<PAGE>

                                                                     EXHIBIT 4.1












<PAGE>

                                                                  EXECUTION COPY


================================================================================





                       MORGAN STANLEY ABS CAPITAL I INC.,
                                    Depositor


                      MORGAN STANLEY MORTGAGE CAPITAL INC.,
                                     Seller


                                       and


                      DEUTSCHE BANK NATIONAL TRUST COMPANY,
                              Trustee and Custodian


                                POOLING AGREEMENT


                            Dated as of June 1, 2004


            Morgan Stanley ABS Capital I Inc. Trust, Series 2004-SD2








================================================================================


<PAGE>


                                TABLE OF CONTENTS


                                    ARTICLE I

                                   DEFINITIONS
<TABLE>
<CAPTION>

<S>               <C>                                                                                           <C>
Section 1.01      Defined Terms...................................................................................4
Section 1.02      Accounting.....................................................................................29

                                   ARTICLE II

                          CONVEYANCE OF MORTGAGE LOANS;
                        ORIGINAL ISSUANCE OF CERTIFICATES

Section 2.01      Conveyance of Mortgage Loans...................................................................29
Section 2.02      Acceptance by Trustee and Custodian............................................................32
Section 2.03      Repurchase or Substitution of Mortgage Loans...................................................33
Section 2.04      Representations and Warranties With Respect to the Mortgage Loans..............................36
Section 2.05      Representations and Warranties of the Depositor................................................37
Section 2.06      Issuance of Certificates.......................................................................38
Section 2.07      Remic Matters..................................................................................38
Section 2.08      Representations and Warranties of the Seller...................................................38
Section 2.09      Covenants of the Seller........................................................................40

                                   ARTICLE III

                                  FLOW OF FUNDS

Section 3.01      Distribution Account and Excess Reserve Fund Account...........................................40
Section 3.02      Investment of Funds in the Distribution Account................................................41
Section 3.03      Interest Distributions.........................................................................42
Section 3.04      Distributions of Principal and Monthly Excess Cashflow Amounts.................................42
Section 3.05      Allocation of Realized Losses..................................................................44
Section 3.06      Method of Distribution.........................................................................45
Section 3.07      Distributions On Book-entry Certificates.......................................................45
Section 3.08      Monthly Statements and Reports by the Trustee..................................................45

                                   ARTICLE IV

                                THE CERTIFICATES

Section 4.01      the Certificates...............................................................................47
Section 4.02      Registration of Transfer and Exchange of Certificates..........................................48
Section 4.03      Mutilated, Destroyed, Lost or Stolen Certificates..............................................51
Section 4.04      Persons Deemed Owners..........................................................................51
Section 4.05      Appointment of Paying Agent....................................................................51

                                    ARTICLE V

                          THE SELLER AND THE DEPOSITOR

Section 5.01      Liability of the Seller and the Depositor......................................................52
Section 5.02      Merger or Consolidation Of, or Assumption of the Obligations Of, the Seller or the
                  Depositor......................................................................................52
</TABLE>


                                       i
<PAGE>

                                   ARTICLE VI

                          THE TRUSTEE AND THE CUSTODIAN

<TABLE>
<CAPTION>

<S>               <C>                                                                                           <C>
Section 6.01      Duties of Trustee and Custodian................................................................52
Section 6.02      Certain Matters Affecting the Trustee. and the Custodian.......................................53
Section 6.03      the Trustee and the Custodian Not Liable for Certificates or Mortgage Loans....................54
Section 6.04      the Trustee and the Custodian May Own Certificates.............................................54
Section 6.05      Seller to Pay Trustee Fees and Expenses........................................................54
Section 6.06      Eligibility Requirements for Trustee...........................................................55
Section 6.07      Resignation or Removal of Trustee..............................................................55
Section 6.08      Successor Trustee..............................................................................56
Section 6.09      Merger or Consolidation of Trustee or Custodian................................................56
Section 6.10      Appointment of Co-trustee or Separate Trustee..................................................56
Section 6.11      Limitation of Liability........................................................................57
Section 6.12      Trustee May Enforce Claims Without Possession of Certificates..................................57
Section 6.13      Suits for Enforcement..........................................................................58
Section 6.14      Waiver of Bond Requirement.....................................................................58
Section 6.15      Waiver of Inventory, Accounting and Appraisal Requirement......................................58
Section 6.16      Compliance With National Housing Act of 1934...................................................58
Section 6.17      Periodic Filing................................................................................58
Section 6.18      Tax Classification of Certain Accounts.........................................................59
Section 6.19      Resignation or Removal of the Custodian........................................................59
Section 6.20      Successor Custodian............................................................................60
Section 6.21      Cap Agreements and Servicing Agreements........................................................60

                                   ARTICLE VII

                                   TERMINATION

Section 7.01      Termination....................................................................................60
Section 7.02      Additional Termination Requirements............................................................62

                                  ARTICLE VIII

                            MISCELLANEOUS PROVISIONS

Section 8.01      Amendment......................................................................................62
Section 8.02      Recordation of Agreement; Counterparts.........................................................63
Section 8.03      Limitation On Rights of Certificateholders.....................................................63
Section 8.04      Governing Law; Jurisdiction....................................................................64
Section 8.05      Notices........................................................................................64
Section 8.06      Severability of Provisions.....................................................................65
Section 8.07      Article and Section References.................................................................65
Section 8.08      Notice to the Rating Agencies..................................................................65
Section 8.09      Further Assurances.............................................................................65
Section 8.10      Benefits of Agreement..........................................................................65
Section 8.11      Acts of Certificateholders.....................................................................65
Section 8.12      Tax Matters....................................................................................66
</TABLE>


                                       ii
<PAGE>

                                    EXHIBITS:

Exhibit A         Form of Class A Certificates
Exhibit B-1       Form of Class B-1 Certificates
Exhibit B-2       Form of Class B-2 Certificates
Exhibit C-1       Form of Class R Certificates
Exhibit C-2       Form of Class M-1 Certificates
Exhibit C-3       Form of Class M-2 Certificates
Exhibit C-4       Form of Class X Certificates
Exhibit C-5       Form of Class P Certificates
Exhibit D         Mortgage Loan Schedule
Exhibit E         [Reserved]
Exhibit F-1       Form of Custodian's Initial Certification
Exhibit F-2       Form of Custodian's Final Certification
Exhibit F-3       Form of Receipt of Mortgage Note
Exhibit G         Mortgage Loan Purchase Agreement
Exhibit H         [Reserved]
Exhibit I         [Reserved]
Exhibit J         Form of Investment Letter
Exhibit K         Form of Residual Certificate Transfer Affidavit
Exhibit L         Form of Transferor Certificate
Exhibit M         Form of Certification
Exhibit N         Depository Agreement
Exhibit O         Form of Annual Certification


                                      iii
<PAGE>


         This Pooling Agreement is dated as of June 1, 2004 (the "Agreement"),
among MORGAN STANLEY ABS CAPITAL I INC., as depositor (the "Depositor"), MORGAN
STANLEY MORTGAGE CAPITAL INC., as seller (the "Seller") and DEUTSCHE BANK
NATIONAL TRUST COMPANY, as trustee (in such capacity, the "Trustee") and as
custodian (in such capacity, the "Custodian").

                              PRELIMINARY STATEMENT

         The Trustee shall elect that two segregated asset pools within the
Trust Fund be treated for federal income tax purposes as comprising two REMICs
(each a "REMIC" or, in the alternative, the "Lower Tier REMIC" and the "Upper
Tier REMIC", respectively). Each Certificate, other than the Class R
Certificate, represents ownership of a regular interest in the Upper Tier REMIC
for purposes of the REMIC Provisions. The Class R Certificate represents
ownership of the sole class of residual interest in each of the Lower Tier REMIC
and the Upper Tier REMIC for purposes of the REMIC Provisions. Class UT-R and
Class LT-R comprise the Class R Certificate. The Startup Day for each REMIC
described herein is the Closing Date.

         The Upper Tier REMIC shall hold as assets the several classes of
uncertificated Lower Tier Regular Interests, set out below. Each such Lower Tier
Regular Interest is hereby designated as a regular interest in the Lower Tier
REMIC. Class LT-A, Class LT-M-1, Class LT-M-2, Class LT-B-1 and Class LT-B-2 are
hereby designated the LT Accretion Directed Classes.

         The Lower Tier REMIC shall hold as assets all of the assets included in
the Trust Fund other than the Excess Reserve Fund Account and the Cap
Agreements.

<TABLE>
<CAPTION>

    LOWER TIER CLASS         LOWER TIER       INITIAL LOWER TIER       CORRESPONDING    LATEST POSSIBLE MATURITY
       DESIGNATION         INTEREST RATE       PRINCIPAL AMOUNT            CLASS                  DATE
       -----------         -------------       ----------------            -----                  ----
<S>                             <C>        <C>                            <C>                <C>
Class LT-A                      (1)        1/2 of the                     Class A            April 25, 2034
                                           Corresponding Class
                                           initial principal
                                           balance
Class LT-M-1                    (1)        1/2 of the                    Class M-1           April 25, 2034
                                           Corresponding Class
                                           initial principal
                                           balance
Class LT-M-2                    (1)        1/2 of the                    Class M-2           April 25, 2034
                                           Corresponding Class
                                           initial principal
                                           balance
Class LT-B-1                    (1)        1/2 of the                    Class B-1           April 25, 2034
                                           Corresponding Class
                                           initial principal
                                           balance
Class LT-B-2                    (1)        1/2 of the                    Class B-2           April 25, 2034
                                           Corresponding Class
                                           initial principal
                                           balance
Class LT-Accrual                (1)        1/2 of the Pool Balance                           April 25, 2034
                                           plus 1/2 of the
                                           Overcollateralization
                                           Amount Minus $100
Class LT-P                      (2)        $100                           Class P            April 25, 2034
Class LT-R                      (3)        (3)                                               April 25, 2034
</TABLE>

--------------------------------------------------------------------------------
(1)      The interest rate with respect to any Distribution Date for these
         interests is a per annum variable rate equal to the Weighted Average
         Net Mortgage Interest Rates then in effect on the beginning of the
         related Collection Period on the Mortgage Loans.


<PAGE>

(2)      The Class LT-P is entitled to distributions of all prepayment charges
         received by Bank of America or Wilshire during the related Prepayment
         Period.

(3)      The Class LT-R is the sole class of residual interest in the Lower Tier
         REMIC. The Class LT-R does not have a principal amount or an interest
         rate.

         On each Distribution Date, 50% of the increase in the
Overcollateralization Amount will be payable as a reduction of the principal
balances of the LT Accretion Directed Classes and will be accrued and added to
the principal balance of the LT-Accrual Class. To this end, each LT Accretion
Directed Class will be reduced by an amount equal to 50% of the increase in the
Overcollateralization Amount that is attributable to a reduction in the
principal balance of its Corresponding Class. On each Distribution Date, the
increase in the principal balance of the LT-Accrual Class may not exceed
interest accruals for such Distribution Date for the LT-Accrual Class. If, with
respect to any Distribution Date, 50% of the increase in the
Overcollateralization Amount exceeds accrued interest on the LT-Accrual Class,
the excess (accumulated with all such excess for all prior Distribution Dates)
will be added to any increase in the Overcollateralization Amount for purposes
of calculating accrued interest on the LT-Accrual Class payable as principal on
the LT Accretion Directed Classes on the next Distribution Date.

         All principal payments (scheduled and prepaid) on the Mortgage Loans
shall be allocated 50% to the LT-Accrual Class and 50% to the LT Accretion
Directed Classes, until paid in full. To this end, principal payments shall be
allocated among such LT Accretion Directed Classes in an amount equal to 50% of
the principal amounts allocated to their respective Corresponding Classes.
Notwithstanding the foregoing, principal payments allocated to the Class X
Certificates that result in the reduction of the Overcollateralization Amount
shall be allocated to the LT-Accrual Class until paid in full. Moreover, on the
Class P Principal Distribution Date, $100 shall be paid to the Class LT-P
Interest. Realized losses shall be applied so that after all distributions have
been made on each Distribution Date (i) the principal balance of each LT
Accretion Directed Class is equal to 50% of the principal balance of its
Corresponding Class, and (ii) the LT-Accrual Class is equal to 50% of the Pool
Balance plus 50% of the Overcollateralization Amount minus the principal balance
of the Class LT-P.

         The Upper Tier REMIC shall issue the following classes of interests,
and each Upper Tier Interest, other than the Class UT-R Interest, is hereby
designated as a regular interest in the Upper Tier REMIC.

<TABLE>
<CAPTION>

    UPPER TIER CLASS         UPPER TIER        INITIAL UPPER TIER                                LATEST POSSIBLE
      DESIGNATION           INTEREST RATE       PRINCIPAL AMOUNT       CORRESPONDING CLASS        MATURITY DATE
      -----------           -------------       ----------------       -------------------        -------------
<S>                              <C>               <C>                         <C>                <C>
   Class A                       (1)               $191,210,000         Class A(9)                April 25, 2034
   Class M-1                     (2)               $ 10,152,000         Class M-1(9)              April 25, 2034
   Class M-2                     (3)               $  9,025,000         Class M-2(9)              April 25, 2034
   Class B-1                     (4)               $  7,332,000         Class B-1(9)              April 25, 2034
   Class B-2                     (5)               $  2,257,000         Class B-2(9)              April 25, 2034
   Class X                       (6)                   (6)              Class X                   April 25, 2034
   Class P                       (7)                  $100              Class P                   April 25, 2034
   Class UT-R                    (8)                                    Class R                   April 25, 2034
</TABLE>

--------------------------------------------------------------------------------
(1)    The Class A will bear interest during each Interest Accrual Period at a
       per annum rate equal to (a) on or prior to the Optional Termination Date,
       the lesser of (i) LIBOR plus 0.450% and (ii) the WAC Cap and (b) after
       the Optional Termination Date, the lesser of (i) LIBOR plus 0.900% and
       (ii) the WAC Cap.

(2)    The Class M-1 will bear interest during each Interest Accrual Period at a
       per annum rate equal to (a) on or prior to the Optional Termination Date,
       the lesser of (i) LIBOR plus 0.620%and (ii) the WAC Cap and (b) after the
       Optional Termination Date, the lesser of (i) LIBOR plus 0.930%, and (ii)
       the WAC Cap.
(3)    The Class M-2 will bear interest during each Interest Accrual Period at a
       per annum rate equal to (a) on or prior to the Optional Termination Date,
       the lesser of (i) LIBOR plus 1.450% and (ii) the WAC Cap and (b) after
       the Optional Termination Date, the lesser of (i) LIBOR plus 2.175%, and
       (ii) the WAC Cap.


                                       2
<PAGE>

(4)    The Class B-1 will bear interest during each Interest Accrual Period at a
       per annum rate equal to (a) on or prior to the Optional Termination Date,
       the lesser of (i) LIBOR plus 2.700% and (ii) the WAC Cap and (b) after
       the Optional Termination Date, the lesser of (i) LIBOR plus 4.050%, and
       (ii) the WAC Cap.
(5)    The Class B-2 will bear interest during each Interest Accrual Period at a
       per annum rate equal to (a) on or prior to the Optional Termination Date,
       the lesser of (i) LIBOR plus 2.900% and (ii) the WAC Cap and (b) after
       the Optional Termination Date, the lesser of (i) LIBOR plus 4.350%, and
       (ii) the WAC Cap.
(6)    The Class X has an initial principal balance of $5,640,575, but it will
       not accrue interest on such balance but will accrue interest on a
       notional principal balance. As of any Distribution Date, the Class X
       shall have a notional principal balance equal to the Pool Balance as of
       the first calendar day of the related Interest Accrual Period. With
       respect to any Interest Accrual Period, the Class X shall bear interest
       at a rate equal to the excess, if any, of the WAC Cap over the product of
       (i) 2 and (ii) the weighted average Pass-Through Rate of the Lower Tier
       Regular Interests, where each LT Accretion Directed Class is subject to a
       cap and a floor equal to the Pass-Through Rate on its Corresponding
       Class, and the LT-Accrual Class is subject to a cap of zero. With respect
       to any Distribution Date, interest that so accrues on the notional
       principal balance of the Class X shall be deferred in an amount equal to
       any increase in the Overcollateralization Amount on such Distribution
       Date. Such deferred interest shall not itself bear interest.
(7)    The Class P is entitled to all distributions on the Class LT-P Interest.
(8)    The Class UT-R is the sole class of residual interest in the Upper Tier
       REMIC. The Class UT-R does not have a principal amount or an interest
       rate.
(9)    Each of these Certificates will represent not only the ownership of the
       Corresponding Class of Upper Tier Regular Interest but also the right to
       receive payments from the Excess Reserve Fund Account in respect of any
       Basis Risk Carry Forward Amounts. For federal income tax purposes, the
       Trustee will treat a Certificateholder's right to receive payments from
       the Excess Reserve Fund Account as payments made pursuant to a notional
       principal contract written by the Class X Certificateholder.

         The minimum denomination for each Class of Certificates, other than the
Class P, Class R and the Class X Certificates, will be $25,000 and integral
multiples of $1 thereof. The Class P, Class R and the Class X Certificates will
each represent a 100% Percentage Interest in such class.

         Set forth below are designations of Classes of Certificates to the
categories used herein:
<TABLE>
<CAPTION>

<S>                                             <C>
Book-Entry Certificates....................     All Classes of Certificates other than the Physical Certificates.
Delay Certificates.........................     None.
ERISA-Restricted Certificates..............     Class P, Class X, Class R and Subordinated Certificates; any Class A
                                                Certificate with a rating below
                                                the lowest applicable permitted
                                                rating under the Underwriters'
                                                Exemption.
Floating Rate Certificates.................     Class A and Subordinated Certificates.
LIBOR Certificates.........................     Class A and Subordinated Certificates.
Non-Delay Certificates.....................     Class A, Class X and Subordinated Certificates.
Offered Certificates.......................     All Classes of Certificates other than the Private Certificates.
Physical Certificates......................     Class P, Class X and Class R Certificates.
Private Certificates.......................     Class P, Class X and Class R Certificates.
Rating Agencies............................     Moody's and Standard & Poor's.
Regular Certificates.......................     All Classes of Certificates other than the Class P and Class R
                                                Certificates.
Residual Certificates......................     Class R Certificates.
Senior Certificates........................     Class A Certificates.
Subordinated Certificates..................     Class M-1, Class M-2 and Class B-1, Class B-2 Certificates.
</TABLE>

                                       3
<PAGE>

                                    ARTICLE I

                                   DEFINITIONS

         SECTION 1.01 DEFINED TERMS.

         Whenever used in this Agreement or in the Preliminary Statement, the
following words and phrases, unless the context otherwise requires, shall have
the meanings specified in this Article. Defined terms used herein but not
defined shall have the meaning assigned to them in the applicable Servicing
Agreement.

         "1933 Act":  The Securities Act of 1933, as amended.

         "60+ Day Delinquent Loan": Without duplication, (i) each Mortgage Loan
with respect to which any portion of a Monthly Payment is, as of the last
calendar day of the prior Collection Period, two months or more past due (other
than a Re-Performing 60+ Day Delinquent Loan), (ii) each Mortgage Loan in
foreclosure (other than a Re-Performing 60+ Day Delinquent Loan), (iii) each
Mortgage Loan for which the Mortgagor has filed for bankruptcy after the Closing
Date (other than a Re-Performing 60+ Day Delinquent Loan) and (iv) all REO
Property.

         "Account": Any of the related Collection Account, the Distribution
Account and the Excess Reserve Fund Account.

         "Accrued Certificate Interest": With respect to each Distribution Date
and Class of Certificates, an amount equal to the interest accrued at the
applicable rate set forth or described opposite such Class in the table in the
Preliminary Statement during the related Interest Accrual Period on the
Certificate Principal Balance of such Class of Certificates, reduced by such
Class's Interest Percentage of Relief Act Shortfalls and Prepayment Interest
Shortfalls (to the extent not covered by Compensating Interest paid by the
related Servicer) for such Distribution Date.

         "Actuarial Mortgage Loan". Any Mortgage Loan other than a Simple
Interest Mortgage Loan.

         "Adjustable-Rate Mortgage Loan": A Mortgage Loan which has a rate at
which interest accrues that adjusts based on an Index plus a related Gross
Margin, as set forth and subject to the limitations in the related Mortgage
Note.

         "Adjustment Date": With respect to each Adjustable Rate Mortgage Loan,
each adjustment date, on which the Mortgage Interest Rate of an Adjustable Rate
Mortgage Loan changes pursuant to the related Mortgage Note. The first
Adjustment Date following the Cut-off Date as to each Adjustable Rate Mortgage
Loan is set forth in the Mortgage Loan Schedule.

         "Advance": As to any Actuarial Mortgage Loan, any advance made by the
related Servicer in respect of any Distribution Date pursuant to the applicable
Servicing Agreement.

         "Affiliate": With respect to any Person, any other Person controlling,
controlled by or under common control with such Person. For purposes of this
definition, "control" means the power to direct the management and policies of a
Person, directly or indirectly, whether through ownership of voting securities,
by contract or otherwise and "controlling" and "controlled" shall have meanings
correlative to the foregoing.

         "Agreement": This Pooling Agreement and all amendments and supplements
hereto.

                                       4
<PAGE>

         "Applicable Regulations": As to any Mortgage Loan, all federal, state
and local laws, statutes, rules and regulations applicable thereto.

         "Applied Realized Loss Amount": With respect to each Distribution Date,
the excess, if any, of (a) the aggregate of the Certificate Principal Balances
of the Certificates (after giving effect to all distributions on such
Distribution Date) over (b) the Pool Balance as of the end of the related
Collection Period.

         "Assignment": An assignment of Mortgage, notice of transfer or
equivalent instrument, in recordable form, reflecting the sale of the Mortgage.

         "Assignment and Recognition Agreements": (i) The Assignment and
Recognition Agreement, dated as of June 4, 2004, by and among the Seller, the
Depositor and Bank of America and (ii) the Assignment and Recognition Agreement,
dated as of June 4, 2004, by and among the Seller, the Depositor and WAMU.

         "Available Funds": As to any Distribution Date, an amount equal to the
excess of (i) the sum of (a) the aggregate of the Monthly Payments due during
the related Collection Period and received by the Trustee no later than the
related Servicer Remittance Date, (b) Liquidation Proceeds, Insurance Proceeds,
Principal Prepayments, Substitution Adjustment Amounts, the Purchase Price for
any repurchased Mortgage Loan, the WAMU Indemnification Amounts, the Termination
Price with respect to the termination of the Trust pursuant to Section 7.01
hereof and other unscheduled recoveries of principal and interest (excluding
prepayment charges, P&I Arrearages and Servicing Arrearages) in respect of the
Mortgage Loans during the related Prepayment Period, (c) the aggregate of any
amounts received in respect of an REO Property and deposited in the related
Collection Account for such Distribution Date, (d) any Compensating Interest for
such Distribution Date, and (e) the aggregate of any Advances made by the
related Servicer for such Distribution Date over (ii) the sum of (a) amounts
reimbursable or payable to the Servicer pursuant to the related Servicing
Agreement (other than Advances made by the Servicer), (b) Stayed Funds, (c) the
related Servicing Fee and any accrued unpaid Servicing Fee and (d) amounts
deposited in the Collection Account or the Distribution Account, as the case may
be, in error.

         "Bank of America": Bank of America, N.A., a national banking
association.

         "Bank of America Agreement": The Flow Mortgage Loan Sale and Servicing
Agreement, dated as of October 1, 2003, by and between Bank of America, as
seller and servicer, and the Seller, as purchaser.

         "Bank of America Mortgage Loans": Those Mortgage Loans listed on
Schedule I-A to the Mortgage Loan Purchase Agreement.

         "Bank of America Servicing Agreement": The servicing agreement dated as
of June 1, 2004 by and among the Depositor, the Trustee and Bank of America, as
servicer.

         "Bankruptcy Code":  Title 11 of the United States Code, as amended.

         "Bankruptcy Plan Mortgage Loan": A Mortgage Loan with respect to which
the related mortgagor defaulted and, after such default, became the subject of a
bankruptcy case under the Bankruptcy Code or a state bankruptcy code and, as of
the Cut-off Date, had a confirmed bankruptcy plan.

         "Basis Risk Carry Forward Amount": If on any Distribution Date, the
Accrued Certificate Interest for any Offered Certificate is based upon the WAC
Cap, the excess of (i) the amount of interest such Certificate would have been
entitled to receive on such Distribution Date based on the related Pass-Through
Rate, over (ii) the amount of interest such Certificate received on such
Distribution Date based on the WAC Cap, together with the unpaid portion of any
such excess from prior Distribution Dates (and interest accrued thereon at the
then applicable Pass-Through Rate on such Certificate).

         "Basis Risk Payment": For any Distribution Date, an amount equal to any
Basis Risk Carry Forward Amount, provided, however, that with respect to any
Distribution Date, the payment cannot exceed the amounts otherwise distributable
on the Class X Certificates plus any Interest Rate Cap Payments with respect to
such Distribution Date.


                                       5
<PAGE>

         "Book-Entry Certificates":  As specified in the Preliminary Statement.

         "Business Day": Any day other than a Saturday, a Sunday or a day on
which banking institutions in the State of Delaware, the State of New York, the
State of Washington, the State of Illinois, the State in which each of the
Servicers is located (as set forth in the applicable Servicing Agreement) or in
the city in which the Corporate Trust Office of the Trustee is located are
authorized or obligated by law or executive order to be closed.

         "Cap Agreement": The Class A Cap Agreement, the Class M-1 Cap
Agreement, the Class M-2 Cap Agreement and/or the Class B-1 Cap Agreement, and
the Class B-2 Cap Agreement, as applicable.

         "Cap Provider": Morgan Stanley Capital Services Inc., a Delaware
corporation, and any successor thereto.

         "Certificate": Any Regular Certificate, Residual Certificate or Class P
Certificate.

         "Certificate Custodian": Initially, the Trustee; thereafter any other
Certificate Custodian acceptable to the Depository and selected by the Trustee.

         "Certificate Owner": With respect to each Book-Entry Certificate, any
beneficial owner thereof.

         "Certificate Principal Balance": With respect to any Class of
Certificates, other than the Class R Certificate, at any date, the maximum
dollar amount of principal to which the Holder thereof is then entitled
hereunder, such amount being equal to the Denomination thereof minus all
distributions of principal previously made with respect thereto and in the case
of any Subordinated Certificates, reduced by any Applied Realized Loss Amounts
applicable to such Class of Certificates; provided, however, that immediately
following the Distribution Date on which a Subsequent Recovery is distributed,
the Certificate Principal Balances of any Class or Classes of Subordinated
Certificates that have been previously reduced by Applied Realized Loss Amounts
will be increased, in order of seniority, by the amount of the Subsequent
Recovery distributed on such Distribution Date (up to the amount of Applied
Realized Loss Amounts allocated to such Class or Classes). The Class R
Certificate has no Certificate Principal Balance. With respect to any
Certificate (other than a Residual Certificate) of a Class and any Distribution
Date, the portion of the Certificate Principal Balance of such Class represented
by such Certificate equal to the product of the Percentage Interest evidenced by
such Certificate and the Certificate Principal Balance of such Class.

         "Certificate Register" and "Certificate Registrar": The register
maintained and registrar appointed pursuant to Section 4.02 hereof.

         "Certificateholder" or "Holder": The Person in whose name a Certificate
is registered in the Certificate Register, except that a Disqualified
Organization or non-U.S. Person shall not be a Holder of a Residual Certificate
for any purpose hereof.

         "Class A Cap Agreement": The interest rate cap agreement, relating to
the Class A Certificates, dated June 4, 2004 with the Cap Provider, as "Party A"
thereunder, and the Trust, as "Party B" thereunder, or any replacement thereof.

         "Class A Certificate": Any one of the Class A Certificates with an "A"
designated on the face thereof substantially in the form annexed hereto as
Exhibit A, executed by the Trustee on behalf of the Trust and authenticated and
delivered by the Certificate Registrar, representing the right to distributions
as set forth herein and therein.

         "Class A Certificateholders": Collectively, the Holders of the Class A
Certificates.

         "Class A Certificate Margin": For each Distribution Date (i) on or
prior to the Optional Termination Date, 0.450% per annum, and (ii) following the
Optional Termination Date, 0.900% per annum.

         "Class A Interest Carry Forward Amount": For any Distribution Date, the
Interest Carry Forward Amount for the Class A Certificates for such Distribution
Date.


                                       6
<PAGE>

         "Class A Interest Rate Cap Payment": On the 24th day of each month
(subject to adjustment in accordance with ISDA's "Preceding Business Day
Convention"), the product of (A) the number of basis points by which one-month
LIBOR exceeds the cap rate payable by "Party A" under the Class A Cap Agreement
(up to a maximum excess of the difference between the cap rate payable by "Party
B" under the Class A Cap Agreement over the cap rate payable by "Party A" under
the Class A Cap Agreement), (B) the Class A notional balance and (C) the Class A
notional balance multiplier, in each case as set forth on the schedule attached
to the Class A Cap Agreement as applicable to that Distribution Date, based on
an "actual/360" accrual.

         "Class A Pass-Through Rate": For each Distribution Date, LIBOR as of
the related LIBOR Determination Date, plus the Class A Certificate Margin.

         "Class A Principal Distribution Amount": As of any Distribution Date
(a) prior to the Stepdown Date or with respect to which a Trigger Event is in
effect, the lesser of (i) 100% of the Principal Distribution Amount and (ii) the
Certificate Principal Balance of the Class A Certificates and (b) on or after
the Stepdown Date and as long as a Trigger Event is not in effect, the excess of
(x) the Certificate Principal Balance of the Class A Certificates immediately
prior to such Distribution Date over (y) the lesser of (A) the product of (i)
69.50% and (ii) the Pool Balance as of the last calendar day of the related
Collection Period and (B) the excess, if any, of the Pool Balance as of the last
calendar day of the related Collection Period over $1,128,083.

         "Class B Certificate": Any one of the Certificates with a "B"
designated on the face thereof substantially in the form annexed hereto as
Exhibit B-1 and Exhibit B-2 executed by the Trustee on behalf of the Trust and
authenticated and delivered by the Certificate Registrar, representing the right
to distributions as set forth herein and therein.

         "Class B Certificateholders": Collectively, the Holders of the Class B
Certificates.

         "Class B-1 Cap Agreement": The interest rate cap agreement, relating to
the Class B-1 Certificates, dated June 4, 2004 with the Cap Provider, as "Party
A" thereunder, and the Trust, as "Party B" thereunder, or any replacement
thereof.

         "Class B-1 Certificate Margin": For each Distribution Date (i) on or
prior to the Optional Termination Date, 2.700% per annum, and (ii) following the
Optional Termination Date, 4.050% per annum.

         "Class B-1 Interest Rate Cap Payment": On the 24th day of each month
(subject to adjustment in accordance with ISDA's "Preceding Business Day
Convention"), the product of (A) the number of basis points by which one-month
LIBOR exceeds the cap rate payable by "Party A" under the Class B-1 Cap
Agreement (up to a maximum excess of the difference between the cap rate payable
by "Party B" under the Class B-1 Cap Agreement over the cap rate payable by
"Party A" under the Class B-1 Cap Agreement), (B) the Class B-1 notional balance
and (C) the Class B-1 notional balance multiplier, in each case as set forth on
the schedule attached to the Class B-1 Cap Agreement as applicable to that
Distribution Date, based on an "actual/360" accrual.

         "Class B-1 Pass-Through Rate": For each Distribution Date, LIBOR as of
the related LIBOR Determination Date, plus the Class B-1 Certificate Margin.

         "Class B-1 Principal Distribution Amount": As of any Distribution Date
on or after the Stepdown Date and as long as a Trigger Event is not in effect,
the excess of (x) the sum of (i) the Certificate Principal Balance of the Class
A Certificates (after taking into account the payment of the Class A Principal
Distribution Amount on such Distribution Date), (ii) the Certificate Principal
Balance of the Class M-1 Certificates (after taking into account the payment of
the Class M-1 Principal Distribution Amount on such Distribution Date), (iii)
the Certificate Principal Balance of the Class M-2 Certificates (after taking
into account the payment of the Class M-2 Principal Distribution Amount on such
Distribution Date), and (iv) the Certificate Principal Balance of the Class B-1
Certificates immediately prior to such Distribution Date over (y) the lesser of
(A) the product of (i) approximately 93.00% and (ii) the Pool Balance as of the
last calendar day of the related Collection Period and (B) the excess, if any,
of the Pool Balance as of the last calendar day of the related Collection Period
over $1,128,083.


                                       7
<PAGE>

         "Class B-2 Cap Agreement": The interest rate cap agreement, relating to
the Class B-2 Certificates, dated June 4, 2004 with the Cap Provider, as "Party
A" thereunder, and the Trust, as "Party B" thereunder, or any replacement
thereof.

         "Class B-2 Certificate Margin": For each Distribution Date (i) on or
prior to the Optional Termination Date, 2.900% per annum, and (ii) following the
Optional Termination Date, 4.350% per annum.

         "Class B-2 Interest Rate Cap Payment": On the 24th day of each month
(subject to adjustment in accordance with ISDA's "Preceding Business Day
Convention"), the product of (A) the number of basis points by which one-month
LIBOR exceeds the cap rate payable by "Party A" under the Class B-2 Cap
Agreement (up to a maximum excess of the difference between the cap rate payable
by "Party B" under the Class B-2 Cap Agreement over the cap rate payable by
"Party A" under the Class B-2 Cap Agreement), (B) the Class B-2 notional balance
and (C) the Class B-2 notional balance multiplier, in each case as set forth on
the schedule attached to the Class B-2 Cap Agreement as applicable to that
Distribution Date, based on an "actual/360" accrual.

         "Class B-2 Pass-Through Rate": For each Distribution Date, LIBOR as of
the related LIBOR Determination Date, plus the Class B-2 Certificate Margin.

         "Class B-2 Principal Distribution Amount": As of any Distribution Date
on or after the Stepdown Date and as long as a Trigger Event is not in effect,
the excess of (x) the sum of (i) the Certificate Principal Balance of the Class
A Certificates (after taking into account the payment of the Class A Principal
Distribution Amount on such Distribution Date), (ii) the Certificate Principal
Balance of the Class M-1 Certificates (after taking into account the payment of
the Class M-1 Principal Distribution Amount on such Distribution Date), (iii)
the Certificate Principal Balance of the Class M-2 Certificates (after taking
into account the payment of the Class M-2 Principal Distribution Amount on such
Distribution Date), (iv) the Certificate Principal Balance of the Class B-1
Certificates (after taking into account the payment of the Class B-1 Principal
Distribution Amount on such Distribution Date)and (v) the Certificate Principal
Balance of the Class B-2 Certificates immediately prior to such Distribution
Date over (y) the lesser of (A) the product of (i) approximately 95.00% and (ii)
the Pool Balance as of the last calendar day of the related Collection Period
and (B) the excess, if any, of the Pool Balance as of the last calendar day of
the related Collection Period over $1,128,083.

         "Class M Certificate": Any one of the Certificates with an "M"
designated on the face thereof substantially in the form annexed hereto as
Exhibit C-2 and Exhibit C-3, executed by the Trustee on behalf of the Trust and
authenticated and delivered by the Certificate Registrar, representing the right
to distributions as set forth herein and therein.

         "Class M Certificateholders": Collectively, the Holders of the Class M
Certificates.

         "Class M-1 Cap Agreement": The interest rate cap agreement, relating to
the Class M-1 Certificates, dated June 4, 2004 with the Cap Provider, as "Party
A" thereunder, and the Trust, as "Party B" thereunder, or any replacement
thereof.

         "Class M-1 Certificate Margin": For each Distribution Date (i) on or
prior to the Optional Termination Date, 1.450% per annum, and (ii) following the
Optional Termination Date, 2.175% per annum.

         "Class M-1 Interest Rate Cap Payment": On the 24th day of each month
(subject to adjustment in accordance with ISDA's "Preceding Business Day
Convention"), the product of (A) the number of basis points by which one-month
LIBOR exceeds the cap rate payable by "Party A" under the Class M-1 Cap
Agreement (up to a maximum excess of the difference between the cap rate payable
by "Party B" under the Class M-1 Cap Agreement over the cap rate payable by
"Party A" under the Class M-1 Cap Agreement), (B) the Class M-1 notional balance
and (C) the Class M-1 notional balance multiplier, in each case as set forth on
the schedule attached to the Class M-1 Cap Agreement as applicable to that
Distribution Date, based on an "actual/360" accrual.

         "Class M-1 Pass-Through Rate": For each Distribution Date, LIBOR as of
the related LIBOR Determination Date, plus the Class M-1 Certificate Margin.


                                       8
<PAGE>

         "Class M-1 Principal Distribution Amount": As of any Distribution Date
on or after the Stepdown Date and as long as a Trigger Event is not in effect,
the excess of (x) the sum of (i) the Certificate Principal Balance of the Class
A Certificates (after taking into account the payment of the Class A Principal
Distribution Amount on such Distribution Date) and (ii) the Certificate
Principal Balance of the Class M-1 Certificates immediately prior to such
Distribution Date over (y) the lesser of (A) the product of (i) approximately
78.50% and (ii) the Pool Balance as of the last calendar day of the related
Collection Period and (B) the excess, if any, of the Pool Balance as of the last
calendar day of the related Collection Period over $1,128,083.

         "Class M-2 Cap Agreement": The interest rate cap agreement, relating to
the Class M-2 Certificates, dated June 4, 2004 with the Cap Provider, as "Party
A" thereunder, and the Trust, as "Party B" thereunder, or any replacement
thereof.

         "Class M-2 Certificate Margin": For each Distribution Date (i) on or
prior to the Optional Termination Date, 1.450% per annum, and (ii) following the
Optional Termination Date, 2.175% per annum.

