged property to a condition sufficient to permit recovery under the related
instrument of Credit Support, if any, the master servicer is not required to
expend its own funds to restore the damaged property unless it determines
o that the restoration will increase the proceeds to
certificateholders on liquidation of the Whole Loan after
reimbursement of the master servicer for its expenses and
o that the expenses will be recoverable by it from related Insurance
Proceeds or Liquidation Proceeds.
As servicer of the Whole Loans, a master servicer, on behalf of itself,
the trustee and the certificateholders, will present claims to the obligor under
each instrument of Credit Support, and will take reasonable steps as are
necessary to receive payment or to permit recovery thereunder with respect to
defaulted Whole Loans.
If a master servicer or its designee recovers payments under any
instrument of Credit Support with respect to any defaulted Whole Loan, the
master servicer will be entitled to withdraw or cause to be withdrawn from the
Certificate Account out of those proceeds, prior to distribution thereof to
certificateholders, amounts representing its normal servicing compensation on
the Whole Loan, unreimbursed servicing expenses incurred with respect to the
Whole Loan and any unreimbursed advances of delinquent payments made with
respect to the Whole Loan. See "--Hazard Insurance Policies" and "Description of
Credit Support."
HAZARD INSURANCE POLICIES
Unless otherwise specified in the related prospectus supplement, each
Agreement for a trust fund that includes Whole Loans will require the master
servicer to cause the borrower on each Whole Loan to maintain a hazard insurance
policy providing for the coverage required under the related mortgage or, if any
mortgage permits the holder thereof to dictate to the borrower the insurance
coverage to be maintained on the related mortgaged property, then the coverage
that is consistent with the Servicing Standard. Unless otherwise specified in
the related prospectus supplement, the coverage will be in general in an amount
equal to the lesser of the principal balance owing on the Whole Loan and the
amount necessary to fully compensate for any damage or loss to the improvements
on the mortgaged property on a replacement cost basis, but in either case not
less than the amount necessary to avoid the application of any co-insurance
clause contained in the hazard insurance policy. The ability of the master
servicer to assure that hazard insurance proceeds are appropriately applied may
be dependent upon its being named as an additional insured under any hazard
insurance policy and under any other insurance policy referred to below in this
section, or upon the extent to which information in this regard is furnished by
borrowers. All amounts collected by the master servicer under any policy, except
for amounts to be applied to the restoration or repair of the mortgaged property
or released to the borrower in accordance with the master servicer's normal
servicing procedures, subject to the terms and conditions of the related
mortgage and mortgage note, will be deposited in the Certificate Account. The
Agreement will provide that the master servicer may satisfy its obligation to
cause each borrower to maintain a hazard insurance policy by the master
servicer's maintaining a blanket policy insuring against hazard losses on the
Whole Loans. If the blanket policy contains a deductible clause, the master
servicer will be required to deposit in the Certificate Account all sums that
would have been deposited therein but for that clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and
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civil commotion, subject to the conditions and exclusions specified in each
policy. Although the policies relating to the Whole Loans will be underwritten
by different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, the basic terms thereof are dictated by respective state laws, and
most of these policies typically do not cover any physical damage resulting from
war, revolution, governmental actions, floods and other water-related causes,
earth movement, including earthquakes, landslides and mudflows, wet or dry rot,
vermin, domestic animals and other kinds of uninsured risks.
The hazard insurance policies covering the mortgaged properties securing
the Whole Loans will typically contain a co-insurance clause that in effect
requires the insured at all times to carry insurance of a specified percentage,
generally 80% to 90%, of the full replacement value of the improvements on the
property in order to recover the full amount of any partial loss. If the
insured's coverage falls below this specified percentage, the co-insurance
clause generally provides that the insurer's liability in the event of partial
loss does not exceed the lesser of
o the replacement cost of the improvements less physical depreciation
and
o the proportion of the loss as the amount of insurance carried bears
to the specified percentage of the full replacement cost of the
improvements.
Each Agreement for a trust fund that includes Whole Loans will require the
master servicer to cause the borrower on each Whole Loan, or, in certain cases,
the related lessee, to maintain all other insurance coverage with respect to the
related mortgaged property as is consistent with the terms of the related
mortgage and the Servicing Standard, which insurance may typically include flood
insurance if the related mortgaged property was located at the time of
origination in a federally designated flood area.
In addition, to the extent required by the related mortgage, the master
servicer may require the borrower or related lessee to maintain other forms of
insurance including, but not limited to, loss of rent endorsements, business
interruption insurance and comprehensive public liability insurance, and the
related Agreement may require the master servicer, subservicer or special
servicer to maintain public liability insurance with respect to any REO
Properties. Any cost incurred by the master servicer in maintaining any
insurance policy will be added to the amount owing under the mortgage loan where
the terms of the mortgage loan so permit; provided, however, that the addition
of this cost will not be taken into account for purposes of calculating the
distribution to be made to certificateholders. These costs may be recovered by
the master servicer, subservicer or special servicer, as the case may be, from
the Collection Account, with interest thereon, as provided by the Agreement.
Under the terms of the Whole Loans, borrowers will generally be required
to present claims to insurers under hazard insurance policies maintained on the
related mortgaged properties. The master servicer, on behalf of the trustee and
certificateholders, is obligated to present or cause to be presented claims
under any blanket insurance policy insuring against hazard losses on mortgaged
properties securing the Whole Loans. However, the ability of the master servicer
to present or cause to be presented these claims is dependent upon the extent to
which information in this regard is furnished to the master servicer by
borrowers.
RENTAL INTERRUPTION INSURANCE POLICY
If so specified in the related prospectus supplement, the master servicer
or the borrowers will maintain rental interruption insurance policies in full
force and effect with respect to some or all of the leases. Although the terms
of these policies vary to some degree, a rental interruption insurance policy
typically provides that, to the extent that a lessee fails to make timely rental
payments under the related lease due to a casualty event, the losses will be
reimbursed to the insured. If so specified in the related prospectus supplement,
the master servicer will be required to pay from its servicing compensation the
premiums on the rental interruption policy on a timely basis. If so specified in
the prospectus supplement, if the rental interruption policy is canceled or
terminated for any reason other than the exhaustion of total policy coverage,
the master servicer will exercise its best reasonable efforts to obtain from
another insurer a replacement policy comparable to the rental interruption
policy with a total coverage that is equal to the then existing coverage of the
terminated rental interruption policy; provided that if the cost of any
replacement policy is greater than the cost of the terminated rental
interruption policy, the amount of coverage under the replacement policy will,
to the extent set forth in the related prospectus supplement, be reduced to a
level such that the applicable premium does not exceed, by a percentage that may
be set forth in the related prospectus
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supplement, the cost of the rental interruption policy that was replaced. Any
amounts collected by the master servicer under the rental interruption policy in
the nature of insurance proceeds will be deposited in the Certificate Account.
FIDELITY BONDS AND ERRORS AND OMISSIONS INSURANCE
Unless otherwise specified in the related prospectus supplement, each
Agreement will require that the master servicer and any special servicer obtain
and maintain in effect a fidelity bond or similar form of insurance coverage
which may provide blanket coverage or any combination thereof insuring against
loss occasioned by fraud, theft or other intentional misconduct of the officers,
employees and agents of the master servicer or the special servicer, as
applicable. The related Agreement will allow the master servicer and any special
servicer to self-insure against loss occasioned by the errors and omissions of
the officers, employees and agents of the master servicer or the special
servicer so long as criteria set forth in the Agreement are met.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Some of the Whole Loans may contain clauses requiring the consent of the
lender to any sale or other transfer of the related mortgaged property, or
due-on-sale clauses entitling the lender to accelerate payment of the Whole Loan
upon any sale or other transfer of the related mortgaged property. Some of the
Whole Loans may contain clauses requiring the consent of the lender to the
creation of any other lien or encumbrance on the mortgaged property or
due-on-encumbrance clauses entitling the lender to accelerate payment of the
Whole Loan upon the creation of any other lien or encumbrance upon the mortgaged
property. Unless otherwise provided in the related prospectus supplement, the
master servicer, on behalf of the trust fund, will exercise any right the
trustee may have as lender to accelerate payment of the Whole Loan or to
withhold its consent to any transfer or further encumbrance in a manner
consistent with the Servicing Standard. Unless otherwise specified in the
related prospectus supplement, any fee collected by or on behalf of the master
servicer for entering into an assumption agreement will be retained by or on
behalf of the master servicer as additional servicing compensation. See "Legal
Aspects of the Mortgage Loans and the Leases--Due-on-Sale and
Due-on-Encumbrance."
RETAINED INTEREST; SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The prospectus supplement for a series of certificates will specify
whether there will be any Retained Interest in the assets, and, if so, the
initial owner thereof. If so, the Retained Interest will be established on a
loan-by-loan basis and will be specified on an exhibit to the related Agreement.
Unless otherwise specified in the related prospectus supplement, the
master servicer's and a subservicer's primary servicing compensation with
respect to a series of certificates will come from the periodic payment to it of
a portion of the interest payment on each asset. Since any Retained Interest and
a master servicer's primary compensation are percentages of the principal
balance of each asset, these amounts will decrease in accordance with the
amortization of the assets. The prospectus supplement with respect to a series
of certificates evidencing interests in a trust fund that includes Whole Loans
may provide that, as additional compensation, the master servicer or the
subservicers may retain all or a portion of assumption fees, modification fees,
late payment charges or prepayment premiums collected from borrowers and any
interest or other income which may be earned on funds held in the Certificate
Account or any account established by a subservicer pursuant to the Agreement.
The master servicer may, to the extent provided in the related prospectus
supplement, pay from its servicing compensation certain expenses incurred in
connection with its servicing and managing of the assets, including, without
limitation, payment of the fees and disbursements of the trustee and independent
accountants, payment of expenses incurred in connection with distributions and
reports to certificateholders, and payment of any other expenses described in
the related prospectus supplement. Certain other expenses, including certain
expenses relating to defaults and liquidations on the Whole Loans and, to the
extent so provided in the related prospectus supplement, interest thereon at the
rate specified therein, and the fees of any special servicer, may be borne by
the trust fund.
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EVIDENCE AS TO COMPLIANCE
Each Agreement relating to assets which include Whole Loans will provide
that on or before a specified date in each year, beginning with the first date
at least six months after the related Cut-off Date, a firm of independent public
accountants will furnish a statement to the trustee to the effect that, on the
basis of the examination by that firm conducted substantially in compliance with
either the Uniform Single Attestation Program for Mortgage Bankers or the Audit
Program for Mortgages Serviced for the Federal Home Loan Mortgage Corporation,
the servicing by or on behalf of the master servicer of mortgage loans under
pooling agreements substantially similar to each other, including the related
Agreement, was conducted in compliance with the terms of such agreements except
for any significant exceptions or errors in records that, in the opinion of the
firm, either the Audit Program for Mortgages serviced for FHLMC, or paragraph 4
of the Uniform Single Attestation Program for Mortgage Bankers, requires it to
report. In rendering its statement that firm may rely, as to matters relating to
the direct servicing of mortgage loans by subservicers, upon comparable
statements for examinations conducted substantially in compliance with the
Uniform Single Attestation Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for FHLMC, rendered within one year of that statement, of
firms of independent public accountants with respect to the related subservicer.
Each Agreement will also provide for delivery to the trustee, on or before
a specified date in each year, of an annual statement signed by two officers of
the master servicer to the effect that the master servicer has fulfilled its
obligations under the Agreement throughout the preceding calendar year or other
specified twelve-month period.
Unless otherwise provided in the related prospectus supplement, copies of
annual accountants' statement and statements of officers will be obtainable by
certificateholders without charge upon written request to the master servicer at
the address set forth in the related prospectus supplement.
MATTERS REGARDING A MASTER SERVICER AND THE DEPOSITOR
The master servicer, if any, or a servicer for substantially all the Whole
Loans under each Agreement will be named in the related prospectus supplement.
The entity serving as master servicer or as servicer may be an affiliate of
Morgan Stanley Capital I Inc. and may have other normal business relationships
with Morgan Stanley Capital I Inc. or Morgan Stanley Capital I Inc.'s
affiliates. Reference to the master servicer shall be deemed to be to the
servicer of substantially all of the Whole Loans, if applicable.
Unless otherwise specified in the related prospectus supplement, the
related Agreement will provide that the master servicer may resign from its
obligations and duties under the Agreement only upon a determination that its
duties under the Agreement are no longer permissible under applicable law or are
in material conflict by reason of applicable law with any other activities
carried on by it; provided that the other activities of the master servicer
causing the conflict are activities that were carried on by the master servicer
at the date of the Agreement. No resignation will become effective until the
trustee or a successor servicer has assumed the master servicer's obligations
and duties under the Agreement.
Unless otherwise specified in the related prospectus supplement, each
Agreement will further provide that neither any master servicer, Morgan Stanley
Capital I Inc. nor any director, officer, employee, or agent of a master
servicer or Morgan Stanley Capital I Inc. will be under any liability to the
related trust fund or certificateholders for any action taken, or for refraining
from the taking of any action, in good faith pursuant to the Agreement;
provided, however, that neither a master servicer, Morgan Stanley Capital I Inc.
nor any director, officer, employee, or agent of a master servicer or Morgan
Stanley Capital I Inc. will be protected against any breach of a representation,
warranty or covenant made in the Agreement, or against any liability
specifically imposed thereby, or against any liability which would otherwise be
imposed by reason of willful misfeasance, bad faith or gross negligence in the
performance of obligations or duties thereunder or by reason of reckless
disregard of obligations and duties thereunder. Unless otherwise specified in
the related prospectus supplement, each Agreement will further provide that any
master servicer, Morgan Stanley Capital I Inc. and any director, officer,
employee or agent of a master servicer or Morgan Stanley Capital I Inc. will be
entitled to indemnification by the related trust fund and will be held harmless
against any loss, liability or expense incurred in connection with any legal
action relating to the Agreement or the certificates; provided, however, that
the indemnification will not extend to any loss, liability or expense:
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o specifically imposed by the Agreement or otherwise incidental to the
performance of obligations and duties thereunder, including, in the
case of a master servicer, the prosecution of an enforcement action
in respect of any specific Whole Loan or Whole Loans, except as any
loss, liability or expense shall be otherwise reimbursable pursuant
to the Agreement;
o incurred in connection with any breach of a representation, warranty
or covenant made in the Agreement;
o incurred by reason of misfeasance, bad faith or gross negligence in
the performance of obligations or duties thereunder, or by reason of
reckless disregard of its obligations or duties;
o incurred in connection with any violation of any state or federal
securities law; or
o imposed by any taxing authority if the loss, liability or expense is
not specifically reimbursable pursuant to the terms of the related
Agreement.
In addition, each Agreement will provide that neither any master servicer nor
Morgan Stanley Capital I Inc. will be under any obligation to appear in,
prosecute or defend any legal action which is not incidental to its respective
responsibilities under the Agreement and which in its opinion may involve it in
any expense or liability. The master servicer or Morgan Stanley Capital I Inc.
may, however, in its discretion undertake any action which it may deem necessary
or desirable with respect to the Agreement and the rights and duties of the
parties thereto and the interests of the certificateholders thereunder. In this
event, the legal expenses and costs of the action and any liability resulting
therefrom will be expenses, costs and liabilities of the certificateholders, and
the master servicer or Morgan Stanley Capital I Inc., as the case may be, will
be entitled to be reimbursed therefor and to charge the Certificate Account.
Any person into which the master servicer or Morgan Stanley Capital I Inc.
may be merged or consolidated, or any person resulting from any merger or
consolidation to which the master servicer or Morgan Stanley Capital I Inc. is a
party, or any person succeeding to the business of the master servicer or Morgan
Stanley Capital I Inc., will be the successor of the master servicer or Morgan
Stanley Capital I Inc., as the case may be, under the related Agreement.
EVENTS OF DEFAULT
Unless otherwise provided in the related prospectus supplement for a trust
fund that includes Whole Loans, Events of Default under the related Agreement
will include:
(1) any failure by the master servicer to distribute or cause to be
distributed to certificateholders, or to remit to the trustee for
distribution to certificateholders, any required payment;
(2) any failure by the master servicer duly to observe or perform in any
material respect any of its other covenants or obligations under the
Agreement which continues unremedied for thirty days after written
notice of the failure has been given to the master servicer by the
trustee or Morgan Stanley Capital I Inc., or to the master servicer,
Morgan Stanley Capital I Inc. and the trustee by the holders of
certificates evidencing not less than 25% of the Voting Rights;
(3) any breach of a representation or warranty made by the master
servicer under the Agreement which materially and adversely affects
the interests of certificateholders and which continues unremedied
for thirty days after written notice of that breach has been given
to the master servicer by the trustee or Morgan Stanley Capital I
Inc., or to the master servicer, Morgan Stanley Capital I Inc. and
the trustee by the holders of certificates evidencing not less than
25% of the Voting Rights; and
(4) certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings and certain actions by
or on behalf of the master servicer indicating its insolvency or
inability to pay its obligations.
Material variations to the foregoing Events of Default--other than to shorten
cure periods or eliminate notice requirements--will be specified in the related
prospectus supplement. Unless otherwise specified in the related
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prospectus supplement, the trustee shall, not later than the later of 60 days
after the occurrence of any event which constitutes or, with notice or lapse of
time or both, would constitute an Event of Default and five days after certain
officers of the trustee become aware of the occurrence of such an event,
transmit by mail to Morgan Stanley Capital I Inc. and all certificateholders of
the applicable series notice of the occurrence, unless the default shall have
been cured or waived.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default under an Agreement remains unremedied,
Morgan Stanley Capital I Inc. or the trustee may, and at the direction of
holders of certificates evidencing not less than 51% of the Voting Rights, the
trustee shall, terminate all of the rights and obligations of the master
servicer under the Agreement and in and to the mortgage loans, other than as a
certificateholder or as the owner of any Retained Interest, whereupon the
trustee will succeed to all of the responsibilities, duties and liabilities of
the master servicer under the Agreement, except that if the trustee is
prohibited by law from obligating itself to make advances regarding delinquent
mortgage loans, or if the related prospectus supplement so specifies, then the
trustee will not be obligated to make the advances, and will be entitled to
similar compensation arrangements. Unless otherwise specified in the related
prospectus supplement, in the event that the trustee is unwilling or unable so
to act, it may or, at the written request of the holders of certificates
entitled to at least 51% of the Voting Rights, it shall appoint, or petition a
court of competent jurisdiction for the appointment of, a loan servicing
institution acceptable to the Rating Agency with a net worth at the time of
appointment of at least $15,000,000 to act as successor to the master servicer
under the Agreement. Pending appointment, the trustee is obligated to act in the
capacity of master servicer. The trustee and any successor may agree upon the
servicing compensation to be paid, which in no event may be greater than the
compensation payable to the master servicer under the Agreement.
Unless otherwise described in the related prospectus supplement, the
holders of certificates representing at least 66 2/3% of the Voting Rights
allocated to the respective classes of certificates affected by any Event of
Default will be entitled to waive that Event of Default; provided, however, that
an Event of Default involving a failure to distribute a required payment to
certificateholders described in clause (1) under "--Events of Default" may be
waived only by all of the certificateholders. Upon any waiver of an Event of
Default, the Event of Default shall cease to exist and shall be deemed to have
been remedied for every purpose under the Agreement.
No certificateholder will have the right under any Agreement to institute
any proceeding with respect thereto unless the holder previously has given to
the trustee written notice of default and unless the holders of certificates
evidencing not less than 25% of the Voting Rights have made written request upon
the trustee to institute the proceeding in its own name as trustee thereunder
and have offered to the trustee reasonable indemnity, and the trustee for sixty
days has neglected or refused to institute any proceeding. The trustee, however,
is under no obligation to exercise any of the trusts or powers vested in it by
any Agreement or to make any investigation of matters arising thereunder or to
institute, conduct or defend any litigation thereunder or in relation thereto at
the request, order or direction of any of the holders of certificates covered by
the Agreement, unless the certificateholders have offered to the trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby.
AMENDMENT
Each Agreement may be amended by the parties thereto without the consent
of any of the holders of certificates covered by the Agreement:
(1) to cure any ambiguity;
(2) to correct, modify or supplement any provision therein which may be
inconsistent with any other provision therein;
(3) to make any other provisions with respect to matters or questions
arising under the Agreement which are not inconsistent with the
provisions thereof; or
(4) to comply with any requirements imposed by the Code;
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provided that the amendment--other than an amendment for the purpose specified
in clause (4) above--will not, as evidenced by an opinion of counsel to that
effect, adversely affect in any material respect the interests of any holder of
certificates covered by the Agreement.
Unless otherwise specified in the related prospectus supplement, each
Agreement may also be amended by Morgan Stanley Capital I Inc., the master
servicer, if any, and the trustee, with the consent of the holders of
certificates affected thereby evidencing not less than 51% of the Voting Rights,
for any purpose; provided, however, that to the extent set forth in the related
prospectus supplement, no amendment may:
(1) reduce in any manner the amount of or delay the timing of, payments
received or advanced on mortgage loans which are required to be
distributed on any certificate without the consent of the holder of
that certificate;
(2) adversely affect in any material respect the interests of the
holders of any class of certificates in a manner other than as
described in (1), without the consent of the holders of all
certificates of that class; or
(3) modify the provisions of the Agreement described in this paragraph
without the consent of the holders of all certificates covered by
the Agreement then outstanding.
However, with respect to any series of certificates as to which a REMIC election
is to be made, the trustee will not consent to any amendment of the Agreement
unless it shall first have received an opinion of counsel to the effect that the
amendment will not result in the imposition of a tax on the related trust fund
or cause the related trust fund to fail to qualify as a REMIC at any time that
the related certificates are outstanding.
THE TRUSTEE
The trustee under each Agreement will be named in the related prospectus
supplement. The commercial bank, national banking association, banking
corporation or trust company serving as trustee may have a banking relationship
with Morgan Stanley Capital I Inc. and its affiliates and with any master
servicer and its affiliates.
DUTIES OF THE TRUSTEE
The trustee will make no representations as to the validity or sufficiency
of any Agreement, the certificates or any asset or related document and is not
accountable for the use or application by or on behalf of any master servicer of
any funds paid to the master servicer or its designee or any special servicer in
respect of the certificates or the assets, or deposited into or withdrawn from
the Certificate Account or any other account by or on behalf of the master
servicer or any special servicer. If no Event of Default has occurred and is
continuing, the trustee is required to perform only those duties specifically
required under the related Agreement. However, upon receipt of the various
certificates, reports or other instruments required to be furnished to it, the
trustee is required to examine the documents and to determine whether they
conform to the requirements of the Agreement.
MATTERS REGARDING THE TRUSTEE
Unless otherwise specified in the related prospectus supplement, the
trustee and any director, officer, employee or agent of the trustee shall be
entitled to indemnification out of the Certificate Account for any loss,
liability or expense, including costs and expenses of litigation, and of
investigation, counsel fees, damages, judgments and amounts paid in settlement,
incurred in connection with the trustee's:
o enforcing its rights and remedies and protecting the interests, and
enforcing the rights and remedies, of the certificateholders during
the continuance of an Event of Default;
o defending or prosecuting any legal action in respect of the related
Agreement or series of certificates;
o being the lender of record with respect to the mortgage loans in a
trust fund and the owner of record with respect to any mortgaged
property acquired in respect thereof for the benefit of
certificateholders; or
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o acting or refraining from acting in good faith at the direction of
the holders of the related series of certificates entitled to not
less than 25% or a higher percentage as is specified in the related
Agreement with respect to any particular matter of the Voting Rights
for the series; provided, however, that the indemnification will not
extend to any loss, liability or expense that constitutes a specific
liability of the trustee pursuant to the related Agreement, or to
any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence on the part of the trustee in
the performance of its obligations and duties thereunder, or by
reason of its reckless disregard of the obligations or duties, or as
may arise from a breach of any representation, warranty or covenant
of the trustee made therein.
RESIGNATION AND REMOVAL OF THE TRUSTEE
The trustee may at any time resign from its obligations and duties under
an Agreement by giving written notice thereof to Morgan Stanley Capital I Inc.,
the master servicer, if any, and all certificateholders. Upon receiving the
notice of resignation, Morgan Stanley Capital I Inc. is required promptly to
appoint a successor trustee acceptable to the master servicer, if any. If no
successor trustee shall have been so appointed and have accepted appointment
within 30 days after the giving of the notice of resignation, the resigning
trustee may petition any court of competent jurisdiction for the appointment of
a successor trustee.
If at any time the trustee shall cease to be eligible to continue as
trustee under the related Agreement, or if at any time the trustee shall become
incapable of acting, or shall be adjudged bankrupt or insolvent, or a receiver
of the trustee or of its property shall be appointed, or any public officer
shall take charge or control of the trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation, then Morgan Stanley
Capital I Inc. may remove the trustee and appoint a successor trustee acceptable
to the master servicer, if any. Holders of the certificates of any series
entitled to at least 51% of the Voting Rights for that series may at any time
remove the trustee without cause and appoint a successor trustee.
Any resignation or removal of the trustee and appointment of a successor
trustee shall not become effective until acceptance of appointment by the
successor trustee.
DESCRIPTION OF CREDIT SUPPORT
GENERAL
For any series of certificates, Credit Support may be provided with
respect to one or more classes thereof or the related assets. Credit Support may
be in the form of the subordination of one or more classes of certificates,
letters of credit, insurance policies, guarantees, the establishment of one or
more reserve funds or another method of Credit Support described in the related
prospectus supplement, or any combination of the foregoing. If so provided in
the related prospectus supplement, any form of Credit Support may be structured
so as to be drawn upon by more than one series to the extent described therein.
Unless otherwise provided in the related prospectus supplement for a
series of certificates, the Credit Support will not provide protection against
all risks of loss and will not guarantee repayment of the entire Certificate
Balance of the certificates and interest thereon. If losses or shortfalls occur
that exceed the amount covered by Credit Support or that are not covered by
Credit Support, certificateholders will bear their allocable share of
deficiencies. Moreover, if a form of Credit Support covers more than one series
of certificates, holders of certificates evidencing interests in any of the
trusts will be subject to the risk that the Credit Support will be exhausted by
the claims of other trusts prior to the trust fund receiving any of its intended
share of coverage.
If Credit Support is provided with respect to one or more classes of
certificates of a series, or the related assets, the related prospectus
supplement will include a description of:
(1) the nature and amount of coverage under the Credit Support;
(2) any conditions to payment thereunder not otherwise described in this
prospectus;
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(3) the conditions, if any, under which the amount of coverage under the
Credit Support may be reduced and under which the Credit Support may
be terminated or replaced ;
(4) the material provisions relating to the Credit Support; and
(5) information regarding the obligor under any instrument of Credit
Support, including:
o a brief description of its principal business activities;
o its principal place of business, place of incorporation and
the jurisdiction under which it is chartered or licensed to do
business;
o if applicable, the identity of regulatory agencies that
exercise primary jurisdiction over the conduct of its
business; and
o its total assets, and its stockholders' or policyholders'
surplus, if applicable, as of the date specified in the
prospectus supplement.
See "Risk Factors--Credit Support May Not Cover Losses or Risks Which Could
Adversely Affect Payment On Your Certificates."
SUBORDINATE CERTIFICATES
If so specified in the related prospectus supplement, one or more classes
of certificates of a series may be Subordinate Certificates. To the extent
specified in the related prospectus supplement, the rights of the holders of
Subordinate Certificates to receive distributions of principal and interest from
the Certificate Account on any Distribution Date will be subordinated to the
rights of the holders of Senior Certificates. If so provided in the related
prospectus supplement, the subordination of a class may apply only in the event
of or may be limited to certain types of losses or shortfalls. The related
prospectus supplement will set forth information concerning the amount of
subordination of a class or classes of Subordinate Certificates in a series, the
circumstances in which the subordination will be applicable and the manner, if
any, in which the amount of subordination will be effected.
CROSS-SUPPORT PROVISIONS
If the assets for a series are divided into separate groups, each
supporting a separate class or classes of certificates of a series, credit
support may be provided by cross-support provisions requiring that distributions
be made on Senior Certificates evidencing interests in one group of mortgage
loans and/or MBS prior to distributions on Subordinate Certificates evidencing
interests in a different group of mortgage loans and/or MBS within the trust
fund. The prospectus supplement for a series that includes a cross-support
provision will describe the manner and conditions for applying these provisions.
INSURANCE OR GUARANTEES FOR THE WHOLE LOANS
If so provided in the prospectus supplement for a series of certificates,
the Whole Loans in the related trust fund will be covered for various default
risks by insurance policies or guarantees. A copy of any material instrument for
a series will be filed with the Commission as an exhibit to a Current Report on
Form 8-K to be filed within 15 days of issuance of the certificates of the
related series.