         "Class M-2 Interest Rate Cap Payment": On the 24th day of each month
(subject to adjustment in accordance with ISDA's "Preceding Business Day
Convention"), the product of (A) the number of basis points by which one-month
LIBOR exceeds the cap rate payable by "Party A" under the Class M-2 Cap
Agreement (up to a maximum excess of the difference between the cap rate payable
by "Party B" under the Class M-2 Cap Agreement over the cap rate payable by
"Party A" under the Class M-2 Cap Agreement), (B) the Class M-2 notional balance
and (C) the Class M-2 notional balance multiplier, in each case as set forth on
the schedule attached to the Class M-2 Cap Agreement as applicable to that
Distribution Date, based on an "actual/360" accrual.

         "Class M-2 Pass-Through Rate": For each Distribution Date, LIBOR as of
the related LIBOR Determination Date, plus the Class M-2 Certificate Margin.

         "Class M-2 Principal Distribution Amount": As of any Distribution Date
on or after the Stepdown Date and as long as a Trigger Event is not in effect,
the excess of (x) the sum of (i) the Certificate Principal Balance of the Class
A Certificates (after taking into account the payment of the Class A Principal
Distribution Amount on such Distribution Date), (ii) the Certificate Principal
Balance of the Class M-1 Certificates (after taking into account the payment of
the Class M-1 Principal Distribution Amount on such Distribution Date) and (iii)
the Certificate Principal Balance of the Class M-2 Certificates immediately
prior to such Distribution Date over (y) the lesser of (A) the product of (i)
approximately 86.50% and (ii) the Pool Balance as of the last calendar day of
the related Collection Period and (B) the excess, if any, of the Pool Balance as
of the last calendar day of the related Collection Period over $1,128,083.

         "Class P Certificate": Any one of the Certificates with a "P"
designated on the face thereof substantially in the form annexed hereto as
Exhibit C-5, executed by the Trustee on behalf of the Trust and authenticated
and delivered by the Certificate Registrar, representing the right to
distributions as set forth herein and therein.

         "Class P Principal Distribution Date": The earlier of (i) the 36th
Distribution Date and (ii) the Distribution Date on which the Certificate
Principal Balances for all of the Class A Certificates are reduced to zero.

         "Class R Certificate": The Class R Certificate executed by the Trustee
on behalf of the Trust, and authenticated and delivered by the Certificate
Registrar, substantially in the form annexed hereto as Exhibit C-1.

         "Class X Distributable Amount": On any Distribution Date, the sum of
(i) the amount of interest that has accrued on the Class X Certificate and not
applied as an Extra Principal Distribution Amount on such Distribution Date,
plus any such accrued interest remaining undistributed from prior Distribution
Dates, (ii) any portion of the principal balance of the Class X Certificate
which is distributable as an Overcollateralization Release Amount and (iii) any
Interest Rate Cap Payment, less any amounts paid as a Basis Risk Payment.

         "Class X": Any one of the Class X Certificates as designated on the
face thereof substantially in the form annexed hereto as Exhibit C-4, executed
by the Trustee on behalf of the Trust and authenticated and delivered by the
Certificate Registrar, representing the right to distributions as set forth
herein and therein.

         "Class": All Certificates bearing the same class designation as set
forth in the Preliminary Statement.


                                       9
<PAGE>

         "Closing Date":  June 4, 2004.

         "Code": The Internal Revenue Code of 1986, as it may be amended from
time to time.

         "Collection Account": The account or accounts created and maintained by
the related Servicer pursuant to the terms of the related Servicing Agreement,
each of which must be an Eligible Account.

         "Collection Period": With respect to any Distribution Date, the
calendar month preceding the month in which such Distribution Date occurs.

         "Combined Amortized Loan-To-Value Ratio": With respect to a Mortgage
Loan means the ratio, expressed as a percentage, of (i) the sum of (a) the
principal amount of the Mortgage Loan as of the Cut-off Date plus (b) the
outstanding balance of the first lien, if any, at origination of the Mortgage
Loan over (ii) the appraised value of the related Mortgaged Property at
origination or the sale price, if the appraised value is not available.

         "Cooperative Apartment": A dwelling unit in a multi-dwelling building
owned or leased by a cooperative housing corporation, which unit the Mortgagor
has an exclusive right to occupy pursuant to the terms of a proprietary lease in
accordance with the laws of the state in which the building is located.

         "Cooperative Loan": A Mortgage Loan evidenced by a Mortgage Note and
secured by a first lien against the Cooperative Ownership Interests in a
Cooperative Apartment.

         "Cooperative Ownership Interests": With respect to any Cooperative
Loan, the ownership interest in a single Cooperative Apartment, including (i)
the shares issued by the cooperative housing corporation, (ii) the leasehold
interests in the Cooperative Apartment and (iii) all attendant right, title, and
interest thereto.

         "Corporate Trust Office": With respect to the Trustee, the principal
corporate trust office of the Trustee at which at any particular time its
corporate trust business in connection with this Agreement shall be
administered, which office at the date of the execution of this instrument is
located at 1761 East St. Andrew Place, Santa Ana, California 92705, Attention:
Trust Administration - MS04S2 and for purposes of transfer, exchange and
surrender, the office of the Trustee's agent located at c/o DTC Transfer Agent
Services, 55 Water Street, Jeanette Park Entrance, New York, New York 10041, or
at such other address as the Trustee may designate from time to time by notice
to the Certificateholders, the Depositor, each Servicer, the Custodian and the
Seller.

         "Corresponding Class": The class of interests in any REMIC created
under this Agreement that correspond to the Class of interests in another such
REMIC or to a Class of Certificates in the manner set out below:

        LOWER TIER                   UPPER TIER                   CORRESPONDING
     CLASS DESIGNATION                INTEREST                     CERTIFICATE
     -----------------                --------                     -----------
         Class LT-A                   Class A                      Class A
         Class LT-M-1                 Class M-1                    Class M-1
         Class LT-M-2                 Class M-2                    Class M-2
         Class LT-B-1                 Class B-1                    Class B-1
         Class LT-B-2                 Class B-2                    Class B-2
         Class LT-P                   Class P                      Class P

         "Custodian": Deutsche Bank National Trust Company, a national banking
association, or any successor custodian.

         "Cut-off Date":  May 1, 2004.

         "Cut-off Date Aggregate Principal Balance": The aggregate of the
Cut-off Date Principal Balances of the Mortgage Loans.


                                       10
<PAGE>

         "Cut-off Date Principal Balance": With respect to any Mortgage Loan,
the unpaid principal balance thereof as of the Cut-off Date after application of
funds received or advanced on or before such date (or as of the applicable date
of substitution with respect to an Eligible Substitute Mortgage Loan or a
Qualified Substitute Mortgage Loan).

         "Defective Mortgage Loan": A Mortgage Loan replaced or to be replaced
by one or more Eligible Substitute Mortgage Loans or a Qualified Substitute
Mortgage Loan.

         "Deferred Interest": With respect to any Mortgage Loan identified on
the Mortgage Loan Schedule as having the possibility of negative amortization,
the current portion of interest not currently paid by the Mortgagor that is
added to the principal balance of such Mortgage Loan.

         "Deficient Valuation": With respect to any Mortgage Loan identified on
the Mortgage Loan, a valuation of the related Mortgaged Property by a court of
competent jurisdiction in an amount less than the then outstanding principal
balance of the Mortgage Loan, which valuation results from a proceeding
initiated under the Bankruptcy Code.

         "Definitive Certificates":  As defined in Section 4.02(c) hereof.

         "Delinquent": Any Mortgage Loan, the Monthly Payment due on a Due Date
with respect to which such monthly payment is not made by the close of business
on the next scheduled Due Date for such Mortgage Loan.

         "Denomination": With respect to each Certificate, the amount set forth
on the face thereof as the "Initial Certificate Principal Balance of this
Certificate" or the Percentage Interest appearing on the face thereof.

         "Depositor": Morgan Stanley ABS Capital I Inc., a Delaware corporation,
or any successor in interest.

         "Depository": The initial depository shall be The Depository Trust
Company, whose nominee is Cede & Co., or any other organization registered as a
"clearing agency" pursuant to Section 17A of the Securities Exchange Act of
1934, as amended. The Depository shall initially be the registered Holder of the
Book-Entry Certificates. The Depository shall at all times be a "clearing
corporation" as defined in Section 8-102(3) of the Uniform Commercial Code of
the State of New York.

         "Depository Agreement": With respect to any Book-Entry Certificates,
the agreement among the Depositor, the Trustee and the initial Depository, to be
dated on or about the Closing Date.

         "Depository Participant": A broker, dealer, bank or other financial
institution or other person for whom from time to time a Depository effects
book-entry transfers and pledges of securities deposited with the Depository.

         "Determination Date": With respect to any Distribution Date, the 10th
calendar day of the calendar month in which such Distribution Date occurs or, if
such 10th calendar day is not a Business Day, the Business Day immediately
preceding such 10th calendar day.

         "Disqualified Organization": A "disqualified organization" under
Section 860E of the Code, which as of the Closing Date is any of: (i) the United
States, any state or political subdivision thereof, any possession of the United
States, any foreign government, any international organization, or any agency or
instrumentality of any of the foregoing, (ii) any organization (other than a
cooperative described in Section 521 of the Code) which is exempt from the tax
imposed by Chapter 1 of the Code unless such organization is subject to the tax
imposed by Section 511 of the Code, (iii) any organization described in Section
1381(a)(2)(C) of the Code, or (iv) any other Person so designated by the
Depositor based upon an Opinion of Counsel provided by nationally recognized
counsel to the Depositor that the holding of an ownership interest in a Residual
Certificate by such Person may cause the Trust Fund or any Person having an
ownership interest in any Class of Certificates (other than such Person) to
incur liability for any federal tax imposed under the Code that would not
otherwise be imposed but for the transfer of an ownership interest in a Residual
Certificate to such Person. A corporation will not be treated as an
instrumentality of the United States or of any state or political subdivision
thereof if all of its activities are subject to tax and a majority of its board
of directors is not selected by a governmental unit. The term "United States,"
"state" and "international organization" shall have the meanings set forth in
Section 7701 of the Code.


                                       11
<PAGE>

         "Distribution Account": The trust account or accounts created and
maintained by the Trustee pursuant to Section 3.01(a) which shall be entitled
"Distribution Account, Deutsche Bank National Trust Company, as Trustee, in
trust for the registered Holders of the Morgan Stanley ABS Capital I Inc. Trust,
Series 2004-SD2 Certificates", each of which must be an Eligible Account.

         "Distribution Date": The 25th calendar day of any calendar month, or if
such 25th calendar day is not a Business Day, the Business Day immediately
following such 25th calendar day, commencing in June 2004.

         "Due Date": With respect to each Mortgage Loan and any Distribution
Date, the calendar day of the calendar month in which such Distribution Date
occurs on which the Monthly Payment for such Mortgage Loan was due, exclusive of
any grace period.

         "Eligible Account": Any of (i) an account or accounts maintained with a
federal or state chartered depository institution or trust company the
commercial paper, short-term debt obligations, demand deposits or other
short-term deposits of which are rated in one of the two highest rating
categories by each of the Rating Agencies at the time any amounts are held on
deposit therein, (ii) an account or accounts the deposits in which are fully
insured by the FDIC (to the limits established by such corporation), the
uninsured deposits in which account are otherwise secured such that, as
evidenced by an Opinion of Counsel delivered to each Rating Agency, the
Certificateholders will have a claim with respect to the funds in such account
or a perfected first priority security interest against such collateral (which
shall be limited to Permitted Investments) securing such funds that is superior
to claims of any other depositors or creditors of the depository institution
with which such account is maintained, (iii) a trust account or accounts
maintained with the trust department of a federal or state chartered depository
institution, national banking association or trust company acting in its
fiduciary capacity, (iv) an account otherwise acceptable to each Rating Agency
or (v) an account maintained with a "qualified depository" (as such term is
defined in the related Servicing Agreement). Eligible Accounts may bear
interest.

         "Eligible Substitute Mortgage Loan": A mortgage loan substituted for a
Defective Mortgage Loan by the Seller pursuant to the terms of this Agreement
which must, on the date of such substitution, (i) have an outstanding principal
balance, after application of all scheduled payments of principal and interest
due during or prior to the month of substitution, not in excess of, and not more
than 10% less than, the outstanding principal balance of the Defective Mortgage
Loan as of the Due Date in the calendar month during which the substitution
occurs, (ii) be accruing interest at a Mortgage Interest Rate no lower than and
not more than 1% per annum higher than that of the Defective Mortgage Loan,
(iii) if an Adjustable-Rate Mortgage Loan, have a Minimum Loan Rate not less
than the Minimum Loan Rate of the Defective Mortgage Loan, (iv) if an
Adjustable-Rate Mortgage Loan, have a Gross Margin equal to or greater than the
Gross Margin of the Defective Mortgage Loan, (v) if an Adjustable-Rate Mortgage
Loan, have a next Adjustment Date not more than two months later than the next
Adjustment Date on the Defective Mortgage Loan, (vi) have a remaining term to
maturity no greater than (and not more than one year less than) that of the
Defective Mortgage Loan, (vii) be current as of the date of substitution, (viii)
have a Combined Amortized Loan-to-Value Ratio as of the date of substitution no
higher than the Combined Amortized Loan-to-Value Ratio of the Defective Mortgage
Loan as of such date, but in no event greater than 125%, (ix) have been
re-underwritten by the Seller in accordance with materially similar underwriting
criteria and guidelines as the Defective Mortgage Loan, (x) conform to each
representation and warranty set forth in Section 2.04 hereof applicable to the
Defective Mortgage Loan and (xi) be of the same type of Mortgage Loan (i.e.,
Fixed-Rate Mortgage Loan or Adjustable-Rate Mortgage Loan) as the Defective
Mortgage Loan. In the event that one or more mortgage loans are substituted for
one or more Defective Mortgage Loans, the amounts described in clause (i) hereof
shall be determined on the basis of aggregate principal balances, the Mortgage
Interest Rates described in clause (ii) hereof shall be determined on the basis
of weighted average Mortgage Interest Rates, the terms described in clause (vi)
hereof shall be determined on the basis of weighted average remaining term to
maturity, the Combined Amortized Loan-to-Value Ratios described in clause (viii)
hereof shall be satisfied as to each such mortgage loan and, except to the
extent otherwise provided in this sentence, the representations and warranties
described in clause (x) hereof must be satisfied as to each Eligible Substitute
Mortgage Loan or in the aggregate, as the case may be.

         "ERISA": The Employee Retirement Income Security Act of 1974, as
amended.

         "ERISA-Restricted Certificates": As specified in the Preliminary
Statement.

         "Estate in Real Property": A fee simple estate in a parcel of real
property.


                                       12
<PAGE>

         "Excess Reserve Fund Account": The separate Eligible Account created
and maintained by the Trustee pursuant to Section 3.01(e) in the name of the
Trustee for the benefit of the Offered Certificateholders and designated "Excess
Reserve Fund Account, Deutsche Bank National Trust Company, as Trustee, in trust
for the registered Holders of the Morgan Stanley ABS Capital I Inc. Trust,
Series 2004-SD2 Certificates".

         "Extra Principal Distribution Amount": As of any Distribution Date, the
lesser of (x) the Monthly Excess Interest Amount for such Distribution Date and
(y) the Overcollateralization Deficiency for such Distribution Date for such
Distribution Date.

         "FDIC": Federal Deposit Insurance Corporation or any successor thereto.

         "FHA":  The Federal Housing Administration, an agency within HUD.

         "FHA Loan": A Mortgage Loan originated under, and insured pursuant to,
an FHA mortgage loan origination program.

         "Fixed-Rate Mortgage Loan": A Mortgage Loan which has a constant annual
rate at which interest accrues in accordance with the provisions of the related
Mortgage Note.

         "Foreclosure Proceedings": With respect to any Mortgage Loan, the
period commencing with a determination by the related Servicer that it is
required, pursuant to the terms of the related Servicing Agreement, to put a
stop code on such Mortgage Loan in the Servicer's system whereby the Servicer
will not accept any payments on the Mortgage Note other than a payment in full.

         "Gross Margin": With respect to each Adjustable-Rate Mortgage Loan, the
fixed percentage set forth in the related Mortgage Note that is added to the
Index on each Adjustment Date in accordance with the terms of the related
Mortgage Note used to determine the Mortgage Interest Rate for such Mortgage
Loan.

         "HOEPA":  The Home Ownership and Equity Protection Act of 1994

         "HUD":  The United States Department of Housing and Urban Development.

         "Independent": When used with respect to any specified Person, any such
Person who (i) is in fact independent of the Depositor and its Affiliates, (ii)
does not have any direct financial interest in or any material indirect
financial interest in the Depositor or any Affiliate thereof, and (iii) is not
connected with the Depositor or any Affiliate thereof as an officer, employee,
promoter, underwriter, trustee, partner, director or Person performing similar
functions; provided, however, that a Person shall not fail to be Independent of
the Depositor or any Affiliate thereof merely because such Person is the
beneficial owner of 1% or less of any Class of securities issued by the
Depositor or any Affiliate thereof, as the case may be.

         "Independent Contractor": Either (i) any Person (other than the
applicable Servicer) that would be an "independent contractor" with respect to
the Trust Fund within the meaning of Section 856(d)(3) of the Code if the Trust
Fund were a real estate investment trust (except that the ownership tests set
forth in that section shall be considered to be met by any Person that owns,
directly or indirectly, 35 percent or more of any Class of Certificates), so
long as the Trust Fund does not receive or derive any income from such Person
and provided that the relationship between such Person and the Trust Fund is at
arm's length, all within the meaning of Treasury Regulation Section
1.856-4(b)(5), or (ii) any other Person (including the Servicer) if the Trustee
has received an Opinion of Counsel, which Opinion of Counsel shall be an expense
of the Trust Fund, to the effect that the taking of any action in respect of any
REO Property by such Person, subject to any conditions therein specified, that
is otherwise herein contemplated to be taken by an Independent Contractor will
not cause such REO Property to cease to qualify as "foreclosure property" within
the meaning of Section 860G(a)(8) of the Code (determined without regard to the
exception applicable for purposes of Section 860D(a) of the Code), or cause any
income realized in respect of such REO Property to fail to qualify as Rents from
Real Property.

         "Index": With respect to each Adjustable-Rate Mortgage Loan and with
respect to each related Adjustment Date, the index as specified in the related
Mortgage Note.


                                       13
<PAGE>

         "Initial Certificate Principal Balance": With respect to any
Certificate of a Class other than a Class X or Residual Certificate, the amount
designated "Initial Certificate Principal Balance" on the face thereof.

         "Initial Overcollateralization Amount":  Approximately $5,640,575.

         "Initial Rate Cap": As to each Adjustable-Rate Mortgage Loan, the
maximum increase or decrease in the Mortgage Interest Rate on the first
Adjustment Date as provided in the related Mortgage Note.

         "Insurance Proceeds": Proceeds of any title policy, hazard policy or
other insurance policy (including, without limitation, FHA or VA mortgage
insurance) covering a Mortgage Loan, to the extent such proceeds are not to be
applied to the restoration of the related Mortgaged Property or released to the
Mortgagor in accordance with the procedures that the related Servicer would
follow in servicing mortgage loans held for its own account, subject to the
terms and conditions of the related Mortgage Note and Mortgage

         "Interest Accrual Period": With respect to any Distribution Date, the
period from the preceding Distribution Date through and including the calendar
day prior to the current Distribution Date (or, in the case of the first
Distribution Date, the period from the Closing Date through June 24, 2004).

         "Interest Carry Forward Amount": For any Class of Certificates (other
than the Class X and Residual Certificates) and any Distribution Date, the sum
of (a) the portion of the Accrued Certificate Interest from Distribution Dates
prior to the current Distribution Date remaining unpaid immediately prior to the
current Distribution Date and (b) interest on the amount in clause (a) at the
applicable Pass-Through Rate (to the extent permitted by law) for the applicable
Interest Accrual Period(s).

         "Interest Percentage": With respect to any Class of Certificates and
any Distribution Date, the ratio (expressed as a decimal carried to six places)
of the Accrued Certificate Interest for such Class to the sum of the Accrued
Certificate Interest for all Classes, in each case with respect to such
Distribution Date.

         "Interest Rate Cap Payment": The Class A Interest Rate Cap Payment, the
Class B-1 Interest Rate Cap Payment, the Class B-2 Interest Rate Cap Payment,
the Class M-1 Interest Rate Cap Payment and/or the Class M-2 Interest Rate Cap
Payment, as applicable.

         "Interest Remittance Amount": As of any Determination Date, the sum,
without duplication, of (i) all interest due and collected or advanced with
respect to the related Collection Period on the Mortgage Loans (less the related
Servicing Fee, amounts available for reimbursement of Advances and Servicing
Advances pursuant to the related Servicing Agreement, expenses reimbursable to
each Servicer pursuant to the related Servicing Agreement and certain other
reimbursable expenses (including but not limited to any indemnity payable to the
Trustee or the Custodian pursuant to Section 6.05 herein)), (ii) all
Compensating Interest paid by each Servicer on such Determination Date with
respect to the Mortgage Loans and (iii) the portion of any payment in connection
with any substitution, Purchase Price, Termination Price or Net Liquidation
Proceeds relating to interest with respect to the Mortgage Loans received during
the related Prepayment Period.

         "LGC": A Loan Guaranty Certificate issued by the VA as a guarantee that
the federal government will repay to the lender a specified percentage of the
loan balance in the event of the borrower's default.

         "LIBOR": With respect to each Interest Accrual Period, the rate
determined by the Trustee on the related LIBOR Determination Date on the basis
of the offered rate for one-month United States dollar deposits, as such rate
appears on the Telerate Page 3750, as of 11:00 a.m. (London time) on such LIBOR
Determination Date. If no such quotations are available on an LIBOR
Determination Date, LIBOR for the related Interest Accrual Period will be
established by the Trustee as follows:

                  (i) If on such LIBOR Determination Date two or more Reference
         Banks provide such offered quotations, LIBOR for the related Interest
         Accrual Period shall be the arithmetic mean of such offered quotations
         (rounded upwards if necessary to the nearest whole multiple of 0.001%);


                                       14
<PAGE>

                  (ii) If on such LIBOR Determination Date fewer than two
         Reference Banks provide such offered quotations, LIBOR for the related
         Interest Accrual Period shall be the arithmetic mean of the rates
         quoted by one or more major banks in New York City, selected by the
         Trustee (after consultation with the Depositor), as of 11:00 A.M., New
         York City time, on such date for loans in U.S. Dollars to leading
         European banks for a period of one month in amounts approximately equal
         to the aggregate Certificate Principal Balance of the Offered
         Certificates; and

                  (iii) If no such quotations can be obtained, LIBOR for the
         related Interest Accrual Period shall be LIBOR for the prior
         Distribution Date.

         "LIBOR Business Day": Any calendar day on which banks in London,
England and The City of New York are open and conducting transactions in foreign
currency and exchange.

         "LIBOR Certificates":  As specified in the Preliminary Statement.

         "LIBOR Determination Date": With respect to the LIBOR Certificates (i)
for the first Distribution Date, the second LIBOR Business Day preceding the
Closing Date and (ii) for each subsequent Distribution Date, the second LIBOR
Business Day prior to the immediately preceding Distribution Date.

         "Lifetime Rate Cap": As to each Adjustable-Rate Mortgage Loan, the
maximum Mortgage Interest Rate which shall be as permitted in accordance with
the provisions of the related Mortgage Note. The Mortgage Interest Rate during
the term of each Adjustable-Rate Mortgage Loan shall not at any time exceed the
Mortgage Interest Rate at the time of origination of such Adjustable-Rate
Mortgage Loan by more than the amount per annum set forth on the related
Mortgage Loan Schedule.

         "Liquidated Mortgage Loan": As to any Distribution Date, any Mortgage
Loan in respect of which the Servicer has determined, in accordance with the
servicing procedures specified in the related Servicing Agreement, as of the end
of the related Prepayment Period, that all Liquidation Proceeds and Insurance
Proceeds which it expects to recover with respect to the liquidation of the
Mortgage Loan or disposition of the related REO Property have been recovered.

         "Liquidation Proceeds": The amount (other than amounts received in
respect of the rental of any REO Property prior to REO Disposition) received by
the related Servicer in connection with (i) the taking of all or a part of a
Mortgaged Property by exercise of the power of eminent domain or condemnation or
(ii) the liquidation of a defaulted Mortgage Loan by means of a trustee's sale,
foreclosure sale or otherwise, including any Subsequent Recoveries.

         "Liquidation Report": The report with respect to a Liquidated Mortgage
Loan provided by the related Servicer to the Trustee.

         "Lost Note Affidavit": With respect to any Mortgage Loan as to which
the original Mortgage Note has been permanently lost or destroyed and has not
been replaced, an affidavit from the Seller certifying that the original
Mortgage Note has been lost, misplaced or destroyed (together with a copy of the
related Mortgage Note and indemnifying the Trust against any loss, cost or
liability resulting from the failure to deliver the original Mortgage Note).

         "Lower Tier Regular Interest": As described in the Preliminary
Statement.

         "Lower Tier REMIC":  As described in the Preliminary Statement.

         "Majority Certificateholders": The Holders of Certificates evidencing
at least 51% of the Voting Rights.

         "Majority Class R Certificateholders": The Holders of Class R
Certificates evidencing at least a 51% Percentage Interest in the Class R
Certificates.

         "Maximum Loan Rate": With respect to each Adjustable-Rate Mortgage
Loan, either (i) the percentage set forth in the related Mortgage Note as the
maximum Mortgage Interest Rate thereunder or (ii) with respect to any Bank of
America Mortgage Loan, the related Lifetime Rate Cap.


                                       15
<PAGE>

         "MERS": Mortgage Electronic Registration Systems, Inc., a Delaware
corporation, and any successor thereto.

         "MERS Loan": Any Mortgage Loan registered on the MERS(R) System and for
which MERS is listed as the record mortgagee or beneficiary on the related
Mortgage or assignment thereof.

         "MERS(R) System": The system of electronically recording transfers of
Mortgages maintained by MERS.

         "MIN":  The mortgage identification number issued to each MERS Loan.

         "Minimum Loan Rate": With respect to each Adjustable-Rate Mortgage
Loan, the percentage set forth in the related Mortgage Note as the minimum
Mortgage Interest Rate thereunder.

         "Missing Document":  As defined in Section 2.03(f)  hereof.

         "MOM Loan": A Mortgage Loan that was registered on the MERS(R) System
at the time of origination thereof and for which MERS appears as the record
mortgagee or beneficiary on the related Mortgage.

         "Monthly Excess Cashflow Amount": The sum of the Monthly Excess
Interest Amount, the Overcollateralization Release Amount and (without
duplication) any portion of the Principal Distribution Amount remaining after
principal distributions on the Offered Certificates.

         "Monthly Excess Interest Amount": With respect to each Distribution
Date, the amount, if any, by which the Interest Remittance Amount for such
Distribution Date exceeds the aggregate amount distributed on such Distribution
Date pursuant to paragraphs(i) through (vii) under Section 3.03.

         "Monthly Payment": With respect to any Mortgage Loan, the scheduled
monthly payment of principal and interest on such Mortgage Loan which is payable
by the related Mortgagor from time to time under the related Mortgage Note,
determined: (a) after giving effect to (i) any Deficient Valuation and/or debt
service reduction with respect to such Mortgage Loan and (ii) any reduction in
the amount of interest collectible from the related Mortgagor pursuant to the
Relief Act; (b) without giving effect to any extension granted or agreed to by
the Servicer pursuant to the related Servicing Agreement; and (c) on the
assumption that all other amounts, if any, due under such Mortgage Loan are paid
when due.

         "Moody's": Moody's Investors Service, Inc. and its successors, and if
such company shall for any reason no longer perform the functions of a
securities rating agency, "Moody's" shall be deemed to refer to any other
"nationally recognized statistical rating organization" as set forth on the most
current list of such organizations released by the Securities and Exchange
Commission.

         "Mortgage": The mortgage, deed of trust or other instrument identified
on the Mortgage Loan Schedule as securing a Mortgage Note or, in the case of a
Cooperative Loan, the related Cooperative Loan.

         "Mortgage File": The mortgage documents listed in Section 2.01
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to this Agreement.

         "Mortgage Interest Rate": With respect to each Mortgage Loan, the
annual rate at which interest accrues on such Mortgage Loan from time to time in
accordance with the provisions of the related Mortgage Note, which rate (i) in
the case of each Fixed-Rate Mortgage Loan shall remain constant at the rate set
forth in the Mortgage Loan Schedule as the Mortgage Interest Rate in effect
immediately following the Cut-off Date and (ii) in the case of each
Adjustable-Rate Mortgage Loan (A) as of any date of determination until the
first Adjustment Date following the Cut-off Date shall be the rate set forth in
the Mortgage Loan Schedule as the Mortgage Interest Rate in effect immediately
following the Cut-off Date and (B) as of any date of determination thereafter
shall be the rate as adjusted on the most recent Adjustment Date, to equal the
sum, rounded to the nearest 0.125% as provided in the Mortgage Note, of the
Index, determined as set forth in the related Mortgage Note, plus the related
Gross Margin subject to the limitations (including, but not limited to, with
respect to Bank of America Mortgage Loans, the Initial Rate Cap, the Periodic
Rate Cap and the Lifetime Rate Cap, if any) set forth in the related Mortgage
Note. With respect to each Mortgage Loan that becomes an REO Property, as of any
date of determination, the annual rate determined in accordance with the
immediately preceding sentence as of the date such Mortgage Loan became an REO
Property.


                                       16
<PAGE>

         "Mortgage Loan": Each mortgage loan transferred and assigned to the
Trustee pursuant to Section 2.01 or Section 2.03(e) as from time to time held as
a part of the Trust Fund, the Mortgage Loans so held being identified in the
Mortgage Loan Schedule. The term "Mortgage Loan" includes Cooperative Loans.

         "Mortgage Loan Purchase Agreement": The agreement between the Seller
and the Depositor, dated as of June 1, 2004, regarding the transfer of the
Mortgage Loans by the Seller to or at the direction of the Depositor.

         "Mortgage Loan Schedule": As of any date with respect to the Mortgage
Loans, the list of such Mortgage Loans included in the Trust Fund on such date,
separately identifying the Fixed-Rate Mortgage Loans and the Adjustable-Rate
Mortgage Loans, attached hereto as Exhibit D. The Mortgage Loan Schedule shall
be prepared by the Seller and shall set forth the following information with
respect to each Mortgage Loan:

         (1) the Seller's Mortgage Loan identifying number;

         (2) the city, state, and zip code of the Mortgaged Property;

         (3) the type of Residential Dwelling constituting the Mortgaged
Property or a designation that the Mortgaged Property is a multi-family
property;

         (4) the occupancy status of the Mortgaged Property at origination;

         (5) the original months to maturity;

         (6) the date of origination;

         (7) the first payment date;

         (8) the stated maturity date;

         (9) the stated remaining months to maturity;

         (10) the original principal amount of the Mortgage Loan;

         (11) the Principal Balance of each Mortgage Loan as of the Cut-off
Date;

         (12) [Reserved];

         (13) the Mortgage Interest Rate of the Mortgage Loan as of the Cut-off
Date; (14) the current principal and interest payment of the Mortgage Loan as of
the Cut-off Date;

         (15) the contractual interest paid to date of the Mortgage Loan;

         (16) if the Mortgage Loan is not owner-financed, the Combined Amortized
Loan-to-Value Ratio at origination;

         (17) a code indicating the loan performance status of the Mortgage Loan
as of the Cut-off Date;

         (18) a code indicating whether the Mortgage Loan is a Simple Interest
Mortgage Loan or an Actuarial Mortgage Loan;

         (19) a code indicating whether the Mortgaged Property is in bankruptcy
or in its forbearance period as of the Cut-off Date;


                                       17
<PAGE>

         (20) a code indicating whether the Mortgage Loan was insured by the FHA
or the VA;

         (21) a code indicating the Index that is associated with such Mortgage
Loan;

         (22) the Gross Margin;

         (23) the Periodic Rate Cap;

         (24) the Minimum Loan Rate;

         (25) the Maximum Loan Rate;

         (26) a code indicating whether the Mortgage Loan has a prepayment
penalty and the type of prepayment penalty;

         (27) the first Adjustment Date immediately following the Cut-off Date;

         (28) the rate adjustment frequency;

         (29) the payment adjustment frequency;

         (30) a code indicating whether the Mortgage Loan is owner-financed;

         (31) a code indicating whether the Mortgage Loan is subject to negative
amortization;

         (32) a code indicating whether the Mortgage Loan is a second lien;

         (33) a code indicating whether a Primary Insurance Policy has been
issued with respect to the Mortgage Loan and the name of the insurer and the
amount of such Primary Insurance Policy;

         (34) the Mortgagor's first and last name (for Bank of America Mortgage
Loans and WAMU Mortgage Loans only);

         (35) a code indicating the purpose of the Mortgage Loan (i.e., purchase
financing, rate/term refinancing or cash-out refinancing) (for Bank of America
Mortgage Loans and WAMU Mortgage Loans only);

         (36) a code indicating the documentation style (for Bank of America
Mortgage Loans and WAMU Mortgage Loans only);

         (37) the Initial Rate Cap (for Bank of America Mortgage Loans only);

         (38) the original amortization schedule (for Bank of America Mortgage
Loans only);

         (39) the paid-through date (for Bank of America Mortgage Loans only);

         (40) the Net Mortgage Interest Rate (for Bank of America Mortgage Loans
only);

         (41) the Value of the Mortgage Loan (for Bank of America Mortgage Loans
only);

         (42) the number of times during the twelve month period preceding the
Closing Date that any Monthly Payment has been received more than thirty days
after its Due Date (for Bank of America Mortgage Loans only);

         (43) a code indicating the FICO score of the Mortgagor at the time of
origination (for Bank of America Mortgage Loans only);


                                       18
<PAGE>

         (44) in connection with a condominium unit, a code indicating whether
the condominium project where such unit is located is low-rise or high-rise (for
Bank of America Mortgage Loans only);

         (45) a code indicating whether such Mortgage is insured by the FHA or
guaranteed by the VA (for Bank of America Mortgage Loans only);

         (46) with respect to any VA Loan, the related VA entitlement
percentage, and with respect to any FHA Loan, the FHA case number (for Bank of
America Mortgage Loans only);

         (47) a code indicating whether the Mortgage Loan is an Adjustable-Rate
Mortgage Loan or a fixed rate Mortgage Loan (for WAMU Mortgage Loans only); and

         (48) a code indicating if the Mortgage Loan is a MERS Loan and, if so,
the MIN (for WAMU Mortgage Loans only).

         The Mortgage Loan Schedule shall set forth the following information,
as of the Cut-off Date, with respect to the Mortgage Loans in the aggregate, for
the Fixed-Rate Mortgage Loans and for the Adjustable-Rate Mortgage Loans, as
applicable: (1) the number of Mortgage Loans; (2) the current Principal Balance
of the Mortgage Loans; (3) the weighted average Mortgage Interest Rate of the
Mortgage Loans; (4) the weighted average maturity of the Mortgage Loans; (5) the
weighted average Lifetime Rate Cap (for Bank of America Mortgage Loans only);
and (6) the weighted average Gross Margin (for Bank of America Mortgage Loans
only). The Mortgage Loan Schedule shall be amended from time to time by the
Seller in accordance with the provisions of this Agreement. With respect to any
Eligible Substitute Mortgage Loan, Cut-off Date shall refer to the related
Cut-off Date for such Mortgage Loan, determined in accordance with the
definition of Cut-off Date herein.

         "Mortgage Note": The original executed note or other evidence of
indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan.

         "Mortgage Pool": The pool of Mortgage Loans, identified on Exhibit D
from time to time, and any REO Properties acquired in respect thereof.

         "Mortgaged Property": The underlying property securing a Mortgage Loan,
including any REO Property, consisting of an Estate in Real Property improved by
a Residential Dwelling or multi-family dwelling or, in the case of a Cooperative
Loan, the related Cooperative Ownership Interest.

         "Mortgagor":  The obligor on a Mortgage Note.

         "Net Interest Margin Securities": As defined in Section 7.01(a) hereof.

         "Net Liquidation Proceeds": With respect to any Liquidated Mortgage
Loan or any other disposition of related Mortgaged Property (including REO
Property) the related Liquidation Proceeds net of Advances, Servicing Advances,
Servicing Fees and any other accrued and unpaid servicing fees received and
retained in connection with the liquidation of such Mortgage Loan or Mortgaged
Property.

         "Net Mortgage Interest Rate": With respect to any Mortgage Loan, the
Mortgage Interest Rate borne by such Mortgage Loan minus the sum of (i) the
applicable Servicing Fee Rate and (ii) the Trustee Fee Rate.

         "Offered Certificates":  As specified in the Preliminary Statement.

         "Officers' Certificate": A certificate signed by the Chairman of the
Board, the Vice Chairman of the Board, the President, a Vice President, the
Treasurer or the Secretary (however denominated) of the Servicer, the Seller or
the Depositor, as applicable.

         "Opinion of Counsel": A written opinion of counsel, who may, without
limitation, be a salaried counsel for the Depositor or any Servicer except that
any opinion of counsel relating to (a) the qualification of any REMIC as a REMIC
or (b) compliance with the REMIC Provisions must be an opinion of Independent
counsel.


                                       19
<PAGE>

         "Optional Termination Date": The first Distribution Date on which the
Servicers may opt to terminate the Mortgage Pool in accordance with Section
7.01.

         "Original Class Certificate Principal Balance": With respect to each
Class of Certificates, the Certificate Principal Balance thereof on the Closing
Date, as set forth opposite such Class in the Preliminary Statement, except with
respect to the Residual Certificates, which have an Original Class Certificate
Principal Balance of zero.

         "Overcollateralization Amount": As of any Distribution Date, the
excess, if any, of (x) the Pool Balance as of the last calendar day of the
immediately preceding Collection Period over (y) the aggregate Certificate
Principal Balances of all Classes of Offered Certificates and the Class P
Certificate (after taking into account all distributions of principal on such
Distribution Date).

         "Overcollateralization Deficiency": As of any Distribution Date, the
excess, if any, of (x) the Targeted Overcollateralization Amount for such
Distribution Date over (y) the Overcollateralization Amount for such
Distribution Date, calculated for this purpose after taking into account the
reduction on such Distribution Date of the Certificate Principal Balances of all
Classes of Offered Certificates resulting from the distribution of the Principal
Remittance Amount on such Distribution Date, but prior to taking into account
any Applied Realized Loss Amounts on such Distribution Date.

         "Overcollateralization Release Amount": With respect to any
Distribution Date after the Stepdown Date on which a Trigger Event is not in
effect, the lesser of (x) the Principal Remittance Amount for such Distribution
Date and (y) the excess, if any, of (i) the Overcollateralization Amount for
such Distribution Date, assuming that 100% of the Principal Remittance Amount is
applied as a principal payment on the Offered Certificates on such Distribution
Date, over (ii) the Targeted Overcollateralization Amount for such Distribution
Date.

         "Ownership Interest": As to any Certificate, any ownership or security
interest in such Certificate, including any interest in such Certificate as the
Holder thereof and any other interest therein, whether direct or indirect, legal
or beneficial, as owner or as pledgee.

         "P&I Arrearage": With respect to a Delinquent Mortgage Loan, the total
amount of scheduled monthly payments due thereon on or before the Cut-off Date
that were not received prior to the Cut-off Date (not including any unreimbursed
Servicing Arrearages).

         "Pass-Through Rate": For each Class of Certificates and each Lower Tier
Regular Interest, the per annum rate set forth or calculated in the manner
described in the Preliminary Statement.

         "Paying Agent":  Any paying agent appointed pursuant to Section 4.05.

         "Payment Plan": A plan pursuant to which a Mortgagor makes its Monthly
Payments in an amount at least equal to the sum of (i) the amount of the monthly
scheduled payment of principal and interest determined in accordance with such
Mortgage Loan's original amortization schedule plus (ii) an additional amount to
be applied to pay down (a) the total amount of scheduled Monthly Payments due
thereon on or before the Cut-off Date but not received prior to the Cut-off Date
plus (b) the aggregate amount of tax and insurance advances made with respect to
such Mortgage Loan to the extent such advances are outstanding as of the Cut-off
Date.

         "Payment Plan Mortgage Loan": A Mortgage Loan with respect to which the
related Mortgagor must make Monthly Payments in accordance with a Payment Plan.

         "Percentage Interest": As to any Certificate, the percentage interest
evidenced thereby in distributions required to be made on the related Class,
such percentage interest being set forth on the face thereof or equal to the
percentage obtained by dividing the Denomination of such Certificate by the
aggregate of the Denominations of all Certificates of the same Class.

         "Periodic Rate Cap": With respect to each Adjustable-Rate Mortgage Loan
and any Adjustment Date therefor, the fixed percentage set forth in the related
Mortgage Note, which is the maximum amount by which the Mortgage Interest Rate
for such Mortgage Loan may increase or decrease (without regard to the Maximum
Loan Rate or the Minimum Loan Rate) on such Adjustment Date from the Mortgage
Interest Rate in effect immediately prior to such Adjustment Date.


                                       20
<PAGE>

         "Permitted Investments": Any one or more of the following obligations
or securities acquired at a purchase price of not greater than par, regardless
of whether issued or managed by the Depositor, the related Servicer or the
Trustee any of their respective Affiliates or for which an Affiliate of the
Trustee serves as an advisor:

                  (i) direct obligations of, or obligations fully guaranteed as
         to timely payment of principal and interest by, the United States or
         any agency or instrumentality thereof, provided such obligations are
         backed by the full faith and credit of the United States;

                  (ii) demand and time deposits in, certificates of deposit of,
         bankers' acceptances issued by or federal funds sold by any depository
         institution or trust company (including the Trustee or its agents
         acting in their respective commercial capacities) incorporated under
         the laws of the United States of America or any state thereof and
         subject to supervision and examination by federal and/or state
         authorities, so long as, at the time of such investment or contractual
         commitment providing for such investment, such depository institution
         or trust company or its ultimate parent has a short-term uninsured debt
         rating in one of the two highest available rating categories of S&P and
         Moody's and provided that each such investment has an original maturity
         of no more than 365 days and (B) any other demand or time deposit or
         deposit which is fully insured by the FDIC;

                  (iii) repurchase obligations with a term not to exceed 30 days
         with respect to any security described in clause (i) above and entered
         into with a depository institution or trust company (acting as
         principal) rated A or higher by S&P and rated A2 or higher by Moody's,
         provided, however, that collateral transferred pursuant to such
         repurchase obligation must be of the type described in clause (i) above
         and must (A) be valued daily at current market prices plus accrued
         interest or (B) pursuant to such valuation, be equal, at all times, to
         105% of the cash transferred by the Trustee in exchange for such
         collateral and (C) be delivered to the Trustee or, if the Trustee is
         supplying the collateral, an agent for the Trustee, in such a manner as
         to accomplish perfection of a security interest in the collateral by
         possession of certificated securities;

                  (iv) securities bearing interest or sold at a discount that
         are issued by any corporation incorporated under the laws of the United
         States of America or any State thereof and that are rated by each
         Rating Agency in its highest long-term unsecured rating categories at
         the time of such investment or contractual commitment providing for
         such investment;

                  (v) commercial paper (including both non-interest-bearing
         discount obligations and interest-bearing obligations payable on demand
         or on a specified date not more than 30 days after the date of
         acquisition thereof) that is rated by each Rating Agency in its highest
         short-term unsecured debt rating available at the time of such
         investment;

                  (vi) units of money market funds including funds managed or
         advised by the Trustee or affiliates thereof having the highest rating
         category by the applicable Rating Agency; and

                  (vii) if previously confirmed in writing to the Trustee, any
         other demand, money market or time deposit, or any other obligation,
         security or investment, as may be acceptable to the Rating Agencies;

         provided, that no instrument described hereunder shall evidence either
the right to receive (a) only interest with respect to the obligations
underlying such instrument or (b) both principal and interest payments derived
from obligations underlying such instrument and the interest and principal
payments with respect to such instrument provide a yield to maturity at par
greater than 120% of the yield to maturity at par of the underlying obligations

         "Permitted Transferee": Any transferee of a Residual Certificate other
than a Disqualified Organization or a non-U.S. Person.

         "Person": Any individual, corporation, partnership, joint venture,
association, joint stock company, trust, limited liability company,
unincorporated organization or government or any agency or political subdivision
thereof.


                                       21
<PAGE>

         "Pool Balance": As of any date of determination, the aggregate
Principal Balance of the Mortgage Loans.

         "Prepayment Interest Shortfall": With respect to any Distribution Date,
for each Mortgage Loan that was during the related Prepayment Period the subject
of a Principal Prepayment in full that was applied by the Servicer to reduce the
outstanding principal balance of such loan on a date preceding the related Due
Date, an amount equal to interest at the applicable Mortgage Interest Rate (net
of the Servicing Fee Rate) on the amount of such Principal Prepayment for the
number of days commencing on the date on which the prepayment is applied and
ending on the last calendar day of the related Prepayment Period.

         "Prepayment Period": With respect to any Distribution Date, the
calendar month preceding the month in which such Distribution Date occurs.

         "Primary Insurance Policy": Each policy of primary guaranty mortgage
insurance issued by a Qualified Insurer in effect with respect to any Mortgage
Loan, or any replacement policy therefor obtained by any Servicer pursuant to
the related Servicing Agreement.

         "Principal Balance": As to any Mortgage Loan and any day, other than a
Liquidated Mortgage Loan, the related scheduled principal balance thereof as of
the Cut-off Date, minus all collections credited against the principal balance
of any such Mortgage Loan and the principal portion of Advances plus, Deferred
Interest, if any. For purposes of this definition, a Liquidated Mortgage Loan
shall be deemed to have a Principal Balance equal to the Principal Balance of
the related Mortgage Loan as of the final recovery of related Liquidation
Proceeds and a Principal Balance of zero thereafter. As to any REO Property and
any day, the Principal Balance of the related Mortgage Loan immediately prior to
such Mortgage Loan becoming REO Property minus any REO Principal Amortization
received with respect thereto on or prior to such day.

         "Principal Distribution Amount": As to any Distribution Date, the sum
of (i) the Principal Remittance Amount minus, for Distribution Dates occurring
on and after the Stepdown Date and for which a Trigger Event is not in effect,
the Overcollateralization Release Amount, if any, and (ii) the Extra Principal
Distribution Amount, if any.

         "Principal Prepayment": Any payment of principal made by the Mortgagor
on a Mortgage Loan which is received in advance of its scheduled Due Date and
which is not accompanied by an amount of interest representing the full amount
of scheduled interest due on any Due Date in any month or months subsequent to
the month of prepayment.

         "Principal Remittance Amount": With respect to any Distribution Date,
to the extent of funds available therefor, the sum (less amounts available for
reimbursement of Advances and Servicing Advances pursuant to Section 2.05 of the
applicable Servicing Agreement, expenses reimbursable pursuant to Section 4.03
of the applicable Servicing Agreement and certain other reimbursable expenses
(including but not limited to any indemnity payable to the Trustee or the
Custodian pursuant to Section 6.05 herein)) of: (i) each payment of principal on
a Mortgage Loan due during the related Collection Period and received by the
Servicer on or prior to the related Determination Date, and any Advances with
respect thereto, (ii) all full and partial Principal Prepayments received by the
Servicer during the related Prepayment Period, (iii) the Net Liquidation
Proceeds allocable to principal actually collected by the Servicer during the
related Prepayment Period, (iv) with respect to Defective Mortgage Loans
repurchased with respect to such Prepayment Period or with respect to which WAMU
Indemnification Amounts were paid with respect to such Prepayment Period, the
portion of the related Purchase Price or WAMU Indemnification Amount allocable
to principal, (v) any Substitution Adjustment Amounts received on or prior to
the related Determination Date and not yet distributed and (vi) on the
Distribution Date on which the Trust is to be terminated in accordance with
Section 7.01 hereof, that portion of the Termination Price in respect of
principal.

         "Private Certificates":  As specified in the Preliminary Statement.

         "Prospectus Supplement": That certain Prospectus Supplement dated June
2, 2004 relating to the public offering of the Offered Certificates.


                                       22
<PAGE>

         "Purchase Price": With respect to any Mortgage Loan to be purchased
pursuant to or as contemplated by Section 2.03 or 7.01, and as confirmed by an
Officers' Certificate from the applicable Servicer to the Trustee an amount
equal to the sum of (i) 100% of the Principal Balance thereof as of the date of
purchase, (ii) (x) if such Mortgage Loan in being repurchased by the Seller, the
sum of (A) accrued interest on such Principal Balance at the applicable Mortgage
Interest Rate in effect from time to time from the Due Date as to which interest
was last covered by a payment by the Mortgagor or an Advance by the related
Servicer, which payment or Advance had as of the date of purchase been
distributed pursuant to Section 4.01, through the end of the calendar month in
which the purchase is to be effected, (B) any unreimbursed Servicing Advances
and Advances and any unpaid Servicing Fees allocable to such Mortgage Loan; (C)
any amounts previously withdrawn from the Collection Account in respect of such
Mortgage Loan or REO Property pursuant to Section 2.13 of the applicable
Servicing Agreement, (D) in the case of a Mortgage Loan required to be purchased
pursuant to Section 2.03, expenses reasonably incurred or to be incurred by the
applicable Servicer or the Trustee in respect of the breach or defect giving
rise to the purchase obligation and (E) any costs and damages incurred by the
Trust Fund in connection with any violation of any predatory or abusive lending
law with respect to such Mortgage Loan or (y) if such Mortgage Loan is being
repurchased by Bank of America or WAMU, all other amounts payable by Bank of
America or WAMU, respectively, in accordance with the terms of the Bank of
America Agreement or the WAMU Agreement, respectively.

         "Qualification Defect": With respect to any Mortgage Loan, any of (i)
the inclusion of a materially defective document in the related Mortgage File,
(ii) the absence of a document from the related Mortgage File or (iii) the
breach of any representation, warranty or covenant regarding the such Mortgage
Loan which, in any such case, causes such Mortgage Loan (A) not to be a
"qualified mortgage" within the meaning of Section 860G(a)(3) of the Code or (B)
to be a "defective obligation" within the meaning of Treasury regulations
relating to REMICs.

         "Qualified Insurer": Any mortgage guaranty insurance company duly
qualified as such under the laws of the state of its principal place of business
and each state having jurisdiction over such insurer in connection with the
insurance policy issued by such insurer, duly authorized and licensed in such
states to transact a mortgage guaranty insurance business in such states and to
write the insurance provided by the insurance policy issued by it, approved as a
Fannie Mae- or Freddie Mac-approved mortgage insurer and approved by FHA or VA,
as applicable. Any replacement insurer with respect to a Mortgage Loan must have
at least as high a claims paying ability rating as the insurer it replaces had
on the Closing Date.

         "Qualified Substitute Mortgage Loan": A Mortgage Loan substituted for a
Defective Mortgage Loan by Bank of America pursuant to the terms of the Bank of
America Agreement.

         "Rating Agency" or "Rating Agencies": Moody's and S&P, or their
respective successors. If such agencies or their successors are no longer in
existence, "Rating Agencies" shall be such nationally recognized statistical
rating organizations as set forth on the most current list of such organizations
released by the Securities and Exchange Commission and designated by the
Depositor, notice of which designation shall be given to the Trustee and the
Servicers.

         "Realized Loss": With respect to a Liquidated Mortgage Loan, the amount
by which the remaining unpaid principal balance of the Mortgage Loan exceeds the
amount of Net Liquidation Proceeds applied to the principal balance of the
related Mortgage Loan.

         "Record Date": With respect to all of the Certificates, the Business
Day immediately preceding such Distribution Date; provided, however, that if any
such Certificate becomes a Definitive Certificate, the Record Date for such
Certificate shall be the last Business Day of the month immediately preceding
the month in which the related Distribution Date occurs.

         "Reference Banks": Those banks (i) with an established place of
business in London, England, (ii) not controlling, under the control of or under
common control with the Depositor or the Trustee, (iii) whose quotations appear
on the Telerate Page 3750 on the relevant LIBOR Determination Date and (iv)
which have been designated as such by the Trustee (after consultation with the
Depositor); provided, however, that if fewer than two of such banks provide a
LIBOR rate, then any leading banks selected by the Trustee (after consultation
with the Depositor) which are engaged in transactions in United States dollar
deposits in the international Eurocurrency market.

         "Regular Certificate":  As specified in the Preliminary Statement.

         "Related Documents": With respect to any Mortgage Loan, the related
Mortgage Notes, Mortgages and other related documents.


                                       23
<PAGE>

         "Relief Act": The Servicemembers Civil Relief Act, as amended, or any
other similar state law(s).

         "Relief Act Shortfall": With respect to any Distribution Date, for any
Mortgage Loan with respect to which there has been a reduction in the amount of
interest collectible thereon for the most recently ended Collection Period as a
result of the application of the Relief Act, the amount by which (i) interest
collectible on such Mortgage Loan during such Collection Period is less than
(ii) one month's interest on the Principal Balance of such Mortgage Loan at the
Mortgage Interest Rate for such Mortgage Loan before giving effect to the
application of the Relief Act.

         "Remaining Initial Overcollateralization Amount": As of any
Distribution Date, an amount equal to (a) the Initial Overcollateralization
Amount minus (b) any Overcollateralization Release Amounts distributed on prior
Distribution Dates.

         "REMIC": A "real estate mortgage investment conduit" within the meaning
of Section 860D of the Code.

         "REMIC Provisions": 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 Code, and related provisions, and
regulations and rulings promulgated thereunder, as the foregoing may be in
effect from time to time.

         "REMIC Trust": The segregated pool of assets consisting of the Trust
Fund, exclusive of the Excess Reserve Fund Account and the Cap Agreements.

         "Remittance Report": A report prepared by each Servicer and delivered
to the Trustee pursuant to the applicable Servicing Agreement.

         "Rents from Real Property": With respect to any REO Property, gross
income of the character described in Section 856(d) of the Code.

         "REO Disposition": The sale or other disposition of an REO Property on
behalf of the Trust Fund.

         "REO Principal Amortization": With respect to any REO Property, for any
calendar month, the aggregate of all amounts received in respect of such REO
Property during such calendar month, whether in the form of rental income, sale
proceeds (including, without limitation, that portion of the Termination Price
paid in connection with a purchase of all of the Mortgage Loans pursuant to
Section 7.01 that is allocable to such REO Property) or otherwise, net of any
portion of such amounts (i) payable in respect of the proper operation,
management and maintenance of such REO Property or (ii) payable or reimbursable
to the related Servicer pursuant to the related Servicing Agreement for unpaid
Servicing Fees in respect of the related Mortgage Loan and unreimbursed
Servicing Advances and Advances in respect of such REO Property or the related
Mortgage Loan.

         "REO Property": A Mortgaged Property acquired by the related Servicer
on behalf of the Trust Fund through foreclosure or deed-in-lieu of foreclosure.

         "Re-Performance Test": The following criteria one of which must be met
for a Mortgage Loan to qualify as a Re-Performing Mortgage Loan: (1) the
Mortgagor has made at least three aggregate Monthly Payments in the three
calendar months preceding the Cut-off Date (regardless of either the timing of
receipt of such payments or the payment history of such loans prior to February
1, 2004), or (2) the Mortgagor has made at least four aggregate Monthly Payments
in the four calendar months preceding the Cut-off Date (regardless of either the
timing of receipt of such payments or the payment history of such loans prior to
January 1, 2004), or (3) the Mortgagor has made at least five aggregate Monthly
Payments in the five calendar months preceding the Cut-off Date (regardless of
either the timing of receipt of such payments or the payment history of such
loans prior to December 1, 2003).

         "Re-Performing 60+ Day Delinquent Loan": Each Mortgage Loan with
respect to which, as of any date of determination, (x) any portion of a Monthly
Payment is, as of the last calendar day of the prior Collection Period, two
months or more past due and (y) with respect to which the Mortgagor has made
three aggregate Monthly Payments within the three calendar months preceding such
date of determination.


                                       24
<PAGE>

         "Re-Performing Mortgage Loan": A Mortgage Loan which has defaulted in
the past and which is at least 90 days Delinquent with respect to certain
Monthly Payments but which satisfies one of the Re-Performance Test criteria.

         "Residential Dwelling": Any one of the following: (i) a one-family
dwelling, (ii) a two- to four-family dwelling, (iii) a one-family dwelling unit
in a Fannie Mae eligible condominium project, (iv) a one-family dwelling in a
planned unit development, which is not a co-operative, or (v) a mobile or
manufactured home (as defined in 42 United States Code, Section 5402(6)).

         "Residual Certificates":  As specified in the Preliminary Statement.

         "Responsible Officer": When used with respect to the Trustee, any vice
president, assistant vice president, associate or any other officer of the
Trustee customarily performing functions similar to those performed by any of
the above designated officers who at such time shall be officers to whom, with
respect to a particular matter, such matter is referred because of such
officer's knowledge of and familiarity with the particular subject and who shall
have direct responsibility for the administration of this Agreement.

         "Seller": Morgan Stanley Mortgage Capital Inc., or its successor in
interest, in its capacity as seller under the Mortgage Loan Purchase Agreement.

         "S&P": Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., and its successors, and if such company shall for
any reason no longer perform the functions of a securities rating agency, "S&P"
shall be deemed to refer to any other "nationally recognized statistical rating
organization" as set forth on the most current list of such organizations
released by the Securities and Exchange Commission.

         "Senior Certificates":  As specified in the Preliminary Statement.

         "Senior Enhancement Percentage": For any Distribution Date, the
percentage obtained by dividing (x) the sum of (i) the aggregate Certificate
Principal Balances of the Subordinated Certificates and (ii) the
Overcollateralization Amount, in each case after taking into account the
distribution of the Principal Distribution Amount on such Distribution Date by
(y) the Pool Balance as of the last calendar day of the related Collection
Period.

         "Senior Specified Enhancement Percentage": On any date of determination
thereof, 30.50%.

         "Servicer": Bank of America, WAMU or Wilshire Credit Corporation, as
applicable, or any successor servicer appointed, in its capacity as Servicer
pursuant to the related Servicing Agreement.

         "Servicing Agreement": The WAMU Servicing Agreement, the Wilshire
Servicing Agreement and the Bank of America Servicing Agreement, as applicable.

         "Servicing Arrearage": With respect to a Delinquent Mortgage Loan, the
total amount of unreimbursed Servicing Advances due to the related Servicer as
of the Cut-off Date.

         "Servicer Remittance Date": With respect to any Distribution Date,
three Business Days prior to such Distribution Date.

         "Servicing Advances": All customary, reasonable and necessary "out of
pocket" costs and expenses (including reasonable attorneys' fees and
disbursements) incurred by the Servicer in the performance of its servicing
obligations, including, but not limited to, the cost of (i) the preservation,
restoration and protection of the Mortgaged Property, (ii) any enforcement of
judicial proceedings, including foreclosures, (iii) the management and
liquidation of the REO Property and (iv) compliance with the obligations under
the related Servicing Agreement.

         "Servicing Fee Rate": With respect to any Servicer, the rate set forth
in the applicable Servicing Agreement.

         "Simple Interest Mortgage Loan": Any Mortgage Loan under which the
portion of a payment allocable to interest and the portion of such payment
allocable to principal is determined in accordance with the Simple Interest
Method.


                                       25
<PAGE>

         "Startup Day":  For each REMIC created hereunder, the Closing Date.

         "Stayed Funds": Any payment required to be made under the terms of the
Certificates and any Servicing Agreement but which is not remitted by the
related Servicer because such Servicer is the subject of a proceeding under the
Bankruptcy Code and the making of such remittance is prohibited by Section 362
of the Bankruptcy Code.

         "Stepdown Date": The later to occur of (x) the earlier to occur of (A)
the Distribution Date in June 2007 and (B) the Distribution Date on which the
Certificate Principal Balance of the Class A Certificates is reduced to zero,
and (y) the first Distribution Date on which the Senior Enhancement Percentage
(after taking into account distributions of principal on such Distribution Date)
is greater than or equal to the Senior Specified Enhancement Percentage.

         "Subordinated Certificates":  As defined in the Preliminary Statement.

         "Subsequent Overcollateralization Amount": As of any Distribution Date,
after the application of principal payments and Applied Realized Loss Amounts,
an amount equal to the excess, if any of (a) the Pool Balance over (b) the sum
of (i) the Certificate Principal Balance of each Class of Offered Certificates
and (ii) the Remaining Initial Overcollateralization Amount.

         "Subsequent Recovery": With respect to any Mortgage Loan or related
Mortgaged Property that became a Liquidated Mortgage Loan or was otherwise
disposed of, all amounts received in respect of such Liquidated Mortgage Loan
after an Applied Realized Loss Amount related to such Mortgage Loan or Mortgaged
Property is allocated to reduce the Certificate Principal Balance of any Class
of Subordinated Certificates. Any Subsequent Recovery that is received during a
Prepayment Period will be treated as Liquidation Proceeds and included as part
of the Principal Remittance Amount for the related Distribution Date.

         "Substitution Adjustment Amount": As defined in Section 2.03(d) hereof.

         "Targeted Overcollateralization Amount": As of any Distribution Date,
(x) prior to the Stepdown Date, 2.50% of the initial Pool Balance and (y) on and
after the Stepdown Date, the greater of (A) 5.00%of the Pool Balance as of the
last calendar day of the related Collection Period and (B) 0.50% of the initial
Pool Balance; provided, however, that if, on any Distribution Date, a Trigger
Event has occurred, the Targeted Overcollateralization Amount shall not be
reduced to the applicable percentage of the Pool Balance, but instead remain the
same as the prior period's Targeted Overcollateralization Amount until the
Distribution Date on which a Trigger Event is no longer occurring. When the
Certificate Principal Balance of each class of Offered Certificates has been
reduced to zero, the Targeted Overcollateralization Amount shall thereafter
equal zero.

         "Telerate Page 3750": The display page currently so designated on the
Moneyline Telerate (or such other page as may replace the Telerate Page 3750
page on that service for the purpose of displaying London interbank offered
rates of major banks).

         "Termination Notice":  As defined in Section 7.01(a) hereof.

         "Termination Price":  As defined in Section 7.01(a) hereof.


                                       26
<PAGE>

         "Trigger Event": With respect to any Distribution Date, if (i) the
six-month rolling average of 60+ Day Delinquent Loans equals or exceeds 44% of
the Senior Enhancement Percentage or (ii) the aggregate amount of Realized
Losses incurred since the Cut-off Date through the last calendar day of the
related Collection Period divided by the initial Pool Balance exceeds the
applicable percentages set forth below with respect to such Distribution Date:

<TABLE>
<CAPTION>

                     DISTRIBUTION DATES OCCURRING IN                         PERCENTAGE
                     -------------------------------                         ----------
<S>                                                               <C>
          June 2004 through May 2007............................  NA
          June 2007 through May 2008............................  3.00% for the first month, plus
                                                                  1/12th of 0.75% for each month
                                                                  thereafter;
          June 2008 through May 2009............................  3.75% for the first month, plus
                                                                  1/12th of 0.75% for each month
                                                                  thereafter;
          June 2009 through May 2010............................  4.50% for the first month, plus
                                                                  1/12th of 0.75% for each month
                                                                  thereafter;
          June 2010 through May 2011                              5.25% for the first month, plus
                                                                  1/12th of 0.40% for each month
                                                                  thereafter; and
          June 2011 and thereafter                                5.65%
</TABLE>


         "Trust": Morgan Stanley ABS Capital I Inc. Trust, Series 2004-SD2, the
trust created hereunder.

         "Trust Fund": The segregated pool of assets subject hereto,
constituting the primary trust created hereby and to be administered hereunder,
such entire Trust Fund consisting of: (i) such Mortgage Loans as from time to
time are subject to this Agreement, together with the Mortgage Files relating
thereto, and together with all collections thereon and proceeds thereof (but
excluding any P&I Arrearages and any Servicing Arrearages), (ii) any REO
Property, together with all collections thereon and proceeds thereof, (iii) the
Trustee's rights with respect to the Mortgage Loans under all insurance policies
required to be maintained pursuant to this Agreement and any proceeds thereof,
(iv) the Depositor's rights under the Mortgage Loan Purchase Agreement
(including any security interest created thereby), (v) with respect to the Bank
of America Mortgage Loans, all of the Depositor's right, title and interest
under the Bank of America Agreement, (vi) with respect to the WAMU Mortgage
Loans, all of the Depositor's right, title and interest under the WAMU
Agreement, (vii) the Depositor's rights under the Assignment and Recognition
Agreements, (viii) the Collection Accounts, the Distribution Account and any REO
Account and such assets that are deposited therein from time to time and any
investments thereof, together with any and all income, proceeds and payments
with respect thereto and (viii) the Class A Cap Agreement (for the benefit of
the Holders of the Class A Certificates), the Class B-1 Cap Agreement (for the
benefit of the Holders of the Class B-1 Certificates), the Class B-2 Cap
Agreement (for the benefit of the Holders of the Class B-2 Certificates), the
Class M-1 Cap Agreement (for the benefit of the Holders of the Class M-1
Certificates) and the Class M-2 Cap Agreement (for the benefit of the Holders of
the Class M-2 Certificates).

         "Trustee": Deutsche Bank National Trust Company, a national banking
association, or any successor Trustee appointed as herein provided.

         "Trustee Fee": With respect to any Distribution Date, the product of
(x) one-twelfth of the Trustee Fee Rate and (y) the aggregate of the Principal
Balances of all Mortgage Loans as of the opening of business on the first
calendar day of the related Collection Period.

         "Trustee Fee Rate": With respect to any Distribution Date, 0.019% per
annum.

         "Underwriters": Morgan Stanley & Co. Incorporated, Utendahl Capital
Partners, L.P. and Blaylock & Partners, L.P., as underwriters with respect to
the Offered Certificates.

         "Underwriters' Exemption": Prohibited Transaction Exemption ("PTE")
90-24, 55 Fed. Reg. 20548 (1990), as amended by 97-34, 62 Fed. Reg. 39021
(1997); PTE 2000-58, 65 Fed Reg. 67,765 (2000); and PTE 2002-41, 67 Fed. Reg.
55, 487 (2002).


                                       27
<PAGE>

         "United States Person" or "U.S. Person": (i) A citizen or resident of
the United States, (ii) a corporation, partnership or other entity treated as a
corporation or partnership for United States federal income tax purposes
organized in or under the laws of the United States or any state thereof or the
District of Columbia (unless, in the case of a partnership, Treasury regulations
provide otherwise) or (iii) an estate the income of which is includible in gross
income for United States tax purposes, regardless of its source, or (iv) a trust
if a court within the United States is able to exercise primary supervision over
the administration of the trust and one or more United States persons have
authority to control all substantial decisions of the trust. Notwithstanding the
preceding sentence, to the extent provided in Treasury regulations, certain
Trusts in existence on August 20, 1996, and treated as United States persons
prior to such date, that elect to continue to be treated as United States
persons will also be a U.S. Person.

         "Unpaid Realized Loss Amount": For any Class B-1, Class B-2, Class M-1
and Class M-2 Certificates and as to any Distribution Date, the excess of (x)
Applied Realized Loss Amounts applied with respect to such Class over (y) the
sum of (without duplication) (i) all distributions in reduction of Applied
Realized Loss Amounts with respect to such Class for all prior Distribution
Dates and (ii) the amount by which the Certificate Principal Balance of such
Class has been increased due to the distribution of any Subsequent Recovery on
all previous Distribution Dates.

         "Upper Tier Regular Interest": As described in the Preliminary
Statement.

         "Upper Tier REMIC":  As described in the Preliminary Statement.

         "VA":  The United States Department of Veterans Affairs.

         "VA Loan": A Mortgage Loan that has an LGC issued by the VA.

         "Value": With respect to any Mortgaged Property, the value thereof as
determined by an independent appraisal made at the time of the origination of
the related Mortgage Loan or the sale price, if the appraisal is not available;
except that, with respect to any Mortgage Loan that is a purchase money mortgage
loan, the lesser of (i) the value thereof as determined by an independent
appraisal made at the time of the origination of such Mortgage Loan, if any, and
(ii) the sales price of the related Mortgaged Property.

         "Voting Rights": The portion of the voting rights of all of the
Certificates which is allocated to any Certificate. The Voting Rights allocated
among Holders of the Offered Certificates shall be 98%, and shall be allocated
among each such Class according to the fraction, expressed as a percentage, the
numerator of which is the aggregate Certificate Principal Balance of all the
Certificates of such Class then outstanding and the denominator of which is the
aggregate Certificate Principal Balance of all the Offered Certificates then
outstanding. The Voting Rights allocated to each such Class of Certificates
shall be allocated among all holders of each such Class in proportion to the
outstanding Certificate Principal Balance of such Certificates; provided,
however, that any Certificate registered in the name of the Servicer, the
Depositor, the Trustee or any of their respective affiliates shall not be
included in the calculation of Voting Rights; provided that only such
Certificates of which a Responsible Officer of the Trustee has actual knowledge
to be so registered will be so excluded. The percentage of all the Voting Rights
allocated among the Holders of the Class X Certificate shall be 1%. The Residual
Certificates shall have no Voting Rights.

         "WAC Cap": With respect to any Distribution Date, an amount equal to
the product of (i) the Weighted Average Net Mortgage Interest Rate for the
Mortgage Loans at the beginning of the related Collection Period and (ii) a
fraction, (a) the numerator of which is 30 and (b) the denominator of which is
the number of days in the related Interest Accrual Period.

         "WAMU": Washington Mutual Bank FA, a savings bank organized under the
laws of the United States.

         "WAMU Agreement": The Mortgage Loan Purchase and Sale Agreement, dated
as of September 1, 2003, by and among WAMU and Washington Mutual Bank, as
sellers, and the Seller, as purchaser.

         "WAMU Indemnification Amount": With respect to any WAMU Mortgage Loan
which WAMU is required to repurchase from the Trust Fund pursuant to Section
2.03(c) hereof, the difference between (i) Purchase Price related to such WAMU
Mortgage Loan and (ii) the Liquidation Proceeds with respect to such WAMU
Mortgage Loan.

         "WAMU Mortgage Loans": Those Mortgage Loans listed on Schedule I-B to
the Mortgage Loan Purchase Agreement.

         "WAMU Seller": Either of WAMU and Washington Mutual Bank, their
successors or assigns.


                                       28
<PAGE>

         "WAMU Servicing Agreement": The servicing agreement dated as of June 1,
2004 by and among the Depositor, the Trustee and WAMU, as servicer.

         "Weighted Average Net Mortgage Interest Rate": The weighted average
(based on Principal Balance as of the first calendar day of the related
Collection Period or, in the case of the first Distribution Date, the Cut-Off
Date) of the Net Mortgage Interest Rates of the Mortgage Loans, expressed as an
annual rate and calculated on the basis of twelve months consisting of 30 days
each and a 360-day year.

         "Wilshire":  Wilshire Credit Corporation, a Nevada corporation.

         "Wilshire Servicing Agreement": The servicing agreement dated as of
June 1, 2004 by and among the Depositor, the Trustee and Wilshire.

         "Written Order to Authenticate": A written order by which the Depositor
directs the Trustee to execute, authenticate and deliver the Certificates.

         SECTION 1.02 ACCOUNTING.

         Unless otherwise specified herein, for the purpose of any definition or
calculation, whenever amounts are required to be netted, subtracted or added or
any distributions are taken into account such definition or calculation and any
related definitions or calculations shall be determined without duplication of
such functions.

                                   ARTICLE II

                          CONVEYANCE OF MORTGAGE LOANS;
                        ORIGINAL ISSUANCE OF CERTIFICATES

         SECTION 2.01 CONVEYANCE OF MORTGAGE LOANS.

         The Depositor, concurrently with the execution and delivery hereof,
does hereby transfer, assign, set over and otherwise convey to the Trustee, on
behalf of the Trust, without recourse for the benefit of the Certificateholders
all the right, title and interest of the Depositor, including any security
interest therein for the benefit of the Depositor, in and to (i) each Mortgage
Loan identified on the Mortgage Loan Schedule, including the related Cut-off
Date Principal Balance, all interest accruing thereon after the Cut-off Date and
all collections in respect of interest and principal due after the Cut-off Date
(but excluding any P&I Arrearages and any Servicing Arrearages related thereto);
(ii) property which secured each such Mortgage Loan and which has been acquired
by foreclosure or deed in lieu of foreclosure; (iii) its interest in any
insurance policies in respect of the Mortgage Loans; (iv) all proceeds of any of
the foregoing; (v) the rights of the Depositor under the Mortgage Loan Purchase
Agreement, and (vi) all other assets included or to be included in the Trust
Fund. Such assignment includes all interest and principal due to the Depositor
or the applicable Servicer after the Cut-off Date with respect to the Mortgage
Loans.

         In connection with such transfer and assignment, the Seller, on behalf
of the Depositor, does hereby deliver to, and deposit with the Custodian, the
following documents or instruments with respect to each Mortgage Loan (a
"Mortgage File") so transferred and assigned:

         (A) With respect to each Mortgage Loan that is not a Cooperative Loan:

                  (i) the original Mortgage Note, endorsed either (A) in blank
         or (B) in the following form: "Pay to the order of Deutsche Bank
         National Trust Company, as Trustee under the Pooling Agreement, dated
         as of June 1, 2004, among Morgan Stanley Mortgage Capital Inc., Morgan
         Stanley ABS Capital I Inc. and Deutsche Bank National Trust Company,
         Morgan Stanley ABS Capital I Inc. Trust, Series 2004-SD2, without
         recourse," or with respect to any lost Mortgage Note, an original Lost
         Note Affidavit, together with a copy of the related Mortgage Note;

                  (ii) the original Mortgage with evidence of recording thereon
         (and in the case of a MOM Loan, with evidence of the MIN), and the
         original recorded power of attorney, if the Mortgage was executed
         pursuant to a power of attorney, with evidence of recording thereon or,
         if such Mortgage or power of attorney has been submitted for recording
         but has not been returned from the applicable public recording office,
         has been lost or is not otherwise available, a copy of such Mortgage or
         power of attorney, as the case may be, certified to be a true and
         complete copy of the original submitted for recording;


                                       29
<PAGE>

                  (iii) unless such Mortgage Loan is a MERS Loan, an original
         Assignment of Mortgage, in form and substance acceptable for recording.
         The Mortgage shall be assigned either (A) in blank or (B) to "Deutsche
         Bank National Trust Company, as Trustee under the Pooling Agreement,
         dated as of June 1, 2004, among Morgan Stanley Mortgage Capital Inc.,
         Morgan Stanley ABS Capital I Inc., and Deutsche Bank National Trust
         Company, Morgan Stanley ABS Capital I Inc. Trust, Series 2004-SD2,
         without recourse";

                  (iv) unless such Mortgage Loan is a MOM Loan, an original copy
         of any intervening assignment of Mortgage showing a complete chain of
         assignments;

                  (v) the original or a certified copy of lender's title
         insurance policy; and

                  (vi) the original or copies of each assumption, modification,
         written assurance or substitution agreement, if any.