LETTER OF CREDIT
If so provided in the prospectus supplement for a series of certificates,
deficiencies in amounts otherwise payable on the certificates or certain classes
thereof will be covered by one or more letters of credit, issued by the letter
of credit bank. Under a letter of credit, the letter of credit bank will be
obligated to honor draws thereunder in an aggregate fixed dollar amount, net of
unreimbursed payments thereunder, generally equal to a percentage specified in
the related prospectus supplement of the aggregate principal balance of the
mortgage loans and/or MBS on the related Cut-off Date or of the initial
aggregate Certificate Balance of one or more classes of certificates. If so
specified in the related prospectus supplement, the letter of credit may permit
draws in the event of only certain types of losses and shortfalls. The amount
available under the letter of credit will, in all cases, be reduced to the
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extent of the unreimbursed payments thereunder and may otherwise be reduced as
described in the related prospectus supplement. The obligations of the letter of
credit bank under the letter of credit for each series of certificates will
expire at the earlier of the date specified in the related prospectus supplement
or the termination of the trust fund. A copy of any letter of credit for a
series will be filed with the Commission as an exhibit to a Current Report on
Form 8-K to be filed within 15 days of issuance of the certificates of the
related series.
INSURANCE POLICIES AND SURETY BONDS
If so provided in the prospectus supplement for a series of certificates,
deficiencies in amounts otherwise payable on the certificates or certain classes
thereof will be covered by insurance policies and/or surety bonds provided by
one or more insurance companies or sureties. The instruments may cover, with
respect to one or more classes of certificates of the related series, timely
distributions of interest and/or full distributions of principal on the basis of
a schedule of principal distributions set forth in or determined in the manner
specified in the related prospectus supplement. A copy of any such instrument
for a series will be filed with the Commission as an exhibit to a Current Report
on Form 8-K to be filed with the Commission within 15 days of issuance of the
certificates of the related series.
RESERVE FUNDS
If so provided in the prospectus supplement for a series of certificates,
deficiencies in amounts otherwise payable on the certificates or certain classes
thereof will be covered by one or more reserve funds in which cash, a letter of
credit, Permitted Investments, a demand note or a combination thereof will be
deposited, in the amounts so specified in the prospectus supplement. The reserve
funds for a series may also be funded over time by depositing therein a
specified amount of the distributions received on the related assets as
specified in the related prospectus supplement.
Amounts on deposit in any reserve fund for a series, together with the
reinvestment income thereon, if any, will be applied for the purposes, in the
manner, and to the extent specified in the related prospectus supplement. A
reserve fund may be provided to increase the likelihood of timely distributions
of principal of and interest on the certificates. If so specified in the related
prospectus supplement, reserve funds may be established to provide limited
protection against only certain types of losses and shortfalls. Following each
Distribution Date amounts in a reserve fund in excess of any amount required to
be maintained therein may be released from the reserve fund under the conditions
and to the extent specified in the related prospectus supplement and will not be
available for further application to the certificates.
Moneys deposited in any Reserve Funds will be invested in Permitted
Investments, except as otherwise specified in the related prospectus supplement.
Unless otherwise specified in the related prospectus supplement, any
reinvestment income or other gain from these investments will be credited to the
related Reserve Fund for the series, and any loss resulting from the investments
will be charged to the Reserve Fund. However, the income may be payable to any
related master servicer or another service provider as additional compensation.
The Reserve Fund, if any, for a series will not be a part of the trust fund to
the extent set forth in the related prospectus supplement.
Additional information concerning any Reserve Fund will be set forth in
the related prospectus supplement, including the initial balance of the Reserve
Fund, the balance required to be maintained in the Reserve Fund, the manner in
which the required balance will decrease over time, the manner of funding the
Reserve Fund, the purposes for which funds in the Reserve Fund may be applied to
make distributions to certificateholders and use of investment earnings from the
Reserve Fund, if any.
CREDIT SUPPORT FOR MBS
If so provided in the prospectus supplement for a series of certificates,
the MBS in the related trust fund and/or the mortgage loans underlying the MBS
may be covered by one or more of the types of Credit Support described in this
prospectus. The related prospectus supplement will specify as to each form of
Credit Support the information indicated above under "Description of Credit
Support--General," to the extent the information is material and available.
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LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE LEASES
The following discussion contains general summaries of certain legal
aspects of loans secured by commercial and multifamily residential properties
that are general in nature. The legal aspects are governed by applicable state
law, which laws may differ substantially. As such, the summaries DO NOT:
o purport to be complete ;
o purport to reflect the laws of any particular state; or
o purport to encompass the laws of all states in which the security
for the mortgage loans is situated.
The summaries are qualified in their entirety by reference to the applicable
federal and state laws governing the mortgage loans. See "Description of the
Trust Funds--Assets."
GENERAL
All of the mortgage loans are loans evidenced by a note or bond and
secured by instruments granting a security interest in real property . The
instrument granting a security interest may be a mortgage, deed of trust,
security deed or deed to secure debt, depending upon the prevailing practice and
law in the state in which the mortgaged property is located. Any of the
foregoing types of mortgages will create a lien upon, or grant a title interest
in, the subject property. The priority of the mortgage will depend on the terms
of the particular security instrument, as well as separate, recorded,
contractual arrangements with others holding interests in the mortgaged
property, the knowledge of the parties to the instrument as well as the order of
recordation of the instrument in the appropriate public recording office.
However, recording does not generally establish priority over governmental
claims for real estate taxes and assessments and other charges imposed under
governmental police powers.
TYPES OF MORTGAGE INSTRUMENTS
A mortgage either creates a lien against or constitutes a conveyance of
real property between two parties--
o a borrower--the borrower and usually the owner of the subject
property, and
o a mortgagee--the lender.
In contrast, a deed of trust is a three-party instrument, among
o a trustor--the equivalent of a mortgagor or borrower,
o a trustee to whom the mortgaged property is conveyed, and
o a beneficiary--the lender--for whose benefit the conveyance is made.
Under a deed of trust, the borrower grants the property, irrevocably until the
debt is paid, in trust, generally with a power of sale as security for the
indebtedness evidenced by the related note. A deed to secure debt typically has
two parties.
By executing a deed to secure debt, the grantor conveys title to, as
opposed to merely creating a lien upon, the subject property to the grantee
until the time that the underlying debt is repaid, generally with a power of
sale as security for the indebtedness evidenced by the related mortgage note. If
a borrower under a mortgage is a land trust, there would be an additional party
because legal title to the property is held by a land trustee under a land trust
agreement for the benefit of the borrower. At origination of a mortgage loan
involving a land trust, the borrower executes a separate undertaking to make
payments on the mortgage note. The lender's authority under a mortgage, the
trustee's authority under a deed of trust and the grantee's authority under a
deed to secure debt are governed by the express provisions of the mortgage, the
law of the state in which the real property is located, certain federal laws
including, without limitation, the Soldiers' and Sailors' Civil Relief Act of
1940 and, in some cases, in deed of trust transactions, the directions of the
beneficiary.
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INTEREST IN REAL PROPERTY
The real property covered by a mortgage, deed of trust, security deed or
deed to secure debt is most often the fee estate in land and improvements.
However, the mortgage, or other instrument, may encumber other interests in real
property such as:
o a tenant's interest in a lease of land or improvements, or both, and
o the leasehold estate created by the lease.
A mortgage, or other instrument, covering an interest in real property other
than the fee estate requires special provisions in the instrument creating the
interest to protect the lender against termination of the interest before the
note secured by the mortgage, deed of trust, security deed or deed to secure
debt is paid. Unless otherwise specified in the prospectus supplement, Morgan
Stanley Capital I Inc. or the asset seller will make representations and
warranties in the Agreement with respect to the mortgage loans which are secured
by an interest in a leasehold estate. The representations and warranties will be
set forth in the prospectus supplement if applicable.
LEASES AND RENTS
Mortgages that encumber income-producing property often contain an
assignment of rents and leases. Typically, under an assignment of rents and
leases:
o the borrower assigns its right, title and interest as landlord under
each lease and the income derived from each lease to the lender, and
o the borrower retains a revocable license to collect the rents for so
long as there is no default under the loan documents.
The manner of perfecting the lender's interest in rents may depend on whether
the borrower's assignment was absolute or one granted as security for the loan.
Failure to properly perfect the lender's interest in rents may result in the
loss of substantial pool of funds, which could otherwise serve as a source of
repayment for the loan. If the borrower defaults, the license terminates and the
lender is entitled to collect the rents. Local law may require that the lender
take possession of the property and/or obtain a court-appointed receiver before
becoming entitled to collect the rents. In most states, hotel and motel room
revenues are considered accounts receivable under the UCC; generally these
revenues are either assigned by the borrower, which remains entitled to collect
the revenues absent a default, or pledged by the borrower, as security for the
loan. In general, the lender must file financing statements in order to perfect
its security interest in the revenues and must file continuation statements,
generally every five years, to maintain perfection of the security interest.
Even if the lender's security interest in room revenues is perfected under the
UCC, the lender will generally be required to commence a foreclosure or
otherwise take possession of the property in order to collect the room revenues
after a default.
Even after a foreclosure, the potential rent payments from the property
may be less than the periodic payments that had been due under the mortgage. For
instance, the net income that would otherwise be generated from the property may
be less than the amount that would have been needed to service the mortgage debt
if the leases on the property are at below-market rents, or as the result of
excessive maintenance, repair or other obligations which a lender succeeds to as
landlord.
Lenders that actually take possession of the property, however, may incur
potentially substantial risks attendant to being a mortgagee in possession. The
risks include liability for environmental clean-up costs and other risks
inherent in property ownership. See "--Environmental Legislation" below.
PERSONALITY
Certain types of mortgaged properties, such as hotels, motels and
industrial plants, are likely to derive a significant part of their value from
personal property which does not constitute "fixtures" under applicable state
real property law and, hence, would not be subject to the lien of a mortgage.
The property is generally pledged or assigned as security to the lender under
the UCC. In order to perfect its security interest therein, the lender generally
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must file UCC financing statements and, to maintain perfection of the security
interest, file continuation statements generally every five years.
FORECLOSURE
GENERAL
Foreclosure is a legal procedure that allows the lender to recover its
mortgage debt by enforcing its rights and available legal remedies under the
mortgage. If the borrower defaults in payment or performance of its obligations
under the note or mortgage, the lender has the right to institute foreclosure
proceedings to sell the mortgaged property at public auction to satisfy the
indebtedness.
Foreclosure procedures with respect to the enforcement of a mortgage vary
from state to state. Two primary methods of foreclosing a mortgage are judicial
foreclosure and non-judicial foreclosure pursuant to a power of sale granted in
the mortgage instrument. There are several other foreclosure procedures
available in some states that are either infrequently used or available only in
certain limited circumstances, such as strict foreclosure.
JUDICIAL FORECLOSURE
A judicial foreclosure proceeding is conducted in a court having
jurisdiction over the mortgaged property. Generally, the action is initiated by
the service of legal pleadings upon all parties having a subordinate interest of
record in the real property and all parties in possession of the property, under
leases or otherwise, whose interests are subordinate to the mortgage. Delays in
completion of the foreclosure may occasionally result from difficulties in
locating defendants. When the lender's right to foreclose is contested, the
legal proceedings can be time-consuming. Upon successful completion of a
judicial foreclosure proceeding, the court generally issues a judgment of
foreclosure and appoints a referee or other officer to conduct a public sale of
the mortgaged property, the proceeds of which are used to satisfy the judgment.
The sales are made in accordance with procedures that vary from state to state.
EQUITABLE LIMITATIONS ON ENFORCEABILITY OF CERTAIN PROVISIONS
United States courts have traditionally imposed general equitable
principles to limit the remedies available to a lender in connection with
foreclosure. These equitable principles are generally designed to relieve the
borrower from the legal effect of mortgage defaults, to the extent that the
effect is perceived as harsh or unfair. Relying on these principles, a court may
alter the specific terms of a loan to the extent it considers necessary to
prevent or remedy an injustice, undue oppression or overreaching, or may require
the lender to undertake affirmative and expensive actions to determine the cause
of the borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's and have required that lenders reinstate loans or recast payment
schedules in order to accommodate borrowers who are suffering from a temporary
financial disability. In other cases, courts have limited the right of the
lender to foreclose if the default under the mortgage is not monetary, e.g., the
borrower failed to maintain the mortgaged property adequately or the borrower
executed a junior mortgage on the mortgaged property. The exercise by the court
of its equity powers will depend on the individual circumstances of each case
presented to it. Finally, some courts have been faced with the issue of whether
federal or state constitutional provisions reflecting due process concerns for
adequate notice require that a borrower receive notice in addition to
statutorily-prescribed minimum notice. For the most part, these cases have
upheld the reasonableness of the notice provisions or have found that a public
sale under a mortgage providing for a power of sale does not involve sufficient
state action to afford constitutional protections to the borrower.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses are raised or counterclaims are interposed, and
sometimes require several years to complete. Moreover, a non-collusive,
regularly conducted foreclosure sale may be challenged as a fraudulent
conveyance, regardless of the parties' intent, if a court determines that the
sale was for less than fair consideration and that the sale occurred while the
borrower was insolvent or the borrower was rendered insolvent as a result of the
sale and within one year -- or within the state statute of limitations if the
trustee in bankruptcy elects to proceed under state fraudulent conveyance law --
of the filing of bankruptcy.
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NON-JUDICIAL FORECLOSURE/POWER OF SALE
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale pursuant to the power of sale granted in the deed of trust. A
power of sale is typically granted in a deed of trust. It may also be contained
in any other type of mortgage instrument. A power of sale allows a non-judicial
public sale to be conducted generally following a request from the
beneficiary/lender to the trustee to sell the property upon any default by the
borrower under the terms of the mortgage note or the mortgage instrument and
after notice of sale is given in accordance with the terms of the mortgage
instrument, as well as applicable state law. In some states, prior to such sale,
the trustee under a deed of trust must record a notice of default and notice of
sale and send a copy to the borrower and to any other party who has recorded a
request for a copy of a notice of default and notice of sale. In addition, in
some states the trustee must provide notice to any other party having an
interest of record in the real property, including junior lienholders. A notice
of sale must be posted in a public place and, in most states, published for a
specified period of time in one or more newspapers. The borrower or junior
lienholder may then have the right, during a reinstatement period required in
some states, to cure the default by paying the entire actual amount in arrears,
without acceleration, plus the expenses incurred in enforcing the obligation. In
other states, the borrower or the junior lienholder is not provided a period to
reinstate the loan, but has only the right to pay off the entire debt to prevent
the foreclosure sale. Generally, the procedure for public sale, the parties
entitled to notice, the method of giving notice and the applicable time periods
are governed by state law and vary among the states. Foreclosure of a deed to
secure debt is also generally accomplished by a non-judicial sale similar to
that required by a deed of trust, except that the lender or its agent, rather
than a trustee, is typically empowered to perform the sale in accordance with
the terms of the deed to secure debt and applicable law.
PUBLIC SALE
A third party may be unwilling to purchase a mortgaged property at a
public sale because of the difficulty in determining the value of the property
at the time of sale, due to, among other things, redemption rights which may
exist and the possibility of physical deterioration of the property during the
foreclosure proceedings. For these reasons, it is common for the lender to
purchase the mortgaged property for an amount equal to or less than the
underlying debt and accrued and unpaid interest plus the expenses of
foreclosure. Generally, state law controls the amount of foreclosure costs and
expenses which may be recovered by a lender. Thereafter, subject to the
borrower's right in some states to remain in possession during a redemption
period, if applicable, the lender will become the owner of the property and have
both the benefits and burdens of ownership of the mortgaged property. For
example, the lender will have the obligation to pay debt service on any senior
mortgages, to pay taxes, obtain casualty insurance and to make the repairs at
its own expense as are necessary to render the property suitable for sale.
Frequently, the lender employs a third party management company to manage and
operate the property. The costs of operating and maintaining a commercial or
multifamily residential property may be significant and may be greater than the
income derived from that property. The costs of management and operation of
those mortgaged properties which are hotels, motels, restaurants, nursing or
convalescent homes or hospitals may be particularly significant because of the
expertise, knowledge and, with respect to nursing or convalescent homes or
hospitals, regulatory compliance, required to run the operations and the effect
which foreclosure and a change in ownership may have on the public's and the
industry's, including franchisors', perception of the quality of the operations.
The lender will commonly obtain the services of a real estate broker and pay the
broker's commission in connection with the sale of the property. Depending upon
market conditions, the ultimate proceeds of the sale of the property may not
equal the lender's investment in the property. Moreover, a lender commonly
incurs substantial legal fees and court costs in acquiring a mortgaged property
through contested foreclosure and/or bankruptcy proceedings. Furthermore, a few
states require that any environmental contamination at certain types of
properties be cleaned up before a property may be resold. In addition, a lender
may be responsible under federal or state law for the cost of cleaning up a
mortgaged property that is environmentally contaminated. See "--Environmental
Legislation." Generally state law controls the amount of foreclosure expenses
and costs, including attorneys' fees, that may be recovered by a lender.
A junior lender may not foreclose on the property securing the junior
mortgage unless it forecloses subject to senior mortgages and any other prior
liens, in which case it may be obliged to make payments on the senior mortgages
to avoid their foreclosure. In addition, in the event that the foreclosure of a
junior mortgage triggers the enforcement of a "due-on-sale" clause contained in
a senior mortgage, the junior lender may be required to pay the full amount of
the senior mortgage to avoid its foreclosure. Accordingly, with respect to those
mortgage loans, if
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any, that are junior mortgage loans, if the lender purchases the property, the
lender's title will be subject to all senior mortgages, prior liens and certain
governmental liens.
The proceeds received by the referee or trustee from the sale are applied
first to the costs, fees and expenses of sale and then in satisfaction of the
indebtedness secured by the mortgage under which the sale was conducted. Any
proceeds remaining after satisfaction of senior mortgage debt are generally
payable to the holders of junior mortgages and other liens and claims in order
of their priority, whether or not the borrower is in default. Any additional
proceeds are generally payable to the borrower. The payment of the proceeds to
the holders of junior mortgages may occur in the foreclosure action of the
senior mortgage or a subsequent ancillary proceeding or may require the
institution of separate legal proceedings by these holders.
REO PROPERTIES
If title to any mortgaged property is acquired by the trustee on behalf of
the certificateholders, the master servicer or any related subservicer or the
special servicer, on behalf of the holders, will be required to sell the
mortgaged property prior to the close of the third calendar year following the
year of acquisition of such mortgaged property by the trust fund, unless:
o the Internal Revenue Service grants an REO Extension, or
o it obtains an opinion of counsel generally to the effect that the
holding of the property beyond the close of the third calendar year
after its acquisition will not result in the imposition of a tax on
the trust fund or cause any REMIC created pursuant to the Agreement
to fail to qualify as a REMIC under the Code.
Subject to the foregoing, the master servicer or any related subservicer or the
special servicer will generally be required to solicit bids for any mortgaged
property so acquired in a manner as will be reasonably likely to realize a fair
price for the property. The master servicer or any related subservicer or the
special servicer may retain an independent contractor to operate and manage any
REO Property; however, the retention of an independent contractor will not
relieve the master servicer or any related subservicer or the special servicer
of its obligations with respect to the REO Property.
In general, the master servicer or any related subservicer or the special
servicer or an independent contractor employed by the master servicer or any
related subservicer or the special servicer at the expense of the trust fund
will be obligated to operate and manage any mortgaged property acquired as REO
Property in a manner that would, to the extent commercially feasible, maximize
the trust fund's net after-tax proceeds from the property. After the master
servicer or any related subservicer or the special servicer reviews the
operation of the property and consults with the trustee to determine the trust
fund's federal income tax reporting position with respect to the income it is
anticipated that the trust fund would derive from the property, the master
servicer or any related subservicer or the special servicer could determine,
particularly in the case of an REO Property that is a hospitality or residential
health care facility, that it would not be commercially feasible to manage and
operate the property in a manner that would avoid the imposition of an REO Tax
at the highest marginal corporate tax rate--currently 35%. The determination as
to whether income from an REO Property would be subject to an REO Tax will
depend on the specific facts and circumstances relating to the management and
operation of each REO Property. Any REO Tax imposed on the trust fund's income
from an REO Property would reduce the amount available for distribution to
certificateholders. Certificateholders are advised to consult their tax advisors
regarding the possible imposition of REO Taxes in connection with the operation
of commercial REO Properties by REMICs. See "Federal Income Tax Consequences" in
this prospectus and "Federal Income Tax Consequences" in the prospectus
supplement.
RIGHTS OF REDEMPTION
The purposes of a foreclosure action are to enable the lender to realize
upon its security and to bar the borrower, and all persons who have an interest
in the property which is subordinate to the mortgage being foreclosed, from
exercise of their "equity of redemption." The doctrine of equity of redemption
provides that, until the property covered by a mortgage has been sold in
accordance with a properly conducted foreclosure and foreclosure sale, those
having an interest which is subordinate to that of the foreclosing lender have
an equity of redemption and may redeem the property by paying the entire debt
with interest. In addition, in some states, when a foreclosure action has been
commenced, the redeeming party must pay certain costs of the action. Those
having an
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equity of redemption must generally be made parties and joined in the
foreclosure proceeding in order for their equity of redemption to be cut off and
terminated.
The equity of redemption is a common-law or non-statutory right which
exists prior to completion of the foreclosure, is not waivable by the borrower,
must be exercised prior to foreclosure sale and should be distinguished from the
post-sale statutory rights of redemption. In some states, after sale pursuant to
a deed of trust or foreclosure of a mortgage, the borrower and foreclosed junior
lienors are given a statutory period in which to redeem the property from the
foreclosure sale. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
authorized if the former borrower pays only a portion of the sums due. The
effect of a statutory right of redemption is to diminish the ability of the
lender to sell the foreclosed property. The exercise of a right of redemption
would defeat the title of any purchaser from a foreclosure sale or sale under a
deed of trust. Consequently, the practical effect of the redemption right is to
force the lender to maintain the property and pay the expenses of ownership
until the redemption period has expired. In some states, a post-sale statutory
right of redemption may exist following a judicial foreclosure, but not
following a trustee's sale under a deed of trust.
Under the REMIC Provisions currently in effect, property acquired by
foreclosure generally must not be held beyond the close of the third calendar
year following the year of acquisition. Unless otherwise provided in the related
prospectus supplement, with respect to a series of certificates for which an
election is made to qualify the trust fund or a part thereof as a REMIC, the
Agreement will permit foreclosed property to be held beyond the close of the
third calendar year following the year of acquisition if the Internal Revenue
Service grants an extension of time within which to sell the property or
independent counsel renders an opinion to the effect that holding the property
for such additional period is permissible under the REMIC Provisions.
ANTI-DEFICIENCY LEGISLATION
Some or all of the mortgage loans may be nonrecourse loans, as to which
recourse may be had only against the specific property securing the related
mortgage loan and a personal money judgment may not be obtained against the
borrower. Even if a mortgage loan by its terms provides for recourse to the
borrower, some states impose prohibitions or limitations on recourse to the
borrower. For example, statutes in some states limit the right of the lender to
obtain a deficiency judgment against the borrower following foreclosure or sale
under a deed of trust. A deficiency judgment would be a personal judgment
against the former borrower equal to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
lender. Some states require the lender to exhaust the security afforded under a
mortgage by foreclosure in an attempt to satisfy the full debt before bringing a
personal action against the borrower. In certain other states, the lender has
the option of bringing a personal action against the borrower on the debt
without first exhausting the security; however, in some of these states, the
lender, following judgment on a personal action, may be deemed to have elected a
remedy and may be precluded from exercising remedies with respect to the
security. In some cases, a lender will be precluded from exercising any
additional rights under the note or mortgage if it has taken any prior
enforcement action. Consequently, the practical effect of the election
requirement, in those states permitting such election, is that lenders will
usually proceed against the security first rather than bringing a personal
action against the borrower. Finally, other statutory provisions limit any
deficiency judgment against the former borrower following a judicial sale to the
excess of the outstanding debt over the fair market value of the property at the
time of the public sale. The purpose of these statutes is generally to prevent a
lender from obtaining a large deficiency judgment against the former borrower as
a result of low or no bids at the judicial sale.
LEASEHOLD RISKS
Mortgage loans may be secured by a mortgage on a ground lease. Leasehold
mortgages are subject to certain risks not associated with mortgage loans
secured by the fee estate of the borrower. The most significant of these risks
is that the ground lease creating the leasehold estate could terminate, leaving
the leasehold lender without its security. The ground lease may terminate if,
among other reasons, the ground lessee breaches or defaults in its obligations
under the ground lease or there is a bankruptcy of the ground lessee or the
ground lessor. This risk may be minimized if the ground lease contains certain
provisions protective of the lender, but the ground leases that secure mortgage
loans may not contain some of these protective provisions, and mortgages may not
contain the other protections discussed in the next paragraph. Protective ground
lease provisions include:
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(1) the right of the leasehold lender to receive notices from the ground
lessor of any defaults by the borrower;
(2) the right to cure those defaults, with adequate cure periods;
(3) if a default is not susceptible of cure by the leasehold lender, the
right to acquire the leasehold estate through foreclosure or
otherwise;
(4) the ability of the ground lease to be assigned to and by the
leasehold lender or purchaser at a foreclosure sale and for the
concomitant release of the ground lessee's liabilities thereunder;
(5) the right of the leasehold lender to enter into a new ground lease
with the ground lessor on the same terms and conditions as the old
ground lease in the event of a termination thereof;
(6) a ground lease or leasehold mortgage that prohibits the ground
lessee from treating the ground lease as terminated in the event of
the ground lessor's bankruptcy and rejection of the ground lease by
the trustee for the debtor-ground lessor; and
(7) a leasehold mortgage that provides for the assignment of the
debtor-ground lessee's right to reject a lease pursuant to Section
365 of the Bankruptcy Code.
Without the protections described in (1) - (7) above, a leasehold lender may
lose the collateral securing its leasehold mortgage. However, the enforceability
of clause (7) has not been established. In addition, terms and conditions of a
leasehold mortgage are subject to the terms and conditions of the ground lease.
Although certain rights given to a ground lessee can be limited by the terms of
a leasehold mortgage, the rights of a ground lessee or a leasehold lender with
respect to, among other things, insurance, casualty and condemnation will be
governed by the provisions of the ground lease.
BANKRUPTCY LAWS
The Bankruptcy Code and related state laws may interfere with or affect
the ability of a lender to realize upon collateral and/or to enforce a
deficiency judgment. For example, under the Bankruptcy Code, virtually all
actions, including foreclosure actions and deficiency judgment proceedings, are
automatically stayed upon the filing of the bankruptcy petition, and, usually,
no interest or principal payments are made during the course of the bankruptcy
case. The delay and the consequences thereof caused by an automatic stay can be
significant. Also, under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a junior lienor may stay the senior lender from
taking action to foreclose out the junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards for the lender are met, the amount and terms of a mortgage secured by
property of the debtor may be modified under certain circumstances. In many
jurisdictions, the outstanding amount of the loan secured by the real property
may be reduced to the then-current value of the property, with a corresponding
partial reduction of the amount of lender's security interest pursuant to a
confirmed plan or lien avoidance proceeding, thus leaving the lender a general
unsecured creditor for the difference between such value and the outstanding
balance of the loan. Other modifications may include the reduction in the amount
of each scheduled payment, which reduction may result from a reduction in the
rate of interest and/or the alteration of the repayment schedule with or without
affecting the unpaid principal balance of the loan, and/or an extension or
reduction of the final maturity date. Some courts with federal bankruptcy
jurisdiction have approved plans, based on the particular facts of the
reorganization case, that effected the curing of a mortgage loan default by
paying arrearages over a number of years. Also, under federal bankruptcy law, a
bankruptcy court may permit a debtor through its rehabilitative plan to
de-accelerate a secured loan and to reinstate the loan even though the lender
accelerated the mortgage loan and final judgment of foreclosure had been entered
in state court provided no sale of the property had yet occurred, prior to the
filing of the debtor's petition. This may be done even if the full amount due
under the original loan is never repaid.
Federal bankruptcy law provides generally that rights and obligation under
an unexpired lease of the debtor/lessee may not be terminated or modified at any
time after the commencement of a case under the Bankruptcy Code solely on the
basis of a provision in the lease to such effect or because of certain other
similar
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events. This prohibition on so-called "ipso facto clauses" could limit the
ability of the trustee for a series of certificates to exercise certain
contractual remedies with respect to the leases. In addition, Section 362 of the
Bankruptcy Code operates as an automatic stay of, among other things, any act to
obtain possession of property from a debtor's estate, which may delay a
trustee's exercise of remedies for a related series of certificates in the event
that a related lessee or a related borrower becomes the subject of a proceeding
under the Bankruptcy Code. For example, a lender would be stayed from enforcing
a lease assignment by a borrower related to a mortgaged property if the related
borrower was in a bankruptcy proceeding. The legal proceedings necessary to
resolve the issues could be time-consuming and might result in significant
delays in the receipt of the assigned rents. Similarly, the filing of a petition
in bankruptcy by or on behalf of a lessee of a mortgaged property would result
in a stay against the commencement or continuation of any state court proceeding
for past due rent, for accelerated rent, for damages or for a summary eviction
order with respect to a default under the lease that occurred prior to the
filing of the lessee's petition. Rents and other proceeds of a mortgage loan may
also escape an assignment thereof if the assignment is not fully perfected under
state law prior to commencement of the bankruptcy proceeding. See "--Leases and
Rents" above.