         (B) With respect to each Cooperative Loan:

                  (i) the original Mortgage Note, endorsed either (A) in blank
         or (B) in the following form: "Pay to the order of Deutsche Bank
         National Trust Company, as Trustee under the Pooling Agreement, dated
         as of June 1, 2004, among Morgan Stanley Mortgage Capital Inc., Morgan
         Stanley ABS Capital I Inc. and Deutsche Bank National Trust Company,
         Morgan Stanley ABS Capital I Inc. Trust, Series 2004-SD2, without
         recourse," or with respect to any lost Mortgage Note, an original Lost
         Note Affidavit, together with a copy of the related Mortgage Note;

                  (ii) the original proprietary lease with evidence of recording
         thereon (and in the case of a MOM Loan, with evidence of the MIN), and
         the original recorded power of attorney, if the proprietary lease was
         executed pursuant to a power of attorney, with evidence of recording
         thereon or, if such proprietary lease or power of attorney has been
         submitted for recording but has not been returned from the applicable
         public recording office, has been lost or is not otherwise available, a
         copy of such proprietary lease or power of attorney, as the case may
         be, certified to be a true and complete copy of the original submitted
         for recording;

                  (iii) the original security agreement;

                  (iv) unless such Mortgage Loan is a MERS Loan, an original
         assignment of the proprietary lease, in form and substance acceptable
         for recording. The proprietary lease shall be assigned either (A) in
         blank or (B) to "Deutsche Bank National Trust Company, as Trustee under
         the Pooling Agreement, dated as of June 1, 2004, among Morgan Stanley
         Mortgage Capital Inc., Morgan Stanley ABS Capital I Inc., and Deutsche
         Bank National Trust Company, Morgan Stanley ABS Capital I Inc. Trust,
         Series 2004-SD2, without recourse";

                  (v) unless such Mortgage Loan is a MOM Loan, an original copy
         of any intervening assignments of the proprietary lease showing a
         complete chain of assignments;

                  (vi) the original stock certificate evidencing the ownership
         of the Cooperative Apartment, endorsed or accompanied by a stock power
         relating to such stock certificate executed in blank;

                  (vii) a recognition agreement in substantially the same form
         as the standard "AZTECH" form;

                  (viii) copies of the UCC-1 financing statement filed by the
         applicable originator of such Mortgage Loan as secured party and, if
         applicable, a filed UCC-3 assignment of the subject security interest
         showing a complete chain of title, together with an executed UCC-3
         Assignment of such security interest by the applicable Seller in a form
         sufficient for filing; and


                                       30
<PAGE>

                  (ix) such other documents as are necessary for the perfection
         of a lien against the related Cooperative Ownership Interests under
         applicable law.

         The Custodian agrees to execute and deliver to the Depositor and the
Trustee on or prior to the Closing Date an acknowledgment of receipt of the
original Mortgage Note (with any exceptions noted), substantially in the form
attached as Exhibit F-3 hereto. Upon request, the Custodian shall furnish an
updated exception report to such acknowledgement to the Trustee.

         The Seller shall promptly (and in no event later than thirty days
following the Closing Date) submit or cause to be submitted for recording, at
the Seller's expense and at no expense to the Trust Fund, or the Trustee or the
Servicer, in the appropriate public office for real property records, each
Assignment referred to in Sections 2.01(A)(iii) and (iv) and 2.01(B)(iv) and (v)
above. In the event that any such Assignment is lost or returned unrecorded
because of a defect therein, the Seller shall promptly prepare or cause to be
prepared a substitute Assignment or cure or cause to be cured such defect, as
the case may be, and thereafter cause each such Assignment to be duly recorded.
In connection with the transfer of any MERS Loan pursuant to this Section 2.01,
the related Servicer shall cause on or prior to the Closing Date the MERS(R)
System to indicate that such MERS Loan has been assigned to the Trustee on
behalf of the Trust.

         If any of the documents referred to in Section 2.01(A)(ii), (iii) or
(iv) or Section 2.01(B)(ii), (iv) or (v) above has as of the Closing Date been
submitted for recording but either (x) has not been returned from the applicable
public recording office or (y) has been lost or such public recording office has
retained the original of such document, the obligations of the Seller to deliver
such documents shall be deemed to be satisfied upon (1) delivery to the
Custodian no later than the Closing Date, of a copy of each such document
certified by the Seller, title company escrow agent or closing attorney in the
case of (x) above or the applicable public recording office in the case of (y)
above to be a true and complete copy of the original that was submitted for
recording and (2) if such copy is certified by the Seller, title company escrow
agent or closing attorney, delivery to the Custodian, promptly upon receipt
thereof of either the original or a copy of such document certified by the
applicable public recording office to be a true and complete copy of the
original. The Seller shall deliver or cause to be delivered to the Custodian
promptly upon receipt thereof any other documents constituting a part of a
Mortgage File received with respect to any Mortgage Loan, including, but not
limited to, any original documents evidencing an assumption or modification of
any Mortgage Loan.

         Upon discovery or receipt of notice of any materially defective
document in, or that a document is missing from, a Mortgage File, the Seller
shall have 120 days to cure such defect or 150 days following the Closing Date,
in the case of missing Mortgages or Assignments, to deliver such missing
document to the Custodian. If the Seller does not cure such defect or deliver
such missing document within such time period, the Seller shall either
repurchase or substitute for such Mortgage Loan in accordance with Section 2.03.

         The Seller shall cause the Assignments of Mortgage which were delivered
in blank to be completed and shall cause all Assignments referred to in Sections
2.01(A)(iii) and 2.01(B)(iv) hereof and, to the extent necessary, in Sections
2.01(A)(iv) and 2.01(B)(v) hereof to be recorded; provided, however, the Seller
need not cause to be recorded any Assignment which relates to a Mortgage Loan in
any jurisdiction under the laws of which, as evidenced by an Opinion of Counsel
delivered by the Seller to the Trustee and the Rating Agencies, the recordation
of such assignment is not necessary to protect the Trustee's interest, on behalf
of the Trust, in the related Mortgage Loan. The Seller shall be required to
deliver such assignments for recording within 120 days of the Closing Date. The
Seller shall furnish the Custodian with a copy of each assignment of Mortgage
submitted for recording. In the event that any such Assignment is lost or
returned unrecorded because of a defect therein, the Seller shall promptly have
a substitute Assignment prepared or have such defect cured, as the case may be,
and thereafter cause each such Assignment to be duly recorded. In the event that
any Mortgage Note is endorsed in blank as of the Closing Date, promptly
following the Closing Date the Seller shall cause to be completed such
endorsements "Pay to the order of Deutsche Bank National Trust Company, as
Trustee under the Pooling Agreement, dated as of June 1, 2004, among Morgan
Stanley Mortgage Capital Inc., Morgan Stanley ABS Capital I Inc. and Deutsche
Bank National Trust Company, Morgan Stanley ABS Capital I Inc. Trust, Series
2004-SD2, without recourse."

         The Depositor herewith delivers to the Trustee an executed copy of the
Mortgage Loan Purchase Agreement.


                                       31
<PAGE>

         Whereas the mortgage loans permitted by the terms of this Agreement to
be included in the Trust Fund are limited to (i) the Mortgage Loans (which the
Depositor acquired pursuant to the Mortgage Loan Purchase Agreement, which
contains, among other representations and warranties, a representation and
warranty of the Seller that no Mortgage Loan is a "high-cost home loan" as
defined in the New Jersey Home Ownership Act, effective November 27, 2003) and
(ii) Eligible Substitute Mortgage Loans (all of which are required to conform
to, among other representations and warranties, the representation and warranty
of the Seller that no such Eligible Substitute Mortgage Loan is a "high-cost
home loan" as defined in the New Jersey Home Ownership Act, effective November
27, 2003), it is hereby agreed and understood by the parties hereto that it is
not intended that any mortgage loan be included in the Trust that is a
"high-cost home loan" as defined in the New Jersey Home Ownership Act, effective
November 27, 2003.

         SECTION 2.02 ACCEPTANCE BY TRUSTEE AND CUSTODIAN.

         The Trustee, acknowledges the receipt of, subject to the provisions of
Section 2.01 and subject to the Custodian's review described below and any
exceptions noted on the exception report described in the next paragraph below,
the documents referred to in Section 2.01 above and all other assets included in
the definition of "Trust Fund" and declares that the Custodian holds and will
hold such documents and the other documents delivered to the Custodian
constituting a Mortgage File on behalf of the Trustee, and that it holds or will
hold all such assets and such other assets included in the definition of "Trust
Fund" in trust for the exclusive use and benefit of all present and future
Certificateholders.

         The Custodian agrees, for the benefit of the Certificateholders, to
review each Mortgage File within 60 days after the Closing Date (or, with
respect to any document delivered after the Startup Day, within 60 days of
receipt and with respect to any Qualified Substitute Mortgage, within 60 days
after the assignment thereof) and to certify in substantially the form attached
hereto as Exhibit F-1 that, as to each Mortgage Loan listed in the Mortgage Loan
Schedule (other than any Mortgage Loan paid in full or any Mortgage Loan
specifically identified in the exception report annexed thereto as not being
covered by such certification), (i) all documents required to be delivered to it
pursuant to Sections 2.01(A)(i)-(v) and 2.01(B)(i)-(vi), (vii) (provided that
the Custodian shall not confirm that the related recognition agreement is in
substantially the same form as the standard "AZTECH" form) and (viii) (but only
to the extent of the UCC-1 financing statement delivered pursuant to (viii))
and, to the extent actually delivered to the Custodian, the documents described
in Sections 2.01(A)(vi) and 2.01(B)(viii) (except for the UCC-1 financing
statement) and (ix) of this Agreement are in its possession, (ii) such documents
have been reviewed by it and have not been mutilated, damaged or torn and relate
to such Mortgage Loan and (iii) based on its examination and only as to the
foregoing, the information set forth in the Mortgage Loan Schedule that
corresponds to items (1), (2), (7), (8) and (13) (solely as of the Origination
Date and not as of the Cut-off Date) of the Mortgage Loan Schedule accurately
reflects information set forth in the Mortgage File. Upon request, the Custodian
shall furnish to the Trustee an updated exception report for such certification.
It is herein acknowledged that, in conducting such review, the Custodian is
under no duty or obligation to inspect, review or examine any such documents,
instruments, certificates or other papers to determine that they are genuine,
enforceable, or appropriate for the represented purpose or that they have
actually been recorded or that they are other than what they purport to be on
their face.

         Upon request, the Custodian shall deliver to the Depositor, the Trustee
and each Servicer a final certification in the form annexed hereto as Exhibit
F-2 evidencing the completeness of the Mortgage Files, with any applicable
exceptions noted thereon. Upon request, the Custodian shall furnish to the
Trustee an updated exception report for such certification.

         If in the process of reviewing the Mortgage Files and making or
preparing, as the case may be, the certifications referred to above, the
Custodian finds any document or documents constituting a part of a Mortgage File
to be missing or in non-conformity with the Custodian's review criteria under
this Section, at the conclusion of its review the Custodian shall so notify the
Seller, the Trustee, the Depositor and the applicable Servicer. In addition,
upon the discovery by the Seller, Depositor, the Trustee or the applicable
Servicer (or upon receipt by the Trustee of written notification of such breach)
of a breach of any of the representations and warranties made by the Seller in
the related Mortgage Loan Purchase Agreement in respect of any Mortgage Loan
which materially adversely affects such Mortgage Loan or the interests of the
related Certificateholders in such Mortgage Loan, the party discovering such
breach shall give prompt written notice to the other parties.


                                       32
<PAGE>

         The Depositor and the Trustee intend that the assignment and transfer
herein contemplated constitute a sale of the Mortgage Loans and the Related
Documents, conveying good title thereto free and clear of any liens and
encumbrances, from the Depositor to the Trustee and that such property not be
part of the Depositor's estate or property of the Depositor in the event of any
insolvency by the Depositor. In the event that such conveyance is deemed to be,
or to be made as security for, a loan, the parties intend that the Depositor
shall be deemed to have granted and does hereby grant to the Trustee, on behalf
of the Trust, a first priority perfected security interest in all of the
Depositor's right, title and interest in and to the Mortgage Loans and the
Related Documents, and that this Agreement shall constitute a security agreement
under applicable law.

         SECTION 2.03 REPURCHASE OR SUBSTITUTION OF MORTGAGE LOANS.

         (a) Except as described in clauses (b) and (c), upon discovery or
receipt of written notice of any defective document in, or that a document is
missing from, a Mortgage File or of the breach by the Seller of any
representation, warranty or covenant under the Mortgage Loan Purchase Agreement
or in Section 2.04 in respect of any Mortgage Loan which (i) materially
interferes with the ability of the related Servicer (acting on behalf of the
Trustee) to foreclose on the related Mortgaged Property at the time of
foreclosure, (ii) constitutes a Qualification Defect with respect to that
Mortgage Loan or (iii) causes a material adverse change in the value of that
Mortgage Loan or the interest of the Trust therein, the Trustee shall promptly
notify the Seller and the applicable Servicer of such defect, missing document
or breach. In such notice, the Trustee shall request that the Seller deliver
such missing document or cure such defect or breach (A) within 120 days of the
date the Seller is notified of such missing document, defect or breach, (B) in
the case of a Qualification Defect with respect to such Mortgage Loan, within 90
days of the date the defect, missing document or breach was first discovered or
(C) in the case of a missing Mortgage or Assignment, within 150 days of the date
the Seller is notified of such missing document, defect or breach, and if the
Seller does not deliver such missing document or cure such defect or breach in
all material respects during such period, the Trustee, shall enforce the
Seller's obligation under the Mortgage Loan Purchase Agreement, as appropriate,
and shall cause the Seller to repurchase such Mortgage Loan from the Trust Fund
at the Purchase Price either (A) on or prior to the Determination Date following
the expiration of such 120 day or 150 day period, as appropriate, or (B) with
respect to a Qualification Defect, no later than the 90th day after the date on
which the defect, missing document or breach was first discovered; provided
that, in connection with any such breach (other than a Qualification Defect)
that could not reasonably have been cured within the related 120 day or 150 day
period, if the Seller shall have commenced to cure such breach within such 120
day or 150 day period, the Seller shall be permitted to proceed thereafter
diligently and expeditiously to cure the same within the additional period
provided under the Mortgage Loan Purchase Agreement. The Purchase Price for the
repurchased Mortgage Loan shall be deposited in the related Collection Account,
and the Trustee, upon receipt of written confirmation certifying that such
deposit has been made, shall instruct the Custodian to release to the Seller the
related Mortgage File and shall execute and deliver such instruments of transfer
or assignment, in each case without recourse, as the Seller shall furnish to the
Trustee and as shall be necessary to vest in the Seller any Mortgage Loan
released pursuant hereto and the Trustee shall have no further responsibility
with regard to such Mortgage File. In lieu of repurchasing any such Mortgage
Loan as provided above, the Seller may cause such Mortgage Loan to be removed
from the Trust Fund (in which case it shall become a Defective Mortgage Loan)
and substitute one or more Eligible Substitute Mortgage Loans in the manner and
subject to the limitations set forth in Section 2.03(d). It is understood and
agreed that the obligation of the Seller to cure or to repurchase (or to
substitute for) any Mortgage Loan as to which a document is missing, a defect in
a constituent document exists or as to which such a breach has occurred and is
continuing shall constitute the sole remedy against the Seller respecting such
omission, defect or breach available to the Trustee on behalf of the
Certificateholders.


                                       33
<PAGE>

         (b) Upon discovery or receipt of written notice of any defective
document in, or that a document is missing from, a Mortgage File relating to a
Bank of America Mortgage Loan or of the breach by Bank of America of any
representation or warranty under the Bank of America Agreement (but only to the
extent that such representation or warranty has been assigned to the Trust
hereunder) in respect of any Bank of America Mortgage Loan which (i) constitutes
a Qualification Defect with respect to that Bank of America Mortgage Loan or
(ii) causes a material adverse change in the value of that Bank of America
Mortgage Loan or the interest of the Trust therein, the Trustee shall promptly
notify Bank of America and the Seller of such defect, missing document or
breach. In such notice, the Trustee shall request that Bank of America deliver
such missing document or cure such defect or breach (A) within 90 days of the
date Bank of America was notified of such missing document, defect or breach or
(B) in the case of a Qualification Defect with respect to such Bank of America
Mortgage Loan, within 75 days of the date the defect, missing document or breach
was first discovered, and if Bank of America does not deliver such missing
document or cure such defect or breach in all material respects during such
period, the Trustee shall enforce Bank of America's obligation under the Bank of
America Agreement and shall cause Bank of America to repurchase such Mortgage
Loan from the Trust Fund at the Purchase Price either (A) on or prior to the
Determination Date following the expiration of such 90 day period or (B) with
respect to a Qualification Defect, no later than the 75th day after the date on
which the defect, missing document or breach was first discovered; provided
that, in connection with any such breach (other than a Qualification Defect)
that could not reasonably have been cured within such 90 day period, if Bank of
America shall have commenced to cure such breach within such 90 day period, Bank
of America shall be permitted to proceed thereafter diligently and expeditiously
to cure the same within the additional period provided under the Bank of America
Agreement, subject to the terms and conditions relating to extension of such
period contained therein. The Purchase Price for the repurchased Bank of America
Mortgage Loan shall be deposited in the related Collection Account, and the
Trustee, upon receipt of written confirmation certifying that such deposit has
been made, shall instruct the Custodian to release to Bank of America the
related Bank of America Mortgage File and shall execute and deliver such
instruments of transfer or assignment, in each case without recourse, as Bank of
America shall furnish to the Trustee and as shall be necessary to vest in Bank
of America any Bank of America Mortgage Loan released pursuant hereto and the
Trustee shall have no further responsibility with regard to such Mortgage File.
In lieu of repurchasing any such Bank of America Mortgage Loan as provided
above, Bank of America may cause such Bank of America Mortgage Loan to be
removed from the Trust Fund (in which case it shall become a Defective Mortgage
Loan) and substitute one or more Qualified Substitute Mortgage Loans in the
manner and subject to the limitations set forth in Section 2.03(d). It is
understood and agreed that the obligation of Bank of America to cure or to
repurchase (or to substitute for) any Bank of America Mortgage Loan as to which
a document is missing, a defect in a constituent document exists or as to which
such a breach has occurred and is continuing shall constitute the sole remedy
against Bank of America respecting such omission, defect or breach available to
the Trustee on behalf of the Certificateholders.

         (c) Upon discovery or receipt of written notice of any defective
document in, or that a document is missing from, a Mortgage File relating to a
WAMU Mortgage Loan or of the breach by WAMU of any representation or warranty
under the WAMU Agreement (but only to the extent that such representation or
warranty has been assigned to the Trust hereunder) in respect of any WAMU
Mortgage Loan which materially interferes with the ability of WAMU (acting on
behalf of the Trustee) to foreclose on the related Mortgaged Property at the
time of foreclosure, the Trustee shall promptly notify WAMU and the Seller of
such defect, missing document or breach, shall enforce WAMU's obligation under
the WAMU Agreement and shall cause WAMU to repurchase such Mortgage Loan from
the Trust Fund at the Purchase Price on or prior to the next succeeding
Determination Date. The Purchase Price for the repurchased WAMU Mortgage Loan
shall be deposited in the related Collection Account, and the Trustee, upon
receipt of written confirmation certifying that such deposit has been made,
shall instruct the Custodian to release to WAMU the related WAMU Mortgage File
and shall execute and deliver such instruments of transfer or assignment, in
each case without recourse, as WAMU shall furnish to the Trustee and as shall be
necessary to vest in WAMU any WAMU Mortgage Loan released pursuant hereto and
the Trustee shall have no further responsibility with regard to such Mortgage
File. In lieu of repurchasing any such WAMU Mortgage Loan as provided above,
WAMU may elect to pay the WAMU Indemnification Amount related to such WAMU
Mortgage Loan by giving written notice of such election to the Trustee and the
Seller no later than the date on which WAMU would otherwise be required to
repurchase such WAMU Mortgage Loan and depositing such amount to the related
Collection Account on such date; provided that such option to pay the WAMU
Indemnification Amount shall not be available to WAMU with respect to any WAMU
Mortgage Loan in the event that WAMU (acting on behalf of the Trustee) is unable
to foreclose on the related Mortgaged Property due to the related defect,
missing document or breach. It is understood and agreed that the obligation of
WAMU to cure or to pay a WAMU Indemnification Amount with respect to any WAMU
Mortgage Loan as to which a document is missing, a defect in a constituent
document exists or as to which such a breach has occurred and is continuing
shall constitute the sole remedy against WAMU respecting such omission, defect
or breach available to the Trustee on behalf of the Certificateholders.


                                       34
<PAGE>

         (d) Any substitution of Eligible Substitute Mortgage Loans or Qualified
Substitute Mortgage Loans, as applicable, for Defective Mortgage Loans made
pursuant to Section 2.03(a) or 2.03(b) must be effected prior to the last
Business Day that is within two years after the Closing Date. As to any
Defective Mortgage Loan for which the Seller or Bank of America, as appropriate,
substitutes a Eligible Substitute Mortgage Loan or Loans or a Qualified
Substitute Mortgage Loan or Loans, as applicable, such substitution shall be
effected by the Seller or Bank of America, as appropriate, delivering to the
Custodian, for such Eligible Substitute Mortgage Loan or Loans or Qualified
Substitute Mortgage Loan or Loans, as applicable, the Mortgage Note, the
Mortgage, the Assignment to the Trustee, and such other documents and
agreements, with all necessary endorsements thereon, as are required by Section
2.01, together with an Officers' Certificate providing that each such Eligible
Substitute Mortgage Loan or Qualified Substitute Mortgage Loan, as applicable,
satisfies the respective definition thereof and, with respect to the Seller,
specifying the Substitution Adjustment Amount (as described below), if any, in
connection with such substitution. The Custodian shall acknowledge receipt for
such Eligible Substitute Mortgage Loan or Loans or Qualified Substitute Mortgage
Loan or Loans, as applicable, and, within ten Business Days thereafter, shall
review such documents as specified in Section 2.02 and deliver to the applicable
Servicer and the Trustee, with respect to such Eligible Substitute Mortgage Loan
or Loans or Qualified Substitute Mortgage Loan or Loans, as applicable, a
certification substantially in the form attached hereto as Exhibit F-1, with any
applicable exceptions noted thereon. Within one year of the date of
substitution, the Custodian shall deliver to the applicable Servicer and the
Trustee a certification substantially in the form of Exhibit F-2 hereto with
respect to such Eligible Substitute Mortgage Loan or Loans or Qualified
Substitute Mortgage Loan or Loans, as applicable, with any applicable exceptions
noted thereon. Monthly Payments due with respect to Eligible Substitute Mortgage
Loans or Qualified Substitute Mortgage Loans in the month of substitution are
not part of the Trust Fund and will be retained by the Seller. For the month of
substitution, distributions to Certificateholders will reflect the collections
and recoveries in respect of such Defective Mortgage Loan in the Collection
Period preceding the month of substitution and the Depositor or the Seller, as
the case may be, shall thereafter be entitled to retain all amounts subsequently
received in respect of such Defective Mortgage Loan. The Seller shall give or
cause to be given written notice to the Certificateholders that such
substitution has taken place, shall amend the Mortgage Loan Schedule to reflect
the removal of such Defective Mortgage Loan from the terms of this Agreement and
the substitution of the Eligible Substitute Mortgage Loan or Loans or Qualified
Substitute Mortgage Loan or Loans, as applicable, and shall deliver a copy of
such amended Mortgage Loan Schedule to the Trustee and the Custodian. Upon such
substitution, such Eligible Substitute Mortgage Loan or Loans or Qualified
Substitute Mortgage Loan or Loans, as applicable, shall constitute part of the
Mortgage Pool and shall be subject in all respects to the terms of this
Agreement and, in the case of a substitution effected by the Seller, the
Mortgage Loan Purchase Agreement, including, in the case of a substitution
effected by the Seller all applicable representations and warranties thereof
included in the Mortgage Loan Purchase Agreement and all applicable
representations and warranties thereof set forth in Section 2.04, in each case
as of the date of substitution.

         For any month in which the Seller substitutes one or more Eligible
Substitute Mortgage Loans for one or more Defective Mortgage Loans, the
applicable Servicer will determine the amount (the "Substitution Adjustment
Amount"), if any, by which the aggregate Purchase Price of all such Defective
Mortgage Loans exceeds the aggregate, as to each such Eligible Substitute
Mortgage Loan, of the principal balance thereof as of the date of substitution,
together with one month's interest on such principal balance at the applicable
Net Mortgage Interest Rate. On the date of such substitution, the Seller will
deliver or cause to be delivered to the applicable Servicer for deposit in the
related Collection Account an amount equal to the Substitution Adjustment
Amount, if any, and the Trustee, upon receipt of the related Eligible Substitute
Mortgage Loan or Loans and certification by the applicable Servicer of such
deposit, shall cause the Custodian to release to the Seller the related Mortgage
File or Files and shall execute and deliver such instruments of transfer or
assignment, in each case without recourse, as the Seller shall deliver to it and
as shall be necessary to vest therein any Defective Mortgage Loan released
pursuant hereto.

         In addition, the Seller or Bank of America, as appropriate and to the
extent required by the Bank of America Agreement, as appropriate, shall obtain
at its own expense and deliver to the Trustee an Opinion of Counsel to the
effect that such substitution will not cause (a) any federal tax to be imposed
on the Trust Fund, including without limitation, any federal tax imposed on
"prohibited transactions" under Section 860F(a)(l) of the Code or on
"contributions after the startup date" under Section 860G(d)(l) of the Code, or
(b) any REMIC to fail to qualify as a REMIC at any time that any Certificate is
outstanding. If such Opinion of Counsel can not be delivered, then such
substitution may only be effected at such time as the required Opinion of
Counsel can be given.


                                       35
<PAGE>

         (e) Notwithstanding anything to the contrary contained herein, upon
discovery by the Seller, any Servicer or the Trustee that any Mortgage Loan does
not constitute a "qualified mortgage" within the meaning of Section 860G(a)(3)
of the Code, the party discovering such fact shall within two Business Days give
written notice thereof to the other parties. In connection therewith, the Seller
(with respect to the Mortgage Loans that are not Bank of America Mortgage Loans)
or Bank of America (with respect to the Bank of America Mortgage Loans) shall
repurchase or, subject to the limitations set forth in Section 2.03(d),
substitute one or more Eligible Substitute Mortgage Loans for the affected
Mortgage Loan in the manner set forth in Section 2.03(a) or Section 2.03(b),
respectively. In addition, upon discovery that a Mortgage Loan is defective in a
manner that would cause it to be a "defective obligation" within the meaning of
Treasury regulations relating to REMICs, the Seller (with respect to the
Mortgage Loans that are not Bank of America Mortgage Loans) or Bank of America
(with respect to the Bank of America Mortgage Loans) shall cure the defect or
make the required purchase or substitution no later than 90 days after the
discovery of the defect. Any such repurchase or substitution by the Seller shall
be made in the same manner as set forth in Section 2.03(a) and any such
repurchase or substitution by Bank of America shall be made in the same manner
as set forth in Section 2.03(b). The Trustee shall reconvey to the Seller or
Bank of America, as appropriate, the Mortgage Loan to be released pursuant
hereto in the same manner, and on the same terms and conditions, as it would a
Mortgage Loan repurchased for breach of a representation or warranty.

         (f) The parties to this Pooling Agreement acknowledge that (i) the
Mortgage Files for certain of the Mortgage Loans do not contain endorsements of
the related Mortgage Note, Assignments of the related Mortgage (or proprietary
lease, with respect to Cooperative Loans), modification agreements and/or
assumption agreements (each such document a "Missing Document"), in each case as
set forth on the Mortgage Loan Schedule, (ii) certain of the Missing Documents
may be delivered to the Custodian after the Closing Date and (iii) certain items
that are required to be delivered after the Closing Date as part of the Mortgage
File for certain of the Mortgage Loans may not be delivered in the manner set
forth in Section 2.01. Notwithstanding any other provision of this Pooling
Agreement to the contrary, the parties agree that the absence of the related
Missing Documents from the Mortgage Files for the related Mortgage Loans, the
late delivery of certain Missing Documents to the Custodian or the failure of
the Seller to deliver other items relating to the Mortgage Files for certain of
the Mortgage Loans after the Closing Date shall only give rise to an obligation
of the Seller (with respect to the Mortgage Loans that are neither Bank of
America Mortgage Loans nor WAMU Mortgage Loans), Bank of America (with respect
to the Bank of America Mortgage Loans) or WAMU (with respect to the WAMU
Mortgage Loans) to repurchase any such Mortgage Loan, to substitute Eligible
Substitute Mortgage Loans for such Mortgage Loan (with respect to the Seller and
Bank of America only) or to pay a WAMU Indemnification Amount with respect to
such Mortgage Loan (with respect to WAMU only) only in the limited circumstances
set forth in clauses (a), (b) and (c), above.

         SECTION 2.04 REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE
MORTGAGE LOANS.

         The Seller hereby represents and warrants to the Custodian and the
Trustee for the benefit of the Certificateholders that as of the Closing Date or
as of such other date specifically provided herein:

                  (i) The representations and warranties made by the Seller
         pursuant to Section 3.01 of the Mortgage Loan Purchase Agreement are
         hereby being made to the Trustee by the Seller to the same extent as if
         fully set forth herein and are true and correct as of the Closing Date.

                  (ii) Any written agreement between the Mortgagor in respect of
         a Mortgage Loan and the applicable Servicer modifying such Mortgagor's
         obligation to make payments under the Mortgage Loan (such modified
         Mortgage Loan, a "Modified Mortgage Loan") involved the application of
         the Seller's underwriting standards or some assessment of the
         Mortgagor's ability to repay the Modified Mortgage Loan.

         With respect to the representations and warranties set forth in this
Section 2.04 that are made to the best of the Seller's knowledge or as to which
the Seller has no knowledge, if it is discovered by the Depositor, the Seller or
the Trustee that the substance of such representation and warranty is inaccurate
and such inaccuracy materially and adversely affects the value of the related
Mortgage Loan or the interest therein of the Certificateholders or adversely
affects the status of any or the REMICs comprising the Trust Fund then,
notwithstanding the Seller's lack of knowledge with respect to the substance of
such representation and warranty being inaccurate at the time the representation
or warranty was made, such inaccuracy shall be deemed a breach of the applicable
representation or warranty.

         Upon discovery by the Depositor or the Seller of a breach of any of the
representations and warranties contained in this Section that materially and
adversely affects the value of any Mortgage Loan or the interest therein of the
Certificateholders or adversely affects the status of any or the REMICs
comprising the Trust Fund, the party discovering the breach shall give prompt
written notice to the others and in no event later than two Business Days from
the date of such discovery. Within ninety days of its discovery or its receipt
of notice of any such missing or materially defective documentation or any such
breach of a representation or warranty, the Seller shall promptly deliver such
missing document or cure such defect or breach in all material respects, or in
the event such defect or breach cannot be cured, the Seller shall repurchase the
affected Mortgage Loan or cause the removal of such Mortgage Loan from the Trust
Fund and substitute for it one or more Eligible Substitute Mortgage Loans, in
either case, in accordance with Section 2.03.


                                       36
<PAGE>

         It is understood and agreed that the representations and warranties set
forth in this Section 2.04 shall survive delivery of the Mortgage Files to the
Custodian and shall inure to the benefit of the Certificateholders
notwithstanding any restrictive or qualified endorsement or assignment. It is
understood and agreed that the obligations of the Seller set forth in Section
2.03(a) to cure, substitute for or repurchase a Mortgage Loan pursuant to the
Mortgage Loan Purchase Agreement constitute the sole remedies available to the
Certificateholders or to the Trustee on their behalf respecting a breach of the
representations and warranties contained in this Section 2.04.

         SECTION 2.05 REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR.

         The Depositor represents and warrants to the Trust, the Custodian and
the Trustee on behalf of the Certificateholders as follows:

                  (i) This agreement constitutes a legal, valid and binding
         obligation of the Depositor, enforceable against the Depositor in
         accordance with its terms, except as enforceability may be limited by
         applicable bankruptcy, insolvency, reorganization, moratorium or other
         similar laws now or hereafter in effect affecting the enforcement of
         creditors' rights in general and except as such enforceability may be
         limited by general principles of equity (whether considered in a
         proceeding at law or in equity);

                  (ii) Immediately prior to the sale and assignment by the
         Depositor to the Trustee on behalf of the Trust of each Mortgage Loan,
         the Depositor had good and marketable title to each Mortgage Loan
         (insofar as such title was conveyed to it by the Seller) subject to no
         prior lien, claim, participation interest, mortgage, security interest,
         pledge, charge or other encumbrance or other interest of any nature;

                  (iii) As of the Closing Date, the Depositor has transferred
         all right, title interest in the Mortgage Loans to the Trustee on
         behalf of the Trust;

                  (iv) The Depositor has not transferred the Mortgage Loans to
         the Trustee on behalf of the Trust with any intent to hinder, delay or
         defraud any of its creditors;

                  (v) The Depositor has been duly incorporated and is validly
         existing as a corporation in good standing under the laws of the State
         of Delaware, with full corporate power and authority to own its assets
         and conduct its business as presently being conducted;

                  (vi) The Depositor is not in violation of its certificate of
         incorporation or by-laws or in default in the performance or observance
         of any material obligation, agreement, covenant or condition contained
         in any contract, indenture, mortgage, loan agreement, note, lease or
         other instrument to which the Depositor is a party or by which it or
         its properties may be bound, which default might result in any material
         adverse changes in the financial condition, earnings, affairs or
         business of the Depositor or which might materially and adversely
         affect the properties or assets, taken as a whole, of the Depositor;

                  (vii) The execution, delivery and performance of this
         Agreement by the Depositor, and the consummation of the transactions
         contemplated thereby, do not and will not result in a material breach
         or violation of any of the terms or provisions of, or, to the knowledge
         of the Depositor, constitute a default under, any indenture, mortgage,
         deed of trust, loan agreement or other agreement or instrument to which
         the Depositor is a party or by which the Depositor is bound or to which
         any of the property or assets of the Depositor is subject, nor will
         such actions result in any violation of the provisions of the articles
         of incorporation or by-laws of the Depositor or, to the best of the
         Depositor's knowledge without independent investigation, any statute or
         any order, rule or regulation of any court or governmental agency or
         body having jurisdiction over the Depositor or any of its properties or
         assets (except for such conflicts, breaches, violations and defaults as
         would not have a material adverse effect on the ability of the
         Depositor to perform its obligations under this Agreement);


                                       37
<PAGE>

                  (viii) To the best of the Depositor's knowledge without any
         independent investigation, no consent, approval, authorization, order,
         registration or qualification of or with any court or governmental
         agency or body of the United States or any other jurisdiction is
         required for the issuance of the Certificates, or the consummation by
         the Depositor of the other transactions contemplated by this Agreement,
         except such consents, approvals, authorizations, registrations or
         qualifications as (a) may be required under State securities or Blue
         Sky laws, (b) have been previously obtained or (c) the failure of which
         to obtain would not have a material adverse effect on the performance
         by the Depositor of its obligations under, or the validity or
         enforceability of, this Agreement; and

                  (ix) There are no actions, proceedings or investigations
         pending before or, to the Depositor's knowledge, threatened by any
         court, administrative agency or other tribunal to which the Depositor
         is a party or of which any of its properties is the subject: (a) which
         if determined adversely to the Depositor would have a material adverse
         effect on the business, results of operations or financial condition of
         the Depositor; asserting the invalidity of this Agreement or the
         Certificates; (c) seeking to prevent the issuance of the Certificates
         or the consummation by the Depositor of any of the transactions
         contemplated by this Agreement, as the case may be; (d) which might
         materially and adversely affect the performance by the Depositor of its
         obligations under, or the validity or enforceability of, this
         Agreement.

         SECTION 2.06 ISSUANCE OF CERTIFICATES.

         The Trustee acknowledges the assignment to it of the Mortgage Loans and
the delivery to the Custodian of the Mortgage Files, subject to the provisions
of Sections 2.01 and 2.02, and the Trustee acknowledges the assignment to it of
all other assets included in the Trust Fund, receipt of which is hereby
acknowledged. Concurrently with such assignment and delivery and in exchange
therefor, the Trustee, pursuant to the Written Order to Authenticate executed by
an officer of the Depositor, has executed, and has authenticated and delivered
to or upon the order of the Depositor, the Certificates (other than the Class X
and Residual Certificates) in minimum dollar denominations or $25,000 and
integral dollar multiples of $1 in excess. The Class X and Class R Certificates
are issuable only in minimum Percentage Interests of 10%. The interests
evidenced by the Certificates constitute the entire beneficial ownership
interest in the Trust Fund.

         The Depositor hereby directs the Trustee to register the Class X and
the Class P Certificates in the name of the Depositor and to deliver such Class
X and Class P Certificates to the Depositor.

         SECTION 2.07 REMIC MATTERS

         The Preliminary Statement sets forth the designations for federal
income tax purposes of all interests created hereby. The "Startup Day" for
purposes of the REMIC Provisions shall be the Closing Date. The "latest possible
maturity date" is April 25, 2034, which is the second Distribution Date
following the latest Mortgage Loan maturity date.

         SECTION 2.08 REPRESENTATIONS AND WARRANTIES OF THE SELLER.

         The Seller hereby represents and warrants to the Trust, the Custodian
and the Trustee on behalf of the Certificateholders that as of the Closing Date
or as of such date specifically provided herein:

                  (i) The Seller is duly organized, validly existing and in good
         standing as a corporation under the laws of the State of Delaware and
         has the power and authority to own its assets and to transact the
         business in which it is currently engaged. The Seller is duly qualified
         to do business and is in good standing in each jurisdiction in which
         the character of the business transacted by it or properties owned or
         leased by it requires such qualification and in which the failure to so
         qualify would have a material adverse effect on (a) its business,
         properties, assets or condition (financial or other), (b) the
         performance of its obligations under this Agreement, (c) the value or
         marketability of the Mortgage Loans, or (d) its ability to foreclose on
         the related Mortgaged Properties.

                  (ii) The Seller has the power and authority to make, execute,
         deliver and perform this Agreement and to consummate all of the
         transactions contemplated hereunder and has taken all necessary action
         to authorize the execution, delivery and performance of this Agreement.
         When executed and delivered, this Agreement will constitute the
         Seller's legal, valid and binding obligations enforceable in accordance
         with its terms, except as enforcement of such terms may be limited by
         (1) bankruptcy, insolvency, reorganization, receivership, moratorium or
         similar laws affecting the enforcement of creditors' rights generally
         and by the availability of equitable remedies, (2) general equity
         principles (regardless of whether such enforcement is considered in a
         proceeding in equity or at law) or (3) public policy considerations
         underlying the securities laws, to the extent that such policy
         considerations limit the enforceability of the provisions of this
         Agreement which purport to provide indemnification from securities laws
         liabilities.