In addition, the Bankruptcy Code generally provides that a trustee or
debtor-in-possession may, subject to approval of the court,
o assume the lease and retain it or assign it to a third party or
o reject the lease.
If the lease is assumed, the trustee in bankruptcy on behalf of the lessee, or
the lessee as debtor-in-possession, or the assignee, if applicable, must cure
any defaults under the lease, compensate the lessor for its losses and provide
the lessor with "adequate assurance" of future performance. These remedies may
be insufficient, however, as the lessor may be forced to continue under the
lease with a lessee that is a poor credit risk or an unfamiliar tenant if the
lease was assigned, and any assurances provided to the lessor may, in fact, be
inadequate. If the lease is rejected, the rejection generally constitutes a
breach of the executory contract or unexpired lease immediately before the date
of filing the petition. As a consequence, the other party or parties to the
rejected lease, such as the borrower, as lessor under a lease, would have only
an unsecured claim against the debtor for damages resulting from the breach,
which could adversely affect the security for the related mortgage loan. In
addition, pursuant to Section 502(b)(6) of the Bankruptcy Code, a lessor's
damages for lease rejection in respect of future rent installments are limited
to the rent reserved by the lease, without acceleration, for the greater of one
year or 15%, not to exceed three years, of the remaining term of the lease.
If a trustee in bankruptcy on behalf of a lessor, or a lessor as
debtor-in-possession, rejects an unexpired lease of real property, the lessee
may treat the lease as terminated by the rejection or, in the alternative, the
lessee may remain in possession of the leasehold for the balance of the term and
for any renewal or extension of the term that is enforceable by the lessee under
applicable nonbankruptcy law. The Bankruptcy Code provides that if a lessee
elects to remain in possession after a rejection of a lease, the lessee may
offset against rents reserved under the lease for the balance of the term after
the date of rejection of the lease, and any renewal or extension thereof, any
damages occurring after such date caused by the nonperformance of any obligation
of the lessor under the lease after such date. To the extent provided in the
related prospectus supplement, the lessee will agree under certain leases to pay
all amounts owing thereunder to the master servicer without offset. To the
extent that a contractual obligation remains enforceable against the lessee, the
lessee would not be able to avail itself of the rights of offset generally
afforded to lessees of real property under the Bankruptcy Code.
In a bankruptcy or similar proceeding of a borrower, action may be taken
seeking the recovery, as a preferential transfer or on other grounds, of any
payments made by the borrower, or made directly by the related lessee, under the
related mortgage loan to the trust fund. Payments on long-term debt may be
protected from recovery as preferences if they are payments in the ordinary
course of business made on debts incurred in the ordinary course of business.
Whether any particular payment would be protected depends upon the facts
specific to a particular transaction.
A trustee in bankruptcy, in some cases, may be entitled to collect its
costs and expenses in preserving or selling the mortgaged property ahead of
payment to the lender. In certain circumstances, a debtor in bankruptcy may have
the power to grant liens senior to the lien of a mortgage, and analogous state
statutes and general
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principles of equity may also provide a borrower with means to halt a
foreclosure proceeding or sale and to force a restructuring of a mortgage loan
on terms a lender would not otherwise accept. Moreover, the laws of some states
also give priority to certain tax liens over the lien of a mortgage or deed of
trust. Under the Bankruptcy Code, if the court finds that actions of the lender
have been unreasonable, the lien of the related mortgage may be subordinated to
the claims of unsecured creditors.
To the extent described in the related prospectus supplement, some of the
Borrowers may be partnerships. The laws governing limited partnerships in some
states provide that the commencement of a case under the Bankruptcy Code with
respect to a general partner will cause a person to cease to be a general
partner of the limited partnership, unless otherwise provided in writing in the
limited partnership agreement. This provision may be construed as an "ipso
facto" clause and, in the event of the general partner's bankruptcy, may not be
enforceable. To the extent described in the related prospectus supplement, some
of the limited partnership agreements of the Borrowers may provide that the
commencement of a case under the Bankruptcy Code with respect to the related
general partner constitutes an event of withdrawal--assuming the enforceability
of the clause is not challenged in bankruptcy proceedings or, if challenged, is
upheld--that might trigger the dissolution of the limited partnership, the
winding up of its affairs and the distribution of its assets, unless
o at the time there was at least one other general partner and the
written provisions of the limited partnership permit the business of
the limited partnership to be carried on by the remaining general
partner and that general partner does so or
o the written provisions of the limited partnership agreement permit
the limited partner to agree within a specified time frame -- often
60 days -- after such withdrawal to continue the business of the
limited partnership and to the appointment of one or more general
partners and the limited partners do so.
In addition, the laws governing general partnerships in some states provide that
the commencement of a case under the Bankruptcy Code or state bankruptcy laws
with respect to a general partner of such partnerships triggers the dissolution
of the partnership, the winding up of its affairs and the distribution of its
assets. The state laws, however, may not be enforceable or effective in a
bankruptcy case. The dissolution of a Borrower, the winding up of its affairs
and the distribution of its assets could result in an acceleration of its
payment obligation under a related mortgage loan, which may reduce the yield on
the related series of certificates in the same manner as a principal prepayment.
In addition, the bankruptcy of the general partner of a Borrower that is a
partnership may provide the opportunity for a trustee in bankruptcy for the
general partner, such general partner as a debtor-in-possession, or a creditor
of the general partner to obtain an order from a court consolidating the assets
and liabilities of the general partner with those of the Borrower pursuant to
the doctrines of substantive consolidation or piercing the corporate veil. In
such a case, the respective mortgaged property, for example, would become
property of the estate of the bankrupt general partner. Not only would the
mortgaged property be available to satisfy the claims of creditors of the
general partner, but an automatic stay would apply to any attempt by the trustee
to exercise remedies with respect to the mortgaged property. However, such an
occurrence should not affect the trustee's status as a secured creditor with
respect to the Borrower or its security interest in the mortgaged property.
JUNIOR MORTGAGES; RIGHTS OF SENIOR LENDERS OR BENEFICIARIES
To the extent specified in the related prospectus supplement, some of the
mortgage loans for a series will be secured by junior mortgages or deeds of
trust which are subordinated to senior mortgages or deeds of trust held by other
lenders or institutional investors. The rights of the trust fund, and therefore
the related certificateholders, as beneficiary under a junior deed of trust or
as lender under a junior mortgage, are subordinate to those of the lender or
beneficiary under the senior mortgage or deed of trust, including the prior
rights of the senior lender or beneficiary to receive:
o rents, hazard insurance and condemnation proceeds, and
o to cause the mortgaged property securing the mortgage loan to be
sold upon default of the Borrower or trustor, thereby extinguishing
the junior lender's or junior beneficiary's lien unless
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the master servicer or special servicer, as applicable, asserts its
subordinate interest in a mortgaged property in foreclosure
litigation or satisfies the defaulted senior loan.
In many states a junior lender or beneficiary may satisfy a defaulted senior
loan in full, or may cure such default and bring the senior loan current, in
either event adding the amounts expended to the balance due on the junior loan.
Absent a provision in the senior mortgage, no notice of default is required to
be given to the junior lender unless otherwise required by law.
The form of the mortgage or deed of trust used by many institutional
lenders confers on the lender or beneficiary the right both to receive all
proceeds collected under any hazard insurance policy and all awards made in
connection with any condemnation proceedings, and to apply the proceeds and
awards to any indebtedness secured by the mortgage or deed of trust, in such
order as the lender or beneficiary may determine. Thus, in the event
improvements on the property are damaged or destroyed by fire or other casualty,
or in the event the property is taken by condemnation, the lender or beneficiary
under the senior mortgage or deed of trust will have the prior right to collect
any insurance proceeds payable under the hazard insurance policy and any award
of damages in connection with the condemnation and to apply the same to the
indebtedness secured by the senior mortgage or deed of trust. Proceeds in excess
of the amount of senior mortgage indebtedness will, in most cases, be applied to
the indebtedness of a junior mortgage or trust deed. The laws of some states may
limit the ability of lenders to apply the proceeds of hazard insurance and
partial condemnation awards to the secured indebtedness. In these states, the
borrower must be allowed to use the proceeds of hazard insurance to repair the
damage unless the security of the lender has been impaired. Similarly, in
certain states, the lender is entitled to the award for a partial condemnation
of the real property security only to the extent that its security is impaired.
The form of mortgage or deed of trust used by many institutional lenders
typically contains a "future advance" clause, which provides in essence, that
additional amounts advanced to or on behalf of the borrower by the lender are to
be secured by the mortgage or deed of trust. While this type of clause is valid
under the laws of most states, the priority of any advance made under the clause
depends, in some states, on whether the advance was an "obligatory" or
"optional" advance. If the lender is obligated to advance the additional
amounts, the advance may be entitled to receive the same priority as amounts
initially made under the mortgage or deed of trust, notwithstanding that there
may be intervening junior mortgages or deeds of trust and other liens between
the date of recording of the mortgage or deed of trust and the date of the
future advance, and notwithstanding that the lender or beneficiary had actual
knowledge of the intervening junior mortgages or deeds of trust and other liens
at the time of the advance. Where the lender is not obligated to advance the
additional amounts and has actual knowledge of the intervening junior mortgages
or deeds of trust and other liens, the advance may be subordinated to such
intervening junior mortgages or deeds of trust and other liens. Priority of
advances under a "future advance" clause rests, in many other states, on state
law giving priority to all advances made under the loan agreement up to a
"credit limit" amount stated in the recorded mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by many institutional lenders obligates the borrower or trustor to
pay before delinquency all taxes and assessments on the property and, when due,
all encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the lender or beneficiary under the
mortgage or deed of trust. Upon a failure of the borrower to perform any of
these obligations, the lender or beneficiary is given the right under the
mortgage or deed of trust to perform the obligation itself, at its election,
with the borrower agreeing to reimburse the lender on behalf of the borrower.
All sums so expended by the lender become part of the indebtedness secured by
the mortgage or deed of trust.
The form of mortgage or deed of trust used by many institutional lenders
typically requires the borrower to obtain the consent of the lender in respect
of actions affecting the mortgaged property, including, without limitation,
leasing activities, including new leases and termination or modification of
existing leases, alterations and improvements to buildings forming a part of the
mortgaged property and management and leasing agreements for the mortgaged
property. Tenants will often refuse to execute a lease unless the lender or
beneficiary executes a written agreement with the tenant not to disturb the
tenant's possession of its premises in the event of a foreclosure. A senior
lender or beneficiary may refuse to consent to matters approved by a junior
lender or beneficiary with the result that the value of the security for the
junior mortgage or deed of trust is diminished. For example, a senior
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lender or beneficiary may decide not to approve the lease or to refuse to grant
a tenant a non-disturbance agreement. If, as a result, the lease is not
executed, the value of the mortgaged property may be diminished.
ENVIRONMENTAL LEGISLATION
Real property pledged as security to a lender may be subject to unforeseen
environmental liabilities. Of particular concern may be those mortgaged
properties which are, or have been, the site of manufacturing, industrial or
disposal activity. These environmental liabilities may give rise to:
o a diminution in value of property securing any mortgage loan;
o limitation on the ability to foreclose against the property; or
o in certain circumstances, liability for clean-up costs or other
remedial actions, which liability could exceed the value of the
principal balance of the related mortgage loan or of the mortgaged
property.
Under the laws of many states, contamination on a property may give rise
to a lien on the property for cleanup costs. In several states, the a lien has
priority over all existing liens (a "superlien") including those of existing
mortgages; in these states, the lien of a mortgage contemplated by this
transaction may lose its priority to a superlien.
The presence of hazardous or toxic substances, or the failure to remediate
the property properly, may adversely affect the market value of the property, as
well as the owner's ability to sell or use the real estate or to borrow using
the real estate as collateral. In addition, certain environmental laws and
common law principles govern the responsibility for the removal, encapsulation
or disturbance of asbestos containing materials when these asbestos containing
materials are in poor condition or when a property with asbestos containing
materials is undergoing repair, renovation or demolition. These laws could also
be used to impose liability upon owners and operators of real properties for
release of asbestos containing materials into the air that cause personal injury
or other damage. In addition to cleanup and natural resource damages actions
brought by federal, state, and local agencies and private parties, the presence
of hazardous substances on a property may lead to claims of personal injury,
property damage, or other claims by private plaintiffs.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 and under other federal law and the law of some states, a
secured party which takes a deed-in-lieu of foreclosure, purchases a mortgaged
property at a foreclosure sale, or operates a mortgaged property may become
liable in some circumstances either to the government or to private parties for
cleanup costs, even if the lender does not cause or contribute to the
contamination. Liability under some federal or state statutes may not be limited
to the original or unamortized principal balance of a loan or to the value of
the property securing a loan. CERCLA imposes strict, as well as joint and
several, liability on several classes of potentially responsible parties,
including current owners and operators of the property, regardless of whether
they caused or contributed to the contamination. Many states have laws similar
to CERCLA.
Lenders may be held liable under CERCLA as owners or operators. Excluded
from CERCLA's definition of "owner or operator," however, is a person "who
without participating in the management of the facility, holds indicia of
ownership primarily to protect his security interest." This exemption for
holders of a security interest such as a secured lender applies only in
circumstances where the lender acts to protect its security interest in the
contaminated facility or property. Thus, if a lender's activities encroach on
the actual management of the facility or property, the lender faces potential
liability as an "owner or operator" under CERCLA. Similarly, when a lender
forecloses and takes title to a contaminated facility or property -- whether it
holds the facility or property as an investment or leases it to a third party --
the lender may incur potential CERCLA liability.
Whether actions taken by a lender would constitute an encroachment on the
actual management of a facility or property, so as to render the secured
creditor exemption unavailable to the lender has been a matter of judicial
interpretation of the statutory language, and court decisions have historically
been inconsistent.
This scope of the secured creditor exemption has been clarified by the
enactment of the Asset Conservation, Lender Liability and Deposit Insurance
Protection Act of 1996, which was signed into law by
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President Clinton on September 30, 1996, and which lists permissible actions
that may be undertaken by a lender holding security in a contaminated facility
without exceeding the bounds of the secured creditor exemption, subject to
certain conditions and limitations. The Asset Conservation Act provides that in
order to be deemed to have participated in the management of a secured property,
a lender must actually participate in the operational affairs of the property or
the borrower. The Asset Conservation Act also provides that a lender will
continue to have the benefit of the secured creditor exemption even if it
forecloses on a mortgaged property, purchases it at a foreclosure sale or
accepts a deed-in-lieu of foreclosure provided that the lender seeks to sell the
mortgaged property at the earliest practicable commercially reasonable time on
commercially reasonable terms. The protections afforded lenders under the Asset
Conservation Act are subject to terms and conditions that have not been
clarified by the courts.
The secured creditor exemption does not protect a lender from liability
under CERCLA in cases where the lender arranges for disposal of hazardous
substances or for transportation of hazardous substances. In addition, the
secured creditor exemption does not govern liability for cleanup costs under
federal laws other than CERCLA or under state law. CERCLA's jurisdiction extends
to the investigation and remediation of releases of "hazardous substances." The
definition of "hazardous substances" under CERCLA specifically excludes
petroleum products. Therefore, a federal statute of particular significance is
Subtitle I of the Resource Conservation and Recovery Act, which governs the
operation and management of underground petroleum storage tanks. Under the Asset
Conservation Act, the holders of security interests in underground storage tanks
or properties containing these tanks are accorded protections similar to the
protections accorded to lenders under CERCLA. It should be noted, however, that
liability for cleanup of petroleum contamination may be governed by state law,
which may not provide for any specific protection for secured creditors.
In a few states, transfer of some types of properties is conditioned upon
clean up of contamination prior to transfer. In these cases, a lender that
becomes the owner of a property through foreclosure, deed-in-lieu of foreclosure
or otherwise, may be required to cleanup the contamination before selling or
otherwise transferring the property.
Beyond statute-based environmental liability, there exist common law
causes of action--for example, actions based on nuisance or on toxic tort
resulting in death, personal injury or damage to property--related to hazardous
environmental conditions on a property. While it may be more difficult to hold a
lender liable in these cases, unanticipated or uninsurable liabilities of the
borrower may jeopardize the borrower's ability to meet its loan obligations.
If a lender is or becomes liable, it may bring an action for contribution
against the owner or operator who created the environmental hazard, but that
person or entity may be bankrupt or otherwise judgment proof. It is possible
that cleanup costs could become a liability of the trust fund and occasion a
loss to certificateholders in certain circumstances if such remedial costs were
incurred.
Unless otherwise provided in the related prospectus supplement, the
Warrantying Party with respect to any Whole Loan included in a trust fund for a
particular series of certificates will represent that a "Phase I Assessment" as
described in and meeting the requirements of the then current version of Chapter
5 of the Federal National Mortgage Association Multifamily Guide has been
received and reviewed. In addition, unless otherwise provided in the related
prospectus supplement, the related Agreement will provide that the master
servicer, acting on behalf of the trustee, may not acquire title to a mortgaged
property or take over its operation unless the master servicer has previously
determined, based on a report prepared by a person who regularly conducts
environmental audits, that:
o the mortgaged property is in compliance with applicable
environmental laws, and there are no circumstances present at the
mortgaged property relating to the use, management or disposal of
any hazardous substances, hazardous materials, wastes, or petroleum
based materials for which investigation, testing, monitoring,
containment, clean-up or remediation could be required under any
federal, state or local law or regulation; or
o if the mortgaged property is not so in compliance or such
circumstances are so present, then it would be in the best economic
interest of the trust fund to acquire title to the mortgaged
property and further to take actions as would be necessary and
appropriate to effect compliance and/or respond to such
circumstances.
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This requirement effectively precludes enforcement of the security for the
related mortgage note until a satisfactory environmental inquiry is undertaken
or any required remedial action is provided for, reducing the likelihood that a
given trust fund will become liable for an Environmental Hazard Condition
affecting a mortgaged property, but making it more difficult to realize on the
security for the mortgage loan. However, there can be no assurance that any
environmental assessment obtained by the master servicer or a special servicer,
as the case may be, will detect all possible Environmental Hazard Conditions or
that the other requirements of the Agreement, even if fully observed by the
master servicer or special servicer, as the case may be, will in fact insulate a
given trust fund from liability for Environmental Hazard Conditions. See
"Description of the Agreements--Realization Upon Defaulted Whole Loans."
Unless otherwise specified in the related prospectus supplement, Morgan
Stanley Capital I Inc. generally will not have determined whether environmental
assessments have been conducted with respect to the mortgaged properties
relating to the mortgage loans included in the pool of mortgage loans for a
series, and it is likely that any environmental assessments which would have
been conducted with respect to any of the mortgaged properties would have been
conducted at the time of the origination of the related mortgage loans and not
thereafter. If specified in the related prospectus supplement, a Warrantying
Party will represent and warrant that, as of the date of initial issuance of the
certificates of a series or as of another specified date, no related mortgaged
property is affected by a Disqualifying Condition. In the event that, following
a default in payment on a mortgage loan that continues for 60 days,
o the environmental inquiry conducted by the master servicer or
special servicer, as the case may be, prior to any foreclosure
indicates the presence of a Disqualifying Condition that arose prior
to the date of initial issuance of the certificates of a series and
o the master servicer or the special servicer certify that it has
acted in compliance with the Servicing Standard and has not, by any
action, created, caused or contributed to a Disqualifying Condition
the Warrantying Party, at its option, will reimburse the trust fund,
cure the Disqualifying Condition or repurchase or substitute the
affected Whole Loan, as described under "Description of the
Agreements--Representations and Warranties; Repurchases."
No such person will however, be responsible for any Disqualifying Condition
which may arise on a mortgaged property after the date of initial issuance of
the certificates of the related series, whether due to actions of the Borrower,
the master servicer, the special servicer or any other person. It may not always
be possible to determine whether a Disqualifying Condition arose prior or
subsequent to the date of the initial issuance of the certificates of a series.
"Hazardous Materials" are generally defined under several federal and
state statutes, and include dangerous toxic or hazardous pollutants, chemicals,
wastes or substances, including, without limitation, those so identified
pursuant to CERCLA and RCRA, and specifically including, asbestos and asbestos
containing materials, polychlorinated biphenyls, radon gas, petroleum and
petroleum products, urea formaldehyde and any substances classified as being "in
inventory," "usable work in process" or similar classification which would, if
classified as unusable, be included in the foregoing definition.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE
Some of the mortgage loans may contain due-on-sale and due-on-encumbrance
clauses. These clauses generally provide that the lender may accelerate the
maturity of the loan if the borrower sells or otherwise transfers or encumbers
the related mortgaged property. Some of these clauses may provide that, upon an
attempted sale, transfer or encumbrance of the related mortgaged property by the
borrower of an otherwise non-recourse loan, the borrower becomes personally
liable for the mortgage debt. The enforceability of due-on-sale clauses has been
the subject of legislation or litigation in many states and, in some cases, the
enforceability of these clauses was limited or denied. However, with respect to
some of the loans, the Garn-St Germain Depository Institutions Act of 1982
preempts state constitutional, statutory and case law that prohibits the
enforcement of due-on-sale clauses and permits lenders to enforce these clauses
in accordance with their terms subject to limited exceptions. Unless otherwise
provided in the related prospectus supplement, a master servicer, on behalf of
the trust fund, will determine whether to exercise any right the trustee may
have as lender to accelerate payment of any mortgage loan or to withhold its
consent to any transfer or further encumbrance in a manner consistent with the
Servicing Standard.
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In addition, under federal bankruptcy laws, due-on-sale clauses may not be
enforceable in bankruptcy proceedings and may, under certain circumstances, be
eliminated in any modified mortgage resulting from a bankruptcy proceeding.
SUBORDINATE FINANCING
Where a borrower encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risks including:
o the borrower may have difficulty servicing and repaying multiple
loans;
o if the junior loan permits recourse to the borrower--as junior loans
often do--and the senior loan does not, a borrower may be more
likely to repay sums due on the junior loan than those on the senior
loan.
o acts of the senior lender that prejudice the junior lender or impair
the junior lender's security may create a superior equity in favor
of the junior lender. For example, if the borrower and the senior
lender agree to an increase in the principal amount of or the
interest rate payable on the senior loan, the senior lender may lose
its priority to the extent any existing junior lender is harmed or
the borrower is additionally burdened;
o if the borrower defaults on the senior loan and/or any junior loan
or loans, the existence of junior loans and actions taken by junior
lenders can impair the security available to the senior lender and
can interfere with or delay the taking of action by the senior
lender; and
o the bankruptcy of a junior lender may operate to stay foreclosure or
similar proceedings by the senior lender.
DEFAULT INTEREST, PREPAYMENT PREMIUMS AND PREPAYMENTS
Forms of notes and mortgages used by lenders may contain provisions
obligating the borrower to pay a late charge or additional interest if payments
are not timely made, and in some circumstances may provide for prepayment fees
or yield maintenance penalties if the obligation is paid prior to maturity or
prohibit prepayment for a specified period. In certain states, there are or may
be specific limitations upon the late charges which a lender may collect from a
borrower for delinquent payments. Certain states also limit the amounts that a
lender may collect from a borrower as an additional charge if the loan is
prepaid. The enforceability, under the laws of a number of states of provisions
providing for prepayment fees or penalties upon, or prohibition of, an
involuntary prepayment is unclear, and no assurance can be given that, at the
time a prepayment premium is required to be made on a mortgage loan in
connection with an involuntary prepayment, the obligation to make the payment,
or the provisions of any such prohibition, will be enforceable under applicable
state law. The absence of a restraint on prepayment, particularly with respect
to mortgage loans having higher mortgage rates, may increase the likelihood of
refinancing or other early retirements of the mortgage loans.
ACCELERATION ON DEFAULT
Unless otherwise specified in the related prospectus supplement, some of
the mortgage loans included in the pool of mortgage loans for a series will
include a "debt-acceleration" clause, which permits the lender to accelerate the
full debt upon a monetary or nonmonetary default of the Borrower. The courts of
all states will enforce clauses providing for acceleration in the event of a
material payment default--as long as appropriate notices are given. The equity
courts of the state, however, may refuse to foreclose a mortgage or deed of
trust when an acceleration of the indebtedness would be inequitable or unjust or
the circumstances would render the acceleration unconscionable. Furthermore, in
some states, the borrower may avoid foreclosure and reinstate an accelerated
loan by paying only the defaulted amounts and the costs and attorneys' fees
incurred by the lender in collecting the defaulted payments.
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APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980, provides that state usury limitations shall
not apply to certain types of residential, including multifamily but not other
commercial, first mortgage loans originated by certain lenders after March 31,
1980. A similar federal statute was in effect with respect to mortgage loans
made during the first three months of 1980. The statute authorized any state to
reimpose interest rate limits by adopting, before April 1, 1983, a law or
constitutional provision that expressly rejects application of the federal law.
In addition, even where Title V is not so rejected, any state is authorized by
the law to adopt a provision limiting discount points or other charges on
mortgage loans covered by Title V. Certain states have taken action to reimpose
interest rate limits and/or to limit discount points or other charges.
Morgan Stanley Capital I Inc. has been advised by counsel that a court
interpreting Title V would hold that residential first mortgage loans that are
originated on or after January 1, 1980 are subject to federal preemption.
Therefore, in a state that has not taken the requisite action to reject
application of Title V or to adopt a provision limiting discount points or other
charges prior to origination of mortgage loans, any such limitation under the
state's usury law would not apply to the mortgage loans.
In any state in which application of Title V has been expressly rejected
or a provision limiting discount points or other charges is adopted, no mortgage
loan originated after the date of the state action will be eligible for
inclusion in a trust fund unless the mortgage loan provides:
o for the interest rate, discount points and charges as are permitted
in that state, or
o that the terms of the loan shall be construed in accordance with the
laws of another state under which the interest rate, discount points
and charges would not be usurious, and the borrower's counsel has
rendered an opinion that the choice of law provision would be given
effect.
Statutes differ in their provisions as to the consequences of a usurious
loan. One group of statutes requires the lender to forfeit the interest due
above the applicable limit or impose a specified penalty. Under this statutory
scheme, the borrower may cancel the recorded mortgage or deed of trust upon
paying its debt with lawful interest, and the lender may foreclose, but only for
the debt plus lawful interest. A second group of statutes is more severe. A
violation of this type of usury law results in the invalidation of the
transaction, thereby permitting the borrower to cancel the recorded mortgage or
deed of trust without any payment or prohibiting the lender from foreclosing.
LAWS AND REGULATIONS; TYPES OF MORTGAGED PROPERTIES
The mortgaged properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply together
with an inability to remedy a failure could result in a material decrease in the
value of a mortgaged property which could, together with the possibility of
limited alternative uses for a particular mortgaged property--e.g., a nursing or
convalescent home or hospital--result in a failure to realize the full principal
amount of the related mortgage loan. Mortgages on mortgaged properties which are
owned by the borrower under a condominium form of ownership are subject to the
declaration, by-laws and other rules and regulations of the condominium
association. mortgaged properties which are hotels or motels may present
additional risk in that hotels and motels are typically operated pursuant to
franchise, management and operating agreements which may be terminable by the
operator, and the transferability of the hotel's operating, liquor and other
licenses to the entity acquiring the hotel either through purchases or
foreclosure is subject to the vagaries of local law requirements. In addition,
mortgaged properties which are multifamily residential properties may be subject
to rent control laws, which could impact the future cash flows of these
properties.
AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder, in order to protect individuals with disabilities,
public accommodations such as hotels, restaurants, shopping centers, hospitals,
schools and social service center establishments must remove architectural and
communication barriers which are structural in nature from existing places of
public accommodation to the extent "readily achievable." In addition, under the
ADA, alterations to a place of public accommodation or a commercial facility are
to be made so
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that, to the maximum extent feasible, the altered portions are readily
accessible to and usable by disabled individuals. The "readily achievable"
standard takes into account, among other factors, the financial resources of the
affected site, owner, landlord or other applicable person. In addition to
imposing a possible financial burden on the Borrower in its capacity as owner or
landlord, the ADA may also impose these types of requirements on a foreclosing
lender who succeeds to the interest of the Borrower as owner of landlord.
Furthermore, since the "readily achievable" standard may vary depending on the
financial condition of the owner or landlord, a foreclosing lender who is
financially more capable than the Borrower of complying with the requirements of
the ADA may be subject to more stringent requirements than those to which the
Borrower is subject.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended, a borrower who enters military service after the origination of a
mortgage loan, including a borrower who was in reserve status and is called to
active duty after origination of the mortgage loan, may not be charged interest,
including fees and charges, above an annual rate of 6% during the period of the
borrower's active duty status, unless a court orders otherwise upon application
of the lender. The Relief Act applies to borrowers who are members of the Army,
Navy, Air Force, Marines, National Guard, Reserves, Coast Guard and officers of
the U.S. Public Health Service assigned to duty with the military. Because the
Relief Act applies to borrowers who enter military service, including reservists
who are called to active duty, after origination of the related mortgage loan,
no information can be provided as to the number of loans that may be affected by
the Relief Act. Application of the Relief Act would adversely affect, for an
indeterminate period of time, the ability of any servicer to collect full
amounts of interest on certain of the mortgage loans. Any shortfalls in interest
collections resulting from the application of the Relief Act would result in a
reduction of the amounts distributable to the holders of the related series of
certificates, and would not be covered by advances or, to the extent set forth
in the related prospectus supplement, any form of Credit Support provided in
connection with the certificates. In addition, the Relief Act imposes
limitations that would impair the ability of the servicer to foreclose on an
affected mortgage loan during the borrower's period of active duty status, and,
under certain circumstances, during an additional three month period thereafter.
Thus, in the event that an affected mortgage loan goes into default, there may
be delays and losses occasioned thereby.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations statute can be seized by the government if the property
was used in, or purchased with the proceeds of, such crimes. Under procedures
contained in the Comprehensive Crime Control Act of 1984, the government may
seize the property even before conviction. The government must publish notice of
the forfeiture proceeding and may give notice to all parties "known to have an
alleged interest in the property," including the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that:
o its mortgage was executed and recorded before commission of the
crime upon which the forfeiture is based, or
o the lender was, at the time of execution of the mortgage,
"reasonably without cause to believe" that the property was used in,
or purchased with the proceeds of, illegal drug or RICO activities.
FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of offered certificates
is based on the advice of Brown & Wood LLP or Cadwalader, Wickersham & Taft or
Latham & Watkins or such other counsel as may be specified in the related
prospectus supplement, counsel to Morgan Stanley Capital I Inc.. This summary is
based on laws, regulations, including REMIC Regulations, rulings and decisions
now in effect or, with respect to regulations, proposed, all of which are
subject to change either prospectively or retroactively. This summary does not
address the federal income tax consequences of an investment in certificates
applicable to all categories of investors, some of which -- for example, banks
and insurance companies -- may be subject to special rules. Prospective
investors should consult
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their tax advisors regarding the federal, state, local and any other tax
consequences to them of the purchase, ownership and disposition of certificates.
GENERAL
The federal income tax consequences to certificateholders will vary
depending on whether an election is made to treat the trust fund relating to a
particular series of certificates as a REMIC under the Code. The prospectus
supplement for each series of certificates will specify whether a REMIC election
will be made.
GRANTOR TRUST FUNDS
If a REMIC election is not made, Brown & Wood LLP or Cadwalader,
Wickersham & Taft or Latham & Watkins or such other counsel as may be specified
in the related prospectus supplement will deliver its opinion that the trust
fund will not be classified as an association taxable as a corporation and that
the trust fund will be classified as a grantor trust under subpart E, Part I of
subchapter J of Chapter 1 of Subtitle A of the Code. In this case, owners of
certificates will be treated for federal income tax purposes as owners of a
portion of the trust fund's assets as described in this section of the
prospectus.
A. SINGLE CLASS OF GRANTOR TRUST CERTIFICATES
Characterization. The trust fund may be created with one class of grantor
trust certificates. In this case, each grantor trust certificateholder will be
treated as the owner of a pro rata undivided interest in the interest and
principal portions of the trust fund represented by the grantor trust
certificates and will be considered the equitable owner of a pro rata undivided
interest in each of the mortgage loans and/or MBS in the pool. Any amounts
received by a grantor trust certificateholder in lieu of amounts due with
respect to any mortgage loan and/or MBS because of a default or delinquency in
payment will be treated for federal income tax purposes as having the same
character as the payments they replace.
Each grantor trust certificateholder will be required to report on its
federal income tax return in accordance with the grantor trust
certificateholder's method of accounting its pro rata share of the entire income
from the mortgage loans in the trust fund represented by grantor trust
certificates, including interest, OID, if any, prepayment fees, assumption fees,
any gain recognized upon an assumption and late payment charges received by the
master servicer. Under Code Sections 162 or 212 each grantor trust
certificateholder will be entitled to deduct its pro rata share of servicing
fees, prepayment fees, assumption fees, any loss recognized upon an assumption
and late payment charges retained by the master servicer, provided that the
amounts are reasonable compensation for services rendered to the trust fund.
Grantor trust certificateholders that are individuals, estates or trusts will be
entitled to deduct their share of expenses as itemized deductions only to the
extent these expenses plus all other Code Section 212 expenses exceed two
percent of its adjusted gross income. In addition, the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the applicable amount under Code Section
68(b)--which amount will be adjusted for inflation--will be reduced by the
lesser of
o 3% of the excess of adjusted gross income over the applicable amount
and
o 80% of the amount of itemized deductions otherwise allowable for
such taxable year.
In general, a grantor trust certificateholder using the CASH METHOD OF
ACCOUNTING must take into account its pro rata share of income as and deductions
as and when collected by or paid to the master servicer or, with respect to
original issue discount or certain other income items for which the
certificateholder has made an election, as the amounts are accrued by the trust
fund on a constant interest basis, and will be entitled to claim its pro rata
share of deductions, subject to the foregoing limitations, when the amounts are
paid or the certificateholder would otherwise be entitled to claim the
deductions had it held the mortgage loans and/or MBS directly. A grantor trust
certificateholder using an ACCRUAL METHOD OF ACCOUNTING must take into account
its pro rata share of income as payment becomes due or is made to the master
servicer, whichever is earlier and may deduct its pro rata share of expense
items, subject to the foregoing limitations, when the amounts are paid or the
certificateholder otherwise would be entitled to claim the deductions had it
held the mortgage loans and/or MBS directly. If the servicing fees paid to the
master servicer are deemed to exceed reasonable servicing compensation, the
amount of the excess could be considered as an ownership interest retained by
the master servicer or any person to whom the master servicer
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assigned for value all or a portion of the servicing fees in a portion of the
interest payments on the mortgage loans and/or MBS. The mortgage loans and/or
MBS would then be subject to the "coupon stripping" rules of the Code discussed
below under "--Stripped Bonds and Coupons."
Unless otherwise specified in the related prospectus supplement or
otherwise provided below in this section of the prospectus, as to each series of
certificates, counsel to Morgan Stanley Capital I Inc. will have advised Morgan
Stanley Capital I Inc. that:
o a grantor trust certificate owned by a "domestic building and loan
association" within the meaning of Code Section 7701(a)(19)
representing principal and interest payments on mortgage loans
and/or MBS will be considered to represent "loans . . . secured by
an interest in real property which is . . . residential property"
within the meaning of Code Section 7701(a)(19)(C)(v), to the extent
that the mortgage loans and/or MBS represented by that grantor trust
certificate are of a type described in that Code section;
o a grantor trust certificate owned by a real estate investment trust
representing an interest in mortgage loans and/or MBS will be
considered to represent "real estate assets" within the meaning of
Code Section 856(c)(4)(A), and interest income on the mortgage loans
and/or MBS will be considered "interest on obligations secured by
mortgages on real property" within the meaning of Code Section
856(c)(3)(B), to the extent that the mortgage loans and/or MBS
represented by that grantor trust certificate are of a type
described in that Code section; and
o a grantor trust certificate owned by a REMIC will represent
"obligation[s] . . . which [are] principally secured by an interest
in real property" within the meaning of Code Section 860G(a)(3).
The Small Business Job Protection Act of 1996, as part of the repeal of
the bad debt reserve method for thrift institutions, repealed the application of
Code Section 593(d) to any taxable year beginning after December 31, 1995.
Stripped Bonds and Coupons. Certain trust funds may consist of government
securities that constitute "stripped bonds" or "stripped coupons" as those terms
are defined in section 1286 of the Code, and, as a result, these assets would be
subject to the stripped bond provisions of the Code. Under these rules, these
government securities are treated as having original issue discount based on the
purchase price and the stated redemption price at maturity of each Security. As
such, grantor trust certificateholders would be required to include in income
their pro rata share of the original issue discount on each Government Security
recognized in any given year on an economic accrual basis even if the grantor
trust certificateholder is a cash method taxpayer. Accordingly, the sum of the
income includible to the grantor trust certificateholder in any taxable year may
exceed amounts actually received during such year.
Premium. The price paid for a grantor trust certificate by a holder will
be allocated to the holder's undivided interest in each mortgage loan and/or MBS
based on each asset's relative fair market value, so that the holder's undivided
interest in each asset will have its own tax basis. A grantor trust
certificateholder that acquires an interest in mortgage loans and/or MBS at a
premium may elect to amortize the premium under a constant interest method,
provided that the underlying mortgage loans with respect to the mortgage loans
and/or MBS were originated after September 27, 1985. Premium allocable to
mortgage loans originated on or before September 27, 1985 should be allocated
among the principal payments on such mortgage loans and allowed as an ordinary
deduction as principal payments are made. Amortizable bond premium will be
treated as an offset to interest income on such grantor trust certificate. The
basis for such grantor trust certificate will be reduced to the extent that
amortizable premium is applied to offset interest payments. It is not clear
whether a reasonable prepayment assumption should be used in computing
amortization of premium allowable under Code Section 171. A certificateholder
that makes this election for a mortgage loan or MBS or any other debt instrument
that is acquired at a premium will be deemed to have made an election to
amortize bond premium with respect to all debt instruments having amortizable
bond premium that such certificateholder acquires during the year of the
election or thereafter.
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If a premium is not subject to amortization using a reasonable prepayment
assumption, the holder of a grantor trust certificate representing an interest
in a mortgage loan or MBS acquired at a premium should recognize a loss if a
mortgage loan or an Underlying Mortgage Loan with respect to an asset prepays in
full, equal to the difference between the portion of the prepaid principal
amount of such mortgage loan or underlying mortgage loan that is allocable to
the certificate and the portion of the adjusted basis of the certificate that is
allocable to such mortgage loan or underlying mortgage loan. If a reasonable
prepayment assumption is used to amortize the premium, it appears that such a
loss would be available, if at all, only if prepayments have occurred at a rate
faster than the reasonable assumed prepayment rate. It is not clear whether any
other adjustments would be required to reflect differences between an assumed
prepayment rate and the actual rate of prepayments.
The Internal Revenue Service has issued Amortizable Bond Premium
Regulations. The Amortizable Bond Premium Regulations specifically do not apply
to prepayable debt instruments or any pool of debt instruments the yield on
which may be affected by prepayments, such as the trust fund, which are subject
to Section 1272(a)(6) of the Code. Absent further guidance from the IRS and to
the extent set forth in the related prospectus supplement, the trustee will
account for amortizable bond premium in the manner described in this section.
Prospective purchasers should consult their tax advisors regarding amortizable
bond premium and the Amortizable Bond Premium Regulations.
Original Issue Discount. The IRS has stated in published rulings that, in
circumstances similar to those described in this prospectus, the OID Regulations
will be applicable to a grantor trust certificateholder's interest in those
mortgage loans and/or MBS meeting the conditions necessary for these sections to
apply. Rules regarding periodic inclusion of OID income are applicable to
mortgages of corporations originated after May 27, 1969, mortgages of
noncorporate borrowers other than individuals originated after July 1, 1982, and
mortgages of individuals originated after March 2, 1984. Such OID could arise by
the financing of points or other charges by the originator of the mortgages in
an amount greater than a statutory de minimis exception to the extent that the
points are not currently deductible under applicable Code provisions or are not
for services provided by the lender. OID generally must be reported as ordinary
gross income as it accrues under a constant interest method. See "--Multiple
Classes of Grantor Trust Certificates--Accrual of Original Issue Discount"
below.
Market Discount. A grantor trust certificateholder that acquires an
undivided interest in mortgage loans or MBS may be subject to the market
discount rules of Code Sections 1276 through 1278 to the extent an undivided
interest in the asset is considered to have been purchased at a "market
discount." Generally, the amount of market discount is equal to the excess of
the portion of the principal amount of the mortgage loan or MBS allocable to the
holder's undivided interest over the holder's tax basis in such interest. Market
discount with respect to a grantor trust certificate will be considered to be
zero if the amount allocable to the grantor trust certificate is less than 0.25%
of the grantor trust certificate's stated redemption price at maturity
multiplied by the weighted average maturity remaining after the date of
purchase. Treasury regulations implementing the market discount rules have not
yet been issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making any of
the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment, whether a scheduled payment
or a prepayment, or any gain on disposition of a market discount bond acquired
by the taxpayer after October 22, 1986 shall be treated as ordinary income to
the extent that it does not exceed the accrued market discount at the time of
such payment. The amount of accrued market discount for purposes of determining
the tax treatment of subsequent principal payments or dispositions of the market
discount bond is to be reduced by the amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
While the Treasury Department has not yet issued regulations, rules described in
the relevant legislative history will apply. Under those rules, the holder of a
market discount bond may elect to accrue market discount either on the basis of
a constant interest rate or according to one of the following methods. If a
grantor trust certificate is issued with OID, the amount of market discount that
accrues during any accrual period would be equal to the product of
o the total remaining market discount and
o a fraction, the numerator of which is the OID accruing during the
period and the denominator of which is the total remaining OID at
the beginning of the accrual period.
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For grantor trust certificates issued without OID, the amount of market discount
that accrues during a period is equal to the product of
o the total remaining market discount and
o a fraction, the numerator of which is the amount of stated interest
paid during the accrual period and the denominator of which is the
total amount of stated interest remaining to be paid at the
beginning of the accrual period.
For purposes of calculating market discount under any of the above methods in
the case of instruments, such as the grantor trust certificates, that provide
for payments that may be accelerated by reason of prepayments of other
obligations securing such instruments, the same prepayment assumption applicable
to calculating the accrual of OID will apply. Because the regulations described
above have not been issued, it is impossible to predict what effect those
regulations might have on the tax treatment of a grantor trust certificate
purchased at a discount or premium in the secondary market.
A holder who acquired a grantor trust certificate at a market discount
also may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to purchase
or carry the grantor trust certificate purchased with market discount. For these
purposes, the de minimis rule referred to above applies. Any such deferred
interest expense would not exceed the market discount that accrues during such
taxable year and is, in general, allowed as a deduction not later than the year
in which the market discount is includible in income. If such holder elects to
include market discount in income currently as it accrues on all market discount
instruments acquired by such holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
Election to Treat All Interest as OID. The OID Regulations permit a
certificateholder to elect to accrue all interest, discount (including de
minimis market or original issue discount) and premium in income as interest,
based on a constant yield method for certificates acquired on or after April 4,
1994. If this election were to be made with respect to a grantor trust
certificate with market discount, the certificateholder would be deemed to have
made an election to include in income currently market discount with respect to
all other debt instruments having market discount that such certificateholder
acquires during the year of the election or thereafter. Similarly, a
certificateholder that makes this election for a certificate that is acquired at
a premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
certificateholder owns or acquires. See "--Premium" in this prospectus. The
election to accrue interest, discount and premium on a constant yield method
with respect to a certificate is irrevocable without consent of the IRS.
Anti-Abuse Rule. The IRS can apply or depart from the rules contained in
the OID Regulations as necessary or appropriate to achieve a reasonable result
where a principal purpose in structuring a mortgage loan, MBS, or grantor trust
certificate or applying the otherwise applicable rules is to achieve a result
that is unreasonable in light of the purposes of the applicable statutes, which
generally are intended to achieve the clear reflection of income for both
issuers and holders of debt instruments.
B. MULTIPLE CLASSES OF GRANTOR TRUST CERTIFICATES
1. Stripped Bonds and Stripped Coupons
Pursuant to Code Section 1286, the separation of ownership of the right to
receive some or all of the interest payments on an obligation from ownership of
the right to receive some or all of the principal payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of Code Sections 1271
through 1288, Code Section 1286 treats a stripped bond or a stripped coupon as
an obligation issued on the date that such stripped interest is created.
Excess Servicing will be Treated Under the Stripped Bond Rules. If the
Excess Servicing fee is less than 100 basis points, i.e., 1% interest on the
principal balance of the assets in the trust fund, or the certificates are
initially sold with a de minimis discount, assuming no prepayment assumption is
required, any non-de minimis discount arising from a subsequent transfer of the
certificates should be treated as market discount. The IRS appears
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to require that reasonable servicing fees be calculated on an asset by asset
basis, which could result in some mortgage loans and/or MBS being treated as
having more than 100 basis points of interest stripped off. See "--Non-REMIC
Certificates" and "Multiple Classes of Grantor Trust Certificates--Stripped
Bonds and Stripped Coupons".
Although not entirely clear, a Stripped Bond Certificate generally should
be treated as an interest in mortgage loans and/or MBS issued on the day the
certificate is purchased for purposes of calculating any OID. Generally, if the
discount on a mortgage loan or MBS is larger than a de minimis amount, as
calculated for purposes of the OID rules, a purchaser of such a certificate will
be required to accrue the discount under the OID rules of the Code. See
"--Non-REMIC Certificates" and "--Single Class of Grantor Trust
Certificates--Original Issue Discount". However, a purchaser of a Stripped Bond
Certificate will be required to account for any discount on the mortgage loans
and/or MBS as market discount rather than OID if either
o the amount of OID with respect to the mortgage loans and/or MBS is
treated as zero under the OID de minimis rule when the certificate
was stripped or
o no more than 100 basis points, including any Excess Servicing, is
stripped off of the trust fund's mortgage loans and/or MBS.
Pursuant to Revenue Procedure 91-49, issued on August 8, 1991, purchasers of
Stripped Bond Certificates using an inconsistent method of accounting must
change their method of accounting and request the consent of the IRS to the
change in their accounting method on a statement attached to their first timely
tax return filed after August 8, 1991.
The precise tax treatment of Stripped Coupon Certificates is substantially
uncertain. The Code could be read literally to require that OID computations be
made for each payment from each mortgage loan or MBS. Unless otherwise specified
in the related prospectus supplement, all payments from a mortgage loan or MBS
underlying a Stripped Coupon Certificate will be treated as a single installment
obligation subject to the OID rules of the Code, in which case, all payments
from the mortgage loan or MBS would be included in the stated redemption price
at maturity for the mortgage loan and/or MBS for purposes of calculating income
on the certificate under the OID rules of the Code.
It is unclear under what circumstances, if any, the prepayment of mortgage
loans and/or MBS will give rise to a loss to the holder of a Stripped Bond
Certificate purchased at a premium or a Stripped Coupon Certificate. If the
certificate is treated as a single instrument rather than an interest in
discrete mortgage loans and the effect of prepayments is taken into account in
computing yield with respect to the grantor trust certificate, it appears that
no loss will be available as a result of any particular prepayment unless
prepayments occur at a rate sufficiently faster than the assumed prepayment rate
so that the certificateholder will not recover its investment. However, if the
certificate is treated as an interest in discrete mortgage loans or MBS, or if
no prepayment assumption is used, then when a mortgage loan or MBS is prepaid,
the holder of the certificate should be able to recognize a loss equal to the
portion of the adjusted issue price of the certificate that is allocable to the
mortgage loan or MBS.
Holders of Stripped Bond Certificates and Stripped Coupon Certificates are
urged to consult with their own tax advisors regarding the proper treatment of
these certificates for federal income tax purposes.
Treatment of Certain Owners. Several Code sections provide beneficial
treatment to certain taxpayers that invest in mortgage loans and/or MBS of the
type that make up the trust fund. With respect to these Code sections, no
specific legal authority exists regarding whether the character of the grantor
trust certificates, for federal income tax purposes, will be the same as that of
the underlying mortgage loans and/or MBS. While Code Section 1286 treats a
stripped obligation as a separate obligation for purposes of the Code provisions
addressing OID, it is not clear whether such characterization would apply with
regard to these other Code sections. Although the issue is not free from doubt,
each class of grantor trust certificates, to the extent set forth in the related
prospectus supplement, should be considered to represent "real estate assets"
within the meaning of Code Section 856(c)(4)(A) and "loans . . . secured by, an
interest in real property which is . . . residential real property" within the
meaning of Code Section 7701(a)(19)(C)(v), and interest income attributable to
grantor trust certificates should be considered to represent "interest on
obligations secured by mortgages on real property" within the meaning of Code
Section 856(c)(3)(B), provided that in each case the underlying mortgage loans
and/or MBS and interest on such mortgage loans and/or MBS qualify for such
treatment. Prospective purchasers to which such characterization of an
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investment in certificates is material should consult their own tax advisors
regarding the characterization of the grantor trust certificates and the income
therefrom. Unless otherwise specified in the related prospectus supplement,
grantor trust certificates will be "obligation[s] . . . which [are] principally
secured by an interest in real property" within the meaning of Code Section
860G(a)(3)(A) and "permitted assets" within the meaning of Code Section 860L(c).
2. Grantor Trust Certificates Representing Interests in Loans Other
Than Adjustable Rate Loans
The original issue discount rules of Code Sections 1271 through 1275 will
be applicable to a certificateholder's interest in those mortgage loans and/or
MBS as to which the conditions for the application of those sections are met.
Rules regarding periodic inclusion of original issue discount in income are
applicable to mortgages of corporations originated after May 27, 1969, mortgages
of noncorporate borrowers -- other than individuals -- originated after July 1,
1982, and mortgages of individuals originated after March 2, 1984. Under the OID
Regulations, such original issue discount could arise by the charging of points
by the originator of the mortgage in an amount greater than the statutory de
minimis exception, including a payment of points that is currently deductible by
the borrower under applicable Code provisions, or under certain circumstances,
by the presence of "teaser" rates on the mortgage loans and/or MBS. OID on each
grantor trust certificate must be included in the owner's ordinary income for
federal income tax purposes as it accrues, in accordance with a constant
interest method that takes into account the compounding of interest, in advance
of receipt of the cash attributable to such income. The amount of OID required
to be included in an owner's income in any taxable year with respect to a
grantor trust certificate representing an interest in mortgage loans and/or MBS
other than adjustable rate loans likely will be computed as described below
under "--Accrual of Original Issue Discount." The following discussion is based
in part on the OID Regulations and in part on the provisions of the Tax Reform
Act of 1986. The OID Regulations generally are effective for debt instruments
issued on or after April 4, 1994, but may be relied upon as authority with
respect to debt instruments, such as the grantor trust certificates, issued
after December 21, 1992. Alternatively, proposed Treasury regulations issued
December 21, 1992 may be treated as authority for debt instruments issued after
December 21, 1992 and prior to April 4, 1994, and proposed Treasury regulations
issued in 1986 and 1991 may be treated as authority for instruments issued
before December 21, 1992. In applying these dates, the issue date of the
mortgage loans and/or MBS should be used, or, in the case of Stripped Bond
Certificates or Stripped Coupon Certificates, the date such certificates are
acquired. The holder of a certificate should be aware, however, that neither the
proposed OID Regulations nor the OID Regulations adequately address certain
issues relevant to prepayable securities.
Under the Code, the mortgage loans and/or MBS underlying the grantor trust
certificate will be treated as having been issued on the date they were
originated with an amount of OID equal to the excess of such mortgage asset's
stated redemption price at maturity over its issue price. The issue price of a
mortgage loan and/or MBS is generally the amount lent to the lender, which may
be adjusted to take into account certain loan origination fees. The stated
redemption price at maturity of a mortgage loan or MBS is the sum of all
payments to be made on these assets other than payments that are treated as
qualified stated interest payments. The accrual of this OID, as described below
under "--Accrual of Original Issue Discount," will, to the extent set forth in
the related prospectus supplement, utilize the Prepayment Assumption on the
issue date of such grantor trust certificate, and will take into account events
that occur during the calculation period. The Prepayment Assumption will be
determined in the manner prescribed by regulations that have not yet been
issued. In the absence of such regulations, the Prepayment Assumption used will
be the prepayment assumption that is used in determining the offering price of
such certificate. No representation is made that any certificate will prepay at
the Prepayment Assumption or at any other rate.
Accrual of Original Issue Discount. Generally, the owner of a grantor
trust certificate must include in gross income the sum of the "daily portions,"
as defined below in this section, of the OID on the grantor trust certificate
for each day on which it owns the certificate, including the date of purchase
but excluding the date of disposition. In the case of an original owner, the
daily portions of OID with respect to each component generally will be
determined as set forth under the OID Regulations. A calculation will be made by
the master servicer or other entity specified in the related prospectus
supplement of the portion of OID that accrues during each successive monthly
accrual period, or shorter period from the date of original issue, that ends on
the day in the calendar year corresponding to each of the Distribution Dates on
the grantor trust certificates, or the day prior to each such date. This will be
done, in the case of each full month accrual period, by
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o adding (1) the present value at the end of the accrual
period--determined by using as a discount factor the original yield
to maturity of the respective component under the Prepayment
Assumption--of all remaining payments to be received under the
Prepayment Assumption on the respective component and (2) any
payments included in the stated redemption price at maturity
received during such accrual period, and
o subtracting from that total the "adjusted issue price" of the
respective component at the beginning of such accrual period.
The adjusted issue price of a grantor trust certificate at the beginning of the
first accrual period is its issue price; the adjusted issue price of a grantor
trust certificate at the beginning of a subsequent accrual period is the
adjusted issue price at the beginning of the immediately preceding accrual
period plus the amount of OID allocable to that accrual period reduced by the
amount of any payment other than a payment of qualified stated interest made at
the end of or during that accrual period. The OID accruing during such accrual
period will then be divided by the number of days in the period to determine the
daily portion of OID for each day in the period. With respect to an initial
accrual period shorter than a full monthly accrual period, the daily portions of
OID must be determined according to an appropriate allocation under any
reasonable method.
Original issue discount generally must be reported as ordinary gross
income as it accrues under a constant interest method that takes into account
the compounding of interest as it accrues rather than when received. However,
the amount of original issue discount includible in the income of a holder of an
obligation is reduced when the obligation is acquired after its initial issuance
at a price greater than the sum of the original issue price and the previously
accrued original issue discount, less prior payments of principal. Accordingly,
if the mortgage loans and/or MBS acquired by a certificateholder are purchased
at a price equal to the then unpaid principal amount of the asset, no original
issue discount attributable to the difference between the issue price and the
original principal amount of the asset--i.e., points--will be includible by the
holder. Other original issue discount on the mortgage loans and/or MBS--e.g.,
that arising from a "teaser" rate--would still need to be accrued.
3. Grantor Trust Certificates Representing Interests in Adjustable Rate
Loans
The OID Regulations do not address the treatment of instruments, such as
the grantor trust certificates, which represent interests in adjustable rate
loans. Additionally, the IRS has not issued guidance under the Code's coupon
stripping rules with respect to such instruments. In the absence of any
authority, the master servicer will report Stripped ARM Obligations to holders
in a manner it believes is consistent with the rules described above under the
heading "--Grantor Trust Certificates Representing Interests in Loans Other Than
Adjustable Rate Loans" and with the OID Regulations. In general, application of
these rules may require inclusion of income on a Stripped ARM Obligation in
advance of the receipt of cash attributable to such income. Further, the
addition of Deferred Interest to the principal balance of an adjustable rate
loan may require the inclusion of the amount in the income of the grantor trust
certificateholder when the amount accrues. Furthermore, the addition of Deferred
Interest to the grantor trust certificate's principal balance will result in
additional income, including possibly OID income, to the grantor trust
certificateholder over the remaining life of such grantor trust certificates.
Because the treatment of Stripped ARM Obligations is uncertain, investors
are urged to consult their tax advisors regarding how income will be includible
with respect to such certificates.
C. SALE OR EXCHANGE OF A GRANTOR TRUST CERTIFICATE
Sale or exchange of a grantor trust certificate prior to its maturity will
result in gain or loss equal to the difference, if any, between the amount
received and the owner's adjusted basis in the grantor trust certificate. Such
adjusted basis generally will equal the seller's purchase price for the grantor
trust certificate, increased by the OID included in the seller's gross income
with respect to the grantor trust certificate, and reduced by principal payments
on the grantor trust certificate previously received by the seller. Such gain or
loss will be capital gain or loss to an owner for which a grantor trust
certificate is a "capital asset" within the meaning of Code Section 1221, except
to the extent described above with respect to market discount, and will
generally be long-term capital gain if the grantor trust certificate has been
owned for more than one year. Long-term capital gains of individuals are subject
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to reduced maximum tax rates while capital gains recognized by individuals on
capital assets held twelve months or less are generally subject to ordinary
income tax rates. The use of capital losses is limited.
It is possible that capital gain realized by holders of one or more
classes of grantor trust certificates could be considered gain realized upon the
disposition of property that was part of a "conversion transaction." A sale of a
grantor trust certificate will be part of a conversion transaction if
substantially all of the holder's expected return is attributable to the time
value of the holder's net investment, and:
o the holder entered the contract to sell the grantor trust
certificate substantially contemporaneously with acquiring the
grantor trust certificate;
o the grantor trust certificate is part of a straddle;
o the grantor trust certificate is marketed or sold as producing
capital gain; or
o other transactions to be specified in Treasury regulations that have
not yet been issued.
If the sale or other disposition of a grantor trust certificate is part of a
conversion transaction, all or any portion of the gain realized upon the sale or
other disposition would be treated as ordinary income instead of capital gain.
Grantor trust certificates will be "evidences of indebtedness" within the
meaning of Code Section 582(c)(1), so that gain or loss recognized from the sale
of a grantor trust certificate by a bank or a thrift institution to which such
section applies will be treated as ordinary income or loss.
D. NON-U.S. PERSONS
Generally, to the extent that a grantor trust certificate evidences
ownership in underlying mortgage loans and/or MBS that were issued on or before
July 18, 1984, interest or OID paid by the person required to withhold tax under
Code Section 1441 or 1442 to
o an owner that is not a U.S. Person or
o a grantor trust certificateholder holding on behalf of an owner that
is not a U.S. Person
will be subject to federal income tax, collected by withholding, at a rate of
30% or such lower rate as may be provided for interest by an applicable tax
treaty, unless such income is effectively connected with a U.S. trade or
business of such owner or beneficial owner.