                                       38
<PAGE>

                  (iii) The Seller holds all necessary licenses, certificates
         and permits from all governmental authorities necessary for conducting
         its business as it is presently conducted, except for such licenses,
         certificates and permits the absence of which, individually or in the
         aggregate, would not have a material adverse effect on the ability of
         the Seller to conduct its business as it is presently conducted. It is
         not required to obtain the consent of any other party or any consent,
         license, approval or authorization from, or registration or declaration
         with, any governmental authority, bureau or agency in connection with
         the execution, delivery, performance, validity or enforceability of
         this Agreement, except for such consents, licenses, approvals or
         authorizations, or registrations or declarations as shall have been
         obtained or filed, as the case may be, prior to the Closing Date.

                  (iv) The execution, delivery and performance of this Agreement
         by the Seller will not conflict with or result in a breach of, or
         constitute a default under, any provision of any existing law or
         regulation or any order or decree of any court applicable to the Seller
         or any of its properties or any provision of its charter or by-laws, or
         constitute a material breach of, or result in the creation or
         imposition of any lien, charge or encumbrance upon any of its
         properties pursuant to any mortgage, indenture, contract or other
         agreement to which it is a party or by which it may be bound.

                  (v) No certificate of an officer, written statement or report
         delivered pursuant to the terms hereof by the Seller contains any
         untrue statement of a material fact or omits to state any material fact
         necessary to make the certificate, statement or report not misleading.

                  (vi) The transactions contemplated by this Agreement are in
         the ordinary course of the Seller's business.

                  (vii) The Seller is not insolvent, nor will the Seller be made
         insolvent by the transfer of the Mortgage Loans to the Depositor, nor
         is the Seller aware of any pending insolvency.

                  (viii) The Seller is not in violation of, and the execution
         and delivery of this Agreement by it and its performance and compliance
         with the terms of this Agreement will not constitute a violation with
         respect to any order or decree of any court, or any order or regulation
         of any federal, state, municipal or governmental agency having
         jurisdiction, which violation would materially and adversely affect the
         Seller's condition (financial or otherwise) or operations or any of the
         Seller's properties, or materially and adversely affect the performance
         of any of its duties hereunder.

                  (ix) There are no actions or proceedings against, or
         investigations of, the Seller pending or, to its knowledge, threatened,
         before any court, administrative agency or other tribunal (i) that, if
         determined adversely, would prohibit the Seller from entering into this
         Agreement, (ii) seeking to prevent the consummation of any of the
         transactions contemplated by this Agreement or (iii) that, if
         determined adversely, would prohibit or materially and adversely affect
         the Seller's performance of any of its respective obligations under, or
         the validity or enforceability of, this Agreement.

                  (x) The Seller did not transfer the Mortgage Loans to the
         Depositor with any intent to hinder, delay or defraud any of its
         creditors.

                  (xi) The Seller acquired title to the Mortgage Loans in good
         faith, without notice of any adverse claims.

                  (xii) The transfer, assignment and conveyance of the Mortgage
         Notes and the Mortgages by the Seller to the Depositor are not subject
         to the bulk transfer laws or any similar statutory provisions in effect
         in any applicable jurisdiction.


                                       39
<PAGE>

         SECTION 2.09 COVENANTS OF THE SELLER.

         (a) The Seller hereby covenants that except for the transfer hereunder,
the Seller will not sell, pledge, assign or transfer to any other Person, or
grant, create, incur, assume or suffer to exist any lien on any Mortgage Loan,
or any interest therein; the Seller will notify the Trustee, as assignee of the
Depositor of the existence of any lien on any Mortgage Loan immediately upon
discovery thereof, and the Seller will defend the right, title and interest of
the Trust, as assignee of the Depositor, in, to and under the Mortgage Loans,
against all claims of third parties claiming through or under the Seller;
provided, however, that nothing in this Section 2.09 shall prevent or be deemed
to prohibit the Seller from suffering to exist upon any of the Mortgage Loans
any liens for municipal or other local taxes and other governmental charges if
such taxes or governmental charges shall not at the time be due and payable or
if the Seller shall currently be contesting the validity thereof in good faith
by appropriate proceedings and shall have set aside on its books adequate
reserves with respect thereto.

         (b) The Seller hereby covenants that neither it nor any Affiliate of
the Seller will directly solicit any Mortgagor hereunder to refinance the
related Mortgage Loan. For the purposes of the foregoing, neither the Seller nor
any Affiliate of the Seller shall be deemed to directly solicit any Mortgagor if
the Seller responds to a request from a Mortgagor regarding a refinancing or if
the Mortgagor receives marketing materials which are generally disseminated.

                                   ARTICLE III

                                  FLOW OF FUNDS

         SECTION 3.01 DISTRIBUTION ACCOUNT AND EXCESS RESERVE FUND ACCOUNT.

         (a) On behalf of the Trust Fund, the Trustee shall establish and
maintain one or more accounts (such account or accounts, the "Distribution
Account"), held in trust for the benefit of the Certificateholders. In
accordance with the terms of the related Servicing Agreement, on behalf of the
Trust Fund, the applicable Servicer shall deliver to the Trustee in immediately
available funds for deposit in the Distribution Account on the Servicer
Remittance Date, that portion of the Available Funds (calculated without regard
to the references in the definition thereof to amounts that may be deposited to
the Distribution Account from a different source as provided herein) then on
deposit in such Collection Account.

         (b) Funds in the Distribution Account may be invested in Permitted
Investments in accordance with the provisions set forth in Section 3.02. The
Trustee shall give notice to each Servicer and the Depositor of the location of
the Distribution Account prior to any change thereof. The Distribution Account
shall initially be located with the Trustee.

         (c) The Trustee shall be permitted to make withdrawals from the
Distribution Account in accordance with the provisions of the applicable
Servicing Agreement.

         (d) Promptly upon receipt of any Stayed Funds, whether from any
Servicer, a trustee in bankruptcy, or federal bankruptcy court or other source,
the Trustee notify the applicable Servicer of such receipt and deposit such
funds in the Distribution Account, subject to withdrawal thereof as permitted
pursuant to the applicable Servicing Agreement.

         (e)      (i) The Trustee shall establish and maintain an account (such
         account, the "Excess Reserve Fund Account") on behalf of the Class X
         Certificateholders, to secure their limited recourse obligation to pay
         to the Certificateholders Basis Risk Carry Forward Amounts.

                  (ii) On each Distribution Date, the Trustee shall deposit the
         amount of any Basis Risk Payment made for the benefit of the
         Certificateholders and any Interest Rate Cap Payment made for the
         benefit of the Offered Certificates for such date into the Excess
         Reserve Fund Account.


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<PAGE>

         (f) (i) (i) On each Distribution Date on which there exists a Basis
         Risk Carry Forward Amount on any Class of Certificates, the Trustee
         shall (1) withdraw from the Distribution Account and deposit in the
         Excess Reserve Fund Account the amount set forth in Section 3.04(b)(x),
         if any, and (2) withdraw from the Excess Reserve Fund Account amounts
         necessary to pay to such Class or Classes of Certificates the Basis
         Risk Carry Forward Amount, as set forth in Section 3.04(b). Such
         payments shall be allocated to those Classes based upon the amount of
         Basis Risk Carry Forward Amount owed to each such Class and shall be
         paid in the priority set forth in Section 3.04(ix) and (xi) hereof.

                  (ii) The Trustee shall account for the Excess Reserve Fund
         Account as an outside reserve fund within the meaning of Treasury
         regulation 1.860G-2(h) and not as an asset of any REMIC created
         pursuant to this Agreement. The beneficial owner of the Excess Reserve
         Fund Account is the Class X Certificateholder. For all federal tax
         purposes, amounts transferred by the Upper Tier REMIC to the Excess
         Reserve Fund Account shall be treated as distributions by the Trustee
         to the Class X Certificateholder.

                  (iii) Any Basis Risk Carry Forward Amounts paid by the Trustee
         to the Certificateholders shall be accounted for by the Trustee as
         amounts paid first to the Holders of the Class X Certificate and then
         to the respective Class or Classes of Certificates. In addition, the
         Trustee shall account for the Certificateholders' rights to receive
         payments of Basis Risk Carry Forward Amounts as rights in a limited
         recourse interest rate cap contract (which contract shall be deemed for
         tax purposes to have a value of zero) written by the Class X
         Certificateholders in favor of the Certificateholders.

                  (iv) Notwithstanding any provision contained in this
         Agreement, the Trustee shall not be required to make any payments from
         the Excess Reserve Fund Account except as expressly set forth in this
         Section 3.01(f). Amounts on deposit in the Excess Reserve Fund Account
         shall not be invested.

         (g) In order to comply with its duties under the U.S. Patriot Act, the
Trustee shall obtain and verify certain information and documentation from the
other parties to this Agreement including, but not limited to, each such party's
name, address and other identifying information.

         SECTION 3.02 INVESTMENT OF FUNDS IN THE DISTRIBUTION ACCOUNT.

         (a) The Trustee may direct any depository institution maintaining the
Distribution Account (for purposes of this Section 3.02, an "Investment
Account"), to invest the funds in such Investment Account in one or more
Permitted Investments bearing interest or sold at a discount, and maturing,
unless payable on demand, no later than the Business Day immediately preceding
the date on which such funds are required to be withdrawn from such account
pursuant to this Agreement, if a Person other than the Trustee is the obligor
thereon. The funds on deposit in the Distribution Account may also be held
uninvested. All such Permitted Investments shall be held to maturity, unless
payable on demand. Any investment of funds in an Investment Account shall be
made in the name of the Trustee (in its capacity as such) or in the name of a
nominee of the Trustee. The Trustee shall be entitled to sole possession over
each such investment and the income thereon or the benefit of uninvested funds,
as the case may be, and any certificate or other instrument evidencing any such
investment shall be delivered directly to the Trustee or its agent, together
with any document of transfer necessary to transfer title to such investment to
the Trustee or its nominee.

         (b) All income and gain realized from the investment of funds in the
Distribution Account or the benefit of uninvested funds, as the case may be,
shall be for the benefit of the Trustee.

         (c) Except as otherwise expressly provided in this Agreement, if any
default occurs in the making of a payment due under any Permitted Investment, or
if a default occurs in any other performance required under any Permitted
Investment, the Trustee may and, subject to Section 6.01 and Section 6.02(a)(v),
upon the request of the Holders of Certificates representing more than 50% of
the Voting Rights allocated to any Class of Certificates, shall take such action
as may be appropriate to enforce such payment or performance, including the
institution and prosecution of appropriate proceedings.

         The Trustee shall not in any way be held liable by reason of any
insufficiency in any Account held by the Trustee resulting from any investment
loss on any Permitted Investment included therein (except to the extent that the
Trustee is the obligor and has defaulted thereon).


                                       41
<PAGE>

         The Trustee or its Affiliates are permitted to receive additional
compensation that could be deemed to be in the Trustee's economic self-interest
for (i) serving as investment advisor, administrator, shareholder, servicing
agent, custodian or sub-custodian with respect to certain of the Permitted
Investments, (ii) using Affiliates to effect transactions in certain Permitted
Investments and (iii) effecting transactions in certain Permitted Investments.

         SECTION 3.03 INTEREST DISTRIBUTIONS.

         On each Distribution Date, the Trustee shall withdraw from the
Distribution Account the Interest Remittance Amount and apply it in the
following order of priority (based upon the Mortgage Loan information provided
to it in the Remittance Reports upon which the Trustee may conclusively rely),
and the calculations required to be made by the Trustee, to the extent
available:

                  (i) to the Trustee, in its capacity as Trustee and Custodian,
         the Trustee Fee for such Distribution Date;

                  (ii) to the Class A Certificates, the applicable Accrued
         Certificate Interest for such Distribution Date;

                  (iii) to the Class A Certificates, the Interest Carry Forward
         Amount for the Class A Certificates;

                  (iv) to the Class M-1 Certificates, the Accrued Certificate
         Interest thereon for such Distribution Date;

                  (v) to the Class M-2 Certificates, the Accrued Certificate
         Interest thereon for such Distribution Date;

                  (vi) to the Class B-1 Certificates, the Accrued Certificate
         Interest thereon for such Distribution Date;

                  (vii) to the Class B-2 Certificates, the Accrued Certificate
         Interest thereon for such Distribution Date; and

                  (viii) the amount, if any, of the Interest Remittance Amount
         remaining after application with respect to the priorities set forth
         above will be applied as described under Section 3.04(b) hereof.

         SECTION 3.04 DISTRIBUTIONS OF PRINCIPAL AND MONTHLY EXCESS CASHFLOW
AMOUNTS.

         (a) On each Distribution Date, the Trustee shall make the following
distributions in the following order of priority (based upon the Mortgage Loan
information provided to it in the Remittance Reports), and the calculations
required to be made by the Trustee, to the extent of the Principal Distribution
Amount:

                  (i) before the Stepdown Date or with respect to which a
         Trigger Event is in effect, sequentially, as follows (provided, that on
         the Class P Principal Distribution Date, $100 will first be paid to the
         Holder of the Class P Certificate):

                           (A) to the Holders of the Class A Certificates, the
                  Principal Distribution Amount for such Distribution Date,
                  until the Certificate Principal Balance of the Class A
                  Certificates has been reduced to zero;

                           (B) to the Holders of the Class M-1 Certificates,
                  100% of the remaining Principal Distribution Amount for such
                  Distribution Date, until the Certificate Principal Balance of
                  the Class M-1 Certificates has been reduced to zero;

                           (C) to the Holders of the Class M-2 Certificates,
                  100% of the remaining Principal Distribution Amount, until the
                  Certificate Principal Balance of the Class M-2 Certificates
                  has been reduced to zero;


                                       42
<PAGE>

                           (D) to the Holders of the Class B-1 Certificates,
                  100% of the remaining Principal Distribution Amount, until the
                  Certificate Principal Balance of the Class B-1 Certificates
                  has been reduced to zero;

                           (E) to the Holders of the Class B-2 Certificates,
                  100% of the remaining Principal Distribution Amount, until the
                  Certificate Principal Balance of the Class B-2 Certificates
                  has been reduced to zero; and

                           (F) any amount of the Principal Distribution Amount
                  remaining after making all of the distributions in clauses
                  (A), (B), (C), (D) and (E) shall be applied as set forth in
                  Section 3.04(b).

                  (ii) on or after the Stepdown Date and as long as a Trigger
         Event is not in effect (provided, that on the Class P Principal
         Distribution Date, $100 will first be paid to the Holder of the Class P
         Certificate):

                           (A) the lesser of (x) the Principal Distribution
                  Amount and (y) the Class A Principal Distribution Amount, will
                  be distributed to the Class A Certificates until the
                  Certificate Principal Balance thereof has been reduced to
                  zero;

                           (B) the lesser of (x) the excess of (i) the Principal
                  Distribution Amount over (ii) the amount distributed to the
                  Class A Certificates in clause (A) above and (y) the Class M-1
                  Principal Distribution Amount will be distributed to the Class
                  M-1 Certificates, until the Certificate Principal Balance
                  thereof has been reduced to zero;

                           (C) the lesser of (x) the excess of (i) the Principal
                  Distribution Amount over (ii) the sum of the amount
                  distributed to the Class A Certificates in clause (A) above
                  and the amount distributed to the Class M-1 Certificates in
                  clause (B) above and (y) the Class M-2 Principal Distribution
                  Amount will be distributed to the Class M-2 Certificates,
                  until the Certificate Principal Balance thereof has been
                  reduced to zero;

                           (D) the lesser of (x) the excess of (i) the Principal
                  Distribution Amount over (ii) the sum of the amount
                  distributed to the Class A Certificates pursuant to clause (A)
                  above, the amount distributed to the Class M-1 Certificates
                  pursuant to clause (B) above and the amount distributed to the
                  Class M-2 Certificates pursuant to clause (C) above and (y)
                  the Class B-1 Principal Distribution Amount will be
                  distributed to the Class B-1 Certificates, until the
                  Certificate Principal Balance thereof has been reduced to
                  zero;

                           (E) the lesser of (x) the excess of (i) the Principal
                  Distribution Amount over (ii) the sum of the amount
                  distributed to the Class A Certificates pursuant to clause (A)
                  above, the amount distributed to the Class M-1 Certificates
                  pursuant to clause (B) above, the amount distributed to the
                  Class M-2 Certificates pursuant to clause (C) above, the
                  amount distributed to the Class B-1 Certificates pursuant to
                  clause (D) above and (y) the Class B-2 Principal Distribution
                  Amount will be distributed to the Class B-2 Certificates,
                  until the Certificate Principal Balance thereof has been
                  reduced to zero; and

                           (F) any amount of the Principal Distribution Amount
                  remaining after making all of the distributions in clauses
                  (A), (B), (C), (D) and (E) above shall be applied as set forth
                  in Section 3.04(b).

         (b) On each Distribution Date, any Monthly Excess Cashflow Amount shall
be distributed, to the extent available, in the following order of priority on
such Distribution Date:

                  (i)      to pay the Interest Carry Forward Amount, if any, to
                           the Class M-1 Certificates;

                  (ii)     to pay any Unpaid Realized Loss Amount to the Class
                           M-1 Certificates;

                  (iii)    to pay the Interest Carry Forward Amount, if any, to
                           the Class M-2 Certificates;


                                       43
<PAGE>

                  (iv)     to pay any Unpaid Realized Loss Amount to the Class
                           M-2 Certificates;

                  (v)      to pay the Interest Carry Forward Amount, if any, to
                           the Class B Certificates;

                  (vi)     to pay any Unpaid Realized Loss Amount to the Class
                           B-1 Certificates;

                  (vii)    to pay any Unpaid Realized Loss Amount to the Class
                           B-2 Certificates;

                  (viii)   [Reserved];

                  (ix) (i) from any Class A Interest Rate Cap Payment on deposit
         in the Excess Reserve Fund Account with respect to that Distribution
         Date, an amount equal to any unpaid remaining Basis Risk Carry Forward
         Amount with respect to the Class A Certificates for that Distribution
         Date, to the Class A Certificates, (ii) from any Class M-1 Interest
         Rate Cap Payment on deposit in the Excess Reserve Fund Account with
         respect to that Distribution Date, an amount equal to any unpaid
         remaining Basis Risk Carry Forward Amount with respect to the Class M-1
         Certificates for that Distribution Date, to the Class M-1 Certificates,
         (iii) from any Class M-2 Interest Rate Cap Payment on deposit in the
         Excess Reserve Fund Account with respect to that Distribution Date, an
         amount equal to any unpaid remaining Basis Risk Carry Forward Amount
         with respect to the Class M-2 Certificates for that Distribution Date,
         the Class M-2 Certificates, (iv) from any Class B-1 Interest Rate Cap
         Payment on deposit in the Excess Reserve Fund Account with respect to
         that Distribution Date, an amount equal to any unpaid remaining Basis
         Risk Carry Forward Amount with respect to the Class B-1 Certificates
         for that Distribution Date, to the Class B-1 Certificates and (v) from
         any Class B-2 Interest Rate Cap Payment on deposit in the Excess
         Reserve Fund Account with respect to that Distribution Date, an amount
         equal to any unpaid remaining Basis Risk Carry Forward Amount with
         respect to the Class B-2 Certificates for that Distribution Date, to
         the Class B-2 Certificates;

                  (x) to the Excess Reserve Fund Account, the amount of any
         Basis Risk Carry Forward Amount for such Distribution Date remaining
         unpaid after the application of the Interest Rate Cap Payments pursuant
         to clause (ix), above, on such Distribution Date;

                  (xi) from funds on deposit in the Excess Reserve Fund Account
         with respect to such Distribution Date, sequentially to the Class A,
         Class M-1, Class M-2, Class B-1 and Class B-2 Certificates, any Basis
         Risk Carry Forward Amount for such class remaining unpaid after the
         application of the Interest Rate Cap Payments pursuant to clause (ix),
         above, on such Distribution Date;

                  (xii) to the holders of the Class X Certificates, the
         remainder of the Class X Distributable Amount not distributed pursuant
         to Sections 3.04(b)(i)-(xi) (to the extent stated in clause (i) of the
         definition of Class X Distributable Amount, as interest, and to the
         extent stated in clause (ii) of the definition of Class X Distributable
         Amount, as principal); and

                  (xiii) to the holders of the Class R Certificates, any
         remaining amount.

         (c) On each Distribution Date, all prepayment charges received by Bank
of America or Wilshire during the related Prepayment Period and remitted to the
Trustee on the related Servicer Remittance Date, shall be paid to the holders of
the Class P Certificates.

         SECTION 3.05 ALLOCATION OF REALIZED LOSSES.

         Realized Losses shall be allocated first against the Remaining Initial
Overcollateralization Amount and second to the Subsequent Overcollateralization
Amount, until the Overcollateralization Amount has been reduced to zero. If,
after giving effect to the distribution of the Principal Distribution Amount on
any Distribution Date the aggregate Certificate Principal Balance of the Offered
Certificates exceeds the Pool Balance as of the end of the related Collection
Period, such excess will be allocated against the Class B-2, Class B-1, Class
M-2 and the Class M-1 Certificates, in that order and until the respective
Certificate Principal Balances thereof are reduced to zero.


                                       44
<PAGE>

         SECTION 3.06 METHOD OF DISTRIBUTION.

         The Trustee shall make distributions in respect of a Distribution Date
to each Certificateholder of record on the related Record Date (other than as
provided in Section 7.01 respecting the final distribution), in the case of
Certificateholders of the Certificates, by wire transfer in immediately
available funds to the account of the Person entitled thereto if such Person
shall have so notified the Trustee writing at least five Business Days prior to
the Record Date immediately prior to such Distribution Date or by check mailed
by first class mail to the address of the Person entitled thereto, as such name
and address shall appear on the Certificate Register, provided that the Trustee
may deduct a reasonable wire transfer fee from any payment made by wire
transfer. Distributions among Certificateholders shall be made in proportion to
the Percentage Interests evidenced by the Certificates held by such
Certificateholders.

         SECTION 3.07 DISTRIBUTIONS ON BOOK-ENTRY CERTIFICATES.

         Each distribution with respect to a Book-Entry Certificate shall be
paid to the Depository, which shall credit the amount of such distribution to
the accounts of its Depository Participants in accordance with its normal
procedures. Each Depository Participant shall be responsible for disbursing such
distribution to the Certificate Owners that it represents and to each indirect
participating brokerage firm (a "brokerage firm" or "indirect participating
firm") for which it acts as agent. Each brokerage firm shall be responsible for
disbursing funds to the Certificate Owners that it represents. All such credits
and disbursements with respect to a Book-Entry Certificate are to be made by the
Depository and the Depository Participants in accordance with the provisions of
the Certificates. None of the Trustee, the Depositor, the Servicers or the
Seller shall have any responsibility therefor except as otherwise provided by
applicable law.

         SECTION 3.08 MONTHLY STATEMENTS AND REPORTS BY THE TRUSTEE

         (a) On each Distribution Date, the Trustee will, based upon information
in the related Remittance Reports and such other information it may request from
the Servicers to prepare the monthly statement, prepare and make available to
the parties to the Servicing Agreements, this Agreement, each registered
Certificateholder and any other interested party, a monthly statement setting
forth the following information relating to the Certificates and the Mortgage
Loans for each Distribution Date, but only to the extent such information is
provided to the Trustee by the Servicers pursuant to the Servicing Agreements:

                  (i) the amount of the distribution made on such Distribution
         Date to the Holders of each Class of Certificates allocable to
         principal, separately identified;

                  (ii) the amount of the distribution made on such Distribution
         Date to the Holders of each Class of Certificates allocable to interest
         or Class X Distributable Amount, separately identified;

                  (iii) the Overcollateralization Amount, the
         Overcollateralization Release Amount, the Overcollateralization
         Deficiency and the Targeted Overcollateralization Amount as of such
         Distribution Date and the Monthly Excess Interest Amount and Monthly
         Excess Cashflow Amount for such Distribution Date;

                  (iv) the aggregate amount of servicing compensation received
         by the Servicers during the related Collection Period;

                  (v) the aggregate amount of Advances for the related
         Collection Period;

                  (vi) the Pool Balance at the close of business at the end of
         the related Collection Period;

                  (vii) in the aggregate, the number, weighted average remaining
         term to maturity and weighted average Mortgage Interest Rate of the
         Mortgage Loans as of the related Due Date;

                  (viii) the number and aggregate unpaid principal balance of
         Mortgage Loans (a) 31 to 60 days past due on a contractual basis, (b)
         61 to 90 days past due on a contractual basis, (c) 91 or more days past
         due on a contractual basis, (d) as to which foreclosure proceedings
         have been commenced and (e) in bankruptcy as of the close of business
         on the last day of the calendar month preceding such Distribution Date;


                                       45
<PAGE>
                  (ix) [reserved];

                  (x) the total number and cumulative principal balance of all
         REO Properties as of the close of business of the last calendar day of
         the preceding Collection Period;

                  (xi) the aggregate amount of Principal Prepayments made during
         the related Prepayment Period;

                  (xii) the aggregate amount of prepayment penalties collected
         by Bank of America or Wilshire (including amounts deposited in
         connection with the full or partial waiver of such prepayment penalties
         pursuant to Section 2.01 of the applicable Servicing Agreement) during
         the related Collection Period;

                  (xiii) the aggregate amount of Realized Losses incurred during
         the related Collection Period and the cumulative amount of Realized
         Losses;

                  (xiv) the Certificate Principal Balance of each Class of
         Certificates, after giving effect to the distributions, and allocations
         of Realized Losses or Applied Realized Loss Amounts, as applicable,
         made on such Distribution Date, separately identifying any reduction
         thereof due to allocations of Realized Losses or Applied Realized Loss
         Amounts;

                  (xv) the Accrued Certificate Interest in respect of each Class
         of Offered Certificates for such Distribution Date, separately
         identifying the portions thereof attributable to Basis Risk Carry
         Forward Amounts, and the amount of all Basis Risk Carry Forward Amount
         covered by withdrawals from the Excess Reserve Fund Account on such
         Distribution Date, and the respective portions thereof, if any,
         remaining unpaid following the distributions made in respect of such
         Certificates on such Distribution Date;

                  (xvi) the aggregate amount of any Prepayment Interest
         Shortfalls for such Distribution Date, to the extent not covered by
         payments by the related Servicer pursuant to the related Servicing
         Agreement;

                  (xvii) the amount of the Trustee Fee paid;

                  (xviii) the Basis Risk Carry Forward Amounts distributed on
         such Distribution Date and the amounts remaining after giving effect to
         distributions thereof on such Distribution Date;

                  (xix) any Overcollateralization Deficiency after giving effect
         to the distribution of principal on such Distribution Date;

                  (xx) whether a Trigger Event has occurred and is continuing,
         and the cumulative Realized Losses, as a percentage of the original
         Pool Balance;

                  (xxi) the Available Funds;

                  (xxii) the rate at which interest accrues for each Class of
         Certificates for such Distribution Date;

                  (xxiii) the Liquidation Reports for such Distribution Date;

                  (xxiv) the aggregate Principal Balance of Mortgage Loans
         purchased by the related Servicer or Seller during the related
         Collection Period;

                  (xxv) the amount on deposit in the Excess Reserve Fund Account
         (after giving effect to distributions on such Distribution Date);


                                       46
<PAGE>

                  (xxvi) the Class A Interest Rate Cap Payment, if any, the
         Class M-1 Interest Rate Cap Payment, if any, the Class M-2 Interest
         Rate Cap Payment, if any, the Class B-1 Interest Rate Cap Payment, if
         any, and the Class B-2 Interest Rate Cap Payment, if any, for such
         Distribution Date; and

                  (xxvii) the aggregate amount of Subsequent Recoveries incurred
         during the preceding calendar month and aggregate Subsequent Recoveries
         through such Distribution Date.

         The Trustee may fully rely upon and shall have no liability with
respect to information with respect to the Mortgage Loans provided by the
Servicers.

         In the case of information furnished pursuant to subclauses (i) through
(iii) above, the amounts shall be expressed in a separate section of the report
as a dollar amount for each Class for each $1,000 original dollar amount as of
the Cut-off Date.

         (b) Within a reasonable period of time after the end of each calendar
year, the Trustee shall furnish to each Person who at any time during the
calendar year was a Certificateholder of a Regular Certificate, if requested in
writing by such Person, such information as is reasonably necessary to provide
to such Person a statement containing the information set forth in subclauses
(i), (ii), (xv) and (xvii) above, aggregated for such calendar year or
applicable portion thereof during which such Person was a Certificateholder.
Such obligation of the Trustee shall be deemed to have been satisfied to the
extent that substantially comparable information shall be prepared and furnished
by the Trustee to Certificateholders pursuant to any requirements of the Code as
are in force from time to time.

         (c) The Trustee will make the monthly statement (and, at its option,
any additional files containing the same information in an alternative format)
available each month to the parties to the Servicing Agreements, this Agreement
and each registered Certificateholder via the Trustee's internet website. The
Trustee's internet website shall initially be located at
https://www.corporatetrust.db.com/invr. Assistance in using the website can be
obtained by calling the Trustee's investor relations desk at 1-800-735-7777.
Parties that are unable to use the above distribution option are entitled to
have a paper copy mailed to them via first class mail by calling the investor
relations desk and requesting a copy. The Trustee shall have the right to change
the way monthly statements are distributed in order to make such distribution
more convenient and/or more accessible to the Certificateholders and the Trustee
shall provide timely and adequate notification to all of the Certificateholders
regarding any such changes.

         The Trustee shall also be entitled to rely on but shall not be
responsible for the content or accuracy of any information provided by third
parties for purposes of preparing the monthly statement and may affix thereto
any disclaimer it deems appropriate in its reasonable discretion.

         As a condition to access to the Trustee's internet website, the Trustee
may require registration and the acceptance of a disclaimer. The Trustee will
not be liable for the dissemination of information in accordance with this
Agreement.

                                   ARTICLE IV

                                THE CERTIFICATES

         SECTION 4.01 THE CERTIFICATES.

         Each of the Class A, Class M-1, Class M-2, Class B-1, Class B-2, Class
P, Class X and Class R Certificates shall be substantially in the forms annexed
hereto as exhibits, and shall, on original issue, be executed, and authenticated
and delivered by the Trustee to or upon the receipt of a Written Order to
Authenticate from the Depositor concurrently with the sale and assignment to the
Trustee of the Trust Fund. Each Class of the Offered Certificates shall be
initially evidenced by one or more Certificates representing a Percentage
Interest with a minimum dollar denomination of $25,000 and integral multiples of
$1 in excess thereof. The Class X, Class P and Class R Certificates are issuable
only in minimum Percentage Interests of 10%.


                                       47
<PAGE>

         The Certificates shall be executed on behalf of the Trust by manual or
facsimile signature on behalf of the Trustee by a Responsible Officer.
Certificates bearing the manual or facsimile signatures of individuals who were,
at the time when such signatures were affixed, authorized to sign on behalf of
the Trustee shall bind the Trust, notwithstanding that such individuals or any
of them have ceased to be so authorized prior to the authentication and delivery
of such Certificates or did not hold such offices at the date of such
Certificate. No Certificate shall be entitled to any benefit under this
Agreement or be valid for any purpose, unless such Certificate shall have been
manually authenticated by the Certificate Registrar substantially in the form
provided for herein, and such authentication upon any Certificate shall be
conclusive evidence, and the only evidence, that such Certificate has been duly
authenticated and delivered hereunder. All Certificates shall be dated the date
of their authentication. Subject to Section 4.02(c), the Offered Certificates
shall be Book-Entry Certificates. The Class P, Class X and Class R Certificates
shall not be Book-Entry Certificates but shall be issued in fully registered
certificate form.

         SECTION 4.02 REGISTRATION OF TRANSFER AND EXCHANGE OF CERTIFICATES.

         (a) The Certificate Registrar shall cause to be kept at the Corporate
Trust Office of the Trustee a Certificate Register in which, subject to such
reasonable regulations as it may prescribe, the Certificate Registrar shall
provide for the registration of Certificates and of transfers and exchanges of
Certificates as herein provided. The Trustee shall initially serve as
Certificate Registrar for the purpose of registering Certificates and transfers
and exchanges of Certificates as herein provided. The Trustee as Certificate
Registrar shall be subject to the same standards of care, limitations on
liability and rights to indemnity as the Trustee, and the provisions of Sections
6.01, 6.02, 6.03, 6.04, 6.05, 6.14, 6.15 and 6.16 shall apply to the Certificate
Registrar to the same extent as they apply to the Trustee. Any Certificate
Registrar appointed in accordance with this Section 4.02(a) may at any time
resign by giving at least 30 days' advance written notice of resignation to the
Trustee and the Depositor, such resignation to become effective upon appointment
of a successor Certificate Registrar.

         Upon surrender for registration of transfer of any Certificate at any
office or agency of the Certificate Registrar maintained for such purpose
pursuant to the foregoing paragraph and, in the case of a Residual Certificate,
upon satisfaction of the conditions set forth below, the Trustee on behalf of
the Trust shall execute and the Certificate Registrar shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Certificates of the same aggregate Percentage Interest.

         At the option of the Certificateholders, Certificates may be exchanged
for other Certificates in authorized denominations and the same aggregate
Percentage Interests, upon surrender of the Certificates to be exchanged at any
such office or agency. Whenever any Certificates are so surrendered for
exchange, the Trustee shall execute on behalf of the Trust and the Certificate
Registrar shall authenticate and deliver the Certificates which the
Certificateholder making the exchange is entitled to receive. Every Certificate
presented or surrendered for registration of transfer or exchange shall (if so
required by the Trustee or the Certificate Registrar) be duly endorsed by, or be
accompanied by a written instrument of transfer satisfactory to the Trustee and
the Certificate Registrar duly executed by, the Holder thereof or his attorney
duly authorized in writing.

         (b) Upon original issuance, the Book-Entry Certificates shall be issued
in the form of one or more typewritten certificates, to be delivered to the
Depository, the initial Depository, by, or on behalf of, the Depositor; or to,
and deposited with the Certificate Custodian, on behalf of the Depository, if
directed to do so pursuant to instructions from the Depository. Except as
provided in paragraph (c) below, the Book-Entry Certificates shall at all times
remain registered in the name of the Depository or its nominee and at all times:
(i) registration of such Certificates may not be transferred by the Trustee
except to another Depository; (ii) the Depository shall maintain book-entry
records with respect to the Certificate Owners and with respect to ownership and
transfers of such Certificates; (iii) ownership and transfers of registration of
such Certificates on the books of the Depository shall be governed by applicable
rules established by the Depository; (iv) the Depository may collect its usual
and customary fees, charges and expenses from its Depository Participants; (v)
the Trustee shall for all purposes deal with the Depository as representative of
the Certificate Owners of the Certificates for purposes of exercising the rights
of Holders under this Agreement, and requests and directions for and votes of
such representative shall not be deemed to be inconsistent if they are made with
respect to different Certificate Owners; (vi) the Trustee may rely and shall be
fully protected in relying upon information furnished by the Depository with
respect to its Depository Participants and furnished by the Depository
Participants with respect to indirect participating firms and Persons shown on
the books of such indirect participating firms as direct or indirect Certificate
Owners; and (vii) the direct participants of the Depository shall have no rights
under this Agreement under or with respect to any of the Certificates held on
their behalf by the Depository, and the Depository may be treated by the Trustee
and its agents, employees, officers and directors as the absolute owner of the
Certificates for all purposes whatsoever.


                                       48
<PAGE>

         All transfers by Certificate Owners of Book-Entry Certificates shall be
made in accordance with the procedures established by the Depository Participant
or brokerage firm representing such Certificate Owners. Each Depository
Participant shall only transfer Book-Entry Certificates of Certificate Owners
that it represents or of brokerage firms for which it acts as agent in
accordance with the Depository's normal procedures. The parties hereto are
hereby authorized to execute a Letter of Representations with the Depository or
take such other action as may be necessary or desirable to register a Book-Entry
Certificate to the Depository. In the event of any conflict between the terms of
any such Letter of Representation and this Agreement, the terms of this
Agreement shall control.

         (c) If (i)(x) the Depository or the Depositor advises the Trustee in
writing that the Depository is no longer willing or able to discharge properly
its responsibilities as Depository and (y) the Trustee or the Depositor is
unable to locate a qualified successor, (ii) the Depositor (with the Trustee's
consent) notifies the Depository of its intent to terminate the book-entry
system through the Depository and, upon receipt of notice of such intent from
the Depository, the Depository Participants holding beneficial interests in the
Book-Entry Certificates agree to initiate such termination or (iii) the
Certificate Owners of each Class of Book-Entry Certificates representing
Percentage Interests of such Classes aggregating not less than 51% advises the
Trustee and Depository through the Depository Participants in writing that the
continuation of a book-entry system through the Depository to the exclusion of
definitive, fully registered certificates (the "Definitive Certificates") to
Certificate Owners is no longer in the best interests of the Certificate Owners.
Upon surrender to the Certificate Registrar of the Book-Entry Certificates by
the Depository, accompanied by registration instructions from the Depository for
registration, the Trustee shall, at the Depositor's expense, in the case of (ii)
above, or the Seller's expense, in the case of (i) and (iii) above, execute on
behalf of the Trust and the Certificate Registrar shall authenticate the
Definitive Certificates. Neither the Depositor nor the Trustee shall be liable
for any delay in delivery of such instructions and may conclusively rely on, and
shall be protected in relying on, such instructions. Upon the issuance of
Definitive Certificates, the Trustee, the Certificate Registrar, any Paying
Agent and the Depositor shall recognize the Holders of the Definitive
Certificates as Certificateholders hereunder.