Accrued OID recognized by the owner on the sale or exchange of such a grantor
trust certificate also will be subject to federal income tax at the same rate.
Generally, such payments would not be subject to withholding to the extent that
a grantor trust certificate evidences ownership in mortgage loans and/or MBS
issued after July 18, 1984, by natural persons if such grantor trust
certificateholder complies with certain identification requirements, including
delivery of a statement, signed by the grantor trust certificateholder under
penalties of perjury, certifying that the grantor trust certificateholder is not
a U.S. Person and providing the name and address of the grantor trust
certificateholder. To the extent payments to grantor trust certificateholders
that are not U.S. Persons are payments of "contingent interest" on the
underlying mortgage loans and/or MBS, or the grantor trust certificateholder is
ineligible for the exemption described in the preceding sentence, the 30%
withholding tax will apply unless such withholding taxes are reduced or
eliminated by an applicable tax treaty and such holder meets the eligibility and
certification requirements necessary to obtain the benefits of such treaty.
Additional restrictions apply to mortgage loans and/or MBS where the borrower is
not a natural person in order to qualify for the exemption from withholding. If
capital gain derived from the sale, retirement or other disposition of a grantor
trust certificate is effectively connected with a U.S. trade or business of a
grantor trust certificateholder that is not a U.S. Person, the certificateholder
will be taxed on the net gain under the graduated U.S. federal income tax rates
applicable to U.S. Persons and, with respect to grantor trust certificates held
by or on behalf of corporations, also may be subject to branch profits tax. In
addition, if the trust fund acquires a United States real property interest
through foreclosure, deed in lieu of foreclosure or otherwise on a mortgage loan
or MBS secured by such an interest, which for this purpose includes real
property located in the United States and the Virgin Islands, a grantor trust
certificateholder that is not a U.S. Person will potentially be subject to
federal income tax on any gain attributable to such real
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property interest that is allocable to such holder. Non-U.S. Persons should
consult their tax advisors regarding the application to them of the foregoing
rules.
E. INFORMATION REPORTING AND BACKUP WITHHOLDING
The master servicer will furnish or make available, within a reasonable
time after the end of each calendar year, to each person who was a
certificateholder at any time during such year, the information as may be deemed
necessary or desirable to assist certificateholders in preparing their federal
income tax returns, or to enable holders to make the information available to
beneficial owners or financial intermediaries that hold such certificates as
nominees on behalf of beneficial owners. If a holder, beneficial owner,
financial intermediary or other recipient of a payment on behalf of a beneficial
owner fails to supply a certified taxpayer identification number or if the
Secretary of the Treasury determines that such person has not reported all
interest and dividend income required to be shown on its federal income tax
return, 31% backup withholding may be required with respect to any payments to
registered owners who are not "exempt recipients." In addition, upon the sale of
a grantor trust certificate to, or through, a broker, the broker must withhold
31% of the entire purchase price, unless either
o the broker determines that the seller is a corporation or other
exempt recipient, or
o the seller provides, in the required manner, certain identifying
information and, in the case of a non-U.S. Person, certifies that
the seller is a Non-U.S. Person, and other conditions are met.
Such a sale must also be reported by the broker to the IRS, unless either
o the broker determines that the seller is an exempt recipient or
o the seller certifies its non-U.S. Person status and other conditions
are met.
Certification of the registered owner's non-U.S. Person status normally would be
made on IRS Form W-8 under penalties of perjury, although in some cases it may
be possible to submit other documentary evidence. Any amounts deducted and
withheld from a distribution to a recipient would be allowed as a credit against
the recipient's federal income tax liability.
On October 6, 1997, the Treasury Department issued new regulations which
make certain modifications to the withholding, backup withholding and
information reporting rules described above. The New Regulations attempt to
unify certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
1999, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
REMICS
The trust fund relating to a series of certificates may elect to be
treated as a REMIC. Qualification as a REMIC requires ongoing compliance with
certain conditions. Although a REMIC is not generally subject to federal income
tax (see, however "--Taxation of Owners of REMIC Residual Certificates" and
"--Prohibited Transactions and Other Taxes" below), if a trust fund with respect
to which a REMIC election is made fails to comply with one or more of the
ongoing requirements of the Code for REMIC status during any taxable year,
including the implementation of restrictions on the purchase and transfer of the
residual interests in a REMIC as described below under "--Taxation of Owners of
REMIC Residual Certificates," the Code provides that a trust fund will not be
treated as a REMIC for the year and thereafter. In that event, the entity may be
taxable as a separate corporation, and the REMIC Certificates may not be
accorded the status or given the tax treatment described below in this section.
While the Code authorizes the Treasury Department to issue regulations providing
relief in the event of an inadvertent termination of the status of a trust fund
as a REMIC, no the regulations have been issued. Any relief, moreover, may be
accompanied by sanctions, such as the imposition of a corporate tax on all or a
portion of the REMIC's income for the period in which the requirements for such
status are not satisfied. With respect to each trust fund that elects REMIC
status, Brown & Wood LLP or Cadwalader, Wickersham & Taft or Latham & Watkins or
such other counsel as may be specified in the related prospectus supplement will
deliver its opinion generally to the effect that, under then existing law and
assuming compliance with all provisions of the related Agreement, the trust fund
will qualify as a REMIC, and the related certificates will be considered to be
REMIC Regular Certificates
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or a sole class of REMIC Residual Certificates. The related prospectus
supplement for each series of Certificates will indicate whether the trust fund
will make a REMIC election and whether a class of certificates will be treated
as a regular or residual interest in the REMIC.
A "qualified mortgage" for REMIC purposes includes any obligation,
including certificates of participation in such an obligation and any "regular
interest" in another REMIC, that is principally secured by an interest in real
property and that is transferred to the REMIC within a prescribed time period in
exchange for regular or residual interests in the REMIC.
In general, with respect to each series of certificates for which a REMIC
election is made,
o certificates held by a thrift institution taxed as a "domestic
building and loan association" will constitute assets described in
Code Section 7701(a)(19)(C);
o certificates held by a real estate investment trust will constitute
"real estate assets" within the meaning of Code Section
856(c)(4)(A); and
o interest on certificates held by a real estate investment trust will
be considered "interest on obligations secured by mortgages on real
property" within the meaning of Code Section 856(c)(3)(B).
If less than 95% of the REMIC's assets are assets qualifying under any of the
foregoing Code sections, the certificates will be qualifying assets only to the
extent that the REMIC's assets are qualifying assets.
Tiered REMIC Structures. For certain series of certificates, two or more
separate elections may be made to treat designated portions of the related trust
fund as REMICs for federal income tax purposes. Upon the issuance of any such
series of certificates, Brown & Wood LLP or Cadwalader, Wickersham & Taft or
Latham & Watkins or such other counsel as may be specified in the related
prospectus supplement, counsel to Morgan Stanley Capital I Inc., will deliver
its opinion generally to the effect that, assuming compliance with all
provisions of the related Agreement, the Master REMIC as well as any Subsidiary
REMIC will each qualify as a REMIC, and the REMIC Certificates issued by the
Master REMIC and the Subsidiary REMIC or REMICs, respectively, will be
considered REMIC Regular Certificates or REMIC Residual Certificates in the
related REMIC within the meaning of the REMIC Provisions.
Other than the residual interest in a Subsidiary REMIC, only REMIC
Certificates issued by the Master REMIC will be offered hereunder. The
Subsidiary REMIC or REMICs and the Master REMIC will be treated as one REMIC
solely for purposes of determining whether the REMIC Certificates will be:
o "real estate assets" within the meaning of Section 856(c)(4)(A) of
the Code;
o "loans secured by an interest in real property" under Section
7701(a)(19)(C) of the Code; and
o whether the income on the certificates is interest described in
Section 856(c)(3)(B) of the Code.
A. TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES
General. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC and not as ownership interests in the REMIC or its assets.
Moreover, holders of REMIC Regular Certificates that otherwise report income
under a cash method of accounting will be required to report income with respect
to REMIC Regular Certificates under an accrual method.
Original Issue Discount and Premium. The REMIC Regular Certificates may be
issued with OID. Generally, the OID, if any, will equal the difference between
the "stated redemption price at maturity" of a REMIC Regular Certificate and its
"issue price." Holders of any class of certificates issued with OID will be
required to include the OID in gross income for federal income tax purposes as
it accrues, in accordance with a constant interest method based on the
compounding of interest as it accrues rather than in accordance with receipt of
the interest payments. The following discussion is based in part on the OID
Regulations and in part on the provisions of the Tax
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Reform Act of 1986. REMIC Regular Certificates should be aware, however, that
the OID Regulations do not adequately address certain issues relevant to
prepayable securities, such as the REMIC Regular Certificates.
Rules governing OID are set forth in Code Sections 1271 through 1273 and
1275. These rules require that the amount and rate of accrual of OID be
calculated based on the Prepayment Assumption and the anticipated reinvestment
rate, if any, relating to the REMIC Regular Certificates and prescribe a method
for adjusting the amount and rate of accrual of the discount where the actual
prepayment rate differs from the Prepayment Assumption. Under the Code, the
Prepayment Assumption must be determined in the manner prescribed by
regulations, which regulations have not yet been issued. The legislative history
provides, however, that Congress intended the regulations to require that the
Prepayment Assumption be the prepayment assumption that is used in determining
the initial offering price of such REMIC Regular Certificates. The prospectus
supplement for each series of REMIC Regular Certificates will specify the
Prepayment Assumption to be used for the purpose of determining the amount and
rate of accrual of OID. No representation is made that the REMIC Regular
Certificates will prepay at the Prepayment Assumption or at any other rate.
In general, each REMIC Regular Certificate will be treated as a single
installment obligation issued with an amount of OID equal to the excess of its
"stated redemption price at maturity" over its "issue price." The issue price of
a REMIC Regular Certificate is the first price at which a substantial amount of
REMIC Regular Certificates of that class are first sold to the public (excluding
bond houses, brokers, underwriters or wholesalers). If less than a substantial
amount of a particular class of REMIC Regular Certificates is sold for cash on
or prior to the Closing Date, the issue price for that class will be treated as
the fair market value of that class on the Closing Date. The issue price of a
REMIC Regular Certificate also includes the amount paid by an initial
certificateholder for accrued interest that relates to a period prior to the
issue date of the REMIC Regular Certificate. The stated redemption price at
maturity of a REMIC Regular Certificate includes the original principal amount
of the REMIC Regular Certificate, but generally will not include distributions
of interest if the distributions constitute "qualified stated interest."
Qualified stated interest generally means interest payable at a single fixed
rate or qualified variable rate provided that the interest payments are
unconditionally payable at intervals of one year or less during the entire term
of the REMIC Regular Certificate. Interest is payable at a single fixed rate
only if the rate appropriately takes into account the length of the interval
between payments. Distributions of interest on REMIC Regular Certificates with
respect to which Deferred Interest will accrue will not constitute qualified
stated interest payments, and the stated redemption price at maturity of the
REMIC Regular Certificates includes all distributions of interest as well as
principal thereon.
Where the interval between the issue date and the first Distribution Date
on a REMIC Regular Certificate is longer than the interval between subsequent
Distribution Dates, the greater of any original issue discount, disregarding the
rate in the first period, and any interest foregone during the first period is
treated as the amount by which the stated redemption price at maturity of the
certificate exceeds its issue price for purposes of the de minimis rule
described below in this section. The OID Regulations suggest that all interest
on a long first period REMIC Regular Certificate that is issued with non-de
minimis OID, as determined under the foregoing rule, will be treated as OID.
Where the interval between the issue date and the first Distribution Date on a
REMIC Regular Certificate is shorter than the interval between subsequent
Distribution Dates, interest due on the first Distribution Date in excess of the
amount that accrued during the first period would be added to the certificate's
stated redemption price at maturity. REMIC Regular Certificates should consult
their own tax advisors to determine the issue price and stated redemption price
at maturity of a REMIC Regular Certificate.
Under the de minimis rule, OID on a REMIC Regular Certificate will be
considered to be zero if the OID is less than 0.25% of the stated redemption
price at maturity of the REMIC Regular Certificate multiplied by the weighted
average maturity of the REMIC Regular Certificate. For this purpose, the
weighted average maturity of the REMIC Regular Certificate is computed as the
sum of the amounts determined by multiplying the number of full years, i.e.,
rounding down partial years, from the issue date until each distribution in
reduction of stated redemption price at maturity is scheduled to be made by a
fraction, the numerator of which is the amount of each distribution included in
the stated redemption price at maturity of the REMIC Regular Certificate and the
denominator of which is the stated redemption price at maturity of the REMIC
Regular Certificate. Although currently unclear, it appears that the schedule of
the distributions should be determined in accordance with the Prepayment
Assumption. The Prepayment Assumption with respect to a series of REMIC Regular
Certificates will be set forth in the related prospectus supplement. Holders
generally must report de minimis OID pro rata as principal payments are
received,
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and the income will be capital gain if the REMIC Regular Certificate is held as
a capital asset. However, accrual method holders may elect to accrue all de
minimis OID as well as market discount under a constant interest method.
The prospectus supplement with respect to a trust fund may provide for
Super-Premium Certificates. The income tax treatment of such REMIC Regular
Certificates is not entirely certain. For information reporting purposes, the
trust fund intends to take the position that the stated redemption price at
maturity of such REMIC Regular Certificates is the sum of all payments to be
made on such REMIC Regular Certificates determined under the Prepayment
Assumption, with the result that such REMIC Regular Certificates would be issued
with OID. The calculation of income in this manner could result in negative
original issue discount, which delays future accruals of OID rather than being
immediately deductible when prepayments on the mortgage loans and/or MBS exceed
those estimated under the Prepayment Assumption. The IRS might contend, however,
that certain contingent payment rules contained in final regulations issued on
June 11, 1996, with respect to original issue discount, should apply to such
certificates. Although such rules are not applicable to instruments governed by
Code Section 1272(a)(6), they represent the only guidance regarding the current
views of the IRS with respect to contingent payment instruments. These proposed
regulations, if applicable, generally would require holders of Regular Interest
Certificates to take the payments considered contingent interest payments into
income on a yield to maturity basis in accordance with a schedule of projected
payments provided by Morgan Stanley Capital I Inc. and to make annual
adjustments to income to account for the difference between actual payments
received and projected payment amounts accrued. In the alternative, the IRS
could assert that the stated redemption price at maturity of such REMIC Regular
Certificates should be limited to their principal amount, subject to the
discussion below under "--Accrued Interest Certificates", so that such REMIC
Regular Certificates would be considered for federal income tax purposes to be
issued at a premium. If such a position were to prevail, the rules described
below under "--Premium" would apply. It is unclear when a loss may be claimed
for any unrecovered basis for a Super-Premium Certificate. It is possible that a
holder of a Super-Premium Certificate may only claim a loss when its remaining
basis exceeds the maximum amount of future payments, assuming no further
prepayments or when the final payment is received with respect to such
Super-Premium Certificate.
Under the REMIC Regulations, if the issue price of a REMIC Regular
Certificate, other than REMIC Regular Certificate based on a Notional Amount,
does not exceed 125% of its actual principal amount, the interest rate is not
considered disproportionately high. Accordingly, such REMIC Regular Certificate
generally should not be treated as a Super-Premium Certificate and the rules
described below under "--Premium" should apply. However, it is possible that
holders of REMIC Regular Certificates issued at a premium, even if the premium
is less than 25% of such certificate's actual principal balance, will be
required to amortize the premium under an original issue discount method or
contingent interest method even though no election under Code Section 171 is
made to amortize such premium.
Generally, a REMIC Regular Certificateholder must include in gross income
the "daily portions"of the OID that accrues on a REMIC Regular Certificate for
each day a certificateholder holds the REMIC Regular Certificate, including the
purchase date but excluding the disposition date. In the case of an original
holder of a REMIC Regular Certificate, a calculation will be made of the portion
of the OID that accrues during each successive period--"an accrual period"--that
ends on the day in the calendar year corresponding to a Distribution Date, or if
Distribution Dates are on the first day or first business day of the immediately
preceding month, interest may be treated as payable on the last day of the
immediately preceding month, and begins on the day after the end of the
immediately preceding accrual period or on the issue date in the case of the
first accrual period. This will be done, in the case of each full accrual
period, by
o adding (1) the present value at the end of the accrual period --
determined by using as a discount factor the original yield to
maturity of the REMIC Regular Certificates as calculated under the
Prepayment Assumption -- of all remaining payments to be received on
the REMIC Regular Certificates under the Prepayment Assumption and
(2) any payments included in the stated redemption price at maturity
received during such accrual period, and
o subtracting from that total the adjusted issue price of the REMIC
Regular Certificates at the beginning of such accrual period.
The adjusted issue price of a REMIC Regular Certificate at the beginning of the
first accrual period is its issue price; the adjusted issue price of a REMIC
Regular Certificate at the beginning of a subsequent accrual period is the
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adjusted issue price at the beginning of the immediately preceding accrual
period plus the amount of OID allocable to that accrual period and reduced by
the amount of any payment other than a payment of qualified stated interest made
at the end of or during that accrual period. The OID accrued during an accrual
period will then be divided by the number of days in the period to determine the
daily portion of OID for each day in the accrual period. The calculation of OID
under the method described above will cause the accrual of OID to either
increase or decrease -- but never below zero -- in a given accrual period to
reflect the fact that prepayments are occurring faster or slower than under the
Prepayment Assumption. With respect to an initial accrual period shorter than a
full accrual period, the "daily portions" of OID may be determined according to
an appropriate allocation under any reasonable method.
A subsequent purchaser of a REMIC Regular Certificate issued with OID who
purchases the REMIC Regular Certificate at a cost less than the remaining stated
redemption price at maturity will also be required to include in gross income
the sum of the daily portions of OID on that REMIC Regular Certificate. In
computing the daily portions of OID for such a purchaser, as well as an initial
purchaser that purchases at a price higher than the adjusted issue price but
less than the stated redemption price at maturity, however, the daily portion is
reduced by the amount that would be the daily portion for such day, computed in
accordance with the rules set forth above, multiplied by a fraction, the
numerator of which is the amount, if any, by which the price paid by such holder
for that REMIC Regular Certificate exceeds the following amount:
(1) the sum of the issue price plus the aggregate amount of OID that
would have been includible in the gross income of an original REMIC
Regular Certificateholder, who purchased the REMIC Regular
Certificate at its issue price, less
(2) any prior payments included in the stated redemption price at
maturity, and the denominator of which is the sum of the daily
portions for that REMIC Regular Certificate for all days beginning
on the date after the purchase date and ending on the maturity date
computed under the Prepayment Assumption.
A holder who pays an acquisition premium instead may elect to accrue OID by
treating the purchase as a purchase at original issue.
Variable Rate REMIC Regular Certificates. REMIC Regular Certificates may
provide for interest based on a variable rate. Interest based on a qualifying
variable rate will constitute qualified stated interest and not contingent
interest for OID purposes if, generally:
o the interest is unconditionally payable at least annually;
o the issue price of the debt instrument does not exceed the total
noncontingent principal payments; and
o interest is based on a "qualified floating rate," an "objective
rate," a combination of a single fixed rate and one or more
"qualified floating rates," one "qualified inverse floating rate,"
or a combination of "qualified floating rates" that do not operate
in a manner that significantly accelerates or defers interest
payments on the REMIC Regular Certificates.
The amount of OID with respect to a REMIC Regular Certificate bearing a
variable rate of interest will accrue in the manner described above under
"--Original Issue Discount and Premium" by assuming generally that the Index
used for the variable rate will remain fixed throughout the term of the
certificate at the rate applicable on the date they are issued. Appropriate
adjustments are made for the actual variable rate.
Although unclear at present, Morgan Stanley Capital I Inc. intends to
treat interest on a REMIC Regular Certificate that is a weighted average of the
net interest rates on mortgage loans as qualified stated interest. In such case,
the weighted average rate used to compute the initial pass-through rate on the
REMIC Regular Certificates will be deemed to be the Index in effect through the
life of the REMIC Regular Certificates. It is possible, however, that the IRS
may treat some or all of the interest on REMIC Regular Certificates with a
weighted average rate as taxable under the rules relating to obligations
providing for contingent payments. No guidance is currently available as to how
OID would be determined for debt instruments subject to Code Section 1272(a)(6)
that provide for contingent interest. The treatment of REMIC Regular
Certificates as contingent payment debt instruments may affect the timing of
income accruals on the REMIC Regular Certificates.
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Election to Treat All Interest as OID. The OID Regulations permit a
certificateholder to elect to accrue all interest, discount (including de
minimis market discount or original issue discount) and premium in income as
interest, based on a constant yield method. If such an election were to be made
with respect to a REMIC Regular Certificate with market discount, the
certificateholder would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such certificateholder acquires during the year of the
election or thereafter. Similarly, a certificateholder that makes this election
for a certificate that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such certificateholder owns or acquires. See
"--Premium" below. The election to accrue interest, discount and premium on a
constant yield method with respect to a certificate is irrevocable without the
consent of the IRS.
Market Discount. A purchaser of a REMIC Regular Certificate may also be
subject to the market discount provisions of Code Sections 1276 through 1278.
Under these provisions and the OID Regulations, "market discount" equals the
excess, if any, of (1) the REMIC Regular Certificate's stated principal amount
or, in the case of a REMIC Regular Certificate with OID, the adjusted issue
price, determined for this purpose as if the purchaser had purchased such REMIC
Regular Certificate from an original holder, over (2) the price for such REMIC
Regular Certificate paid by the purchaser. A certificateholder that purchases a
REMIC Regular Certificate at a market discount will recognize income upon
receipt of each distribution representing amounts included in such certificate's
stated redemption price at maturity. In particular, under Section 1276 of the
Code such a holder generally will be required to allocate each such distribution
first to accrued market discount not previously included in income, and to
recognize ordinary income to that extent. A certificateholder may elect to
include market discount in income currently as it accrues rather than including
it on a deferred basis in accordance with the foregoing. If made, the election
will apply to all market discount bonds acquired by the certificateholder on or
after the first day of the first taxable year to which the election applies.
Market discount with respect to a REMIC Regular Certificate will be
considered to be zero if the amount allocable to the REMIC Regular Certificate
is less than 0.25% of the REMIC Regular Certificate's stated redemption price at
maturity multiplied by the REMIC Regular Certificate's weighted average maturity
remaining after the date of purchase. If market discount on a REMIC Regular
Certificate is considered to be zero under this rule, the actual amount of
market discount must be allocated to the remaining principal payments on the
REMIC Regular Certificate, and gain equal to the allocated amount will be
recognized when the corresponding principal payment is made. Treasury
regulations implementing the market discount rules have not yet been issued;
therefore, investors should consult their own tax advisors regarding the
application of these rules and the advisability of making any of the elections
allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment, whether a scheduled payment
or a prepayment, or any gain on disposition of a market discount bond acquired
by the taxpayer after October 22, 1986, shall be treated as ordinary income to
the extent that it does not exceed the accrued market discount at the time of
the payment. The amount of accrued market discount for purposes of determining
the tax treatment of subsequent principal payments or dispositions of the market
discount bond is to be reduced by the amount so treated as ordinary income.
The Code also grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury, rules described in
the legislative history will apply. Under those rules, the holder of a market
discount bond may elect to accrue market discount either on the basis of a
constant interest method rate or according to one of the following methods. For
REMIC Regular Certificates issued with OID, the amount of market discount that
accrues during a period is equal to the product of
1) the total remaining market discount and
2) a fraction, the numerator of which is the OID accruing during the
period and the denominator of which is the total remaining OID at
the beginning of the period.
For REMIC Regular Certificates issued without OID, the amount of market discount
that accrues during a period is equal to the product of
1) the total remaining market discount and
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2) a fraction, the numerator of which is the amount of stated interest
paid during the accrual period and the denominator of which is the
total amount of stated interest remaining to be paid at the
beginning of the period.
For purposes of calculating market discount under any of the above methods in
the case of instruments such as the REMIC Regular Certificates that provide for
payments that may be accelerated by reason of prepayments of other obligations
securing such instruments, the same Prepayment Assumption applicable to
calculating the accrual of OID will apply.
A holder who acquired a REMIC Regular Certificate at a market discount
also may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to purchase
or carry the certificate purchased with market discount. For these purposes, the
de minimis rule referred to above applies. Any such deferred interest expense
would not exceed the market discount that accrues during such taxable year and
is, in general, allowed as a deduction not later than the year in which such
market discount is includible in income. If such holder elects to include market
discount in income currently as it accrues on all market discount instruments
acquired by such holder in that taxable year or thereafter, the interest
deferral rule described above will not apply.
Premium. A purchaser of a REMIC Regular Certificate that purchases the
REMIC Regular Certificate at a cost, not including accrued qualified stated
interest, greater than its remaining stated redemption price at maturity will be
considered to have purchased the REMIC Regular Certificate at a premium and may
elect to amortize the premium under a constant yield method. A certificateholder
that makes this election for a Certificate that is acquired at a premium will be
deemed to have made an election to amortize bond premium with respect to all
debt instruments having amortizable bond premium that such certificateholder
acquires during the year of the election or thereafter. It is not clear whether
the Prepayment Assumption would be taken into account in determining the life of
the REMIC Regular Certificate for this purpose. However, the legislative history
states that the same rules that apply to accrual of market discount, which rules
require use of a Prepayment Assumption in accruing market discount with respect
to REMIC Regular Certificates without regard to whether such certificates have
OID, will also apply in amortizing bond premium under Code Section 171. The Code
provides that amortizable bond premium will be allocated among the interest
payments on such REMIC Regular Certificates and will be applied as an offset
against the interest payment. The Amortizable Bond Premium Regulations do not
apply to prepayable securities described in Section 1272(a)(6) of the Code, such
as the REMIC Regular Certificates. Certificateholders should consult their tax
advisors regarding the possibility of making an election to amortize any such
bond premium.
Deferred Interest. Certain classes of REMIC Regular Certificates may
provide for the accrual of Deferred Interest with respect to one or more
adjustable rate loans. Any Deferred Interest that accrues with respect to a
class of REMIC Regular Certificates will constitute income to the holders of
such certificates prior to the time distributions of cash with respect to such
Deferred Interest are made. It is unclear, under the OID Regulations, whether
any of the interest on such certificates will constitute qualified stated
interest or whether all or a portion of the interest payable on such
certificates must be included in the stated redemption price at maturity of the
certificates and accounted for as OID, which could accelerate such inclusion.
Interest on REMIC Regular Certificates must in any event be accounted for under
an accrual method by the holders of such certificates and, therefore, applying
the latter analysis may result only in a slight difference in the timing of the
inclusion in income of interest on such REMIC Regular Certificates.
Sale, Exchange or Redemption. If a REMIC Regular Certificate is sold,
exchanged, redeemed or retired, the seller will recognize gain or loss equal to
the difference between the amount realized on the sale, exchange, redemption, or
retirement and the seller's adjusted basis in the REMIC Regular Certificate.
Such adjusted basis generally will equal the cost of the REMIC Regular
Certificate to the seller, increased by any OID and market discount included in
the seller's gross income with respect to the REMIC Regular Certificate, and
reduced, but not below zero, by payments included in the stated redemption price
at maturity previously received by the seller and by any amortized premium.
Similarly, a holder who receives a payment that is part of the stated redemption
price at maturity of a REMIC Regular Certificate will recognize gain equal to
the excess, if any, of the amount of the payment over an allocable portion of
the holder's adjusted basis in the REMIC Regular Certificate. A REMIC Regular
certificateholder who receives a final payment that is less than the holder's
adjusted basis in the REMIC Regular Certificate will generally recognize a loss.
Except as provided in the following paragraph and as provided under "--Market
Discount" above, any such gain or loss will be capital gain or loss, provided
that the REMIC
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Regular Certificate is held as a "capital asset" (generally, property held for
investment) within the meaning of Code Section 1221.
Such capital gain or loss will generally be long-term capital gain or loss
if the REMIC Regular Certificate was held for more than one year. Long-term
capital gains of individuals are subject to reduced maximum tax rates while
capital gains recognized by individual on capital assets held less than twelve
months are generally subject to ordinary income tax rates.
The use of capital losses is limited.
Gain from the sale or other disposition of a REMIC Regular Certificate
that might otherwise be capital gain will be treated as ordinary income to the
extent that the gain does not exceed the excess, if any, of
o the amount that would have been includible in the holder's income
with respect to the REMIC Regular Certificate had income accrued
thereon at a rate equal to 110% of the AFR as defined in Code
Section 1274(d) determined as of the date of purchase of such REMIC
Regular Certificate, over
o the amount actually includible in such holder's income.
Gain from the sale or other disposition of a REMIC Regular Certificate that
might otherwise be capital gain will be treated as ordinary income if the REMIC
Regular Certificate is held as part of a "conversion transaction" as defined in
Code Section 1258(c), up to the amount of interest that would have accrued on
the REMIC Regular certificateholder's net investment in the conversion
transaction at 120% of the appropriate applicable federal rate under Code
Section 1274(d) in effect at the time the taxpayer entered into the transaction
minus any amount previously treated as ordinary income with respect to any prior
disposition of property that was held as part of such transaction, or if the
REMIC Regular Certificate is held as part of a straddle. Potential investors
should consult their tax advisors with respect to tax consequences of ownership
and disposition of an investment in REMIC Regular Certificates in their
particular circumstances.
It is possible that capital gain realized by holders of one or more
classes of REMIC Regular Certificates could be considered gain realized upon the
disposition of property that was part of a "conversion transaction." A sale of a
REMIC Regular Certificate will be part of a "conversion transaction" if
substantially all of the holder's expected return is attributable to the time
value of the holder's net investment, and:
o the holder entered the contract to sell the REMIC Regular
Certificate substantially contemporaneously with acquiring the REMIC
Regular Certificate;
o the REMIC Regular Certificate is part of a straddle;
o the REMIC Regular Certificate is marketed or sold as producing
capital gains; or
o other transactions to be specified in Treasury regulations that have
not yet been issued. If the sale or other disposition of a REMIC
Regular Certificate is part of a conversion transaction, all or a
portion of the gain realized upon the sale or other disposition of
the REMIC Regular Certificate would be treated as ordinary income
instead of capital gain.
The certificates will be "evidences of indebtedness" within the meaning of
Code Section 582(c)(1), so that gain or loss recognized from the sale of a REMIC
Regular Certificate by a bank or a thrift institution to which this section
applies will be ordinary income or loss.
The REMIC Regular Certificate information reports will include a statement
of the adjusted issue price of the REMIC Regular Certificate at the beginning of
each accrual period. In addition, the reports will include information necessary
to compute the accrual of any market discount that may arise upon secondary
trading of REMIC Regular Certificates. Because exact computation of the accrual
of market discount on a constant yield method would require information relating
to the holder's purchase price which the REMIC may not have, it appears that the
information reports will only provide information pertaining to the appropriate
proportionate method of accruing market discount.
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Accrued Interest Certificates. Payment Lag Certificates may provide for
payments of interest based on a period that corresponds to the interval between
Distribution Dates but that ends prior to each Distribution Date. The period
between the Closing Date for Payment Lag Certificates and their first
Distribution Date may or may not exceed the interval. Purchasers of Payment Lag
Certificates for which the period between the Closing Date and the first
Distribution Date does not exceed the interval could pay upon purchase of the
REMIC Regular Certificates accrued interest in excess of the accrued interest
that would be paid if the interest paid on the Distribution Date were interest
accrued from Distribution Date to Distribution Date. If a portion of the initial
purchase price of a REMIC Regular Certificate is allocable to pre-issuance
accrued interest and the REMIC Regular Certificate provides for a payment of
stated interest on the first payment date and the first payment date is within
one year of the issue date that equals or exceeds the amount of the pre-issuance
accrued interest, then the REMIC Regular Certificate's issue price may be
computed by subtracting from the issue price the amount of pre-issuance accrued
interest, rather than as an amount payable on the REMIC Regular Certificate.
However, it is unclear under this method how the OID Regulations treat interest
on Payment Lag Certificates. Therefore, in the case of a Payment Lag
Certificate, the trust fund intends to include accrued interest in the issue
price and report interest payments made on the first Distribution Date as
interest to the extent such payments represent interest for the number of days
that the certificateholder has held the Payment Lag Certificate during the first
accrual period.
Investors should consult their own tax advisors concerning the treatment
for federal income tax purposes of Payment Lag Certificates.
Non-Interest Expenses of the REMIC. Under temporary Treasury regulations,
if the REMIC is considered to be a "single-class REMIC," a portion of the
REMIC's servicing, administrative and other non-interest expenses will be
allocated as a separate item to those REMIC Regular Certificates that are
"pass-through interest holders." Certificateholders that are pass-through
interest holders should consult their own tax advisors about the impact of these
rules on an investment in the REMIC Regular Certificates. See "Pass-Through of
Non-Interest Expenses of the REMIC" under "Taxation of Owners of REMIC Residual
Certificates" below.
Effects of Defaults, Delinquencies and Losses. Certain series of
certificates may contain one or more classes of Subordinated Certificates, and
in the event there are defaults or delinquencies on the mortgage loans and/or
MBS, amounts that would otherwise be distributed on the Subordinated
Certificates may instead be distributed on the Senior Certificates. Subordinated
certificateholders nevertheless will be required to report income with respect
to such certificates under an accrual method without giving effect to delays and
reductions in distributions on the Subordinated Certificates attributable to
defaults and delinquencies on the mortgage loans and/or MBS, except to the
extent that it can be established that the amounts are uncollectible. As a
result, the amount of income reported by a Subordinated certificateholder in any
period could significantly exceed the amount of cash distributed to the holder
in that period. The holder will eventually be allowed a loss (or will be allowed
to report a lesser amount of income) to the extent that the aggregate amount of
distributions on the Subordinated Certificate is reduced as a result of defaults
and delinquencies on the mortgage loans and/or MBS.
Although not entirely clear, it appears that holders of REMIC Regular
Certificates that are corporations should in general be allowed to deduct as an
ordinary loss any loss sustained during the taxable year on account of any such
certificates becoming wholly or partially worthless, and that, in general,
holders of certificates that are not corporations should be allowed to deduct as
a short-term capital loss any loss sustained during the taxable year on account
of any such certificates becoming wholly worthless. Potential investors and
holders of the certificates are urged to consult their own tax advisors
regarding the appropriate timing, amount and character of any loss sustained
with respect to such certificates, including any loss resulting from the failure
to recover previously accrued interest or discount income. Special loss rules
are applicable to banks and thrift institutions, including rules regarding
reserves for bad debts. These taxpayers are advised to consult their tax
advisors regarding the treatment of losses on certificates.
Non-U.S. Persons. Generally, payments of interest on the REMIC
Regular Certificates, including any payment with respect to accrued OID, to
a REMIC Regular Certificateholder who is not a U.S. Person and is not
engaged in a trade or business within the United States will not be subject
to federal withholding tax if:
o the REMIC Regular Certificateholder does not actually or
constructively own 10 percent or more of the combined voting power
of all classes of equity in the issuer;
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o the REMIC Regular Certificateholder is not a controlled foreign
corporation, within the meaning of Code Section 957, related to the
issuer; and
o the REMIC Regular Certificateholder complies with identification
requirements, including delivery of a statement, signed by the REMIC
Regular certificateholder under penalties of perjury, certifying
that the REMIC Regular certificateholder is a foreign person and
providing the name and address of the REMIC Regular
certificateholder.
If a REMIC Regular Certificateholder is not exempt from withholding,
distributions of interest to the holder, including distributions in respect of
accrued OID, may be subject to a 30% withholding tax, subject to reduction under
any applicable tax treaty. If the interest on a REMIC Regular Certificate is
effectively connected with the conduct by the Non-U.S. REMIC Regular
Certificateholder of a trade or business within the United States, then the
Non-U.S. REMIC Regular Certificateholder will be subject to U.S. income tax at
regular graduated rates. Such a Non-U.S. REMIC Regular Certificateholder also
may be subject to the branch profits tax.
Further, a REMIC Regular Certificate will not be included in the estate of
a non-resident alien individual that does not actually or constructively own 10%
or more of the combined voting power of all classes of equity in the Issuer and
will not be subject to United States estate taxes. However, certificateholders
who are non-resident alien individuals should consult their tax advisors
concerning this question.
REMIC Regular Certificateholders who are not U.S. Persons and persons
related to such holders should not acquire any REMIC Residual Certificates,
REMIC Residual Certificateholder and persons related to REMIC Residual
Certificateholders should not acquire any REMIC Regular Certificates without
consulting their tax advisors as to the possible adverse tax consequences of
doing so. In addition, the IRS may assert that non-U.S. Persons that own
directly or indirectly, a greater than 10% interest in any Borrower, and foreign
corporations that are "controlled foreign corporations" as to the United States
of which such a Borrower is a "United States shareholder" within the meaning of
Section 951(b) of the Code, are subject to United States withholding tax on
interest distributed to them to the extent of interest concurrently paid by the
related Borrower.
Information Reporting and Backup Withholding. The master servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each person who was a REMIC Regular Certificateholder at any
time during that year, the information as may be deemed necessary or desirable
to assist REMIC Regular Certificateholders in preparing their federal income tax
returns, or to enable holders to make the information available to beneficial
owners or financial intermediaries that hold the REMIC Regular Certificates on
behalf of beneficial owners. If a holder, beneficial owner, financial
intermediary or other recipient of a payment on behalf of a beneficial owner
fails to supply a certified taxpayer identification number or if the Secretary
of the Treasury determines that such person has not reported all interest and
dividend income required to be shown on its federal income tax return, 31%
backup withholding may be required with respect to any payments with respect to
any payments to registered owners who are not "exempt recipients." In addition,
upon the sale of a REMIC Regular Certificate to, or through, a broker, the
broker must withhold 31% of the entire purchase price, unless either:
o the broker determines that the seller is a corporation or other
exempt recipient, or
o the seller provides, in the required manner, identifying information
and, in the case of a non-U.S. Person, certifies that such seller is
a Non-U.S. Person, and other conditions are met.
o A sale of a REMIC Regular Certificate to, or through, a broker must
also be reported by the broker to the IRS, unless either:
o the broker determines that the seller is an exempt recipient, or
o the seller certifies its non-U.S. Person status and other conditions
are met.
Certification of the registered owner's non-U.S. Person status normally would be
made on IRS Form W-8 under penalties of perjury, although in certain cases it
may be possible to submit other documentary evidence. Any amounts deducted and
withheld from a distribution to a recipient would be allowed as a credit against
such recipient's federal income tax liability.
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On October 6, 1997, the Treasury Department issued the New Regulations,
which make certain modifications to the withholding, backup withholding and
information reporting rules described above. The New Regulations attempt to
unify certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
1999, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
B. TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES
Allocation of the Income of the REMIC to the REMIC Residual Certificates.
The REMIC will not be subject to federal income tax except with respect to
income from prohibited transactions and certain other transactions. See
"--Prohibited Transactions and Other Taxes" below. Instead, each original holder
of a REMIC Residual Certificate will report on its federal income tax return, as
ordinary income, its share of the taxable income of the REMIC for each day
during the taxable year on which the holder owns any REMIC Residual
Certificates. The taxable income of the REMIC for each day will be determined by
allocating the taxable income of the REMIC for each calendar quarter ratably to
each day in the quarter. Such a holder's share of the taxable income of the
REMIC for each day will be based on the portion of the outstanding REMIC
Residual Certificates that the holder owns on that day. The taxable income of
the REMIC will be determined under an accrual method and will be taxable to the
holders of REMIC Residual Certificates without regard to the timing or amounts
of cash distributions by the REMIC. Ordinary income derived from REMIC Residual
Certificates will be "portfolio income" for purposes of the taxation of
taxpayers subject to the limitations on the deductibility of "passive losses."
As residual interests, the REMIC Residual Certificates will be subject to tax
rules, described below, that differ from those that would apply if the REMIC
Residual Certificates were treated for federal income tax purposes as direct
ownership interests in the certificates or as debt instruments issued by the
REMIC.
A REMIC Residual Certificateholder may be required to include taxable
income from the REMIC Residual Certificate in excess of the cash distributed.
For example, a structure where principal distributions are made serially on
regular interests, that is, a fast-pay, slow-pay structure, may generate such a
mismatching of income and cash distributions -- that is, "phantom income". This
mismatching may be caused by the use of certain required tax accounting methods
by the REMIC, variations in the prepayment rate of the underlying mortgage loans
and/or MBS and certain other factors. Depending upon the structure of a
particular transaction, the aforementioned factors may significantly reduce the
after-tax yield of a REMIC Residual Certificate to a REMIC Residual
Certificateholder or cause the REMIC Residual Certificate to have negative
"value." Investors should consult their own tax advisors concerning the federal
income tax treatment of a REMIC Residual Certificate and the impact of the tax
treatment on the after-tax yield of a REMIC Residual Certificate.
A subsequent REMIC Residual Certificateholder also will report on its
federal income tax return amounts representing a daily share of the taxable
income of the REMIC for each day that the REMIC Residual Certificateholder owns
the REMIC Residual Certificate. Those daily amounts generally would equal the
amounts that would have been reported for the same days by an original REMIC
Residual Certificateholder, as described above. The legislative history
indicates that certain adjustments may be appropriate to reduce or increase the
income of a subsequent holder of a REMIC Residual Certificate that purchased the
REMIC Residual Certificate at a price greater than or less than the adjusted
basis the REMIC Residual Certificate would have in the hands of an original
REMIC Residual Certificateholder. See "--Sale or Exchange of REMIC Residual
Certificates" below. It is not clear, however, whether the adjustments will in
fact be permitted or required and, if so, how they would be made. The REMIC
Regulations do not provide for any such adjustments.
Taxable Income of the REMIC Attributable to Residual Interests. The
taxable income of the REMIC will reflect a netting of
o the income from the mortgage loans and/or MBS and the REMIC's other
assets and
o the deductions allowed to the REMIC for interest and OID on the
REMIC Regular Certificates and, except as described above under
"--Taxation of Owners of REMIC Regular Certificates--Non-Interest
Expenses of the REMIC," other expenses.
REMIC taxable income is generally determined in the same manner as the
taxable income of an individual using the accrual method of accounting,
except that:
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o the limitations on deductibility of investment interest expense and
expenses for the production of income do not apply;
o all bad loans will be deductible as business bad debts; and
o the limitation on the deductibility of interest and expenses related
to tax-exempt income will apply.
The REMIC's gross income includes interest, original issue discount income, and
market discount income, if any, on the mortgage loans, reduced by amortization
of any premium on the mortgage loans, plus income on reinvestment of cash flows
and reserve assets, plus any cancellation of indebtedness income upon allocation
of realized losses to the REMIC Regular Certificates. Note that the timing of
cancellation of indebtedness income recognized by REMIC Residual
Certificateholders resulting from defaults and delinquencies on mortgage loans
and/or MBS may differ from the time of the actual loss on the assets. The
REMIC's deductions include interest and original issue discount expense on the
REMIC Regular Certificates, servicing fees on the mortgage loans, other
administrative expenses of the REMIC and realized losses on the mortgage loans.
The requirement that REMIC Residual Certificateholders report their pro rata
share of taxable income or net loss of the REMIC will continue until there are
no certificates of any class of the related series outstanding.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate tax basis in its assets equal to the sum of the issue prices
of the REMIC Regular Certificates and the REMIC Residual Certificates, or, if a
class of certificates is not sold initially, its fair market value. The
aggregate basis will be allocated among the mortgage loans and/or MBS and other
assets of the REMIC in proportion to their respective fair market value. A
mortgage loan or MBS will be deemed to have been acquired with discount or
premium to the extent that the REMIC's basis therein is less than or greater
than its principal balance, respectively. Any such discount, whether market
discount or OID, will be includible in the income of the REMIC as it accrues, in
advance of receipt of the cash attributable to the income, under a method
similar to the method described above for accruing OID on the REMIC Regular
Certificates. The REMIC may elect under Code Section 171 to amortize any premium
on the mortgage loans and/or MBS. Premium on any mortgage loan or MBS to which
the election applies would be amortized under a constant yield method. It is not
clear whether the yield of a mortgage loan or MBS would be calculated for this
purpose based on scheduled payments or taking account of the Prepayment
Assumption. Additionally, such an election would not apply to the yield with
respect to any underlying mortgage loan originated on or before September 27,
1985. Instead, premium with respect to such a mortgage loan would be allocated
among the principal payments thereon and would be deductible by the REMIC as
those payments become due.
The REMIC will be allowed a deduction for interest and OID on the REMIC
Regular Certificates. The amount and method of accrual of OID will be calculated
for this purpose in the same manner as described above with respect to REMIC
Regular Certificates except that the 0.25% per annum de minimis rule and
adjustments for subsequent holders described therein will not apply.
A REMIC Residual Certificateholder will not be permitted to amortize the
cost of the REMIC Residual Certificate as an offset to its share of the REMIC's
taxable income. However, REMIC taxable income will not include cash received by
the REMIC that represents a recovery of the REMIC's basis in its assets, and, as
described above, the issue price of the REMIC Residual Certificates will be
added to the issue price of the REMIC Regular Certificates in determining the
REMIC's initial basis in its assets. See "--Sale or Exchange of REMIC Residual
Certificates" below. For a discussion of possible adjustments to income of a
subsequent holder of a REMIC Residual Certificate to reflect any difference
between the actual cost of the REMIC Residual Certificate to the holder and the
adjusted basis the REMIC Residual Certificate would have in the hands of an
original REMIC Residual Certificateholder, see "--Allocation of the Income of
the REMIC to the REMIC Residual Certificates" above.
Net Losses of the REMIC. The REMIC will have a net loss for any calendar
quarter in which its deductions exceed its gross income. The net loss would be
allocated among the REMIC Residual Certificateholders in the same manner as the
REMIC's taxable income. The net loss allocable to any REMIC Residual Certificate
will not be deductible by the holder to the extent that the net loss exceeds the
holder's adjusted basis in the REMIC Residual Certificate. Any net loss that is
not currently deductible by reason of this limitation may only be used by the
REMIC Residual Certificateholder to offset its share of the REMIC's taxable
income in future periods (but not
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otherwise). The ability of REMIC Residual Certificateholders that are
individuals or closely held corporations to deduct net losses may be subject to
additional limitations under the Code.
Mark-to-Market Rules. Prospective purchasers of a REMIC Residual
Certificate should be aware that the IRS has finalized Mark-to-Market
Regulations which provide that a REMIC Residual Certificate acquired after
January 3, 1995 cannot be marked to market. The Mark-to-Market Regulations
replaced the temporary regulations which allowed a Residual Certificate to be
marked to market provided that it was not a "negative value" residual interest
and did not have the same economic effect as a "negative value" residual
interest.
Pass-Through of Non-Interest Expenses of the REMIC. As a general rule, all
of the fees and expenses of a REMIC will be taken into account by holders of the
REMIC Residual Certificates. In the case of a single class REMIC, however, the
expenses and a matching amount of additional income will be allocated, under
temporary Treasury regulations, among the REMIC Regular Certificateholders and
the REMIC Residual Certificateholders on a daily basis in proportion to the
relative amounts of income accruing to each certificateholder on that day. In
general terms, a single class REMIC is one that either:
o would qualify, under existing Treasury regulations, as a grantor
trust if it were not a REMIC, treating all interests as ownership
interests, even if they would be classified as debt for federal
income tax purposes, or
o is similar to such a trust and is structured with the principal
purpose of avoiding the single class REMIC rules.
Unless otherwise stated in the applicable prospectus supplement, the expenses of
the REMIC will be allocated to holders of the related REMIC Residual
Certificates in their entirety and not to holders of the related REMIC Regular
Certificates.
In the case of individuals or trusts, estates or other persons that
compute their income in the same manner as individuals, who own an interest in a
REMIC Regular Certificate or a REMIC Residual Certificate directly or through a
pass-through interest holder that is required to pass miscellaneous itemized
deductions through to its owners or beneficiaries, e.g., a partnership, an S
corporation or a grantor trust, such expenses will be deductible under Code
Section 67 only to the extent that such expenses, plus other "miscellaneous
itemized deductions" of the individual, exceed 2% of such individual's adjusted
gross income. In addition, Code Section 68 provides that the applicable amount
will be reduced by the lesser of
o 3% of the excess of the individual's adjusted gross income over the
applicable amount or
o 80% of the amount of itemized deductions otherwise allowable for the
taxable year.
The amount of additional taxable income recognized by REMIC Residual
Certificateholders who are subject to the limitations of either Code Section 67
or Code Section 68 may be substantial. Further, holders subject to the
alternative minimum tax other than corporations may not deduct miscellaneous
itemized deductions in determining such holders' alternative minimum taxable
income. The REMIC is required to report to each pass-through interest holder and
to the IRS such holder's allocable share, if any, of the REMIC's non-interest
expenses. The term "pass-through interest holder" generally refers to
individuals, entities taxed as individuals and certain pass-through entities,
but does not include real estate investment trusts. Accordingly, investment in
REMIC Residual Certificates will in general not be suitable for individuals or
for certain pass-through entities, such as partnerships and S corporations, that
have individuals as partners or shareholders.
Excess Inclusions. A portion of the income on a REMIC Residual
Certificate, referred to in the Code as an "excess inclusion", for any
calendar quarter will be subject to federal income tax in all events. Thus,
for example, an excess inclusion:
o may not, except as described below, be offset by any unrelated
losses, deductions or loss carryovers of a REMIC Residual
Certificateholder;
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o will be treated as "unrelated business taxable income" within the
meaning of Code Section 512 if the REMIC Residual Certificateholder
is a pension fund or any other organization that is subject to tax
only on its unrelated business taxable income, as discussed under
"--Tax-Exempt Investors" below; and
o is not eligible for any reduction in the rate of withholding tax in
the case of a REMIC Residual Certificateholder that is a foreign
investor, as discussed under "--Residual Certificate
Payments--Non-U.S. Persons" below.
Except as discussed in the following paragraph, with respect to any REMIC
Residual Certificateholder, the excess inclusions for any calendar quarter is
the excess, if any, of (1) the income of such REMIC Residual Certificateholder
for that calendar quarter from its REMIC Residual Certificate over (2) the sum
of the "daily accruals" for all days during the calendar quarter on which the
REMIC Residual Certificateholder holds a REMIC Residual Certificate. For this
purpose, the daily accruals with respect to a REMIC Residual Certificate are
determined by allocating to each day in the calendar quarter its ratable portion
of the product of the "adjusted issue price" of the REMIC Residual Certificate
at the beginning of the calendar quarter and 120 percent of the "Federal
long-term rate" in effect at the time the REMIC Residual Certificate is issued.
For this purpose, the "adjusted issue price" of a REMIC Residual Certificate at
the beginning of any calendar quarter equals the issue price of the REMIC
Residual Certificate, increased by the amount of daily accruals for all prior
quarters, and decreased--but not below zero--by the aggregate amount of payments
made on the REMIC Residual Certificate before the beginning of the quarter. The
"federal long-term rate" is an average of current yields on Treasury securities
with a remaining term of greater than nine years, computed and published monthly
by the IRS.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to the REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Code Section 857(b)(2),
excluding any net capital gain), will be allocated among the shareholders of
such trust in proportion to the dividends received by the shareholders from such
trust, and any amount so allocated will be treated as an excess inclusion with
respect to a REMIC Residual Certificate as if held directly by the shareholder.
Regulated investment companies, common trust funds and certain cooperatives are
subject to similar rules.
The Small Business Job Protection Act of 1996 has eliminated the special
rule permitting Section 593 institutions ("thrift institutions") to use net
operating losses and other allowable deductions to offset their excess inclusion
income from REMIC residual certificates that have "significant value" within the
meaning of the REMIC Regulations, effective for taxable years beginning after
December 31, 1995, except with respect to residual certificates continuously
held by a thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides three
rules for determining the effect on excess inclusions on the alternative minimum
taxable income of a residual holder. First, alternative minimum taxable income
for the residual holder is determined without regard to the special rule that
taxable income cannot be less than excess inclusions. Second, the amount of any
alternative minimum tax net operating loss deductions must be computed without
regard to any excess inclusions. Third, a residual holder's alternative minimum
taxable income for a tax year cannot be less than excess inclusions for the
year. The effect of this last statutory amendment is to prevent the use of
nonrefundable tax credits to reduce a taxpayer's income tax below its tentative
minimum tax computed only on excess inclusions. These rules are effective for
tax years beginning after December 31, 1986, unless a residual holder elects to
have such rules apply only to tax years beginning after August 20, 1996.
Payments. Any distribution made on a REMIC Residual Certificate to a REMIC
Residual Certificateholder will be treated as a non-taxable return of capital to
the extent it does not exceed the REMIC Residual Certificateholder's adjusted
basis in the REMIC Residual Certificate. To the extent a distribution exceeds
the adjusted basis, it will be treated as gain from the sale of the REMIC
Residual Certificate.
Sale or Exchange of REMIC Residual Certificates. If a REMIC Residual
Certificate is sold or exchanged, the seller will generally recognize gain or
loss equal to the difference between the amount realized on the sale or exchange
and its adjusted basis in the REMIC Residual Certificate except that the
recognition of loss may be limited under the "wash sale" rules described in the
next paragraph. A holder's adjusted basis in a REMIC Residual Certificate
generally equals the cost of the REMIC Residual Certificate to the REMIC
Residual Certificateholder,
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increased by the taxable income of the REMIC that was included in the income of
the REMIC Residual Certificateholder with respect to the REMIC Residual
Certificate, and decreased -- but not below zero -- by the net losses that have
been allowed as deductions to the REMIC Residual Certificateholder with respect
to the REMIC Residual Certificate and by the distributions received thereon by
the REMIC Residual Certificateholder. In general, any the gain or loss will be
capital gain or loss provided the REMIC Residual Certificate is held as a
capital asset. The capital gain or loss will generally be long-term capital gain
or loss if the REMIC Regular Certificate was held for more than one year.
Long-term capital gains of individuals are subject to reduced maximum tax rates
while capital gains recognized by individuals on capital assets held less than
twelve months are generally subject to ordinary income tax rates. The use of
capital losses is limited. However, REMIC Residual Certificates will be
"evidences of indebtedness" within the meaning of Code Section 582(c)(1), so
that gain or loss recognized from sale of a REMIC Residual Certificate by a bank
or thrift institution to which such section applies would be ordinary income or
loss. In addition, a transfer of a REMIC Residual Certificate that is a
"noneconomic residual interest" may be subject to different rules. See "--Tax
Related Restrictions on Transfers of REMIC Residual Certificates--Noneconomic
REMIC Residual Certificates" below.
Except as provided in Treasury regulations yet to be issued, if the seller
of a REMIC Residual Certificate reacquires such REMIC Residual Certificate, or
acquires any other REMIC Residual Certificate, any residual interest in another
REMIC or similar interest in a "taxable mortgage pool", as defined in Code
Section 7701(i), during the period beginning six months before, and ending six
months after, the date of such sale, such sale will be subject to the "wash
sale" rules of Code Section 1091. In that event, any loss realized by the REMIC
Residual Certificateholder on the sale will not be deductible, but, instead,
will increase such REMIC Residual Certificateholder's adjusted basis in the
newly acquired asset.
PROHIBITED TRANSACTIONS AND OTHER TAXES
The Code imposes a tax on REMICs equal to 100% of the net income derived
from "prohibited transactions". In general, subject to certain specified
exceptions, a prohibited transaction means:
o the disposition of a mortgage loan or MBS,
o the receipt of income from a source other than a mortgage loan or
MBS or certain other permitted investments,
o the receipt of compensation for services, or
o gain from the disposition of an asset purchased with the payments on
the mortgage loans and/or MBS for temporary investment pending
distribution on the certificates.
It is not anticipated that the trust fund for any series of certificates will
engage in any prohibited transactions in which it would recognize a material
amount of net income.
In addition, certain contributions to a trust fund as to which an election
has been made to treat the trust fund as a REMIC made after the day on which the
trust fund issues all of its interests could result in the imposition of the
Contributions Tax. No trust fund for any series of certificates will accept
contributions that would subject it to such tax.
In addition, a trust fund as to which an election has been made to treat
the trust fund as a REMIC may also be subject to federal income tax at the
highest corporate rate on "net income from foreclosure property," determined by
reference to the rules applicable to real estate investment trusts. "Net income
from foreclosure property" generally means income from foreclosure property
other than qualifying income for a real estate investment trust.
Where any Prohibited Transactions Tax, Contributions Tax, tax on net
income from foreclosure property or state or local income or franchise tax that
may be imposed on a REMIC relating to any series of certificates arises out of
or results from
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o a breach of the related servicer's, trustee's or depositor's
obligations, as the case may be, under the related Agreement for
such series, such tax will be borne by such servicer, trustee or
depositor, as the case may be, out of its own funds or
o Morgan Stanley Capital I Inc.'s obligation to repurchase a mortgage
loan,
such tax will be borne by Morgan Stanley Capital I Inc.
In the event that the servicer, trustee or depositor, as the case may be, fails
to pay or is not required to pay any Prohibited Transactions Tax, Contributions
Tax, tax on net income from foreclosure property or state or local income or
franchise tax, the tax will be payable out of the trust fund for the series and
will result in a reduction in amounts available to be distributed to the
certificateholders of the series.
LIQUIDATION AND TERMINATION
If the REMIC adopts a plan of complete liquidation, within the meaning of
Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in the
REMIC's final tax return a date on which such adoption is deemed to occur, and
sells all of its assets other than cash within a 90-day period beginning on such
date, the REMIC will not be subject to any Prohibited Transaction Tax, provided
that the REMIC credits or distributes in liquidation all of the sale proceeds
plus its cash, other than the amounts retained to meet claims, to holders of
Regular and REMIC Residual Certificates within the 90-day period.