         (d) Except with respect to the initial transfer of the Private
Certificates by the Depositor, no transfer, sale, pledge or other disposition of
any Private Certificate shall be made unless such disposition is exempt from the
registration requirements of the Securities Act of 1933, as amended (the "1933
Act"), and any applicable state securities laws or is made in accordance with
the 1933 Act and laws. In the event of any such transfer, (i) unless such
transfer is made in reliance upon Rule 144A (as evidenced by the investment
letter delivered to the Certificate Registrar, in substantially the form
attached hereto as Exhibit J) under the 1933 Act, the Certificate Registrar and
the Depositor shall require a written Opinion of Counsel (which may be in-house
counsel) acceptable to and in form and substance reasonably satisfactory to the
Certificate Registrar and the Depositor that such transfer may be made pursuant
to an exemption, describing the applicable exemption and the basis therefor,
from the 1933 Act or is being made pursuant to the 1933 Act, which Opinion of
Counsel shall not be an expense of the Certificate Registrar or the Depositor or
(ii) the Certificate Registrar shall require the transferor to execute a
transferor certificate (in substantially the form attached hereto as Exhibit L)
and the transferee to execute an investment letter (in substantially the form
attached hereto as Exhibit J) acceptable to and in form and substance reasonably
satisfactory to the Depositor and the Certificate Registrar certifying to the
Depositor and the Certificate Registrar the facts surrounding such transfer,
which investment letter shall not be an expense of the Certificate Registrar or
the Depositor. The Holder of a Private Certificate desiring to effect such
transfer shall, and does hereby agree to, indemnify the Certificate Registrar
and the Depositor against any liability that may result if the transfer is not
so exempt or is not made in accordance with such federal and state laws.

         Except with respect to the transfer of the Class X and Class P
Certificates (i) to Depositor on the Closing Date and (ii) if requested by the
Depositor, from the Depositor to a "NIM Trust" established by the Depositor to
issue net interest margin securities backed in whole or in part by the Class X
and Class P Certificates, at such time that the Depositor directs such transfer
be made, no transfer of an ERISA-Restricted Certificate shall be made unless the
Certificate Registrar shall have received a representation from the transferee
of such Certificate, acceptable to and in form and substance satisfactory to the
Certificate Registrar and the Depositor (such requirement is satisfied only by
the Certificate Registrar's receipt of a representation letter from the
transferee substantially in the form of Exhibit J hereto, as appropriate), to
the effect that either (i) such transferee is not an employee benefit plan or
arrangement subject to Section 406 of ERISA or a plan subject to Section 4975 of
the Code, and is not acting on behalf of any such plan or arrangement or
investing the assets of any such plan or arrangement to effect such transfer or
(ii) (except in the case of a Private Certificate) such transferee is an
insurance company which is purchasing such Certificate with funds contained in
an "insurance company general account" (as such term is defined in Section V(e)
of Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60") and the
conditions for exemptive relief under Sections I and III of PTCE 95-60 have been
satisfied. For purposes of the preceding sentence, such representation shall be
deemed to have been made to the Certificate Registrar by the acceptance by a
Certificate Owner of the beneficial interest in any such Class of
ERISA-Restricted Certificates. Notwithstanding anything else to the contrary
herein, any purported transfer of an ERISA-Restricted Certificate to an employee
benefit plan or arrangement subject to Section 406 of ERISA or a plan subject to
Section 4975 of the Code, or to any person acting on behalf or using the assets
of any such plan or arrangement, in violation of the foregoing provisions shall
be void and of no effect.


                                       49
<PAGE>

         Each Person who has or who acquires any Ownership Interest in a
Residual Certificate shall be deemed by the acceptance or acquisition of such
Ownership Interest to have agreed to be bound by the following provisions and to
have irrevocably appointed the Depositor or its designee as its attorney-in-fact
to negotiate the terms of any mandatory sale under clause (v) below and to
execute all instruments of transfer and to do all other things necessary in
connection with any such sale, and the rights of each Person acquiring any
Ownership Interest in a Residual Certificate are expressly subject to the
following provisions:

                  (i) Each Person holding or acquiring any Ownership Interest in
         a Residual Certificate shall be a Permitted Transferee and shall
         promptly notify the Certificate Registrar of any change or impending
         change in its status as a Permitted Transferee.

                  (ii) No Person shall acquire an Ownership Interest in a
         Residual Certificate unless such Ownership Interest is a pro rata
         undivided interest.

                  (iii) In connection with any proposed transfer of any
         Ownership Interest in a Class R Certificate, the Certificate Registrar
         shall as a condition to registration of the transfer, require delivery
         to it, in form and substance satisfactory to it, of each of the
         following:

                           A. an affidavit in the form of Exhibit K hereto from
                  the proposed transferee to the effect that, among other
                  things, such transferee is a Permitted Transferee and that it
                  is not acquiring its Ownership Interest in the Residual
                  Certificate that is the subject of the proposed transfer as a
                  nominee, trustee or agent for any Person who is not a
                  Permitted Transferee; and

                           B. an affidavit in the form of Exhibit L from the
                  proposed transferor to the effect that the proposed transferor
                  has no knowledge that the proposed transferee is not a
                  Permitted Transferee.

                  (iv) Any attempted or purported transfer of any Ownership
         Interest in a Residual Certificate in violation of the provisions of
         this Section shall be absolutely null and void and shall vest no rights
         in the purported transferee. If any purported transferee shall, in
         violation of the provisions of this Section, become a Holder of a
         Residual Certificate, then the prior Holder of such Residual
         Certificate that is a Permitted Transferee shall, upon discovery that
         the registration of transfer of such Residual Certificate was not in
         fact permitted by this Section, be restored to all rights as Holder
         thereof retroactive to the date of registration of transfer of such
         Residual Certificate. The Certificate Registrar shall be under no
         liability to any Person for any registration of transfer of a Residual
         Certificate that is in fact not permitted by this Section or for making
         any distributions due on such Residual Certificate to the Holder
         thereof or taking any other action with respect to such Holder under
         the provisions of this Agreement so long as the Certificate Registrar
         received the documents specified in clause (iii). The Trustee shall be
         entitled to recover from any Holder of a Residual Certificate that was
         in fact not a Permitted Transferee at the time such distributions were
         made all distributions made on such Residual Certificate. Any such
         distributions so recovered by the Trustee shall be distributed and
         delivered by the Trustee to the prior Holder of such Residual
         Certificate that is a Permitted Transferee.


                                       50
<PAGE>

                  (v) If any Person other than a Permitted Transferee acquires
         any Ownership Interest in a Residual Certificate in violation of the
         restrictions in this Section, then the Certificate Registrar shall have
         the right but not the obligation, without notice to the Holder of such
         Residual Certificate or any other Person having an Ownership Interest
         therein, to notify the Depositor to arrange for the sale of such
         Residual Certificate. The proceeds of such sale, net of commissions
         (which may include commissions payable to the Depositor or its
         affiliates in connection with such sale), expenses and taxes due, if
         any, will be remitted by the Trustee to the previous Holder of such
         Residual Certificate that is a Permitted Transferee, except that in the
         event that the Trustee determines that the Holder of such Residual
         Certificate may be liable for any amount due under this Section or any
         other provisions of this Agreement, the Trustee may withhold a
         corresponding amount from such remittance as security for such claim.
         The terms and conditions of any sale under this clause (v) shall be
         determined in the sole discretion of the Trustee and it shall not be
         liable to any Person having an Ownership Interest in a Residual
         Certificate as a result of its exercise of such discretion.

                  (vi) If any Person other than a Permitted Transferee acquires
         any Ownership Interest in a Residual Certificate in violation of the
         restrictions in this Section, then the Trustee will provide to the
         Internal Revenue Service, and to the persons specified in Sections
         860E(e)(3) and (6) of the Code, information needed to compute the tax
         imposed under Section 860E(e)(5) of the Code on transfers of residual
         interests to disqualified organizations. The Trustee shall be entitled
         to reasonable compensation for providing such information from the
         person to whom it is provided.

The foregoing provisions of this Section shall cease to apply to transfers
occurring on or after the date on which there shall have been delivered to the
Certificate Registrar, in form and substance satisfactory to the Certificate
Registrar, (i) written notification from each Rating Agency that the removal of
the restrictions on Transfer set forth in this Section will not cause such
Rating Agency to downgrade its rating of the Certificates and (ii) an Opinion of
Counsel to the effect that such removal will not cause any REMIC hereunder to
fail to qualify as a REMIC.

         (e) No service charge shall be made for any registration of transfer or
exchange of Certificates of any Class, but the Certificate Registrar may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer or exchange of Certificates.

         All Certificates surrendered for registration of transfer or exchange
shall be cancelled by the Certificate Registrar and disposed of pursuant to its
standard procedures.

         SECTION 4.03 MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES.

         If (i) any mutilated Certificate is surrendered to the Certificate
Registrar or the Certificate Registrar receives evidence to its satisfaction of
the destruction, loss or theft of any Certificate and (ii) there is delivered to
the Trustee, the Depositor and the Certificate Registrar such security or
indemnity as may be required by them to save each of them harmless, then, in the
absence of notice to the Trustee or the Certificate Registrar that such
Certificate has been acquired by a bona fide purchaser, the Trustee shall
execute on behalf of the Trust, and the Certificate Registrar shall authenticate
and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost
or stolen Certificate, a new Certificate of like tenor and Percentage Interest.
Upon the issuance of any new Certificate under this Section, the Trustee or the
Certificate Registrar may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto and any
other expenses (including the fees and expenses of the Trustee and the
Certificate Registrar) in connection therewith. Any duplicate Certificate issued
pursuant to this Section, shall constitute complete and indefeasible evidence of
ownership in the Trust, as if originally issued, whether or not the lost, stolen
or destroyed Certificate shall be found at any time.

         SECTION 4.04 PERSONS DEEMED OWNERS.

         The Depositor, the Trustee, the Certificate Registrar, any Paying Agent
and any agent of the Depositor, the Certificate Registrar, any Paying Agent or
the Trustee may treat the Person, including a Depository, in whose name any
Certificate is registered as the owner of such Certificate for the purpose of
receiving distributions pursuant to Section 3.03 and 3.04 and for all other
purposes whatsoever, and none of the Trust, the Trustee nor any agent of any of
them shall be affected by notice to the contrary.


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<PAGE>

         SECTION 4.05 APPOINTMENT OF PAYING AGENT.

         The Paying Agent shall make distributions to Certificateholders from
the Distribution Account pursuant to Section 3.03 and 3.04 and shall report the
amounts of such distributions to the Trustee (if different than the Paying
Agent). The duties of the Paying Agent may include the obligation (i) to
withdraw funds from the Distribution Account for the purpose of making the
distributions referred to above and (ii) to distribute statements and provide
information to Certificateholders as required hereunder. The Paying Agent
hereunder shall at all times be an entity duly incorporated and validly existing
under the laws of the United States of America or any state thereof, authorized
under such laws to exercise corporate trust powers and subject to supervision or
examination by federal or state authorities. The Paying Agent shall initially be
the Trustee. The Trustee may appoint a successor to act as Paying Agent, which
appointment shall be reasonably satisfactory to the Depositor and the Rating
Agencies. The Trustee as Paying Agent shall be subject to the same standards of
care, limitations on liability and rights to indemnity as the Trustee, and the
provisions of Sections 6.01, 6.02, 6.03, 6.04, 6.05, 6.14, 6.15 and 6.16 shall
apply to the Paying Agent to the same extent as they apply to the Trustee. Any
Paying Agent appointed in accordance with this Section 4.05 may at any time
resign by giving at least 30 days' advance written notice of resignation to the
Trustee, the Servicer and the Depositor, such resignation to become effective
upon appointment of a successor Paying Agent.

                                   ARTICLE V

                          THE SELLER AND THE DEPOSITOR

         SECTION 5.01 LIABILITY OF THE SELLER AND THE DEPOSITOR.

         The Seller and the Depositor shall be liable in accordance herewith
only to the extent of the obligations specifically imposed upon and undertaken
by the Seller or Depositor, as the case may be, herein.

         SECTION 5.02 MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, THE SELLER OR THE DEPOSITOR.

         Any entity into which the Seller or the Depositor may be merged or
consolidated, or any entity resulting from any merger, conversion or
consolidation to which the Seller or the Depositor shall be a party, or any
corporation succeeding to the business of the Seller or the Depositor, shall be
the successor of the Seller or the Depositor, as the case may be, hereunder,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, anything herein to the contrary notwithstanding.

                                   ARTICLE VI

                          THE TRUSTEE AND THE CUSTODIAN



         SECTION 6.01 DUTIES OF TRUSTEE AND CUSTODIAN.

         The Trustee undertakes to perform such duties and only such duties as
are specifically set forth in this Agreement and each Servicing Agreement. The
Custodian undertakes to perform such duties and only such duties as are
specifically set forth in this Agreement and no implied covenants or obligations
shall be read into this Agreement against the Custodian. The Custodian shall
have no responsibility with respect to any Mortgage File while not in its
possession (so long as such Mortgage File has been released accordance to the
terms of this Agreement or the related Servicing Agreement) and any expense
associated with forwarding any Mortgage File to a Servicer pursuant to the terms
of this Agreement or the related Servicing Agreement will be paid by the Trust
Fund from amounts on deposit in the Distribution Account (prior to making
payments to the Certificateholders).

         The Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform on their face to the requirements of this Agreement; provided, however,
that that the Trustee shall not be responsible for the accuracy or content of
any resolution, certificate, statement, opinion, report, document, order or
other instrument furnished by the Seller or the Depositor hereunder. If any such
instrument is found not to conform in any material respect to the requirements
of this Agreement, the Trustee shall notify the Certificateholders of such
instrument in the event that the Trustee, after so requesting, does not receive
a satisfactorily corrected instrument.

         No provision of this Agreement shall be construed to relieve the
Trustee or the Custodian from liability for their own negligent action , their
own negligent failure to act or their own misconduct; provided, however, that:


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<PAGE>

                  (i) this paragraph shall not be construed to limit the effect
         of the other provisions or paragraphs of this Section 6.01;

                  (ii) none of the Trustee or the Custodian shall be personally
         liable for an error of judgment made in good faith by a Responsible
         Officer of the Trustee or the Custodian, as applicable, unless it shall
         be proved that the Trustee or the Custodian, as applicable, was
         negligent in ascertaining or investigating the facts related thereto;
         and

                  (iii) none of the Trustee or the Custodian shall be personally
         liable with respect to any action taken, suffered or omitted to be
         taken by it in good faith in accordance with the direction of the
         Majority Certificateholders relating to the time, method and place of
         conducting any proceeding for any remedy available to the Trustee or
         the Custodian, as applicable, or exercising or omitting to exercise any
         trust or power conferred upon the Trustee or the Custodian, as
         applicable, under this Agreement.

         None of the Trustee or the Custodian shall be required to expend or
risk its own funds or otherwise incur financial liability in the performance of
any of its duties hereunder, or in the exercise of any of its rights or powers,
if there is reasonable ground for believing that the repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.

         None of the Trustee or the Custodian shall have any duty (A) to see any
recording, filing, or depositing of this Agreement or any agreement referred to
herein or any financing statement or continuation statement evidencing a
security interest, or to see to the maintenance of any such recording or filing
or depositing or to any rerecording, refiling or redepositing of any thereof,
(B) to see to any insurance or (C) to see to the payment or discharge of any
tax, assessment, or other governmental charge or any lien or encumbrance of any
kind owing with respect to, assessed or levied against, any part of the Trust
Fund.

         SECTION 6.02 CERTAIN MATTERS AFFECTING THE TRUSTEE AND THE CUSTODIAN

         (a)      Except as otherwise provided in Section 6.01:

                  (i) each of the Trustee and the Custodian may request and rely
         upon, and shall be protected in acting or refraining from acting upon,
         any resolution, Officer's Certificate, certificate of auditors or any
         other certificate, statement, instrument, opinion, report, notice,
         request, consent, order, appraisal, bond or other paper or document
         reasonably believed by it to be genuine and to have been signed or
         presented by the proper party or parties;

                  (ii) each of the Trustee and the Custodian may consult with
         counsel and any advice or Opinion of Counsel shall be full and complete
         authorization and protection in respect of any action taken or suffered
         or omitted by it hereunder in good faith and in accordance with such
         advice or Opinion of Counsel;

                  (iii) the Trustee shall not be under any obligation to
         exercise any of the rights or powers vested in it by this Agreement, or
         to institute, conduct or defend any litigation hereunder or in relation
         hereto, at the request, order or direction of the Certificateholders
         pursuant to the provisions of this Agreement, unless such
         Certificateholders shall have offered to the Trustee security or
         indemnity reasonably satisfactory to the Trustee against the costs,
         expenses and liabilities which may be incurred therein or thereby; the
         right of the Trustee perform any discretionary act enumerated in this
         Agreement shall not be construed as a duty, and the Trustee shall not
         be answerable for other than its negligence or willful misconduct in
         the performance of any such act;

                  (iv) the Custodian shall be under no obligation to make any
         investigation into the facts or matters stated in any resolution,
         exhibit, request, representation, opinion, certificate, statement,
         acknowledgement, consent, order or document in the Mortgage File;

                  (v) none of the Trustee or the Custodian shall be personally
         liable for any action taken, suffered or omitted by it in good faith
         and believed by it to be authorized or within the discretion or rights
         or powers conferred upon it by this Agreement;


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<PAGE>

                  (vi) the Trustee or the Custodian , as applicable, may execute
         any of the trusts or powers hereunder or perform any duties hereunder
         either directly or by or through agents, attorneys or accountants and
         none of the Trustee or the Custodian shall be responsible for any
         misconduct or negligence on the part of any such agent, attorney or
         accountants appointed by it with due care; and

                  (vii) the right of the Trustee or the Custodian to perform any
         discretionary act enumerated in this Agreement shall not be construed
         as a duty, and none of the Trustee or the Custodian shall be answerable
         for other than its negligence or willful misconduct in the performance
         of such act.

         SECTION 6.03 THE TRUSTEE AND THE CUSTODIAN NOT LIABLE FOR CERTIFICATES
OR MORTGAGE LOANS.

         The recitals contained herein and in the Certificates (other than the
authentication of the Trustee on the Certificates) shall be taken as the
statements of the Seller, and none of the Trustee or the Custodian assumes any
responsibility for the correctness of the same. None of the Trustee or the
Custodian makes any representations as to the validity or sufficiency of this
Agreement or of the Certificates (other than the signature and authentication of
the Trustee on the Certificates) or of any Mortgage Loan or Related Document.
None of the Trustee or the Custodian shall at any time have any responsibility
or liability for or with respect to the legality, validity, sufficiency and
enforceability of any Mortgage or any Mortgage Loan, or the perfection and
priority of any Mortgage or the maintenance of any such perfection and priority,
or for or with respect to the sufficiency of the Trust or its ability to
generate the payments to be distributed to Certificateholders under this
Agreement, including, without limitation: the existence, condition and ownership
of any Mortgaged Property; the existence and enforceability of any hazard
insurance thereon (other than, in the case of the Trustee, if the Trustee shall
assume the duties as successor Servicer pursuant to the related Servicing
Agreement); the validity of the assignment of any Mortgage Loan to the Trustee
or of any intervening assignment; the completeness of any Mortgage Loan; the
performance or enforcement of any Mortgage Loan (other than if the Trustee shall
assume the duties as successor Servicer pursuant to the related Servicing
Agreement); the non-compliance by the Depositor or the Seller with any warranty
or representation made under this Agreement or in any related document or the
accuracy of any such warranty or representation; any investment of monies by or
at the direction of the Depositor or any loss resulting therefrom, it being
understood that the Trustee shall remain responsible for any Trust property that
it may hold in its individual capacity; the acts or omissions of any of the
related Servicer (other than if the Trustee shall assume the duties as successor
Servicer pursuant to the related Servicing Agreement), or any Mortgagor; any
action of the related Servicer (other than if the Trustee shall assume the
duties as successor Servicer pursuant to the related Servicing Agreement), taken
in the name of the Trustee the failure of any Servicer to act or perform any
duties required of it as agent of the Trustee under the applicable Servicing
Agreement; or any action by the Trustee taken at the instruction of the Servicer
(other than if the Trustee shall assume the duties as successor Servicer
pursuant to the terms of the related Servicing Agreement); provided, however,
that the foregoing shall not relieve the Trustee of its obligation to perform
its duties under this Agreement. None of the Trustee or the Custodian shall have
any responsibility for filing any financing or continuation statement in any
public office at any time or to otherwise perfect or maintain the perfection of
any security interest or lien granted to it hereunder.

         SECTION 6.04 THE TRUSTEE AND THE CUSTODIAN MAY OWN CERTIFICATES.

         Each of the Trustee or the Custodian in its individual or any other
capacity may become the owner or pledgee of Certificates with the same rights as
it would have if it were not Trustee or the Custodian and may transact any
banking and trust business with the Seller, the Depositor or their Affiliates.


                                       54
<PAGE>
         SECTION 6.05 SELLER TO PAY TRUSTEE FEES AND EXPENSES.

         The Trustee shall withdraw from the Distribution Account on each
Distribution Date and pay to itself its fees in an aggregate amount equal to the
Trustee Fee pursuant to Section 3.03(i) and, to the extent the Interest
Remittance Amount is at any time insufficient for such purpose, the Seller shall
pay such fees as reasonable compensation (which shall not be limited by any
provision of law in regard to the compensation of a trustee of an express trust)
for all services rendered by it in the execution of the trusts hereby created
and in the exercise and performance of any of the powers and duties hereunder of
the Trustee and the Custodian, and the Seller will pay or reimburse the Trustee
and the Custodian upon their request for all reasonable expenses, disbursements
and advances incurred or made by the Trustee and the Custodian, respectively, in
accordance with any of the provisions of this Agreement (including the
reasonable compensation and the expenses and disbursements of its counsel and of
all persons not regularly in its employ) except any such expense, disbursement
or advance as may arise from such party's negligence or bad faith or which is
the responsibility of Certificateholders, the Trustee or the Custodian
hereunder. Notwithstanding any other provision of this Agreement, including
Section 2.03(a) and Section 2.04, to the contrary, the Seller covenants and
agrees to indemnify the Trustee and the Custodian and their respective officers,
directors, employees and agents from, and hold each of them harmless against,
any and all losses, liabilities, damages, claims or expenses incurred in
connection with any legal action relating to this Agreement, the Servicing
Agreements, the Certificates or the Mortgage Loans or incurred in connection
with the administration of the Trust, other than with respect to a party, any
loss, liability or expense incurred by reason of willful misfeasance, bad faith
or negligence of such party in the performance of their respective duties
hereunder or by reason of such party's reckless disregard of obligations and
duties hereunder. Anything in this Agreement to the contrary notwithstanding, in
no event shall the Trustee or the Custodian be liable for special, indirect or
consequential loss or damage of any kind whatsoever (including but not limited
to lost profits), even if the Trustee or the Custodian has been advised of the
likelihood of such loss or damage and regardless of the form of action. The
Trustee or the Custodian, as applicable, and any director, officer, employee or
agent of the Trustee or the Custodian shall be indemnified, to the extent not
paid by the Seller pursuant to this Section within a reasonable amount of time
after request thereof (as reasonably determined by the Trustee), by the Trust
Fund from amounts on deposit in the Distribution Account (prior to making
payments to the Certificateholders) and held harmless against any loss,
liability or expense (not including routine, ongoing expenses, disbursements and
advances incurred or made by the Trustee or the Custodian, in the ordinary
course of the Trustee's or the Custodian's performance in accordance with the
provisions of this Agreement) incurred by the Trustee or the Custodian, as
applicable, arising out of or in connection with the acceptance or
administration of its duties under this Agreement or the Servicing Agreements,
other than any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence in the performance by the Trustee or the
Custodian, as applicable, of its duties under this Agreement or by reason of the
reckless disregard of the Trustee's or the Custodian's obligations and duties
under this Agreement or the Servicing Agreements. This section shall survive
termination of this Agreement and the Servicing Agreements or the resignation or
removal of any Trustee or Custodian hereunder.

         SECTION 6.06 ELIGIBILITY REQUIREMENTS FOR TRUSTEE.

         The Trustee hereunder shall at all times be a Department of Housing and
Urban Development and Federal Housing Administration approved mortgagee, an
entity duly organized and validly existing under the laws of the United States
of America or any state thereof, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
$50,000,000 and a minimum long-term debt rating of BBB by S&P and a long term
debt rating of at least A1 or better by Moody's, and subject to supervision or
examination by federal or state authority. If such entity publishes reports of
condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purposes of this
Section 8.06, the combined capital and surplus of such entity shall be deemed to
be its combined capital and surplus as set forth in its most recent report of
condition so published. The principal office of the Trustee (other than the
initial Trustee) shall be in a state with respect to which an Opinion of Counsel
has been delivered to such Trustee at the time such Trustee is appointed Trustee
to the effect that the Trust will not be a taxable entity under the laws of such
state. In case at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section 6.06, the Trustee shall resign immediately
in the manner and with the effect specified in Section 6.07.

         SECTION 6.07 RESIGNATION OR REMOVAL OF TRUSTEE.

         The Trustee may at any time resign and be discharged from the trusts
hereby created by giving written notice thereof to the Depositor, the Servicers,
the Custodian and each Rating Agency. Upon receiving such notice of resignation,
the Depositor shall promptly appoint a successor Trustee by written instrument,
in duplicate, one copy of which instrument shall be delivered to the resigning
Trustee and one copy to the successor Trustee. If no successor Trustee shall
have been so appointed and having accepted appointment within 30 days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.


                                       55
<PAGE>

         If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 6.06 and shall fail to resign after written
request therefor by the Depositor, or if at any time the Trustee shall be
legally unable to act, or shall be adjudged a 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 of its property or affairs
for the purpose of rehabilitation, conservation or liquidation, then the
Depositor may remove the Trustee. If the Depositor removes the Trustee under the
authority of the immediately preceding sentence, the Depositor shall promptly
appoint a successor Trustee by written instrument, in duplicate, one copy of
which instrument shall be delivered to the Trustee so removed and one copy to
the successor Trustee. If no successor Trustee shall have been so appointed and
having accepted appointment within 30 days after such removal, the removed
Trustee may petition any court of competent jurisdiction for the appointment of
a successor Trustee.

         The Majority Certificateholders may at any time remove the Trustee by
written instrument or instruments delivered to the Servicer, the Depositor and
the Trustee and the Depositor shall thereupon use its best efforts to appoint a
successor Trustee in accordance with this Section.

         Any resignation or removal of the Trustee and appointment of a
successor Trustee or pursuant to any of the provisions of this Section 6.07
shall not become effective until acceptance of appointment by the successor
Trustee as provided in Section 6.08.

         SECTION 6.08 SUCCESSOR TRUSTEE.

         Any successor Trustee appointed as provided in Section 6.07 shall
execute, acknowledge and deliver to the Depositor, the Rating Agencies, the
Servicer and to its predecessor Trustee an instrument accepting such appointment
hereunder, and thereupon the resignation or removal of the predecessor Trustee
shall become effective, and such successor Trustee, without any further act,
deed or conveyance, shall become fully vested with all the rights, powers,
duties and obligations of its predecessor hereunder, with like effect as if
originally named as Trustee. The Depositor and the predecessor Trustee shall
execute and deliver such instruments and do such other things as may reasonably
be required for fully and certainly vesting and confirming in the successor
Trustee all such rights, powers, duties and obligations.

         No successor Trustee shall accept appointment as provided in this
Section 6.08 unless at the time of such acceptance such successor Trustee shall
be eligible under the provisions of Section 6.06 and the appointment of such
successor Trustee shall not result in a downgrading of the Regular Certificates
by either Rating Agency, as evidenced by a letter from each Rating Agency.

         Upon acceptance of appointment by a successor Trustee as provided in
this Section 6.08, the successor Trustee shall mail notice of the appointment of
a successor Trustee hereunder to all Holders of Certificates at their addresses
as shown in the Certificate Register and to each Rating Agency.

         SECTION 6.09 MERGER OR CONSOLIDATION OF TRUSTEE OR CUSTODIAN.

         Any entity into which the Trustee or the Custodian may be merged or
converted or with which it may be consolidated, or any entity resulting from any
merger, conversion or consolidation to which the Trustee or the Custodian shall
be a party, or any entity succeeding to the business of the Trustee or the
Custodian, shall be the successor of the Trustee or the Custodian hereunder,
provided such entity with regard to the Trustee shall be eligible under the
provisions of Section 6.06 and 6.08, without the execution or filing of any
paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding.

         SECTION 6.10 APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.

         Notwithstanding any other provisions of this Agreement, at any time,
for the purpose of meeting any legal requirements of any jurisdiction in which
any part of the Trust or any Mortgaged Property may at the time be located, the
Depositor and the Trustee acting jointly shall have the power and shall execute
and deliver all instruments to appoint one or more Persons approved by the
Trustee to act as co-trustee or co-trustees, jointly with the Trustee, or
separate trustee or separate trustees, of all or any part of the Trust, and to
vest in such Person or Persons, in such capacity and for the benefit of the
Certificateholders, such title to the Trust, or any part thereof, and, subject
to the other provisions of this Section 6.10, such powers, duties, obligations,
rights and trusts as any Servicer or the Trustee may consider necessary or
desirable. No co-trustee or separate trustee hereunder shall be required to meet
the terms of eligibility as a successor Trustee under Section 6.06, and no
notice to Certificateholders of the appointment of any co-trustee or separate
trustee shall be required under Section 6.08. The Seller shall be responsible
for the fees of any co-trustee or separate trustee appointed hereunder.

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<PAGE>

         Every separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:

                  (i) all rights, powers, duties and obligations conferred or
         imposed upon the Trustee shall be conferred or imposed upon and
         exercised or performed by the Trustee and such separate trustee or
         co-trustee jointly (it being understood that such separate trustee or
         co-trustee is not authorized to act separately without the Trustee
         joining in such act), except to the extent that under any law of any
         jurisdiction in which any particular act or acts are to be performed
         (whether as Trustee hereunder or as successor to the related Servicer
         under the related Servicing Agreement ), the Trustee shall be
         incompetent or unqualified to perform such act or acts, in which event
         such rights, powers, duties and obligations (including the holding of
         title to the Trust or any portion thereof in any such jurisdiction)
         shall be exercised and performed singly by such separate trustee or
         co-trustee, but solely at the direction of the Trustee;

                  (ii) no trustee hereunder shall be held personally liable by
         reason of any act or omission of any other trustee hereunder; and

                  (iii) the Trustee, acting jointly may at any time accept the
         resignation of or remove any separate trustee or co-trustee.

         Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article VI. Each separate trustee and co-trustee, upon its acceptance of
the trusts conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Trustee or separately, as
may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee and a copy thereof given to the
Depositor, the Rating Agencies and each Servicer.

         Any separate trustee or co-trustee may, at any time, constitute the
Trustee, its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor Trustee.

         SECTION 6.11 LIMITATION OF LIABILITY.

         The Certificates are executed by the Trustee, not in its individual
capacity but solely as Trustee of the Trust, in the exercise of the powers and
authority conferred and vested in it by this Agreement. Each of the undertakings
and agreements made on the part of the Trustee in the Certificates is made and
intended not as a personal undertaking or agreement by the Trustee but is made
and intended for the purpose of binding only the Trust.

         SECTION 6.12 TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
CERTIFICATES.

         (a) All rights of action and claims under this Agreement or the
Certificates may be prosecuted and enforced by the Trustee without the
possession of any of the Certificates or the production thereof in any
proceeding relating thereto, and such proceeding instituted by the Trustee shall
be brought in its own name or in its capacity as Trustee for the benefit of all
Holders of such Certificates, subject to the provisions of this Agreement. Any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursement and advances of the Trustee, its agents and
counsel, be for the ratable benefit of the Certificateholders in respect of
which such judgment has been recovered.

         (b) The Trustee shall afford the Seller, the Depositor, each Servicer
and each Certificateholder upon reasonable notice during normal business hours
of the Trustee, access to all records maintained by the Trustee in respect of
its duties hereunder and access to officers of the Trustee responsible for
performing such duties. The Trustee shall cooperate fully with the Seller, the
Servicer, the Depositor and such Certificateholder and shall make available to
the Seller, each Servicer, the Depositor and such Certificateholder for review
and copying at the expense of the party requesting such copies, such books,
documents or records as may be requested with respect to the Trustee's duties
hereunder. The Seller, the Depositor, each Servicer and the Certificateholders
shall not have any responsibility or liability for any action or failure to act
by the Trustee and are not obligated to supervise the performance of the Trustee
under this Agreement or otherwise.


                                       57
<PAGE>

         SECTION 6.13 SUITS FOR ENFORCEMENT.

         In case of a default by the Seller hereunder shall occur and be
continuing, the Trustee may proceed to protect and enforce its rights and the
rights of the Certificateholders under this Agreement by a suit, action or
proceeding in equity or at law or otherwise, whether for the specific
performance of any covenant or agreement contained in this Agreement or in aid
of the execution of any power granted in this Agreement or for the enforcement
of any other legal, equitable or other remedy, as the Trustee, being advised by
counsel, and subject to the foregoing, shall deem most effectual to protect and
enforce any of the rights of the Trustee and the Certificateholders.

         SECTION 6.14 WAIVER OF BOND REQUIREMENT.

         The Trustee shall be relieved of, and each Certificateholder hereby
waives, any requirement of any jurisdiction in which the Trust, or any part
thereof, may be located that the Trustee post a bond or other surety with any
court, agency or body whatsoever.

         SECTION 6.15 WAIVER OF INVENTORY, ACCOUNTING AND APPRAISAL REQUIREMENT.

         The Trustee shall be relieved of, and each Certificateholder hereby
waives, any requirement of any jurisdiction in which the Trust, or any part
thereof, may be located that the Trustee file any inventory, accounting or
appraisal of the Trust with any court, agency or body at any time or in any
manner whatsoever.

         SECTION 6.16 COMPLIANCE WITH NATIONAL HOUSING ACT OF 1934.

         In performing its duties with respect to FHA Loans, if any, the Trustee
shall take all action necessary to comply with the requirements of the National
Housing Act of 1934, as amended, that the related Servicer properly instructs it
to take pursuant to, and in accordance with, the related Servicing Agreement.

         SECTION 6.17 PERIODIC FILING

         (a) The Trustee shall reasonably cooperate with the Depositor in
connection with the Trust's satisfying the reporting requirements under the 1934
Act.

         (b) Prior to March 30th of each year (or such earlier date as may be
required by the 1934 Act and the Rules and Regulations of the SEC), the Trustee
shall file (but shall not execute) a Form 10-K, in substance. as required by
applicable law or the SEC's staff interpretations. Such Form 10-K shall include
as exhibits each Servicer's annual statement of compliance delivered pursuant to
each Servicing Agreement (upon which the Trustee may rely) and the accountant's
reports delivered pursuant to each Servicing Agreement, in each case to the
extent they have been timely delivered to the Trustee. If they are not so timely
delivered, the Trustee shall file an amended Form 10-K including such documents
as exhibits reasonably promptly after they are delivered to the Trustee. The
Form 10-K shall be executed by, and shall also include a certification in the
form attached hereto as Exhibit M (the "Certification"), which shall be signed
by, the senior officer of the Depositor in charge of securitization. The Trustee
shall have no liability with respect to any failure to properly prepare or file
any such periodic reports resulting from or relating to the Trustee's inability
or failure to obtain any information not resulting from its own negligence or
wilful misconduct.


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<PAGE>

         (c) Notwithstanding that the Certification is to be signed by an
officer of the Depositor, a Responsible Officer of the Trustee shall sign a
certification, in the form attached hereto as Exhibit O for the benefit of the
Depositor and its officers, directors and Affiliates in respect of items 1
through 3 thereof of the Certification (provided, however, that the Trustee
shall not undertake an analysis of the accountant's report attached as an
exhibit to the Form 10-K), and a Servicing Officer of the applicable Servicer
who is responsible for the servicing and administration of the Mortgage Loans
shall be required under the applicable Servicing Agreement to sign a
certification in the form attached to the applicable Servicing Agreement for the
benefit of the Depositor, the Trustee and their respective officers, directors
and Affiliates. Each such certification shall be delivered to the Depositor and
the Trustee (as applicable), no later than March 15th of each year (or if such
calendar day is not a Business Day, the immediately preceding Business Day) and
the Depositor shall deliver the Certification to be filed to the Trustee no
later than March 20th of each year (or if such calendar day is not a Business
Day, the immediately preceding Business Day). In the event that prior to the
filing date of the Form 10-K in March of each year, the Trustee has actual
knowledge of information material to the Certification, that party shall
promptly notify the Depositor and each of the other parties signing the
certifications. In addition, (i) the Trustee shall indemnify and hold harmless
the Depositor and its officers, directors and Affiliates from and against any
losses, damages, penalties, fines, forfeitures, reasonable and necessary legal
fees and related costs, judgments and other costs and expenses arising out of or
based upon any breach of the Trustee's obligations under this Section 6.17(c) or
the Trustee's negligence, bad faith or willful misconduct in connection
therewith and (ii) the applicable Servicer shall indemnify and hold harmless the
Depositor, the Trustee and their respective officers, directors and Affiliates
solely to the extent set forth in the applicable Servicing Agreement. If the
indemnification provided for herein is unavailable or insufficient to hold
harmless the indemnified party then (i) the Trustee agrees in connection with a
breach of the Trustee's obligations under this Section 6.17 or the Trustee's
negligence, bad faith or willful misconduct in connection therewith that it
shall contribute to the amount paid or payable by the Depositor as a result of
the losses, claims, damages or liabilities of the Depositor in such proportion
as is appropriate to reflect the relative fault of the Depositor on the one hand
and the Trustee on the other and (ii) the related Servicer agrees that it shall
contribute to the amount paid or payable by the Depositor and/or the Trustee
solely to the extent set forth in the applicable Servicing Agreement.

         (d) At the Depositor's request, the Trustee shall promptly deliver to
the Depositor a copy of any executed report, statement or information filed with
the Securities and Exchange Commission.

         (e) Prior to January 30 of the first year in which the Trustee is able
to do so under applicable law, the Trustee shall, in accordance with applicable
law, file a Form 15D Suspension Notification with respect to the Trust Fund in a
timely manner.

         SECTION 6.18 TAX CLASSIFICATION OF CERTAIN ACCOUNTS.