The REMIC will terminate shortly following the retirement of the REMIC
Regular Certificates. If a REMIC Residual Certificateholder's adjusted basis in
the REMIC Residual Certificate exceeds the amount of cash distributed to such
REMIC Residual Certificateholder in final liquidation of its interest, then it
would appear that the REMIC Residual Certificateholder would be entitled to a
loss equal to the amount of such excess. It is unclear whether such a loss, if
allowed, will be a capital loss or an ordinary loss.
ADMINISTRATIVE MATTERS
Solely for the purpose of the administrative provisions of the Code, the
REMIC generally will be treated as a partnership and the REMIC Residual
Certificateholders will be treated as the partners. Information will be
furnished quarterly to each REMIC Residual Certificateholder who held a REMIC
Residual Certificate on any day in the previous calendar quarter.
Each REMIC Residual Certificateholder is required to treat items on its
return consistently with their treatment on the REMIC's return, unless the REMIC
Residual Certificateholder either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC. The IRS may assert a deficiency resulting
from a failure to comply with the consistency requirement without instituting an
administrative proceeding at the REMIC level. The REMIC does not intend to
register as a tax shelter pursuant to Code Section 6111 because it is not
anticipated that the REMIC will have a net loss for any of the first five
taxable years of its existence. Any person that holds a REMIC Residual
Certificate as a nominee for another person may be required to furnish the
REMIC, in a manner to be provided in Treasury regulations, with the name and
address of such person and other information.
TAX-EXEMPT INVESTORS
Any REMIC Residual Certificateholder that is a pension fund or other
entity that is subject to federal income taxation only on its "unrelated
business taxable income" within the meaning of Code Section 512 will be subject
to such tax on that portion of the distributions received on a REMIC Residual
Certificate that is considered an excess inclusion. See "--Taxation of Owners of
REMIC Residual Certificates--Excess Inclusions" above.
RESIDUAL CERTIFICATE PAYMENTS--NON-U.S. PERSONS
Amounts paid to REMIC Residual Certificateholders who are not U.S. Persons
(see "--Taxation of Owners of REMIC Regular Certificates--Non-U.S. Persons"
above) are treated as interest for purposes of the 30%, or lower treaty rate,
United States withholding tax. Amounts distributed to holders of REMIC Residual
Certificates should
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qualify as "portfolio interest," subject to the conditions described in
"--Taxation of Owners of REMIC Regular Certificates" above, but only to the
extent that the underlying mortgage loans were originated after July 18, 1984.
Furthermore, the rate of withholding on any income on a REMIC Residual
Certificate that is excess inclusion income will not be subject to reduction
under any applicable tax treaties. See "--Taxation of Owners of REMIC Residual
Certificates--Excess Inclusions" above. If the portfolio interest exemption is
unavailable, such amount will be subject to United States withholding tax when
paid or otherwise distributed, or when the REMIC Residual Certificate is
disposed of, under rules similar to those for withholding upon disposition of
debt instruments that have OID. The Code, however, grants the Treasury
Department authority to issue regulations requiring that those amounts be taken
into account earlier than otherwise provided where necessary to prevent
avoidance of tax, for example, where the REMIC Residual Certificates do not have
significant value. See "--Taxation of Owners of REMIC Residual
Certificates--Excess Inclusions" above. If the amounts paid to REMIC Residual
Certificateholders that are not U.S. Persons are effectively connected with
their conduct of a trade or business within the United States, the 30%, or lower
treaty rate, withholding will not apply. Instead, the amounts paid to such
non-U.S. Person will be subject to U.S. federal income taxation at regular
graduated rates. For special restrictions on the transfer of REMIC Residual
Certificates, see "--Tax Related Restrictions on Transfers of REMIC Residual
Certificates" below.
REMIC Regular Certificateholders and persons related to such holders
should not acquire any REMIC Residual Certificates, and REMIC Residual
Certificateholders and persons related to REMIC Residual Certificateholders
should not acquire any REMIC Regular Certificates, without consulting their tax
advisors as to the possible adverse tax consequences of such acquisition.
TAX RELATED RESTRICTIONS ON TRANSFERS OF REMIC RESIDUAL CERTIFICATES
Disqualified Organizations. An entity may not qualify as a REMIC unless
there are reasonable arrangements designed to ensure that residual interests in
the entity are not held by "disqualified organizations". Further, a tax is
imposed on the transfer of a residual interest in a REMIC to a "disqualified
organization." The amount of the tax equals the product of (A) an amount, as
determined under the REMIC Regulations, equal to the present value of the total
anticipated "excess inclusions" with respect to such interest for periods after
the transfer and (B) the highest marginal federal income tax rate applicable to
corporations. The tax is imposed on the transferor unless the transfer is
through an agent, including a broker or other middleman, for a disqualified
organization, in which event the tax is imposed on the agent. The person
otherwise liable for the tax shall be relieved of liability for the tax if the
transferee furnished to such person an affidavit that the transferee is not a
disqualified organization and, at the time of the transfer, such person does not
have actual knowledge that the affidavit is false. A "disqualified organization"
means:
(A) the United States, any State, possession or political subdivision
thereof, any foreign government, any international organization or
any agency or instrumentality of any of the foregoing (provided that
such term does not include an instrumentality if all its activities
are subject to tax and, except for FHLMC, a majority of its board of
directors is not selected by any such governmental agency);
(B) any organization, other than certain farmers' cooperatives,
generally exempt from federal income taxes unless such organization
is subject to the tax on "unrelated business taxable income"; and
(C) a rural electric or telephone cooperative.
A tax is imposed on a "pass-through entity" holding a residual interest in
a REMIC if at any time during the taxable year of the pass-through entity a
disqualified organization is the record holder of an interest in such entity,
provided that all partners of an "electing large partnership" as defined in
Section 775 of the Code, are deemed to be disqualified organizations. The amount
of the tax is equal to the product of (A) the amount of excess inclusions for
the taxable year allocable to the interest held by the disqualified organization
and (B) the highest marginal federal income tax rate applicable to corporations.
The pass-through entity otherwise liable for the tax, for any period during
which the disqualified organization is the record holder of an interest in such
entity, will be relieved of liability for the tax if such record holder
furnishes to such entity an affidavit that such record holder is not a
disqualified organization and, for such period, the pass-through entity does not
have actual knowledge that the affidavit is false. For this purpose, a
"pass-through entity" means:
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o a regulated investment company, real estate investment trust or
common trust fund;
o a partnership, trust or estate; and
o certain cooperatives.
Except as may be provided in Treasury regulations not yet issued, any person
holding an interest in a pass-through entity as a nominee for another will, with
respect to such interest, be treated as a pass-through entity. Electing large
partnerships -- generally, non-service partnerships with 100 or more members
electing to be subject to simplified IRS reporting provisions under Code
sections 771 through 777 -- will be taxable on excess inclusion income as if all
partners were disqualified organizations.
In order to comply with these rules, the Agreement will provide that no
record or beneficial ownership interest in a REMIC Residual Certificate may be
purchased, transferred or sold, directly or indirectly, without the express
written consent of the master servicer. The master servicer will grant consent
to a proposed transfer only if it receives the following:
o an affidavit from the proposed transferee to the effect that it is
not a disqualified organization and is not acquiring the REMIC
Residual Certificate as a nominee or agent for a disqualified
organization, and
o a covenant by the proposed transferee to the effect that the
proposed transferee agrees to be bound by and to abide by the
transfer restrictions applicable to the REMIC Residual Certificate.
Noneconomic REMIC Residual Certificates. The REMIC Regulations disregard,
for federal income tax purposes, any transfer of a Noneconomic REMIC Residual
Certificate to a U.S. Person unless no significant purpose of the transfer is to
enable the transferor to impede the assessment or collection of tax. A
Noneconomic REMIC Residual Certificate is any REMIC Residual Certificate,
including a REMIC Residual Certificate with a positive value at issuance,
unless, at the time of transfer, taking into account the Prepayment Assumption
and any required or permitted clean up calls or required liquidation provided
for in the REMIC's organizational documents,
o the present value of the expected future distributions on the REMIC
Residual Certificate at least equals the product of the present
value of the anticipated excess inclusions and the highest corporate
income tax rate in effect for the year in which the transfer occurs
and
o the transferor reasonably expects that the transferee will receive
distributions from the REMIC at or after the time at which taxes
accrue on the anticipated excess inclusions in an amount sufficient
to satisfy the accrued taxes.
A significant purpose to impede the assessment or collection of tax exists if
the transferor, at the time of the transfer, either knew or should have known
that the transferee would be unwilling or unable to pay taxes due on its share
of the taxable income of the REMIC. A transferor is presumed not to have such
knowledge if:
o the transferor conducted a reasonable investigation of the
transferee, and
o the transferee acknowledges to the transferor that the residual
interest may generate tax liabilities in excess of the cash flow and
the transferee represents that it intends to pay such taxes
associated with the residual interest as they become due.
If a transfer of a Noneconomic REMIC Residual Certificate is disregarded, the
transferor would continue to be treated as the owner of the REMIC Residual
Certificate and would continue to be subject to tax on its allocable portion of
the net income of the REMIC.
Foreign Investors. The REMIC Regulations provide that the transfer of a
REMIC Residual Certificate that has a "tax avoidance potential" to a "foreign
person" will be disregarded for federal income tax purposes. This rule appears
to apply to a transferee who is not a U.S. Person unless the transferee's income
in respect of the REMIC Residual Certificate is effectively connected with the
conduct of a United Sates trade or business. A REMIC Residual Certificate is
deemed to have a tax avoidance potential unless, at the time of transfer, the
transferor
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reasonably expects that the REMIC will distribute to the transferee amounts that
will equal at least 30 percent of each excess inclusion, and that such amounts
will be distributed at or after the time the excess inclusion accrues and not
later than the end of the calendar year following the year of accrual. If the
non-U.S. Person transfers the REMIC Residual Certificate to a U.S. Person, the
transfer will be disregarded, and the foreign transferor will continue to be
treated as the owner, if the transfer has the effect of allowing the transferor
to avoid tax on accrued excess inclusions. The provisions in the REMIC
Regulations regarding transfers of REMIC Residual Certificates that have tax
avoidance potential to foreign persons are effective for all transfers after
June 30, 1992. The Agreement will provide that no record or beneficial ownership
interest in a REMIC Residual Certificate may be transferred, directly or
indirectly, to a non-U.S. Person unless the person provides the trustee with a
duly completed IRS Form 4224 or applicable successor form adopted by the IRS for
such purpose and the trustee consents to the transfer in writing.
Any attempted transfer or pledge in violation of the transfer restrictions
shall be absolutely null and void and shall vest no rights in any purported
transferee. Investors in REMIC Residual Certificates are advised to consult
their own tax advisors with respect to transfers of the REMIC Residual
Certificates and, in addition, pass-through entities are advised to consult
their own tax advisors with respect to any tax which may be imposed on a
pass-through entity.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Federal
Income Tax Consequences," potential investors should consider the state income
tax consequences of the acquisition, ownership, and disposition of the offered
certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisors with respect to the various tax
consequences of investments in the offered certificates.
ERISA CONSIDERATIONS
GENERAL
Title I of ERISA and Section 4975 of the Code impose restrictions on ERISA
Plans, certain other Plans and on persons who are parties in interest or
disqualified persons with respect to ERISA Plans. Employee benefit plans, such
as governmental plans and church plans (if no election has been made under
Section 410(d) of the Code), are not subject to the restrictions of ERISA, and
assets of those plans may be invested in the certificates without regard to the
ERISA considerations described in this section, subject to other applicable
federal, state or local law. However, any such governmental or church plan which
is qualified under Section 401(a) of the Code and exempt from taxation under
Section 501(a) of the Code is subject to the prohibited transaction rules set
forth in Section 503 of the Code.
Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that an ERISA Plan's investments be made in
accordance with the documents governing the ERISA Plan.
PROHIBITED TRANSACTIONS
GENERAL
Section 406 of ERISA prohibits parties in interest with respect to an
ERISA Plan from engaging in certain transactions involving such Plan and its
assets unless a statutory, regulatory or administrative exemption applies to the
transaction. In some cases, a civil penalty may be assessed on non-exempt
prohibited transactions pursuant to Section 502(i) of ERISA. Section 4975 of the
Code imposes excise taxes on similar transactions between Plans, subject thereto
and disqualified persons with respect to such.
The United States Department of Department of Labor has issued a final
regulation (29 C.F.R. Section 2510.3-101) containing rules for determining what
constitutes the assets of a Plan. This regulation provides that, as a general
rule, the underlying assets and properties of corporations, partnerships, trusts
and some other entities in
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which a Plan makes an "equity investment" will be deemed for purposes of ERISA
and Section 4975 of the Code to be assets of the Plan unless exceptions apply.
Under the terms of the regulation, the trust fund may be deemed to hold
plan assets by reason of a Plan's investment in a certificate; such plan assets
would include an undivided interest in the mortgage loans and any other assets
held by the trust fund. In such an event, Morgan Stanley Capital I Inc., the
master servicer, any subservicer, the trustee, any insurer of the mortgage loans
and/or MBS and other persons, in providing services with respect to the assets
of the trust fund, may become fiduciaries subject to the fiduciary
responsibility provisions of Title I of ERISA, or may otherwise become parties
in interest or disqualified persons, with respect to such Plan. In addition,
transactions involving such assets could constitute or result in prohibited
transactions under Section 406 of ERISA or Section 4975 of the Code unless such
transactions are subject to a statutory, regulatory or administrative exemption.
The regulations contain a de minimis safe-harbor rule that exempts the
assets of an entity from plan assets status as long as the aggregate equity
investment in such entity by plans is not significant. For this purpose, equity
participation in the entity will be significant if immediately after any
acquisition of any equity interest in the entity, "benefit plan investors" in
the aggregate, own 25% or more of the value of any class of equity interest,
excluding from the calculation, the value of equity interests held by persons
who have discretionary authority or control with respect to the assets of the
entity or held by affiliates of such persons. "Benefit plan investors" are
defined as Plans as well as employee benefit plans not subject to Title I of
ERISA, e.g., governmental plans and foreign plans and entities whose underlying
assets include plan assets by reason of plan investment in such entities. To fit
within the safe harbor benefit plan, investors must own less than 25% of each
class of equity interests, regardless of the portion of total equity value
represented by such class, on an ongoing basis.
AVAILABILITY OF UNDERWRITER'S EXEMPTION FOR CERTIFICATES
DOL has granted to Morgan Stanley & Co. Incorporated Prohibited
Transaction Exemption 90-24, Exemption Application No. D-8019, 55 Fed. Reg.
20548 (1990) (the "Exemption") which exempts from the application of the
prohibited transaction rules transactions relating to:
o the acquisition, sale and holding by Plans of certain certificates
representing an undivided interest in certain asset-backed
pass-through trusts, with respect to which Morgan Stanley & Co.
Incorporated or any of its affiliates is the sole underwriter or the
manager or co-manager of the underwriting syndicate; and
o the servicing, operation and management of such asset-backed
pass-through trusts, provided that the general conditions and
certain other conditions set forth in the Exemption are satisfied.
The Exemption sets forth the following general conditions which must be
satisfied before a transaction involving the acquisition, sale and holding of
the certificates or a transaction in connection with the servicing, operation
and management of the trust fund may be eligible for exemptive relief
thereunder:
(1) The acquisition of the certificates by a Plan is on terms --
including the price for such certificates--that are at least as
favorable to the investing Plan as they would be in an arm's-length
transaction with an unrelated party;
(2) The rights and interests evidenced by the certificates acquired by
the Plan are not subordinated to the rights and interests evidenced
by other certificates of the trust fund with respect to the right to
receive payment in the event of default or delinquencies in the
underlying assets of the trust fund;
(3) The certificates acquired by the Plan have received a rating at the
time of the acquisition that is in one of the three highest generic
rating categories from any of Duff & Phelps Credit Rating Co., Fitch
IBCA, Inc., Moody's Investors Service, Inc. and
Standard & Poor's Ratings Services;
(4) The trustee is not an affiliate of the Restricted Group;
(5) The sum of all payments made to and retained by the underwriter in
connection with the distribution of the certificates represents not
more than reasonable compensation for underwriting the
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certificates; the sum of all payments made to and retained by the
Asset Seller pursuant to the sale of the mortgage loans to the trust
fund represents not more than the fair market value of the mortgage
loans; the sum of all payments made to and retained by any servicer
represent not more than reasonable compensation for the servicer's
services under the Agreement and reimbursement of the servicer's
reasonable expenses in connection therewith; and
(6) The Plan investing in the certificates is an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D of the Securities and
Exchange Commission under the Securities Act of 1933 as amended.
The trust fund must also meet the following requirements:
o the corpus of the trust fund must consist solely of assets of the
type that have been included in other investment pools;
o certificates evidencing interests in other investment pools must
have been rated in one of the three highest rating categories of a
Rating Agency for at least one year prior to the Plan's acquisition
of the Securities; and
o certificates evidencing interests in other investment pools must
have been purchased by investors other than Plans for at least one
year prior to any Plan's acquisition of the Securities.
Moreover, the Exemption provides relief from certain self-dealing/conflict
of interest prohibited transactions that may occur when any person who has
discretionary authority or renders investment advice with respect to the
investment of plan assets causes a Plan to acquire certificates in a trust fund,
provided that, among other requirements:
o the person or its affiliate is an obligor with respect to five
percent or less of the fair market value of the obligations or
receivables contained in the trust fund;
o the Plan is not a plan with respect to which any member of the
Restricted Group is the "plan sponsor" as defined in Section
3(16)(B) of ERISA;
o in the case of an acquisition in connection with the initial
issuance of certificates, at least fifty percent of each class of
certificates in which Plans have invested is acquired by persons
independent of the Restricted Group and at least fifty percent of
the aggregate interest in the trust fund is acquired by persons
independent of the Restricted Group;
o a Plan's investment in certificates of any class does not exceed
twenty-five percent of all of the certificates of that class
outstanding at the time of the acquisition; and
o immediately after the acquisition, no more than twenty-five percent
of the assets of any Plan with respect to which the person has
discretionary authority or renders investment advice are invested in
certificates representing an interest in one or more trusts
containing assets sold or serviced by the same entity.
The Exemption does not apply to Plans sponsored by the Restricted Group
Before purchasing a certificate in reliance on the Exemption, a fiduciary
of a Plan should itself confirm
o that the certificates constitute "certificates" for purposes of the
Exemption and
o that the general conditions and other requirements set forth in the
Exemption would be satisfied.
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REVIEW BY PLAN FIDUCIARIES
Any Plan fiduciary considering whether to purchase any certificates on
behalf of a Plan should consult with its counsel regarding the applicability of
the fiduciary responsibility and prohibited transaction provisions of ERISA and
the Code to such investment. Among other things, before purchasing any
certificates, a fiduciary of a Plan should make its own determination as to the
availability of the exemptive relief provided in the Exemption, and also
consider the availability of any other prohibited transaction exemptions. In
this regard, purchasers that are insurance companies should determine the extent
to which Prohibited Transaction Class Exemption 95-60 -- for certain
transactions involving insurance company general accounts -- may be available.
The prospectus supplement with respect to a series of certificates may contain
additional information regarding the application of the Exemption, Prohibited
Transaction Class Exemption 83-1 for certain transactions involving mortgage
pool investment trusts, or any other exemption, with respect to the certificates
offered thereby.
LEGAL INVESTMENT
The prospectus supplement for each series of offered certificates will
identify those classes of offered certificates, if any, which constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984. Generally, only those classes of offered certificates
that
o are rated in one of the two highest rating categories by one or more
Rating Agencies and
o are part of a series representing interests in a trust fund
consisting of mortgage loans or MBS, provided that the mortgage
loans or the mortgage loans underlying the MBS are secured by first
liens on mortgaged property and were originated by certain types of
originators as specified in SMMEA, will be the SMMEA Certificates.
As "mortgage related securities," the SMMEA Certificates will constitute legal
investments for persons, trusts, corporations, partnerships, associations,
business trusts and business entities including, but not limited to, depository
institutions, insurance companies, trustees and pension funds created pursuant
to or existing under the laws of the United States or of any state, including
the District of Columbia and Puerto Rico whose authorized investments are
subject to state regulation to the same extent that, under applicable law,
obligations issued by or guaranteed as to principal and interest by the United
States or any agency or instrumentality thereof constitute legal investments for
such entities. Pursuant to SMMEA, a number of states enacted legislation, on or
before the October 3, 1991 for such enactments, limiting to varying extents the
ability of certain entities, in particular, insurance companies, to invest in
mortgage related securities, in most cases by requiring the affected investors
to rely solely upon existing state law, and not SMMEA. Pursuant to Section 347
of the Riegle Community Development and Regulatory Improvement Act of 1994,
which amended the definition of "mortgage related security" to include, in
relevant part, offered certificates satisfying the rating, first lien and
qualified originator requirements for "mortgage related securities," but
representing interests in a trust fund consisting, in whole or in part, of first
liens on one or more parcels of real estate upon which are located one or more
commercial structures, states were authorized to enact legislation, on or before
September 23, 2001, specifically referring to Section 347 and prohibiting or
restricting the purchase, holding or investment by state-regulated entities in
such types of offered certificates. Section 347 also provides that the enactment
by a state of any such legislative restrictions shall not affect the validity of
any contractual commitment to purchase, hold or invest in securities qualifying
as "mortgage related securities" solely by reason of Section 347 that was made,
and shall not acquire the sale or disposition of any securities acquired prior
to the enactment of such state legislation. Accordingly, investors affected by
such legislation, when and if enacted, will be authorized to invest in SMMEA
Certificates only to the extent provided in such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in "mortgage related
securities" without limitation as to the percentage of their assets represented
thereby, federal credit unions may invest in such securities, and national banks
may purchase such securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
Section 24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority may prescribe. In this connection, OCC has amended
12 C.F.R. Part 1 to authorize national banks to purchase and sell for their own
account, without limitation as to a percentage of the bank's capital and surplus
(but subject to compliance with
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certain general standards in 12 C.F.R. Section 1.5 concerning "safety and
soundness" and retention of credit information, certain "Type IV securities,"
defined in 12 C.F.R. Section 1.2(1) to include certain "commercial
mortgage-related securities" and "residential mortgage-related securities." As
so defined, "commercial mortgage-related security" and "residential
mortgage-related security" mean, in relevant part, "mortgage-related security"
within the meaning of SMMEA, provided that, in the case of a "commercial
mortgage-related security," it "represents ownership of a promissory note or
certificate of interest or participation that is directly secured by a first
lien on one or more parcels of real estate upon which one or more commercial
structures are located and that is fully secured by interests in a pool of loans
to numerous obligors." In the absence of any rule or administrative
interpretation by the OCC defining the term "numerous obligors," no
representation is made as to whether any class of offered certificates will
qualify as "commercial mortgage-related securities," and thus as "Type IV
securities," for investment by national banks. The NCUA has adopted rules,
codified at 12 C.F.R. Part 703, which permit federal credit unions to invest in
"mortgage related securities" under certain limited circumstances, other than
stripped mortgage related securities, residual interests in mortgage related
securities, and commercial mortgage related securities, unless the credit union
has obtained written approval from the NCUA to participate in the "investment
pilot program" described in 12 C.F.R. Section 703.140. The OTS has issued Thrift
Bulletin 13a (December 1, 1998), "Management of Interest Rate Risk, Investment
Securities and Derivative Activities," which thrift institutions subject to the
jurisdiction of the OTS should consider before investing in any of the offered
certificates.
All depository institutions considering an investment in the offered
certificates should review the 1998 Policy Statement of the Federal Financial
Institutions Examination Council, which has been adopted by the Board of
Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the OCC and the OTS effective May 26, 1998, and by the NCUA,
effective October 1, 1998. The 1998 Policy Statement sets forth general
guidelines which depository institutions must follow in managing risks,
including market, credit, liquidity, operational (transaction), and legal risks
applicable to all securities, including mortgage pass-through securities and
mortgage-derivative products, used for investment purposes.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any offered
certificates, as certain series or classes may be deemed to be unsuitable
investments, or may otherwise be restricted, under such rules, policies or
guidelines, in certain instances irrespective of SMMEA.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying," and, with regard to any offered certificates issued
in book-entry form, provisions which may restrict or prohibit investments in
securities which are issued in book-entry form.
If specified in the related prospectus supplement, other classes of
offered certificates offered pursuant to this prospectus will not constitute
"mortgage related securities" under SMMEA. The appropriate characterization of
such offered certificates under various legal investment restrictions, and thus
the ability of investors subject to these restrictions to purchase such offered
certificates, may be subject to significant interpretive uncertainties.
Except as to the status of the classes of offered certificates identified
in the prospectus supplement for a series as "mortgage related securities" under
SMMEA, no representations are made as to the proper characterization of the
offered certificates for legal investment purposes, financial institution
regulatory purposes, or other purposes, or as to the ability of particular
investors to purchase any offered certificates under applicable legal investment
restrictions. The uncertainties described in this section and any unfavorable
future determinations concerning legal investment or financial institution
regulatory characteristics of the offered certificates may adversely affect the
liquidity of the offered certificates. Accordingly, all investors whose
investment activities are subject to legal investment laws and regulations,
regulatory capital requirements or review by regulatory authorities should
consult with their own legal advisors in determining whether and to what extent
the offered certificates of any class constitute legal investments or are
subject to investment, capital or other restrictions, and, if applicable,
whether SMMEA has been overridden in any jurisdiction relevant to such investor.
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PLAN OF DISTRIBUTION
The offered certificates offered hereby and by the Supplements to this
prospectus will be offered in series. The distribution of the certificates may
be effected from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices to be
determined at the time of sale or at the time of commitment therefor. If so
specified in the related prospectus supplement, the offered certificates will be
distributed in a firm commitment underwriting, subject to the terms and
conditions of the underwriting agreement, by Morgan Stanley & Co. Incorporated
acting as underwriter with other underwriters, if any, named therein. In such
event, the prospectus supplement may also specify that the underwriters will not
be obligated to pay for any offered certificates agreed to be purchased by
purchasers pursuant to purchase agreements acceptable to Morgan Stanley Capital
I Inc.. In connection with the sale of offered certificates, underwriters may
receive compensation from Morgan Stanley Capital I Inc. or from purchasers of
offered certificates in the form of discounts, concessions or commissions. The
prospectus supplement will describe any such compensation paid by Morgan Stanley
Capital I Inc..
Alternatively, the prospectus supplement may specify that offered
certificates will be distributed by Morgan Stanley & Co. Incorporated acting as
agent or in some cases as principal with respect to offered certificates that it
has previously purchased or agreed to purchase. If Morgan Stanley & Co.
Incorporated acts as agent in the sale of offered certificates, Morgan Stanley &
Co. Incorporated will receive a selling commission with respect to such offered
certificates, depending on market conditions, expressed as a percentage of the
aggregate certificate Balance or Notional Amount of such offered certificates as
of the Cut-off Date. The exact percentage for each series of certificates will
be disclosed in the related prospectus supplement. To the extent that Morgan
Stanley & Co. Incorporated elects to purchase offered certificates as principal,
Morgan Stanley & Co. Incorporated may realize losses or profits based upon the
difference between its purchase price and the sales price. The prospectus
supplement with respect to any series offered other than through underwriters
will contain information regarding the nature of such offering and any
agreements to be entered into between Morgan Stanley Capital I Inc. and
purchasers of offered certificates of such series.
Morgan Stanley Capital I Inc. will indemnify Morgan Stanley & Co.
Incorporated and any underwriters against certain civil liabilities, including
liabilities under the Securities Act of 1933, or will contribute to payments
Morgan Stanley & Co. Incorporated and any underwriters may be required to make
in respect thereof.
In the ordinary course of business, Morgan Stanley & Co. Incorporated and
Morgan Stanley Capital I Inc. may engage in various securities and financing
transactions, including repurchase agreements to provide interim financing of
Morgan Stanley Capital I Inc.'s mortgage loans pending the sale of such mortgage
loans or interests therein, including the certificates.
Offered certificates will be sold primarily to institutional investors.
Purchasers of offered certificates, including dealers, may, depending on the
facts and circumstances of the purchases, be deemed to be "underwriters" within
the meaning of the Securities Act of 1933 in connection with reoffers and sales
by them of offered certificates. Certificateholders should consult with their
legal advisors in this regard prior to any such reoffer or sale.
If specified in the prospectus supplement relating to certificates of a
particular series offered hereby, Morgan Stanley Capital I Inc., any affiliate
thereof or any other person or persons specified therein may purchase some or
all of the certificates of any series from Morgan Stanley & Co. Incorporated and
any other underwriters thereof. This purchaser may thereafter from time to time
offer and sell, pursuant to this prospectus and the related prospectus
supplement, some or all of the certificates so purchased, directly, through one
or more underwriters to be designated at the time of the offering of the
certificates, through dealers acting as agent and/or principal or in such other
manner as may be specified in the related prospectus supplement. The offering
may be restricted in the manner specified in the prospectus supplement. The
transactions may be effected at market prices prevailing at the time of sale, at
negotiated prices or at fixed prices. Any underwriters and dealers participating
in the purchaser's offering of the certificates may receive compensation in the
form of underwriting discounts or commissions from such purchaser and such
dealers may receive commissions from the investors purchasing the certificates
for whom they may act as agent (which discounts or commissions will not exceed
those customary in those types of transactions involved). Any dealer that
participates in the distribution of the certificates may be deemed to be an
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"underwriter" within the meaning of the Securities Act, and any commissions and
discounts received by such dealer and any profit on the resale or such
certificates by such dealer might be deemed to be underwriting discounts and
commissions under the Securities Act.
All or part of any Class of certificates may be reacquired by Morgan
Stanley Capital I Inc. or acquired by an affiliate of Morgan Stanley Capital I
Inc. in a secondary market transaction or from an affiliate, including Morgan
Stanley & Co. Incorporated. Such certificates may then be included in a trust
fund, the beneficial ownership of which will be evidenced by one or more classes
of mortgage-backed certificates, including subsequent series of certificates
offered pursuant to this prospectus and a prospectus supplement.
As to each series of certificates, only those classes rated in an
investment grade rating category by any Rating Agency will be offered hereby.
Any non-investment-grade class may be initially retained by Morgan Stanley
Capital I Inc., and may be sold by Morgan Stanley Capital I Inc. at any time in
private transactions.
LEGAL MATTERS
Certain legal matters in connection with the certificates, including
certain federal income tax consequences, will be passed upon for Morgan Stanley
Capital I Inc. by Cadwalader, Wickersham & Taft or Latham & Watkins, or Brown &
Wood LLP or such other counsel as may be specified in the related prospectus
supplement.
FINANCIAL INFORMATION
A new trust fund will be formed with respect to each series of
certificates and no trust fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series of
certificates. Accordingly, no financial statements with respect to any trust
fund will be included in this prospectus or in the related prospectus
supplement.
RATING
It is a condition to the issuance of any class of offered certificates
that they shall have been rated not lower than investment grade, that is, in one
of the four highest rating categories, by a Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage loans
and the credit quality of the guarantor, if any. Ratings on mortgage
pass-through certificates do not represent any assessment of the likelihood of
principal prepayments by borrowers or of the degree by which such prepayments
might differ from those originally anticipated. As a result, certificateholders
might suffer a lower than anticipated yield, and, in addition, holders of
stripped interest certificates in extreme cases might fail to recoup their
initial investments.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating.
INCORPORATION OF INFORMATION BY REFERENCE
Morgan Stanley Capital I Inc., as depositor, will file, or cause to be
filed, with the Commission, the periodic reports with respect to each trust fund
required under the Exchange Act and the rules and regulations of the Commission.
All documents and reports filed, or caused to be filed, by Morgan Stanley
Capital I Inc. with respect to a trust fund pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act prior to the termination of an offering of
certificates are incorporated in this prospectus by reference. Each person to
whom this prospectus is delivered may obtain, without charge, from Morgan
Stanley Capital I Inc. a copy of any documents or reports relating to the
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certificates being offered. (Exhibits to those documents may only be obtained if
they are specifically incorporated by reference in those documents.) Requests
for this information should be directed in writing to Morgan Stanley Capital I
Inc., c/o Morgan Stanley & Co. Incorporated, 1585 Broadway, 37th Floor, New
York, New York 10036, Attention: John E. Westerfield, or by telephone at (212)
761-4700. Morgan Stanley Capital I Inc. has determined that its financial
statements are not material to the offering of any certificates.
Morgan Stanley Capital I Inc. has filed with the Securities and Exchange
Commission a registration statement (of which this prospectus forms a part)
under the Securities Act of 1933, as amended, with respect to the offered
certificates. This prospectus and the accompanying prospectus supplement do not
contain all of the information set forth in the registration statement. For
further information regarding the documents referred to in this prospectus and
the accompanying prospectus supplement, you should refer to the registration
statement and the exhibits thereto. The registration statement and exhibits can
be inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at its Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at its regional offices located as follows:
Chicago Regional Office, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661; and New York Regional Office, Seven World Trade Center, New
York, New York 10048.
If some or all of the mortgage loans owned by a trust fund are secured by
an assignment of lessors' rights in one or more leases, rental payments due from
the lessees may be a significant source (or even the sole source) of
distributions on the certificates. In these circumstances, reference should be
made to the related prospectus supplement for information concerning the lessees
and whether any of those lessees are subject to the periodic reporting
requirements of the Securities Exchange Act of 1934, as amended.
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GLOSSARY OF TERMS
The certificates will be issued pursuant to the Agreement. The following
Glossary of Terms is not complete. You should also refer to the prospectus
supplement and the Agreement for additional or more complete definitions. If you
send a written request to the trustee at its corporate office, the trustee will
provide to you without charge a copy of the Agreement (without exhibits and
schedules).
Unless the context requires otherwise, the definitions contained in this
Glossary of Terms apply only to this series of certificates.
"Accrual Certificates" means certificates which provide for distributions
of accrued interest commencing only following the occurrence of certain events,
such as the retirement of one or more other classes of certificates of such
series.
"Accrued Certificate Interest" means, with respect to each class of
certificates and each Distribution Date, other than certain classes of Stripped
Interest Certificates, the amount equal to the interest accrued for a specified
period on the outstanding Certificate Balance immediately prior to the
Distribution Date, at the applicable pass-through rate, as described in
"Distributions of Interest on the Certificates" in this prospectus.
"Agreement" means the Pooling Agreement or the Trust Agreement, as
applicable.
"Amortizable Bond Premium Regulations" means final regulations issued by
the IRS which deal with the amortizable bond premium.
"Assets" means the primary assets included in a trust fund.
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended
(Title 11 of the United States Code).
"Book-Entry Certificates" means Certificates which are in book-entry form.
"Cash Flow Agreements" means guaranteed investment contracts or other
agreements, such as interest rate exchange agreements, interest rate cap or
floor agreements, currency exchange agreements or similar agreements provided to
reduce the effects of interest rate or currency exchange rate fluctuations on
the assets or on one or more classes of certificates.
"Cede" means Cede & Company.
"CERCLA" means Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
"Certificate Account" means one or more separate accounts for the
collection of payments on the related assets.
"Certificate Balance" equals the maximum amount that a holder of a
certificate will be entitled to receive in respect of principal out of future
cash flow on the mortgage loans and other assets included in the trust fund.
"Certificate Owners" means, with respect to a book-entry certificate, the
person who is the beneficial owner of such book-entry certificate, as may be
reflected on the books of the clearing agency, or on the books of a Person
maintaining an account with such clearing agency, directly or as an indirect
participant, in accordance with the rules of such clearing agency.
"Certificateholder" means, unless otherwise provided in the related
prospectus supplement, Cede, as nominee of DTC.
"Certificates" means any of the certificates issued, in one or more
series, by Morgan Stanley Capital I Inc.
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"Closing Date" means the date the REMIC Regular Certificates were
initially issued.
"Commercial Loans" means the loans relating to the Commercial Properties.
"Commercial Properties" means office buildings, shopping centers, retail
stores, hotels or motels, nursing homes, hospitals or other health care-related
facilities, mobile home parks, warehouse facilities, mini-warehouse facilities
or self-storage facilities, industrial plants, congregate care facilities, mixed
use or other types of commercial properties.
"Constant Prepayment Rate" or "CPR" means a rate that represents an
assumed constant rate of prepayment each month (which is expressed on a per
annum basis) relative to the then outstanding principal balance of a pool of
mortgage loans for the life of such mortgage loans. CPR does not purport to be
either a historical description of the prepayment experience of any pool of
mortgage loans or a prediction of the anticipated rate of prepayment of any
mortgage loans.
"Contributions Tax" means a tax on the trust fund equal to 100% of the
value of the contributed property.
"Credit Support" means subordination of one or more other classes of
certificates in a series or by one or more other types of credit support, such
as a letter of credit, insurance policy, guarantee, reserve fund or another type
of credit support, or a combination thereof.
"Crime Control Act" means the Comprehensive Crime Control Act of 1984.
"Cut-off Date" means a day in the month of formation of the related trust
fund, as defined in the prospectus supplement.
"Debt Service Coverage Ratio" means, with respect to a mortgage loan at
any given time, the ratio of the Net Operating Income for a twelve-month period
to the annualized scheduled payments on the mortgage loan.
"Deferred Interest" means interest deferred by reason of negative
amortization.
"Definitive Certificate" means a fully registered physical certificate.
"Depositor" means Morgan Stanley Capital I Inc.
"Determination Date" means the close of business on the date specified in
the related prospectus supplement.
"Disqualifying Condition" means a condition, existing as a result of, or
arising from, the presence of Hazardous Materials on a mortgaged property, such
that the mortgage loan secured by the affected mortgaged property would be
ineligible, solely by reason of such condition, for purchase by FNMA under the
relevant provisions of FNMA's Multifamily Seller/Servicer Guide in effect as of
the date of initial issuance of the certificates of such series, including a
condition that would constitute a material violation of applicable federal state
or local law in effect as of their date of initial issuance of the certificates
of such series.
"Distribution Date" means each of the dates on which distributions to
certificateholders are to be made.
"DOL" means the United States Department of Department of Labor.
"DTC" means the Depository Trust Company.
"Due Period" means the period which will commence on the second day of the
month in which the immediately preceding Distribution Date occurs, or the day
after the Cut-off Date in the case of the first Due Period, and will end on the
first day of the month of the related Distribution Date.
"Environmental Hazard Condition" means any condition or circumstance that
may give rise to an environmental claim.
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"Equity Participations" means provisions entitling the lender to a share
of profits realized from the operation or disposition of a mortgaged property,
as described in the related prospectus supplement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Plans" means employee benefit plans subject to ERISA.
"Events of Default" means, with respect to the master servicer under the
Pooling Agreement, any one of the following events:
o any failure by the master servicer to distribute or cause to be
distributed to certificateholders, or to remit to the trustee for
distribution to certificateholders, any required payment;
o any failure by the master servicer duly to observe or perform in any
material respect any of its other covenants or obligations under the
Pooling Agreement which continues unremedied for thirty days after
written notice of such failure has been given to the master servicer
by the trustee or Morgan Stanley Capital I Inc., or to the master
servicer, Morgan Stanley Capital I Inc. and the trustee by the
holders of certificates evidencing not less than 25% of the Voting
Rights;
o any breach of a representation or warranty made by the master
servicer under the Pooling Agreement which materially and adversely
affects the interests of certificateholders and which continues
unremedied for thirty days after written notice of such breach has
been given to the master servicer by the trustee or Morgan Stanley
Capital I Inc., or to the master servicer, Morgan Stanley Capital I
Inc. and the trustee by the holders of certificates evidencing not
less than 25% of the Voting Rights; and
o certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings and certain actions by
or on behalf of the master servicer indicating its insolvency or
inability to pay its obligations.
"Excess Servicing" means servicing fees in excess of reasonable servicing
fees.
"FDIC" means the Federal Deposit Insurance Corporation.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"FNMA" means the Federal National Mortgage Association.
"Government Securities" means direct obligations of the United States,
agencies thereof or agencies created thereby which are not subject to redemption
prior to maturity at the option of the issuer and are:
(a) interest-bearing securities;
(b) non-interest-bearing securities;
(c) originally interest-bearing securities from which coupons representing
the right to payment of interest have been removed; or
(d) interest-bearing securities from which the right to payment of
principal has been removed.
"Index" means the source for determination of an interest rate, to be
defined, if applicable, in the related prospectus supplement.
"Indirect Participants" means entities, such as banks, brokers, dealers
and trust companies, that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly.
"Insurance Proceeds" means proceeds of rental interruption policies, if
any, insuring against losses arising from the failure of lessees under a lease
to make timely rental payments because of casualty events.
"Liquidation Proceeds" means all other amounts received and retained in
connection with the liquidation of defaulted mortgage loans in the trust fund,
by foreclosure or otherwise.
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"Loan to Value Ratio" or "LTV" means
"Lockout Date" means the expiration of the Lockout Period.
"Lockout Period" means a period during which prepayments on a mortgage
loan are prohibited.
"Market-to-Market Regulations" means the finalized IRS regulations which
provide that a REMIC Residual Certificate acquired after January 3, 1995 cannot
be marked to market.
"Master Servicer" means an entity as named in the prospectus supplement.
"MBS" means mortgage participations, pass-through certificates or other
mortgage-backed securities evidencing interests in or secured by one or more
mortgage loans or other similar participations, certificates or securities.
"MBS Agreement" means any participation and servicing agreement, pooling
agreement, trust agreement, an indenture or similar agreement with respect to
the MBS.
"Mortgage" means a mortgage, deed of trust or other similar security
instrument.
"Mortgage Loans" means the multifamily and/or commercial mortgage loans
included in a trust fund. As used in this prospectus, mortgage loans refers to
both whole mortgage loans and mortgage loans underlying MBS.
"Mortgage Note" means a promissory note evidencing a respective mortgage
loan.
"Mortgage Rate" means the interest rate for a mortgage loan which provides
for no accrual of interest or for accrual of interest thereon at an interest
rate that is fixed over its term or that adjusts from time to time, or that may
be converted from an adjustable to a fixed mortgage rate, or from a fixed to an
adjustable mortgage rate, from time to time pursuant to an election or as
otherwise specified on the related mortgage note, in each case as described in
the related prospectus supplement.
"Multifamily Loans" means the loans relating to the Multifamily
Properties.
"Multifamily Properties" means residential properties consisting of five
or more rental or cooperatively-owned dwelling units in high-rise, mid-rise or
garden apartment buildings.
"NCUA" means the National Credit Union Administration.
"Net Operating Income" means, for any given period, to the extent set
forth in the related prospectus supplement, the total operating revenues derived
from a mortgaged property during that period, minus the total operating expenses
incurred in respect of the mortgaged property during that period other than:
o non-cash items such as depreciation and amortization;
o capital expenditures; and
o debt service on loans secured by the mortgaged property.
"New Regulations" means the regulations issued by the Treasury Department
on October 6, 1997.
"Nonrecoverable Advance" means an advance that is not ultimately
recoverable from Related Proceeds or from collections on other assets otherwise
distributable on Subordinate Certificates.
"Notional Amount" means [the aggregate Certificate Balance of each of the
Class [ ], Class [ ], Class [ ] and Class [ ] Certificates outstanding from time
to time, plus the amount of any unpaid interest shortfall on these classes] or
[the sum of the balance of components which correspond to the Certificate
Balance of the Class [ ], Class [ ], Class [ ] and Class [ ]
Certificates].
"OCC" means the Office of the Comptroller of the Currency.
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"OID" means original issue discount.
"OID Regulations" means the special rules of the Code relating to OID
(currently Code Sections 1271 through 1273 and 1275) and Treasury regulations
issued on January 27, 1994.
"OTS" means the Office of Thrift Supervision.
"Participants" means the participating organizations of DTC.
"Pass-Through Rate" means the fixed, variable or adjustable rate per annum
at which any class of certificates accrues interest.
"Payment Lag Certificates" means certain of the REMIC Regular
Certificates.
"Permitted Investments" means United States government securities and
other investment grade obligations specified in the Pooling Agreement.
"Plans" means ERISA Plans and other relevant plans and consequences,
including but not limited to individual retirement accounts and annuities.
"Pooling Agreement" means the Agreement under which certificates of a
series evidencing interests in a trust fund including Whole Loans will be
issued.
"Pre-Issuance Accrued Interest" means interest that has accrued prior to
the issue date.
"Prepayment Assumption" means the original yield to maturity of the
grantor trust certificate calculated based on a reasonable assumed prepayment
rate for the mortgage loans underlying the grantor trust certificates.
"Prepayment Premium" means with respect to any Distribution Date, the
aggregate of all Yield Maintenance Payments, or Percentage Premiums, if any,
received during the related Collection Period in connection with Principal
Prepayments.
"Prohibited Transactions Tax" means the tax the Code imposes on REMICs
equal to 100% of the net income derived from "prohibited transactions."
"Purchase Price" means, with respect to any Whole Loan and to the extent
set forth in the related prospectus supplement, the amount that is equal to the
sum of the unpaid principal balance, plus unpaid accrued interest at the
mortgage rate from the date as to which interest was last paid to the due date
in the Due Period in which the relevant purchase is to occur, plus certain
servicing expenses that are reimbursable to the master servicer.
"Rating Agency" means any of Duff & Phelps Credit Rating Co., Fitch
IBCA, Inc., Moody's Investors Service, Inc. and Standard & Poor's Ratings
Services.
"RCRA" means the Resource Conservation and Recovery Act.
"Record Date" means the last business day of the month immediately
preceding the month in which the Distribution Date for a class of certificates
occurs.
"Refinance Loans" means mortgage loans made to refinance existing loans.
"Related Proceeds" means related recoveries on the mortgage loans,
including amounts received under any form of Credit Support, for which advances
were made.
"Relief Act" means the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended.
"REMIC Certificates" means a certificate issued by a trust fund relating
to a series of certificate where an election is made to treat the trust fund as
a REMIC.
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"REMIC Provisions" means provisions of the federal income tax law relating
to real estate mortgage investment conduits, which appear at Section 860A
through 860G of Subchapter M of Chapter 1 of the Internal Revenue Code of 1986,
as amended from time to time, and related provisions, and regulations (including
any proposed regulations) and rulings promulgated thereunder, as the foregoing
may be in effect from time to time.
"REMIC Regular Certificates" means REMIC Certificates issued by the trust
fund that qualify as REMIC Certificates and are considered to be regular
interests.
"REMIC Regular Certificateholders" means holders of REMIC Regular
Certificates.
"REMIC Regulations" means the REMIC regulations promulgated by the
Treasury Department.
"REMIC Residual Certificates" means the sole class of residual interests
in the REMIC.
"REMIC Residual Certificateholders" means holders of REMIC Regular
Certificates.
"REO Extension" means the extension of time the IRS grants to sell the
mortgaged property.
"REO Tax" means a tax on "net income from foreclosure property," within
the meaning of Section 857(b)(4)(B) of the Code.
"Restricted Group" means the Seller, depositor, any underwriter, any
servicer, the trustee, any insurer of the mortgage loans and/or MBS, any
borrower whose obligations under one or more mortgage loans constitute more than
5% of the aggregate unamortized principal balance of the assets in the trust
fund, or any of their respective affiliates.
"Retained Interest" means an interest in an asset which represents a
specified portion of the interest payable. The Retained Interest will be
deducted from borrower payments as received and will not be part of the related
trust fund.
"RICO" means the Racketeer Influenced and Corrupt Organizations statute.
"Senior Certificates" means certificates which are senior to one or more
other classes of certificates in respect of certain distributions on the
certificates.
"Servicing Standard" means:
A. the standard for servicing the servicer must follow as defined by
the terms of the related Pooling Agreement and any related hazard,
business interruption, rental interruption or general liability
insurance policy or instrument of Credit Support included in the
related trust fund as described in this prospectus under
"Description of Credit Support" and in the prospectus supplement;
B. applicable law; and
C. the general servicing standard specified in the related prospectus
supplement or, if no such standard is so specified, its normal
servicing practices.
"SMMEA" means the Secondary Mortgage Market Enhancement Act of 1984, as
amended.
"SMMEA Certificates" means "mortgage related securities" for purposes of
SMMEA.
"Special Servicer" means an entity as named in the prospectus supplement.
"Stripped ARM Obligations" means OID on grantor trust certificates
attributable to adjustable rate loans
"Stripped Bond Certificates" means a class of grantor trust certificates
that represents the right to principal and interest, or principal only, on all
or a portion of the mortgage loans and/or MBS, if a trust fund is created with
two classes of grantor trust certificates.
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"Stripped Coupon Certificates" means a class of grantor trust certificates
that represents the right to some or all of the interest on a portion of the
mortgage loans and/or MBS, if a trust fund is created with two classes of
grantor trust certificates.
"Stripped Interest Certificates" means certificates which are entitled to
interest distributions with disproportionately low, nominal or no principal
distributions.
"Stripped Principal Certificates" means certificates which are entitled to
principal distributions with disproportionately low, nominal or no interest
distributions.
"Subordinate Certificates" means certificates which are subordinate to one
or more other classes of certificates in respect of certain distributions on the
certificates.
"Subservicer" means third-party servicers.
"Subservicing Agreement" means a sub-servicing agreement between a master
servicer and a Subservicer.
"Super-Premium Certificates" means certain REMIC Regular Certificates to
be issued at prices significantly exceeding their principal amounts or based on
notional principal balances.
"Title V" means Title V of the depository Institutions Deregulation and
Monetary Control Act of 1980.
"Trust Agreement" means the Agreement under certificates of a series
evidencing interests in a trust fund not including Whole Loans will be issued.
"Trust Fund" means the trust fund created by the Agreement consisting
primarily of:
o mortgage Loans
o MBS
o direct obligations of the United States, agencies thereof or
agencies created thereby which are not subject to redemption prior
to maturity at the option of the issuer and are (a) interest-bearing
securities, (b) non-interest-bearing securities, (c) originally
interest-bearing securities from which coupons representing the
right to payment of interest have been removed, or (d) government
securities, or
o a combination of mortgage loans, MBS and government securities.
"Underlying MBS" means any mortgage participations, pass-through
certificates or other asset-backed certificates in which an MBS evidences an
interest or which secure an MBS.
"Underlying Mortgage Loans" means the mortgage loans that secure, or the
interests in which are evidenced by, MBS.
"U.S. Person" means a citizen or resident of the United States, a
corporation or a partnership organized in or under the laws of the United States
or any political subdivision thereof (other than a partnership that is not
treated as a U.S. Person under any applicable Treasury regulations), an estate
the income of which from sources outside the United States is included in gross
income for federal income tax purposes regardless of its connection with the
conduct of a trade or business within the United States or a trust if a court
within the United States is able to exercise primary supervision of the
administration of the trust and one or more U.S. Persons have the authority to
control all substantial decisions of the trust. In addition, certain trusts
treated as U.S. Persons before August 20, 1996 may elect to continue to be so
treated to the extent provided in regulations.
"Value" means,
(a) with respect to any mortgaged property other than a mortgaged property
securing a Refinance Loan, generally the lesser of
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o the appraised value determined in an appraisal obtained by the
originator at origination of that loan, and
o the sales price for that property; and
(b) with respect to any Refinance Loan, unless otherwise specified in the
related prospectus supplement, the appraised value determined in an appraisal
obtained at the time of origination of the Refinance Loan.
"Warranting Party" means the person making representations and warranties.
"Whole Loans" means the mortgage loans that are not Underlying Mortgage
Loans.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the Certificates, other than underwriting
discounts and commissions:
SEC Registration Fee......................................$278.00
Blue Sky Fees................................................*
NASD Fees....................................................*
Printing and Engraving Fees..................................*
Legal Fees and Expenses......................................*
Accounting Fees and Expenses.................................*
Trustee Fees and Expenses....................................*
Rating Agency Fees...........................................*
Miscellaneous................................................*
Total.....................................................$278.00
* To be provided by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section VII of the proposed form of Underwriting Agreement, the
Underwriter is obligated under certain circumstances to indemnify officers and
directors of Morgan Stanley Capital I Inc. (the "Company") who sign the
Registration Statement, and certain controlling persons of the Company, against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Act").
The Company's By-laws provide for indemnification of directors and
officers of the Company to the full extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law provides, in
substance, that Delaware corporations shall have the power, under specified
circumstances, to indemnify their directors, officers, employees and agents in
connection with actions, suits or proceedings brought against them by a third
party or in the right of the corporation, by reason of the fact that they are or
were such directors, officers, employees or agents, against expenses incurred in
any such action, suit or proceeding.
The Pooling and Servicing Agreement will provide that no director,
officer, employee or agent of the Company will be liable to the Trust Fund or
the Certificateholders for any action taken or for refraining from the taking of
any action pursuant to the Pooling and Servicing Agreement, except for such
person's own misfeasance, bad faith or gross negligence in the performance of
duties. The Pooling and Servicing Agreements will provide further that, with the
exceptions stated above, any director, officer, employee or agent of the Company
will be indemnified and held harmless by the Trust Fund against any loss,
liability or expense incurred
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in connection with any legal action relating to the Pooling and Servicing
Agreement or the Certificates, other than any loss, liability or expense (i)
related to any specific Mortgage Loan or Mortgage Loans (except as any such
loss, liability or expense shall be otherwise reimbursable pursuant to the
Pooling and Servicing Agreement), (ii) incurred in connection with any violation
by him or her of any state or federal securities law or (iii) imposed by any
taxing authority if such loss, liability or expense is not specifically
reimbursable pursuant to the terms of the Pooling and Servicing Agreement.
ITEM 16. EXHIBITS.
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of the Company*
3.2 By-laws of the Company*
4.1 Form of Pooling and Servicing Agreement*
5.1 Opinion of Brown & Wood LLP as to legality of the Certificates**
5.2 Opinion of Cadwalader, Wickersham & Taft as to legality of the
Certificates**
5.3 Opinion of Latham & Watkins as to the legality of the
Certificates**
8.1 Opinion of Brown & Wood LLP as to certain tax matters (included
in Exhibit 5.1 hereto)
8.2 Opinion of Cadwalader, Wickersham & Taft as to certain tax matters
(included in Exhibit 5.2 hereto)
8.3 Opinion of Latham & Watkins as to certain tax matters**
23.1 Consent of Brown & Wood LLP (included in Exhibits 5.1 and 8.1 hereto)
23.2 Consent of Cadwalader, Wickersham & Taft (included in Exhibits 5.2
and 8.2 hereto)
23.3 Consent of Latham & Watkins (included in Exhibits 5.3 and 8.3
hereto)
25.1 Power of Attorney (contained in page II-6 of this Registration
Statement)
- - - - - - - - - - -
* Incorporated by reference to Registration Statement No. 333-45467 as
previously filed by Registrant on Form S-3, Registration No. 33-45042 as
previously filed by the Registrant on Form S-11, Registration Statement
No. 33-46723 as previously filed by the Registrant on Form S-3 to Form
S-11 and Registration Statement No. 333-26667 as previously filed by the
Registrant on Form S-3 to Form S-11.
** Previously filed.
ITEM 17. UNDERTAKINGS.
A. Undertaking in respect of indemnification.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described in Item 15 above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted against
the Registrant by such director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the
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<PAGE>
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
B. Undertaking pursuant to Rule 415 Offering.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section
10(a)(3) of the Act;
(ii) to reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the Registration Statement;
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change of such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
C. Undertaking in respect of incorporation by reference.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Act, each filing of the Registrant's annual report pursuant
to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in this registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
D. Undertaking in respect of equity offerings of nonreporting Registrants.
The Registrant hereby undertakes to provide to the underwriter at the
closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit delivery to each purchaser.
E. Undertaking pursuant to Rule 430A
The registrant hereby undertakes that:
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<PAGE>
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Pre-effective
Amendment No. 1 to this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on September 24, 1999
MORGAN STANLEY CAPITAL I INC.
By: /S/ DAVID R. WARREN
-------------------
Name: David R. Warren
Title: President
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David R. Warren, his true and lawful attorney-in
fact and agent for him and in his name, place and stead, in any and all
capacities, to sign any and an all amendments (including post-effective
amendments) to this Registration Statement and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent may lawfully do or cause to
be done by virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS PRE-EFFECTIVE AMENDMENT NO. 1 TO THIS REGISTRATION STATEMENT HAS BEEN
SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON THE DATES
INDICATED.
SIGNATURE TITLE DATE
/S/ DAVID R. WARREN President (Principal September 24, 1999
- -----------------------------
David R. Warren Executive
Officer) and Director
* Director September 24, 1999
- ------------------------------
Craig S. Phillips
* Director September 24, 1999
- -----------------------------
John E. Westerfield
* Treasurer (Principal September 24, 1999
- -----------------------------
Eileen K. Murray Financial Officer) and
Controller
- -----------------------------
* David R. Warren
as Attorney-in-Fact
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<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
----------- ----------------------
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of the Company*
3.2 By-laws of the Company*
4.1 Form of Pooling and Servicing Agreement*
5.1 Opinion of Brown & Wood LLP as to legality of the Certificates**
5.2 Opinion of Cadwalader, Wickersham & Taft as to legality of the
Certificates**
5.3 Opinion of Latham & Watkins as to the legality of the
Certificates**
8.1 Opinion of Brown & Wood LLP as to certain tax matters (included
in Exhibit 5.1 hereto)
8.2 Opinion of Cadwalader, Wickersham & Taft as to certain tax
matters (included in Exhibit 5.2 hereto)
8.3 Opinion of Latham & Watkins as to certain tax matters**
23.1 Consent of Brown & Wood LLP (included in Exhibit 5.1 hereto)
23.2 Consent of Cadwalader, Wickersham & Taft (included in Exhibits
5.2 and 8.2 hereto)
23.3 Consent of Latham & Watkins (included in Exhibits 5.3 hereto)
25.1 Power of Attorney (contained in page II-6 of this Registration
Statement)
- - - - - - - - - - - - - - - - - - - -
* Incorporated by reference to Registration Statement No. 333-45467 as
previously filed by the Registrant on Form S-3, Registration Statement No.
33-45042 as previously filed by the Registrant on Form S-11, No. 33-46723 as
previously filed by the Registrant on Form S-3 to Form S-11 and Registration
Statement No. 333-26667 as previously filed by the Registrant on Form S-3 to
Form S-11.
** Previously filed.
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