         For federal income tax purposes, the Trustee shall treat the Excess
Reserve Fund Account as an outside reserve fund, within the meaning of Treasury
Regulation ss. 1.860G-2(h), that is beneficially owned by the holder of the
Class X Certificate. The Trustee shall treat the rights that each Class of
Certificates has to receive payments of Basis Risk Carry Forward Amounts from
the Excess Reserve Fund Account as rights to receive payments under an interest
rate cap contract written by the Class X Certificateholder in favor of each
Class. Accordingly, each Class of Certificates (excluding the Class X, Class P
and Class R Certificates) will comprise two components - an Upper Tier Regular
Interest and an interest in a notional principal contract. The Trustee shall
allocate the issue price for a Class of Certificates between such two components
for purposes of determining the issue price of the Upper Tier Regular Interest
component based on information received from the Depositor.

         SECTION 6.19 RESIGNATION OR REMOVAL OF THE CUSTODIAN.

         The Custodian may at any time resign and be discharged from the duties
herein described by giving 60 days written notice thereof to the Depositor, the
Servicers, the Trustee and each Rating Agency. Upon receiving such notice of
resignation, the Depositor shall promptly appoint a successor Custodian by
written instrument, in duplicate, one copy of which instrument shall be
delivered to the resigning Custodian and one copy to the successor Custodian. If
no successor Custodian shall have been so appointed and having accepted
appointment within 30 days after the giving of such notice of resignation, the
Trustee may appoint a successor Custodian and, if no successor Custodian shall
have been so appointed and having accepted appointment within 60 days after the
giving of such notice of resignation, the resigning Custodian may petition any
court of competent jurisdiction for the appointment of a successor Custodian.

         The Majority Certificateholders may at any time remove the Custodian by
written instrument or instruments delivered to the Servicer, the Depositor and
the Trustee, and the Depositor and the Trustee shall thereupon use its best
efforts to appoint a successor Custodian in accordance with this Section.

         Any resignation or removal of the Custodian and appointment of a
successor Custodian or pursuant to any of the provisions of this Section 6.19
shall not become effective until acceptance of appointment by the successor
Custodian as provided in Section 6.20.


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         SECTION 6.20 SUCCESSOR CUSTODIAN.

         Any successor Custodian appointed as provided in Section 6.19 shall
execute, acknowledge and deliver to the Depositor, the Rating Agencies, the
Servicer, the Trustee and to its predecessor Custodian an instrument accepting
such appointment hereunder, and thereupon the resignation or removal of the
predecessor Custodian shall become effective, and such successor Custodian,
without any further act, deed or conveyance, shall become fully vested with all
the rights, powers, duties and obligations of its predecessor hereunder, with
like effect as if originally named as Custodian. The Depositor, the Trustee and
the predecessor Custodian shall execute and deliver such instruments and do such
other things as may reasonably be required for fully and certainly vesting and
confirming in the successor Custodian all such rights, powers, duties and
obligations.

         No successor Custodian shall accept appointment as provided in this
Section 6.20 unless the appointment of such successor Custodian shall not result
in a downgrading of the Regular Certificates by either Rating Agency, as
evidenced by a letter from each Rating Agency.

         Upon acceptance of appointment by a successor Custodian as provided in
this Section 6.20, the Trustee shall mail notice of the appointment of a
successor Custodian hereunder to all Holders of Certificates at their addresses
as shown in the Certificate Register and to each Rating Agency.

         SECTION 6.21 CAP AGREEMENTS AND SERVICING AGREEMENTS.

         The Trustee is hereby authorized and directed to execute and deliver
the Cap Agreements and the Servicing Agreements and to acknowledge the
provisions thereof.

                                   ARTICLE VII

                                   TERMINATION


         SECTION 7.01 TERMINATION.

         (a) The respective obligations and responsibilities of the Seller, the
Depositor, the Trustee, the Custodian and the Certificate Registrar created
hereby (other than the obligation of the Trustee to make certain payments to
Certificateholders after the final Distribution Date and the obligation of the
Servicer to send certain notices as hereinafter set forth) shall terminate upon
notice to the Trustee upon the earliest of (i) the Distribution Date on which
the Certificate Principal Balance of each Class of Certificates has been reduced
to zero, (ii) the final payment or other liquidation of the last Mortgage Loan
in the Trust, and (iii) the optional purchase of the Mortgage Loans by any or
all of the Servicers as described below. Notwithstanding the foregoing, in no
event shall the trust created hereby continue beyond the expiration of 21 years
from the death of the last survivor of the descendants of Joseph P. Kennedy, the
late ambassador of the United States to the Court of St. James, living on the
date hereof.

         The Servicers may, if each of the Servicers agree to do so in a written
notice provided to the Trustee at least five Business Days prior to the
Distribution Date preceding the Distribution Date on which the Trust Fund will
be terminated (the "Termination Notice""), terminate the Trust Fund and retire
the Offered Certificates on the next succeeding Distribution Date upon which the
aggregate current Pool Balance is less than or equal to 10% of the aggregate
Pool Balance of the Mortgage Loans as of the Cut-off Date by purchasing all of
the outstanding Mortgage Loans in the Trust Fund at a price equal to the sum of
the outstanding Principal Balance of the Mortgage Loans and, except to the
extent previously advanced by the Servicers, accrued and unpaid interest thereon
at the weighted average of the Mortgage Interest Rates through the end of the
Collection Period preceding the final Distribution Date plus unreimbursed
Servicing Advances, Advances and any unpaid Servicing Fees allocable to such
Mortgage Loans (the "Termination Price") and by reimbursing all Servicers for
outstanding Advances and Servicing Arrearages and by reimbursing the Seller for
outstanding P&I Arrearages. The Termination Price and the reimbursement amounts
shall be allocated among and paid by the Servicers and the purchased Mortgage
Loans shall be distributed among the Servicers in the manner set forth in the
Termination Notice. If any of the Servicers elect not to participate in the
purchase of all of the outstanding Mortgage Loans in the Trust Fund on the
Optional Termination Date, then the non-electing party's option to purchase such
Mortgage Loans may be exercised by the other Servicer or Servicers, as the case
may be, agreed to by such electing parties, provided, that all and not part of
the Mortgage Loans are purchased at the Termination Price. If the option is not
exercised on such Distribution Date, then on the next succeeding Distribution
Date, and on each Distribution Date thereafter until such time, if any, as the
Mortgage Loans are repurchased, any of the Servicers or combination of Servicers
may, at their option, purchase all of the outstanding Mortgage Loans in the
Trust Fund, in the manner described above, for the Termination Price as of such
Distribution Date. Notwithstanding the foregoing, if S&P has rated a class of
debt securities ("Net Interest Margin Securities") that are backed by the Class
X Certificates and Class P Certificates and that are outstanding on any date on
which any or all of the Servicers, as applicable, intend to exercise their
option to purchase the Mortgage Loans, the applicable Servicer or Servicers,
will be permitted to exercise such option only if one of the following
conditions is met: (i) after distribution of the Termination Price to the
Certificateholders (other than the Holders of the Class X Certificates, Class P
Certificates and Class R Certificates) to redeem the related Certificates, the
remainder of the Termination Price (the "Remainder Amount") is distributed to
the Holders of the Class X Certificates and Class P Certificates and is
sufficient to pay the outstanding principal amount of and accrued and unpaid
interest on the Net Interest Margin Securities; or (ii) (A) at the same time
that the related Servicer or Servicers remit the Termination Price to the
Trustee, they also remit to the Trustee an additional amount which, in
combination with the Remainder Amount, is sufficient to pay the outstanding
principal amount of and accrued and unpaid interest on the Net Interest Margin
Securities, and (B) the Trustee remits the Remainder Amount to the Holders of
the Class X Certificates and Class P Certificates and remits that additional
amount directly to the indenture trustee (plus any outstanding expenses due and
owing to the indenture trustee) under the indenture creating the Net Interest
Margin Securities.


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<PAGE>

         With respect to any Class of Certificates, other than the Class R
Certificate, at any date, the maximum dollar amount of principal to which the
Holder thereof is then entitled hereunder, such amount being equal to the
Denomination thereof minus all distributions of principal previously made with
respect thereto and in the case of any Subordinated Certificates, reduced by any
Applied Realized Loss Amounts applicable to such Class of Certificates. The
Class R Certificate has no Certificate Principal Balance.

         In connection with any such purchase pursuant to the preceding
paragraph, the Servicer shall deliver to the Trustee for deposit in the
Distribution Account all amounts then on deposit in each Collection Account
(less amounts permitted to be withdrawn by the applicable Servicer pursuant to
the applicable Servicing Agreement), which deposit shall be deemed to have
occurred immediately following such purchase.

         Any such purchase shall be accomplished by delivery to the Trustee for
deposit into the Distribution Account as part of Available Funds on the Servicer
Remittance Date before such Distribution Date of the Termination Price.

         (b) Notice of any termination, specifying the Distribution Date (which
shall be a date that would otherwise be a Distribution Date) upon which the
Certificateholders may surrender their Certificates to the Trustee for payment
of the final distribution and cancellation, shall be given promptly by the
Trustee upon the Trustee receiving notice of such date from the applicable
Servicer, by letter to the Certificateholders mailed not earlier than the 15th
calendar day of the month preceding the month of such final distribution and not
later than the 15th calendar day of the month of such final distribution
specifying (1) the Distribution Date upon which final distribution of the
Certificates will be made upon presentation and surrender of such Certificates
at the office or agency of the Trustee therein designated, (2) the amount of any
such final distribution and (3) that the Record Date otherwise applicable to
such Distribution Date is not applicable, distributions being made only upon
presentation and surrender of the Certificates at the office or agency of the
Trustee therein specified.

         (c) Upon presentation and surrender of the Certificates, the Trustee
shall cause to be distributed to the Holders of the Certificates on the
Distribution Date for such final distribution, in proportion to the Percentage
Interests of their respective Class and to the extent that funds are available
for such purpose, an amount equal to the amount required to be distributed to
such Holders in accordance with the provisions of Sections 3.03 and 3.04 for
such Distribution Date.

         (d) In the event that all Certificateholders shall not surrender their
Certificates for final payment and cancellation on or before such final
Distribution Date, the Trustee shall promptly following such date cause all
funds in the Distribution Account not distributed in final distribution to
Certificateholders to be withdrawn therefrom and credited to the remaining
Certificateholders by depositing such funds in a separate escrow account for the
benefit of such Certificateholders, and the Trustee shall give a second written
notice to the remaining Certificateholders, to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If within
nine months after the second notice all the Certificates shall not have been
surrendered for cancellation, the Class R Certificateholders shall be entitled
to all unclaimed funds and other assets which remain subject hereto and the
Trustee upon transfer of such funds shall be discharged of any responsibility
for such funds, and such Certificateholders shall look to the Class R
Certificateholders for payment.


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<PAGE>

         SECTION 7.02 ADDITIONAL TERMINATION REQUIREMENTS.

         (a) In the event the Servicers exercise their purchase option pursuant
to Section 7.01, the Lower Tier REMIC and the Upper Tier REMIC shall be
terminated in accordance with the following additional requirements, unless the
Trustee has received an Opinion of Counsel to the effect that the failure of the
Lower Tier REMIC and the Upper Tier REMIC to comply with the requirements of
this Section will not (i) result in the imposition of taxes on a "prohibited
transaction" of the Lower Tier REMIC or the Upper Tier REMIC, as described in
Section 860F of the Code or (ii) cause the Lower Tier REMIC or the REMIC Trust
to fail to qualify as a REMIC at any time that any Certificates are outstanding:

                  (A) within 90 days prior to the final Distribution Date set
         forth in the notice given by the Servicer under Section 7.01, the
         Holder of the Class R Certificates shall adopt a plan of complete
         liquidation of the Lower Tier REMIC and the Upper Tier REMIC and
         specify the first day of the applicable 90-day liquidation period in a
         statement attached to the Trust's final tax return pursuant to Treasury
         regulations ss. 1.860F-1, and satisfy (or cause to be satisfied) all of
         the requirements of a qualified liquidation under the REMIC Provisions;
         and

                  (B) at or after the time of adoption of any such plan of
         complete liquidation for the Lower Tier REMIC and the Upper Tier REMIC
         at or prior to the final Distribution Date, the Trustee shall sell all
         of the assets of the Trust to the Servicer for cash.

         (b) By its acceptance of a Class R Certificate, the Holder thereof
hereby agrees to adopt such a plan of complete liquidation and to take such
other action in connection therewith as may be reasonably required to liquidate
and otherwise terminate the Lower Tier REMIC and the Upper Tier REMIC.

                                  ARTICLE VIII

                            MISCELLANEOUS PROVISIONS

         SECTION 8.01 AMENDMENT.

         This Agreement may be amended from time to time by the Seller, the
Custodian, the Depositor and the Trustee; and without the consent of the
Certificateholders, (i) to cure any ambiguity, (ii) to correct or supplement any
provisions herein which may be defective or inconsistent with any other
provisions herein or (iii) to make any other provisions with respect to matters
or questions arising under this Agreement, which shall not be inconsistent with
the provisions of this Agreement; provided, however, that any such action listed
in clause (i) through (iii) above shall not adversely affect in any respect the
interests of any Certificateholder, as evidenced by (i) notice in writing to the
Depositor, the Custodian and the Trustee from the Rating Agencies that such
action will not result in the reduction or withdrawal of the rating of any
outstanding Class of Certificates with respect to which it is a Rating Agency,
or (ii) an Opinion of Counsel delivered to the Trustee and the Custodian to such
effect.

         In addition, this Agreement may be amended from time to time by Seller,
the Custodian, the Depositor and the Trustee, with the consent of the Majority
Certificateholders for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Agreement or of
modifying in any manner the rights of the Holders of Certificates; provided,
however, that no such amendment or waiver shall (x) reduce in any manner the
amount of, or delay the timing of, payments on the Certificates which are
required to be made on any Certificate without the consent of the Holder of such
Certificate, (y) adversely affect in any material respect the interests of the
Holders of any Class of Certificates in a manner other than as described in
clause (x) above, without the consent of the Holders of Certificates of such
Class evidencing at least a 66% Percentage Interest in such Class, or (z) reduce
the percentage of Voting Rights required by clause (y) above without the consent
of the Holders of all Certificates of such Class then outstanding. Upon approval
of an amendment, a copy of such amendment shall be sent to the Rating Agencies.
Prior to the execution of any amendment to this Agreement, the Trustee shall be
entitled to receive and rely upon an Opinion of Counsel (at the expense of the
Person seeking such amendment) stating that the execution of such amendment is
authorized or permitted by this Agreement. The Trustee or the Custodian, as
applicable, may, but shall not be obligated to, enter into any such amendment
which affects the Trustee's or the Custodian's own rights, duties or immunities
under this Agreement.


                                       62
<PAGE>

         Notwithstanding any provision of this Agreement to the contrary, the
Trustee shall not consent to any amendment to this Agreement unless it shall
have first received an Opinion of Counsel, delivered by (and at the expense of)
the Person seeking such Amendment, to the effect that such amendment will not
result in the imposition of a tax on any REMIC constituting part of the Trust
Fund pursuant to the REMIC Provisions or cause any REMIC constituting part of
the Trust to fail to qualify as a REMIC at any time that any Certificates are
outstanding and that the amendment is being made in accordance with the terms
hereof.

         Promptly after the execution of any such amendment the Trustee shall
furnish, at the expense of the Person that requested the amendment if such
Person is the Seller (but in no event at the expense of the Trustee or the
Custodian, otherwise at the expense of the Trust), a copy of such amendment and
the Opinion of Counsel referred to in the immediately preceding paragraph to
each Rating Agency and WAMU.

         It shall not be necessary for the consent of Certificateholders under
this Section 8.01 to approve the particular form of any proposed amendment;
instead it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Certificateholders shall be subject to
such reasonable regulations as the Trustee may prescribe.

         SECTION 8.02 RECORDATION OF AGREEMENT; COUNTERPARTS.

         To the extent permitted by applicable law, this Agreement is subject to
recordation in all appropriate public offices for real property records in all
the counties or other comparable jurisdictions in which any or all of the
properties subject to the Mortgages are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected by the
Trustee at the expense of the Trust, but only upon direction of
Certificateholders, accompanied by an Opinion of Counsel to the effect that such
recordation materially and beneficially affects the interests of the
Certificateholders.

         For the purpose of facilitating the recordation of this Agreement as
herein provided and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts shall together constitute but
one and the same instrument.

         SECTION 8.03 LIMITATION ON RIGHTS OF CERTIFICATEHOLDERS.

         The death or incapacity of any Certificateholder shall not (i) operate
to terminate this Agreement or the Trust, (ii) entitle such Certificateholder's
legal representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of the Trust, or (iii)
otherwise affect the rights, obligations and liabilities of the parties hereto
or any of them.

         Except as expressly provided for herein, no Certificateholder shall
have any right to vote or in any manner otherwise control the operation and
management of the Trust, or the obligations of the parties hereto, nor shall
anything herein set forth or contained in the terms of the Certificates be
construed so as to constitute the Certificateholders from time to time as
partners or members of an association; nor shall any Certificateholder be under
any liability to any third person by reason of any action taken by the parties
to this Agreement pursuant to any provision hereof.


                                       63
<PAGE>

         No Certificateholder shall have any right by virtue of any provision of
this Agreement to institute any suit, action or proceeding in equity or at law
upon or under or with respect to this Agreement, unless such Holder previously
shall have given to the Trustee a written notice of default and of the
continuance thereof, as herein provided, and unless also the Holders of
Certificates entitled to at least 25% of the Voting Rights shall have made
written request upon the Trustee to institute such action, suit or proceeding in
its own name as Trustee hereunder and shall have offered to the Trustee such
reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Trustee for 15 days after
its receipt of such notice, request and offer of indemnity, shall have neglected
or refused to institute any such action, suit or proceeding. It is understood
and intended, and expressly covenanted by each Certificateholder with every
other Certificateholder and the Trustee, that no one or more Holders of
Certificates shall have any right in any manner whatever by virtue of any
provision of this Agreement to affect, disturb or prejudice the rights of the
Holders of any other of such Certificates, or to obtain or seek to obtain
priority over or preference to any other such Holder, which priority or
preference is not otherwise provided for herein, or to enforce any right under
this Agreement, except in the manner herein provided and for the equal, ratable
and common benefit of all Certificateholders. For the protection and enforcement
of the provisions of this Section 8.03 each and every Certificateholder and the
Trustee shall be entitled to such relief as can be given either at law or in
equity.

         SECTION 8.04 GOVERNING LAW; JURISDICTION.

         This Agreement shall be construed in accordance with the laws of the
State of New York, and the obligations, rights and remedies of the parties
hereunder shall be determined in accordance with such laws. WITH RESPECT TO ANY
CLAIM ARISING OUT OF THIS AGREEMENT, EACH PARTY IRREVOCABLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED
STATES DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW
YORK, AND EACH PARTY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY HAVE AT ANY
TIME TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING HERETO BROUGHT IN ANY SUCH COURTS, IRREVOCABLY WAIVES ANY CLAIM THAT
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT
IN ANY INCONVENIENT FORUM AND FURTHER IRREVOCABLY WAIVES THE RIGHT TO OBJECT,
WITH RESPECT TO SUCH CLAIM, SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER SUCH PARTY, PROVIDED THAT
SERVICE OF PROCESS HAS BEEN MADE BY ANY LAWFUL MEANS.

         SECTION 8.05 NOTICES.

         All directions, demands and notices hereunder shall be in writing and
shall be deemed to have been duly given if personally faxed to or delivered at
or mailed by first class mail, postage prepaid, or by express delivery service,
to: (a) in the case of the Seller, Morgan Stanley Mortgage Capital Inc., 1221
Avenue of the Americas, New York, New York 10019, Attention: Michelle Wilke,
Esq. (telecopy number (212) 762-9224) or such other address or telecopy number
as may hereafter be furnished to the Depositor and the Trustee in writing by the
Seller; (b) in the case of the Trustee, Deutsche Bank National Trust Company,
1761 East St. Andrew Place, Santa Ana, California 92705 Attention: Trust
Administration - MS04S2, or such other address as may hereafter be furnished to
the Depositor and the Seller in writing by the Trustee; (c) in the case of the
Depositor, Morgan Stanley ABS Capital I Inc., 1585 Broadway, New York, New York
10036, Attention: Michelle Wilke, Esq. (telecopy number (212) 762-9224) or such
other address as may be furnished to the Seller, the Trustee and the Custodian
in writing by the Depositor; (d) in the case of the Custodian, Deutsche Bank
National Trust Company, 1761 East St. Andrew Place, Santa Ana, California 92705
Attention: Trust Administration - MS04S2, or such other address as may be
furnished to the Depositor, the Seller and the Trustee in writing by the
Custodian; (e) in the case of Bank of America, Bank of America, N.A., 475
Crosspoint Parkway, Getzville, New York 14068-9000, Attention: Servicing
Manager, or such other address or telecopy number as may hereafter be furnished
to the Depositor and the Trustee in writing by Bank of America; (f) in the case
of WAMU, Washington Mutual Bank, FA, 1950 Plummer St, (mail stop N070205),
Chatsworth, California, 91311, Attention: Vice President, Investor Reporting
(with a copy to Washington Mutual Bank, FA, 1201 Third Avenue, WMT0511, Seattle,
Washington 98101, Attention: Salvatore Russo) or such other address or telecopy
number as may hereafter be furnished to the Depositor and the Trustee in writing
by WAMU; and (g) in the case of Wilshire, Wilshire Credit Corporation, 14523
S.W. Millikan Way, Beaverton, Oregon 97005, Attention: Jay Memmott or such other
address or telecopy number as may hereafter be furnished to the Depositor and
the Trustee in writing by Wilshire. Any notice required or permitted to be
mailed to a Certificateholder shall be given by first class mail, postage
prepaid, at the address of such Holder as shown in the Certificate Register. Any
notice so mailed within the time prescribed in this Agreement shall be
conclusively presumed to have duly been given when mailed, whether or not the
Certificateholder receives such notice. A copy of any notice required to be
telecopied hereunder shall also be mailed to the appropriate party in the manner
set forth above.


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<PAGE>

         SECTION 8.06 SEVERABILITY OF PROVISIONS.

         If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall for any reason whatsoever be held invalid, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other provisions of this
Agreement or of the Certificates or the rights of the Holders thereof.

         SECTION 8.07 ARTICLE AND SECTION REFERENCES.

         All article and section references used in this Agreement, unless
otherwise provided, are to articles and sections in this Agreement.

         SECTION 8.08 NOTICE TO THE RATING AGENCIES.

         (a) The Trustee shall be obligated to use its best reasonable efforts
promptly to provide notice to the Rating Agencies with respect to each of the
following of which a Responsible Officer of the Trustee has actual knowledge:

                  (i)      any material change or amendment to this Agreement;

                  (ii)     the resignation or termination of the Trustee;

                  (iii)    the final payment to Holders of the Certificates of
                           any Class; and

                  (iv)     any change in the location of the Distribution
                           Account;

         Any such notice pursuant to this Section 8.08 shall be in writing and
shall be deemed to have been duly given if personally delivered, faxed or mailed
by first class mail, postage prepaid, or by express delivery service to Moody's
Investors Service, Inc., 99 Church Street, New York, New York 10007, Attention:
Managing Director, Residential Mortgage-Backed Securities; Standard & Poor's, a
division of The McGraw-Hill Companies, Inc., 55 Water Street, New York, New York
10041, Attention: Mortgage Surveillance Group.

         SECTION 8.09 FURTHER ASSURANCES.

         Notwithstanding any other provision of this Agreement, neither the
Regular Certificateholders nor the Trustee shall have any obligation to consent
to any amendment or modification of this Agreement unless they have been
provided reasonable security or indemnity against their out-of-pocket expenses
(including reasonable attorneys' fees) to be incurred in connection therewith.

         SECTION 8.10 BENEFITS OF AGREEMENT.

         Nothing in this Agreement or in the Certificates, expressed or implied,
shall give to any Person, other than the Certificateholders and the parties
hereto and their successors hereunder, any benefit or any legal or equitable
right, remedy or claim under this Agreement.

         SECTION 8.11 ACTS OF CERTIFICATEHOLDERS.

         (a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by the
Certificateholders may be embodied in and evidenced by one or more instruments
of substantially similar tenor signed by such Certificateholders in person or by
agent duly appointed in writing; and such action shall become effective when
such instrument or instruments are delivered to the Trustee and the Seller. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "act" of the Certificateholders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Agreement and conclusive in favor of the Trustee and the Trust,
if made in the manner provided in this Section 8.11.


                                       65
<PAGE>

         (b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of a notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Whenever
such execution is by a signer acting in a capacity other than his or her
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of his authority.

         (c) Any request, demand, authorization, direction, notice, consent,
waiver or other action by any Certificateholder shall bind every future Holder
of such Certificate and the Holder of every Certificate issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof, in
respect of anything done, omitted or suffered to be done by the Trustee or the
Trust in reliance thereon, whether or not notation of such action is made upon
such Certificate.

         SECTION 8.12 TAX MATTERS.

         As set forth in the Preliminary Statement, the assets within the Trust
Fund for which any REMIC election is to be made shall constitute, and the
conduct of matters relating to such assets shall be consistent with the
treatment of such assets as, a REMIC. To this end, the Trustee covenants and
agrees to act as agent (and the Trustee is hereby appointed to act as agent) on
behalf of any REMIC created hereunder, and that in such capacity it shall:

              (a) prepare and file in a timely manner, a U.S. Real Estate
Mortgage Investment Conduit (REMIC) Income Tax Return (Form 1066 or any
successor form adopted by the Internal Revenue Service) and prepare and file
with the Internal Revenue Service and applicable state or local tax authorities
income tax or information returns for each taxable year with respect to any
REMIC described in the Preliminary Statement containing such information and at
the times and in the manner as may be required by the Code or state or local tax
laws, regulations, or rules, and furnish to Certificateholders the schedules,
statements or information at such times and in such manner as may be required
thereby;

              (b) within thirty days of the Closing Date, furnish to the
Internal Revenue Service on Form 8811 or as otherwise may be required by the
Code, the name, title, address, and telephone number of the person that the
holders of the Certificates may contact for tax information relating thereto,
together with such additional information as may be required by such form, and
update such information at the time or times in the manner required by the Code;

              (c) make an election that each of the Lower Tier REMIC and the
Upper Tier REMIC be treated as a REMIC on the federal tax return for its first
taxable year (and, if necessary, under applicable state law);

              (d) prepare and forward to the Certificateholders and to the
Internal Revenue Service and, if necessary, state tax authorities, all
information returns and reports as and when required to be provided to them in
accordance with the REMIC Provisions, including the calculation of any original
issue discount using the Prepayment Assumption (as defined in the Prospectus
Supplement);

              (e) provide information necessary for the computation of tax
imposed on the transfer of a Residual Certificate to a Person that is not a
Permitted Transferee, or an agent (including a broker, nominee or other
middleman) of a Non-Permitted Transferee, or a pass-through entity in which a
Non-Permitted Transferee is the record holder of an interest (the reasonable
cost of computing and furnishing such information may be charged to the Person
liable for such tax);

              (f) to the extent that they are under its control, conduct matters
relating to such assets at all times that any Certificates are outstanding so as
to maintain the status as a REMIC under the REMIC Provisions;

              (g) not knowingly or intentionally take any action or omit to take
any action that would cause the termination of the REMIC status of any REMIC
created hereunder;

              (h) pay, from the sources specified in the last paragraph of this
Section 8.11, the amount of any federal or state tax, including prohibited
transaction taxes as described below, imposed on any REMIC created hereunder
before its termination when and as the same shall be due and payable (but such
obligation shall not prevent the Trustee or any other appropriate Person from
contesting any such tax in appropriate proceedings and shall not prevent the
Trustee from withholding payment of such tax, if permitted by law, pending the
outcome of such proceedings);


                                       66
<PAGE>

              (i) cause federal, state or local income tax or information
returns to be signed by the Trustee or such other person as may be required to
sign such returns by the Code or state or local laws, regulations or rules;

              (j) maintain records relating to each REMIC created hereunder,
including the income, expenses, assets, and liabilities thereof on a calendar
year basis and on the accrual method of accounting and the fair market value and
adjusted basis of the assets determined at such intervals as may be required by
the Code, as may be necessary to prepare the foregoing returns, schedules,
statements or information; and

              (k) as and when necessary and appropriate, represent each REMIC
created hereunder in any administrative or judicial proceedings relating to an
examination or audit by any governmental taxing authority, request an
administrative adjustment as to any taxable year of each REMIC created
hereunder, enter into settlement agreements with any governmental taxing agency,
extend any statute of limitations relating to any tax item of any REMIC created
hereunder, and otherwise act on behalf of the REMIC in relation to any tax
matter or controversy involving it.

         To enable the Trustee to perform its duties under this Agreement, the
Depositor shall provide to the Trustee within ten days after the Closing Date
all information or data that the Trustee requests in writing and determines to
be relevant for tax purposes to the valuations and offering prices of the
Certificates, including the price, yield, prepayment assumption, and projected
cash flows of the Certificates and the Mortgage Loans. Moreover, the Depositor
shall provide information to the Trustee concerning the value to each Class of
Certificates of the right to receive Basis Risk Carry Forward Amounts from the
Excess Reserve Fund Account. Thereafter, the Depositor shall provide to the
Trustee promptly upon written request therefor any additional information or
data that the Trustee may, from time to time, reasonably request to enable the
Trustee to perform its duties under this Agreement. The Depositor hereby
indemnifies the Trustee for any losses, liabilities, damages, claims, or
expenses of the Trustee arising from any errors or miscalculations of the
Trustee that result from any failure of the Depositor to provide, or to cause to
be provided, accurate information or data to the Trustee on a timely basis.

         If any tax is imposed on "prohibited transactions" of any REMIC created
hereunder as defined in Section 860F(a)(2) of the Code, on the "net income from
foreclosure property" of such REMIC as defined in Section 860G(c) of the Code,
on any contribution to the REMIC after the Startup Day pursuant to Section
860G(d) of the Code, or any other tax is imposed, including any minimum tax
imposed on the REMIC pursuant to Sections 23153 and 24874 of the California
Revenue and Taxation Code, if not paid as otherwise provided for herein, the tax
shall be paid by (i) the Trustee if such tax arises out of or results from
negligence of the Trustee in the performance of any of its obligations under
this Agreement, (ii) the Servicer if such tax arises out of or results from a
breach by the Servicer of any of its obligations under this Agreement, (iii) the
Seller shall pay if such tax arises out of or results from the Seller's
obligation to repurchase a Mortgage Loan pursuant to Section 2.03, or (iv) in
all other cases, or if the Trustee, the Servicer or the Seller fails to honor
its obligations under the preceding clauses (i) or (ii), any such tax will be
paid with amounts otherwise to be distributed to the Certificateholders.


                                       67
<PAGE>

         IN WITNESS WHEREOF, the Seller, the Depositor, the Trustee and the
Custodian have caused their names to be signed hereto by their respective
officers thereunto duly authorized, all as of the day and year first above
written.



                                      MORGAN STANLEY ABS CAPITAL I INC.,
                                           as Depositor


                                      By:
                                           -------------------------------------
                                           Name:
                                           Title:


                                      MORGAN STANLEY MORTGAGE CAPITAL INC.,
                                           as Seller


                                      By:
                                           -------------------------------------
                                           Name:
                                           Title:


                                      DEUTSCHE BANK NATIONAL TRUST COMPANY,
                                           not in its individual capacity
                                           but solely as Trustee for the
                                           Morgan Stanley ABS Capital I Inc.
                                           Trust, Series 2004-SD2


                                      By:
                                           -------------------------------------
                                           Name:
                                           Title:


                                      DEUTSCHE BANK NATIONAL TRUST COMPANY,
                                           as Custodian


                                      By:
                                           -------------------------------------
                                           Name:
                                           Title:


                                      By:
                                           -------------------------------------
                                           Name:
                                           Title:


                                       68
<PAGE>
                                    EXHIBIT A

                        [FORM OF THE CLASS A CERTIFICATE]

         UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
         THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
         TRUSTEE OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR
         PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE &
         CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
         REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH
         OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC),
         ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR
         TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE
         & CO., HAS AN INTEREST HEREIN.

         FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS
         BENEFICIAL OWNERSHIP OF A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE
         INVESTMENT CONDUIT," AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN
         SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
         (THE "CODE") AND CERTAIN OTHER PROPERTY.

         MORGAN STANLEY ABS CAPITAL I INC. MORTGAGE PASS-THROUGH CERTIFICATES
                            SERIES 2004-SD2, CLASS A

evidencing a beneficial ownership interest in a portion of a Trust Fund
consisting primarily of a pool of conventional fixed-rate and adjustable-rate
one- to four-family first and second lien mortgage loans formed and sold by

                        MORGAN STANLEY ABS CAPITAL I INC.

Series 2004-SD2, Class A                  Original Class Certificate Principal
                                          Balance of the Class A Certificates as
                                          of the Closing Date:

Pass-Through Rate: Variable               $191,210,000

Cut-off Date:  May 1, 2004                Initial Certificate Principal Balance:
                                          $191,210,000

First Distribution Date:  June 25, 2004   Servicers: Bank of America, N.A.,
                                          Washington Mutual Bank FA and Wilshire
                                          Credit Corporation

No.                                       Trustee:  Deutsche Bank National Trust
                                          Company

CUSIP:  [_______]                         Closing Date:  June 4, 2004

ISIN:  [________]


                                     EX A-1
<PAGE>


         DISTRIBUTIONS IN REDUCTION OF THE CERTIFICATE PRINCIPAL BALANCE OF THIS
         CERTIFICATE MAY BE MADE MONTHLY AS SET FORTH HEREIN. ACCORDINGLY, THE
         OUTSTANDING CERTIFICATE PRINCIPAL BALANCE HEREOF AT ANY TIME MAY BE
         LESS THAN THE AMOUNT SHOWN ABOVE.

         THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN
         MORGAN STANLEY ABS CAPITAL I INC., THE CUSTODIAN, THE TRUSTEE, THE
         SELLER OR ANY OF THEIR AFFILIATES. THIS CERTIFICATE IS NOT GUARANTEED
         BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES.

         This certifies that _______________ is the registered owner of a
Percentage Interest (obtained by dividing the Initial Certificate Principal
Balance of this Certificate by the Original Class Certificate Principal Balance
of the Class A Certificates) in that certain beneficial ownership interest
evidenced by all the Class A Certificates in the Trust Fund created pursuant to
a Pooling Agreement, dated as specified above (the "Agreement"), among Morgan
Stanley ABS Capital I Inc. (hereinafter called the "Depositor," which term
includes any successor entity under the Agreement), the Seller, the Trustee and
the Custodian, a summary of certain of the pertinent provisions of which is set
forth hereafter. To the extent not defined herein, the capitalized terms used
herein have the meanings assigned in the Agreement. This Certificate is issued
under and is subject to the terms, provisions and conditions of the Agreement,
to which Agreement the Holder of this Certificate by virtue of the acceptance
hereof assents and by which such Holder is bound.

         Pursuant to the terms of the Agreement, distributions will be made on
the 25th calendar day of each month or, if such 25th calendar day is not a
Business Day, the Business Day immediately following (a "Distribution Date"),
commencing on the first Distribution Date specified above, to the Person in
whose name this Certificate is registered on the Business Day immediately
preceding such Distribution Date (the "Record Date"), from funds in the
Distribution Account in an amount equal to the product of the Percentage
Interest evidenced by this Certificate and the amount required to be distributed
to the Holders of Class A Certificates on such Distribution Date pursuant to the
Agreement provided, however, that if any Class A Certificate becomes a
Definitive Certificate, the Record Date for such Certificate will be the last
Business Day of the month immediately preceding the month in which the related
Distribution Date occurs.

         All distributions to the Holder of this Certificate under the Agreement
will be made or caused to be made by or on behalf of the Trustee by wire
transfer in immediately available funds to the account of the Person entitled
thereto if such Person shall have so notified the Certificate Registrar in
writing at least five Business Days prior to the Record Date immediately prior
to such Distribution Date, or by check mailed by first class mail to the address
of the Person entitled thereto, as such name and address shall appear on the
Certificate Register, provided that the Certificate Registrar may deduct a
reasonable wire transfer fee from any payment made by wire transfer.
Notwithstanding the above, the final distribution on this Certificate will be
made after due notice by the Trustee of the pendency of such distribution and
only upon presentation and surrender of this Certificate at the office or agency
appointed by the Trustee for that purpose as provided in the Agreement.

         The Class A Pass-Through Rate on each Distribution Date will be a rate
per annum equal to the sum of one month LIBOR plus the Class A Certificate
Margin. Interest will accrue on the Class A Certificates during each Interest
Accrual Period at a rate equal to the lesser of (i) the Class A Pass-Through
Rate and (ii) the WAC Cap for such Distribution Date.

         This Certificate is one of a duly authorized issue of Certificates
designated as Morgan Stanley ABS Capital I Inc. Trust Mortgage Pass-Through
Certificates of the Series specified on the face hereof (herein called the
"Certificates") and representing a Percentage Interest in the Class A
Certificates.

         The Class A Certificates are limited in right of payment to certain
collections and recoveries respecting the Mortgage Loans, all as more
specifically set forth herein and in the Agreement. As provided in the
Agreement, withdrawals from the Collection Account and the Distribution Account
may be made from time to time for purposes other than distributions to
Certificateholders, such purposes including reimbursement of advances made, or
certain expenses incurred, with respect to the Mortgage Loans.


                                     EX A-2
<PAGE>

         The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Depositor, the Seller, the Trustee, the Custodian and the rights of the
Certificateholders under the Agreement at any time by the Depositor, the Seller,
the Trustee and the Custodian with the consent of the Holders of Certificates
entitled to the Voting Rights identified in the agreement. Any such consent by
the Holder of this Certificate shall be conclusive and binding on such Holder
and upon all future Holders of this Certificate and of any Certificate issued
upon the transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Agreement also
permits the amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Certificates.

         As provided in the Agreement and subject to certain limitations therein
set forth, the transfer of this Certificate is registrable in the Certificate
Register upon surrender of this Certificate for registration of transfer at the
offices or agencies appointed by the Trustee as provided in the Agreement, duly
endorsed by, or accompanied by an assignment in the form below or other written
instrument of transfer in form satisfactory to the Trustee the Certificate
Registrar duly executed by, the Holder hereof or such Holder's attorney duly
authorized in writing, and thereupon one or more new Certificates of the same
Class in authorized denominations evidencing the same aggregate Percentage
Interest will be issued to the designated transferee or transferees.

         The Certificates are issuable in fully registered form only without
coupons in Classes and denominations representing Percentage Interests specified
in the Agreement. As provided in the Agreement and subject to certain
limitations therein set forth, Certificates are exchangeable for new
Certificates of the same Class in authorized denominations evidencing the same
aggregate Percentage Interest, as requested by the Holder surrendering the same.

         No service charge will be made for any such registration of transfer or
exchange of Certificates, but the Certificate Registrar may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any transfer or exchange of Certificates.

         The Depositor, the Seller, the Custodian, the Trustee and the
Certificate Registrar and any agent of the Depositor, the Seller, the Custodian,
the Trustee or the Certificate Registrar may treat the Person in whose name this
Certificate is registered as the owner hereof for all purposes, and none of the
Depositor, the Seller, the Custodian, the Trustee, the Certificate Registrar nor
any such agent shall be affected by notice to the contrary.

         The obligations created by the Agreement and the Trust Fund created
thereby shall terminate upon payment to the Certificateholders of all amounts
held by or on behalf of the Trustee and required to be paid to them pursuant to
the Agreement following the earlier of (i) the final payment or other
liquidation (or any advance with respect thereto) of the last Mortgage Loan
remaining in the Trust Fund, and (ii) the purchase by the party designated in
the Agreement at a price determined as provided in the Agreement from the Trust
Fund of all Mortgage Loans and all property acquired in respect of such Mortgage
Loans. The Agreement permits, but does not require, the party designated in the
Agreement to purchase from the Trust Fund all Mortgage Loans and all property
acquired in respect of any Mortgage Loan at a price determined as provided in
the Agreement. The exercise of such right will effect early retirement of the
Certificates; however, such right to purchase is subject to the aggregate
Principal Balance of the Mortgage Loans at the time of purchase being 10% or
less of the Cut-off Date Aggregate Principal Balance.

         The recitals contained herein shall be taken as statements of the
Depositor and the Trustee assumes no responsibility for their correctness.

         Unless the certificate of authentication hereon has been executed by
the Certificate Registrar, by manual signature, this Certificate shall not be
entitled to any benefit under the Agreement or be valid for any purpose.


                                     EX A-3
<PAGE>


         IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.

Dated:

                                       DEUTSCHE BANK NATIONAL TRUST COMPANY, as
                                          Trustee


                                       By:
                                            ------------------------------------
                                            Authorized Officer


                          CERTIFICATE OF AUTHENTICATION

         This is one of the Class A Certificates referred to in the
within-mentioned Agreement.

                                       DEUTSCHE BANK NATIONAL TRUST COMPANY, as
                                          Certificate Registrar


                                       By:
                                            ------------------------------------
                                            Authorized Signatory
Date of authentication:



                                     EX A-4
<PAGE>

                                  ABBREVIATIONS

         The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>

<S>                                                    <C>
TEN COM  - as tenants in common                         UNIF GIFT MIN ACT -  Custodian (Cust) (Minor)
                                                                             under Uniform Gifts to
TEN ENT  - as tenants by the entireties                                      Minors Act

                                                                             ----------------------------
JT TEN   - as joint tenants with right of survivorship                       (State)
           and not as tenants in common
</TABLE>

         Additional abbreviations may also be used though not in the above list.


                                   ASSIGNMENT

         FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto________________________________________________________________
________________________________________________________________________________
(Please print or typewrite name, address including postal zip code, and Taxpayer
Identification Number of assignee)_____________________________________________
a Percentage Interest equal to _____% evidenced by the within asset-backed
Certificate and hereby authorize(s) the registration of transfer of such
interest to assignee on the Certificate Register of the Trust Fund.

              I (we) further direct the Certificate Registrar to issue a new
Certificate of a like Percentage Interest and Class to the above named assignee
and deliver such Certificate to the following address:_________________________
_____________________________________________________________________________

Dated:


                           -----------------------------------------------------
                           Signature by or on behalf of assignor


                           -----------------------------------------------------
                           Signature Guaranteed




                                     EX A-5
<PAGE>

                            DISTRIBUTION INSTRUCTIONS

         The assignee should include the following for purposes of distribution:

         Distributions shall be made, by wire transfer or otherwise, in
immediately available funds to _________________________________________________
for the account of _________________________, account number___________________,
or, if mailed by check, to_____________________________________________________.
Applicable statements should be mailed to______________________________________
This information is provided by________________________________________________,
the assignee named above, or___________________________________________________,
as its agent.



                                     EX A-6
<PAGE>

                                   EXHIBIT B-1

                         [FORM OF CLASS B-1 CERTIFICATE]

         UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
         THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
         TRUSTEE OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR
         PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE &
         CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
         REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH
         OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC),
         ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR
         TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE
         & CO., HAS AN INTEREST HEREIN.

         THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS A,
         CLASS M-1 AND CLASS M-2 CERTIFICATES AS DESCRIBED IN THE POOLING
         AGREEMENT REFERRED TO HEREIN.

         THIS CERTIFICATE MAY NOT BE PURCHASED BY OR TRANSFERRED TO ANY PERSON
         THAT HAS NOT DELIVERED A REPRESENTATION LETTER STATING EITHER (A) THAT
         THE TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN OR ARRANGEMENT SUBJECT
         TO SECTION 406 OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974,
         AS AMENDED ("ERISA"), OR A PLAN SUBJECT TO SECTION 4975 OF THE INTERNAL
         REVENUE CODE OF 1986, AS AMENDED (THE "CODE") (EACH, A "PLAN"), AND IS
         NOT ACTING ON BEHALF OF OR INVESTING THE ASSETS OF A PLAN OR (B) THAT
         THE TRANSFEREE IS AN INSURANCE COMPANY THAT IS PURCHASING THIS
         CERTIFICATE WITH FUNDS CONTAINED IN AN "INSURANCE COMPANY GENERAL
         ACCOUNT" (AS SUCH TERM IS DEFINED IN SECTION V(E) OF PROHIBITED
         TRANSACTION CLASS EXEMPTION 95-60 ("PTCE 95-60") AND THE CONDITIONS FOR
         EXEMPTIVE RELIEF UNDER SECTIONS I AND III OF PTCE 95-60 HAVE BEEN
         SATISFIED. EACH PERSON WHO ACQUIRES A BENEFICIAL INTEREST IN THIS
         CERTIFICATE SHALL BE DEEMED TO HAVE MADE THE REPRESENTATIONS REQUIRED
         BY THE REPRESENTATION LETTER REFERRED TO IN THE PRECEDING SENTENCE. THE
         POOLING AGREEMENT PROVIDES THAT ANY ATTEMPTED OR PURPORTED TRANSFER IN
         VIOLATION OF THESE TRANSFER RESTRICTIONS WILL BE NULL AND VOID AND WILL
         VEST NO RIGHTS IN ANY PURPORTED TRANSFEREE.

         FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS
         BENEFICIAL OWNERSHIP OF A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE
         INVESTMENT CONDUIT," AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN
         SECTIONS 860G AND 860D OF THE CODE AND CERTAIN OTHER PROPERTY.



                                    EX B-1-1
<PAGE>

      MORGAN STANLEY ABS CAPITAL I INC. MORTGAGE PASS-THROUGH CERTIFICATES
                           SERIES 2004-SD2, CLASS B-1

evidencing a beneficial ownership interest in a portion of a Trust Fund
consisting primarily of a pool of conventional fixed-rate and adjustable-rate
one- to four-family first and second lien mortgage loans formed and sold by

                        MORGAN STANLEY ABS CAPITAL I INC.

Series 2004-SD2, Class B-1                Original Class Certificate Principal
                                          Balance of the Class B-1 Certificates
                                          as of the Closing Date:

Pass-Through Rate: Variable               $7,332,000

Cut-off Date:  May 1, 2004                Initial Certificate Principal Balance:
                                          $7,332,000

First Distribution Date:  June 25, 2004   Servicers: Bank of America, N.A.,
                                          Washington Mutual Bank FA and Wilshire
                                          Credit Corporation

No.                                       Trustee:  Deutsche Bank National Trust
                                          Company

CUSIP:  [______]                          Closing Date:  June 4, 2004

ISIN:  [_________]


         DISTRIBUTIONS IN REDUCTION OF THE CERTIFICATE PRINCIPAL BALANCE OF THIS
         CERTIFICATE MAY BE MADE MONTHLY AS SET FORTH HEREIN. ACCORDINGLY, THE
         OUTSTANDING CERTIFICATE PRINCIPAL BALANCE HEREOF AT ANY TIME MAY BE
         LESS THAN THE AMOUNT SHOWN ABOVE.

         THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN
         MORGAN STANLEY ABS CAPITAL I INC., THE CUSTODIAN, THE TRUSTEE, THE
         SELLER OR ANY OF THEIR AFFILIATES. THIS CERTIFICATE IS NOT GUARANTEED
         BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES.

         This certifies that ______________ is the registered owner of a
Percentage Interest (obtained by dividing the Initial Certificate Principal
Balance of this Certificate by the Original Class Certificate Principal Balance
of the Class B-1Certificates) in that certain beneficial ownership interest
evidenced by all the Class B-1 Certificates in the Trust Fund created pursuant
to a Pooling Agreement, dated as specified above (the "Agreement"), among Morgan
Stanley ABS Capital I Inc. (hereinafter called the "Depositor," which term
includes any successor entity under the Agreement), the Seller, the Custodian
and the Trustee, a summary of certain of the pertinent provisions of which is
set forth hereafter. To the extent not defined herein, the capitalized terms
used herein have the meanings assigned in the Agreement. This Certificate is
issued under and is subject to the terms, provisions and conditions of the
Agreement, to which Agreement the Holder of this Certificate by virtue of the
acceptance hereof assents and by which such Holder is bound.

         Pursuant to the terms of the Agreement, distributions will be made on
the 25th calendar day of each month or, if such 25th calendar day is not a
Business Day, the Business Day immediately following (a "Distribution Date"),
commencing on the first Distribution Date specified above, to the Person in
whose name this Certificate is registered on the Business Day immediately
preceding such Distribution Date (the "Record Date"), from funds in the
Distribution Account in an amount equal to the product of the Percentage
Interest evidenced by this Certificate and the amount required to be distributed
to the Holders of Class B-1 Certificates on such Distribution Date pursuant to
the Agreement provided, however, that if any Class B-1 Certificate becomes a
Definitive Certificate, the Record Date for such Certificate will be the last
Business Day of the month immediately preceding the month in which the related
Distribution Date occurs.


                                    EX B-1-2
<PAGE>

         All distributions to the Holder of this Certificate under the Agreement
will be made or caused to be made by or on behalf of the Trustee by wire
transfer in immediately available funds to the account of the Person entitled
thereto if such Person shall have so notified the Certificate Registrar in
writing at least five Business Days prior to the Record Date immediately prior
to such Distribution Date, or by check mailed by first class mail to the address
of the Person entitled thereto, as such name and address shall appear on the
Certificate Register, provided that the Certificate Registrar may deduct a
reasonable wire transfer fee from any payment made by wire transfer.
Notwithstanding the above, the final distribution on this Certificate will be
made after due notice by the Trustee of the pendency of such distribution and
only upon presentation and surrender of this Certificate at the office or agency
appointed by the Trustee for that purpose as provided in the Agreement.

         The Class B-1 Pass-Through Rate on each Distribution Date will be a
rate per annum equal to the sum of one month LIBOR plus the Class B-1
Certificate Margin. Interest will accrue on the Class B-1 Certificates during
each Interest Accrual Period at a rate equal to the lesser of (i) the Class B-1
Pass-Through Rate and (ii) the WAC Cap for such Distribution Date.

         This Certificate is one of a duly authorized issue of Certificates
designated as Morgan Stanley ABS Capital I Inc. Trust Mortgage Pass-Through
Certificates of the Series specified on the face hereof (herein called the
"Certificates") and representing a Percentage Interest in the Class B-1
Certificates.

         The Class B-1 Certificates are limited in right of payment to certain
collections and recoveries respecting the Mortgage Loans, all as more
specifically set forth herein and in the Agreement. As provided in the
Agreement, withdrawals from the Collection Account and the Distribution Account
may be made from time to time for purposes other than distributions to
Certificateholders, such purposes including reimbursement of advances made, or
certain expenses incurred, with respect to the Mortgage Loans.

         This certificate is subordinated in right of payment to the Class A,
Class M-1 and Class M-2 Certificates as described in the Pooling Agreement
referred to herein.

         The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Depositor, the Seller, the Custodian, the Trustee and the rights of the
Certificateholders under the Agreement at any time by the Depositor, the Seller,
the Custodian and the Trustee with the consent of the Holders of Certificates
entitled to the Voting Rights identified in the agreement. Any such consent by
the Holder of this Certificate shall be conclusive and binding on such Holder
and upon all future Holders of this Certificate and of any Certificate issued
upon the transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Agreement also
permits the amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Certificates.

         As provided in the Agreement and subject to certain limitations therein
set forth, the transfer of this Certificate is registrable in the Certificate
Register upon surrender of this Certificate for registration of transfer at the
offices or agencies appointed by the Trustee as provided in the Agreement, duly
endorsed by, or accompanied by an assignment in the form below or other written
instrument of transfer in form satisfactory to the Trustee and the Certificate
Registrar duly executed by, the Holder hereof or such Holder's attorney duly
authorized in writing, and thereupon one or more new Certificates of the same
Class in authorized denominations evidencing the same aggregate Percentage
Interest will be issued to the designated transferee or transferees.

         The Certificates are issuable in fully registered form only without
coupons in Classes and denominations representing Percentage Interests specified
in the Agreement. As provided in the Agreement and subject to certain
limitations therein set forth, Certificates are exchangeable for new
Certificates of the same Class in authorized denominations evidencing the same
aggregate Percentage Interest, as requested by the Holder surrendering the same.

         No service charge will be made for any such registration of transfer or
exchange of Certificates, but the Certificate Registrar may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any transfer or exchange of Certificates.


                                    EX B-1-3
<PAGE>

         The Depositor, the Seller, the Custodian, the Trustee, the Seller and
the Certificate Registrar and any agent of the Depositor, the Seller, the
Custodian, the Trustee or the Certificate Registrar may treat the Person in
whose name this Certificate is registered as the owner hereof for all purposes,
and none of the Depositor, the Seller, the Custodian, the Trustee, the
Certificate Registrar nor any such agent shall be affected by notice to the
contrary.

         The obligations created by the Agreement and the Trust Fund created
thereby shall terminate upon payment to the Certificateholders of all amounts
held by or on behalf of the Trustee and required to be paid to them pursuant to
the Agreement following the earlier of (i) the final payment or other
liquidation (or any advance with respect thereto) of the last Mortgage Loan
remaining in the Trust Fund, and (ii) the purchase by the party designated in
the Agreement at a price determined as provided in the Agreement from the Trust
Fund of all Mortgage Loans and all property acquired in respect of such Mortgage
Loans. The Agreement permits, but does not require, the party designated in the
Agreement to purchase from the Trust Fund all Mortgage Loans and all property
acquired in respect of any Mortgage Loan at a price determined as provided in
the Agreement. The exercise of such right will effect early retirement of the
Certificates; however, such right to purchase is subject to the aggregate
Principal Balance of the Mortgage Loans at the time of purchase being 10% or
less of the Cut-off Date Aggregate Principal Balance.

         The recitals contained herein shall be taken as statements of the
Depositor and the Trustee assumes no responsibility for their correctness.

         Unless the certificate of authentication hereon has been executed by
the Certificate Registrar, by manual signature, this Certificate shall not be
entitled to any benefit under the Agreement or be valid for any purpose.



                                    EX B-1-4
<PAGE>


         IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.

Dated:

                                      DEUTSCHE BANK NATIONAL TRUST COMPANY, as
                                         Trustee


                                      By:
                                           -------------------------------------
                                           Authorized Officer


                          CERTIFICATE OF AUTHENTICATION

         This is one of the Class B-1 Certificates referred to in the
within-mentioned Agreement.

                                     DEUTSCHE BANK NATIONAL TRUST COMPANY, as
                                         Certificate Registrar


                                     By:
                                          --------------------------------------
                                          Authorized Signatory
Date of authentication:



                                    EX B-1-5
<PAGE>

                                  ABBREVIATIONS

         The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>

<S>                                                      <C>
TEN COM  - as tenants in common                          UNIF GIFT MIN ACT  -  Custodian (Cust) (Minor)
                                                                               under Uniform Gifts to
TEN ENT  - as tenants by the entireties                                        Minors Act

                                                                               -------------------------
JT TEN   - as joint tenants with right of survivorship                         (State)
           and not as tenants in common
</TABLE>

         Additional abbreviations may also be used though not in the above list.


                                   ASSIGNMENT

         FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto ______________________________________________________________
(Please print or typewrite name, address including postal zip code, and Taxpayer
Identification Number of assignee) _____________________________________________
________________________________________________________________________________
a Percentage Interest equal to _____% evidenced by the within asset-backed
Certificate and hereby authorize(s) the registration of transfer of such
interest to assignee on the Certificate Register of the Trust Fund.

         I (we) further direct the Certificate Registrar to issue a new
Certificate of a like Percentage Interest and Class to the above named assignee
and deliver such Certificate to the following address:__________________________
________________________________________________________________________________

Dated:


                                   ---------------------------------------------
                                   Signature by or on behalf of assignor


                                   ---------------------------------------------
                                   Signature Guaranteed


                                    EX B-1-6
<PAGE>


                            DISTRIBUTION INSTRUCTIONS

         The assignee should include the following for purposes of distribution:
         Distributions shall be made, by wire transfer or otherwise, in

immediately available funds to _________________________________________________

________________________________________________________________________________

for the account of _________________________, account number __________________,

or, if mailed by check, to ____________________________________________________.

Applicable statements should be mailed to ______________________________________

This information is provided by _______________________________________________,

the assignee named above, or __________________________________________________,

as its agent.


                                    EX B-1-7


<PAGE>




                                   EXHIBIT B-1

                         [FORM OF CLASS B-2 CERTIFICATE]

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE TRUSTEE OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS A, CLASS M-1
AND CLASS M-2 CERTIFICATES AS DESCRIBED IN THE POOLING AGREEMENT REFERRED TO
HEREIN.

THIS CERTIFICATE MAY NOT BE PURCHASED BY OR TRANSFERRED TO ANY PERSON THAT HAS
NOT DELIVERED A REPRESENTATION LETTER STATING EITHER (A) THAT THE TRANSFEREE IS
NOT AN EMPLOYEE BENEFIT PLAN OR ARRANGEMENT SUBJECT TO SECTION 406 OF THE
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR A PLAN
SUBJECT TO SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE") (EACH, A "PLAN"), AND IS NOT ACTING ON BEHALF OF OR INVESTING THE ASSETS
OF A PLAN OR (B) THAT THE TRANSFEREE IS AN INSURANCE COMPANY THAT IS PURCHASING
THIS CERTIFICATE WITH FUNDS CONTAINED IN AN "INSURANCE COMPANY GENERAL ACCOUNT"
(AS SUCH TERM IS DEFINED IN SECTION V(E) OF PROHIBITED TRANSACTION CLASS
EXEMPTION 95-60 ("PTCE 95-60") AND THE CONDITIONS FOR EXEMPTIVE RELIEF UNDER
SECTIONS I AND III OF PTCE 95-60 HAVE BEEN SATISFIED. EACH PERSON WHO ACQUIRES A
BENEFICIAL INTEREST IN THIS CERTIFICATE SHALL BE DEEMED TO HAVE MADE THE
REPRESENTATIONS REQUIRED BY THE REPRESENTATION LETTER REFERRED TO IN THE
PRECEDING SENTENCE. THE POOLING AGREEMENT PROVIDES THAT ANY ATTEMPTED OR
PURPORTED TRANSFER IN VIOLATION OF THESE TRANSFER RESTRICTIONS WILL BE NULL AND
VOID AND WILL VEST NO RIGHTS IN ANY PURPORTED TRANSFEREE.

FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS BENEFICIAL
OWNERSHIP OF A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT
CONDUIT," AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF
THE CODE AND CERTAIN OTHER PROPERTY.

      MORGAN STANLEY ABS CAPITAL I INC. MORTGAGE PASS-THROUGH CERTIFICATES
                           SERIES 2004-SD2, CLASS B-2



                                    EX B-2-1
<PAGE>

     evidencing a beneficial ownership interest in a portion of a Trust Fund
  consisting primarily of a pool of conventional fixed-rate and adjustable-rate
  one- to four-family first and second lien mortgage loans formed and
                                     sold by

                        MORGAN STANLEY ABS CAPITAL I INC.

Series 2004-SD2, Class B-2                   Original Class Certificate
                                             Principal Balance of the Class B-2
                                             Certificates as of the Closing
                                             Date: $2,257,000

Pass-Through Rate:  Variable
                                             Initial Certificate Principal
                                             Balance:  $2,257,000
Cut-off Date:  May 1, 2004
                                             Servicers:  Bank of  America,
                                             N.A.,  Washington  Mutual Bank

First Distribution Date:  June 25, 2004      FA and Wilshire Credit Corporation

No.                                          Trustee: Deutsche Bank National
                                             Trust Company

CUSIP:  [______]                             Closing Date:  June 4, 2004

ISIN:  [_________]

         DISTRIBUTIONS IN REDUCTION OF THE CERTIFICATE PRINCIPAL BALANCE OF THIS
         CERTIFICATE MAY BE MADE MONTHLY AS SET FORTH HEREIN. ACCORDINGLY, THE
         OUTSTANDING CERTIFICATE PRINCIPAL BALANCE HEREOF AT ANY TIME MAY BE
         LESS THAN THE AMOUNT SHOWN ABOVE.

         THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN
         MORGAN STANLEY ABS CAPITAL I INC., THE CUSTODIAN, THE TRUSTEE, THE
         SELLER OR ANY OF THEIR AFFILIATES. THIS CERTIFICATE IS NOT GUARANTEED
         BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES.

         This certifies that ______________ is the registered owner of a
Percentage Interest (obtained by dividing the Initial Certificate Principal
Balance of this Certificate by the Original Class Certificate Principal Balance
of the Class B-2Certificates) in that certain beneficial ownership interest
evidenced by all the Class B-2 Certificates in the Trust Fund created pursuant
to a Pooling Agreement, dated as specified above (the "Agreement"), among Morgan
Stanley ABS Capital I Inc. (hereinafter called the "Depositor," which term
includes any successor entity under the Agreement), the Seller, the Custodian
and the Trustee, a summary of certain of the pertinent provisions of which is
set forth hereafter. To the extent not defined herein, the capitalized terms
used herein have the meanings assigned in the Agreement. This Certificate is
issued under and is subject to the terms, provisions and conditions of the
Agreement, to which Agreement the Holder of this Certificate by virtue of the
acceptance hereof assents and by which such Holder is bound.

         Pursuant to the terms of the Agreement, distributions will be made on
the 25th calendar day of each month or, if such 25th calendar day is not a
Business Day, the Business Day immediately following (a "Distribution Date"),
commencing on the first Distribution Date specified above, to the Person in
whose name this Certificate is registered on the Business Day immediately
preceding such Distribution Date (the "Record Date"), from funds in the
Distribution Account in an amount equal to the product of the Percentage
Interest evidenced by this Certificate and the amount required to be distributed
to the Holders of Class B-2 Certificates on such Distribution Date pursuant to
the Agreement provided, however, that if any Class B-2 Certificate becomes a
Definitive Certificate, the Record Date for such Certificate will be the last
Business Day of the month immediately preceding the month in which the related
Distribution Date occurs.

         All distributions to the Holder of this Certificate under the Agreement
will be made or caused to be made by or on behalf of the Trustee by wire
transfer in immediately available funds to the account of the Person entitled
thereto if such Person shall have so notified the Certificate Registrar in
writing at least five Business Days prior to the Record Date immediately prior
to such Distribution Date, or by check mailed by first class mail to the address
of the Person entitled thereto, as such name and address shall appear on the
Certificate Register, provided that the Certificate Registrar may deduct a
reasonable wire transfer fee from any payment made by wire transfer.
Notwithstanding the above, the final distribution on this Certificate will be
made after due notice by the Trustee of the pendency of such distribution and
only upon presentation and surrender of this Certificate at the office or agency
appointed by the Trustee for that purpose as provided in the Agreement.


                                    EX B-2-2
<PAGE>

         The Class B-2 Pass-Through Rate on each Distribution Date will be a
rate per annum equal to the sum of one month LIBOR plus the Class B-2
Certificate Margin. Interest will accrue on the Class B-2 Certificates during
each Interest Accrual Period at a rate equal to the lesser of (i) the Class B-2
Pass-Through Rate and (ii) the WAC Cap for such Distribution Date.

         This Certificate is one of a duly authorized issue of Certificates
designated as Morgan Stanley ABS Capital I Inc. Trust Mortgage Pass-Through
Certificates of the Series specified on the face hereof (herein called the
"Certificates") and representing a Percentage Interest in the Class B-2
Certificates.

         The Class B-2 Certificates are limited in right of payment to certain
collections and recoveries respecting the Mortgage Loans, all as more
specifically set forth herein and in the Agreement. As provided in the
Agreement, withdrawals from the Collection Account and the Distribution Account
may be made from time to time for purposes other than distributions to
Certificateholders, such purposes including reimbursement of advances made, or
certain expenses incurred, with respect to the Mortgage Loans.

         This certificate is subordinated in right of payment to the Class A,
Class M-1, Class M-2 and Class B-1 Certificates as described in the Pooling
Agreement referred to herein.

         The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Depositor, the Seller, the Custodian, the Trustee and the rights of the
Certificateholders under the Agreement at any time by the Depositor, the Seller,
the Custodian and the Trustee with the consent of the Holders of Certificates
entitled to the Voting Rights identified in the agreement. Any such consent by
the Holder of this Certificate shall be conclusive and binding on such Holder
and upon all future Holders of this Certificate and of any Certificate issued
upon the transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Agreement also
permits the amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Certificates.

         As provided in the Agreement and subject to certain limitations therein
set forth, the transfer of this Certificate is registrable in the Certificate
Register upon surrender of this Certificate for registration of transfer at the
offices or agencies appointed by the Trustee as provided in the Agreement, duly
endorsed by, or accompanied by an assignment in the form below or other written
instrument of transfer in form satisfactory to the Trustee and the Certificate
Registrar duly executed by, the Holder hereof or such Holder's attorney duly
authorized in writing, and thereupon one or more new Certificates of the same
Class in authorized denominations evidencing the same aggregate Percentage
Interest will be issued to the designated transferee or transferees.

         The Certificates are issuable in fully registered form only without
coupons in Classes and denominations representing Percentage Interests specified
in the Agreement. As provided in the Agreement and subject to certain
limitations therein set forth, Certificates are exchangeable for new
Certificates of the same Class in authorized denominations evidencing the same
aggregate Percentage Interest, as requested by the Holder surrendering the same.

         No service charge will be made for any such registration of transfer or
exchange of Certificates, but the Certificate Registrar may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any transfer or exchange of Certificates.

         The Depositor, the Seller, the Custodian, the Trustee, the Seller and
the Certificate Registrar and any agent of the Depositor, the Seller, the
Custodian, the Trustee or the Certificate Registrar may treat the Person in
whose name this Certificate is registered as the owner hereof for all purposes,
and none of the Depositor, the Seller, the Custodian, the Trustee, the
Certificate Registrar nor any such agent shall be affected by notice to the
contrary.


                                    EX B-2-3
<PAGE>

         The obligations created by the Agreement and the Trust Fund created
thereby shall terminate upon payment to the Certificateholders of all amounts
held by or on behalf of the Trustee and required to be paid to them pursuant to
the Agreement following the earlier of (i) the final payment or other
liquidation (or any advance with respect thereto) of the last Mortgage Loan
remaining in the Trust Fund, and (ii) the purchase by the party designated in
the Agreement at a price determined as provided in the Agreement from the Trust
Fund of all Mortgage Loans and all property acquired in respect of such Mortgage
Loans. The Agreement permits, but does not require, the party designated in the
Agreement to purchase from the Trust Fund all Mortgage Loans and all property
acquired in respect of any Mortgage Loan at a price determined as provided in
the Agreement. The exercise of such right will effect early retirement of the
Certificates; however, such right to purchase is subject to the aggregate
Principal Balance of the Mortgage Loans at the time of purchase being 10% or
less of the Cut-off Date Aggregate Principal Balance.

         The recitals contained herein shall be taken as statements of the
Depositor and the Trustee assumes no responsibility for their correctness.

         Unless the certificate of authentication hereon has been executed by
the Certificate Registrar, by manual signature, this Certificate shall not be
entitled to any benefit under the Agreement or be valid for any purpose.


                                    EX B-2-4

<PAGE>


         IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.

Dated:

                                         DEUTSCHE BANK NATIONAL TRUST COMPANY,
                                             as Trustee


                                         By:
                                              ----------------------------------
                                              Authorized Officer


CERTIFICATE OF AUTHENTICATION

         This is one of the Class B-2 Certificates referred to in the
within-mentioned Agreement.

                                         DEUTSCHE BANK NATIONAL TRUST COMPANY,
                                             as Certificate Registrar


                                         By:
                                              ----------------------------------
                                              Authorized Signatory
Date of authentication:


                                    EX B-2-5
<PAGE>


                                  ABBREVIATIONS

         The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:

<TABLE>
<S>                                                    <C>
TEN COM - as tenants in common                          UNIF GIFT MIN ACT -  Custodian (Cust) (Minor)
                                                                             under Uniform Gifts to
TEN ENT - as tenants by the entireties                                       Minors Act
                                                                             ------------------------
JT TEN  - as joint tenants with right of survivorship                        (State)
          and not as tenants in common
</TABLE>


        Additional abbreviations may also be used though not in the above list.


                                   ASSIGNMENT

FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s)
unto ___________________________________________________________________________
________________________________________________________________________________
(Please print or typewrite name, address including postal zip code, and Taxpayer
Identification Number of assignee)
________________________________________________________________________________
a Percentage Interest equal to _____% evidenced by the within asset-backed
Certificate and hereby authorize(s) the registration of transfer of such
interest to assignee on the Certificate Register of the Trust Fund.

         I (we) further direct the Certificate Registrar to issue a new
Certificate of a like Percentage Interest and Class to the above named assignee
and deliver such Certificate to the following address: _________________________
_______________________________________________________________________________.

Dated:

                                          --------------------------------------
                                          Signature by or on behalf of assignor


                                          --------------------------------------
                                          Signature Guaranteed


                                    EX B-2-6
<PAGE>


                            DISTRIBUTION INSTRUCTIONS

         The assignee should include the following for purposes of distribution:

         Distributions shall be made, by wire transfer or otherwise, in

immediately available funds to _________________________________________________
________________________________________________________________________________
for the account of _________________________, account number __________________,
or, if mailed by check, to ____________________________________________________.
Applicable statements should be mailed to ______________________________________
This information is provided by _______________________________________________,
the assignee named above, or __________________________________________________,
as its agent.


                                    EX B-2-7
<PAGE>



                                   EXHIBIT C-1

                          [FORM OF CLASS R CERTIFICATE]

THIS CERTIFICATE MAY NOT BE TRANSFERRED TO A NON-UNITED STATES PERSON.

FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS THE "RESIDUAL
INTEREST" IN TWO SEPARATE "REAL ESTATE MORTGAGE INVESTMENT CONDUITS," AS THOSE
TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE "CODE").

THIS CLASS R CERTIFICATE IS SUBORDINATE TO THE OFFERED CERTIFICATES OF THIS
SERIES TO THE EXTENT DESCRIBED HEREIN AND IN THE POOLING AGREEMENT REFERRED TO
HEREIN.

THIS CLASS R CERTIFICATE WILL NOT BE ENTITLED TO PAYMENTS UNTIL SUCH TIME AS
DESCRIBED IN THE POOLING AGREEMENT REFERRED TO HEREIN.

THIS CLASS R CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR THE SECURITIES LAWS OF
ANY STATE. ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE WITHOUT
SUCH REGISTRATION OR QUALIFICATION MAY BE MADE ONLY IN A TRANSACTION THAT DOES
NOT REQUIRE SUCH REGISTRATION OR QUALIFICATION AND IN ACCORDANCE WITH THE
PROVISIONS OF SECTION 4.02 OF THE POOLING AGREEMENT REFERRED TO HEREIN.

THIS CERTIFICATE MAY NOT BE PURCHASED BY OR TRANSFERRED TO ANY PERSON THAT HAS
NOT DELIVERED A REPRESENTATION LETTER STATING THAT THE TRANSFEREE IS NOT AN
EMPLOYEE BENEFIT PLAN OR ARRANGEMENT SUBJECT TO SECTION 406 OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR A PLAN SUBJECT
TO SECTION 4975 OF THE CODE (EACH, A "PLAN"), AND IS NOT ACTING ON BEHALF OF OR
INVESTING THE ASSETS OF A PLAN. THE POOLING AGREEMENT PROVIDES THAT ANY
ATTEMPTED OR PURPORTED TRANSFER IN VIOLATION OF THESE TRANSFER RESTRICTIONS WILL
BE NULL AND VOID AND WILL VEST NO RIGHTS IN ANY PURPORTED TRANSFEREE.

ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CLASS R CERTIFICATE MAY BE
MADE ONLY IF THE PROPOSED TRANSFEREE PROVIDES (1) AN AFFIDAVIT TO THE
CERTIFICATE REGISTRAR THAT SUCH TRANSFEREE IS NOT (A) THE UNITED STATES, ANY
STATE OR POLITICAL SUBDIVISION THEREOF, ANY FOREIGN GOVERNMENT, ANY
INTERNATIONAL ORGANIZATION, OR ANY AGENCY OR INSTRUMENTALITY OF ANY OF THE
FOREGOING, (B) ANY ORGANIZATION (OTHER THAN A COOPERATIVE DESCRIBED IN SECTION
521 OF THE CODE) WHICH IS EXEMPT FROM THE TAX IMPOSED BY CHAPTER 1 OF THE CODE
UNLESS SUCH ORGANIZATION IS SUBJECT TO THE TAX IMPOSED BY SECTION 511 OF THE
CODE, (C) ANY ORGANIZATION DESCRIBED IN SECTION 1381(a)(2)(C) OF THE CODE (ANY
SUCH PERSON DESCRIBED IN THE FOREGOING CLAUSES (A), (B) OR (C) BEING HEREINAFTER
REFERRED TO AS A "DISQUALIFIED ORGANIZATION"), OR (D) AN AGENT OF A DISQUALIFIED
ORGANIZATION AND (2) NO PURPOSE OF SUCH TRANSFER IS TO IMPEDE THE ASSESSMENT OR
COLLECTION OF TAX, AND (3) SUCH TRANSFEREE SATISFIES CERTAIN ADDITIONAL
CONDITIONS RELATING TO THE FINANCIAL CONDITION OF THE PROPOSED TRANSFEREE.
NOTWITHSTANDING THE REGISTRATION IN THE CERTIFICATE REGISTER OR ANY TRANSFER,
SALE OR OTHER DISPOSITION OF THIS CLASS R CERTIFICATE TO A DISQUALIFIED
ORGANIZATION OR AN AGENT OF A DISQUALIFIED ORGANIZATION, SUCH REGISTRATION SHALL
BE DEEMED TO BE OF NO LEGAL FORCE OR EFFECT WHATSOEVER AND SUCH PERSON SHALL NOT
BE DEEMED TO BE A CERTIFICATEHOLDER FOR ANY PURPOSE HEREUNDER, INCLUDING, BUT
NOT LIMITED TO, THE RECEIPT OF DISTRIBUTIONS ON THIS CERTIFICATE. EACH HOLDER OF
A CLASS R CERTIFICATE BY ACCEPTANCE OF THIS CERTIFICATE SHALL BE DEEMED TO HAVE
CONSENTED TO THE PROVISIONS OF THIS PARAGRAPH AND THE PROVISIONS OF SECTION
5.02(d) OF THE POOLING AGREEMENT REFERRED TO HEREIN. ANY PERSON THAT IS A
DISQUALIFIED ORGANIZATION IS PROHIBITED FROM ACQUIRING BENEFICIAL OWNERSHIP OF
THIS CLASS R CERTIFICATE.


                                    EX C-1-1
<PAGE>

      MORGAN STANLEY ABS CAPITAL I INC. MORTGAGE PASS-THROUGH CERTIFICATES
                            SERIES 2004-SD2, CLASS R

evidencing a beneficial ownership interest in a portion of a Trust Fund
consisting primarily of a pool of conventional fixed-rate and adjustable-rate
one- to four-family first and second lien mortgage loans formed and sold by

                        MORGAN STANLEY ABS CAPITAL I INC.

Series 2004-SD2, Class R                       Servicers: Bank of America, N.A.,
                                               Washington Mutual Bank FA and
                                               Wilshire Credit Corporation
Cut-off Date:  May 1, 2004
                                               Trustee:  Deutsche Bank National
                                               Trust Company
First Distribution Date:  June 25, 2004
                                               Closing Date:  June 4, 2004
No.

Percentage Interest:  100%

         THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN
         MORGAN STANLEY ABS CAPITAL I INC., THE CUSTODIAN, THE TRUSTEE, SELLER
         OR ANY OF THEIR AFFILIATES. THIS CERTIFICATE IS NOT GUARANTEED BY ANY
         AGENCY OR INSTRUMENTALITY OF THE UNITED STATES.

         This certifies that _______________________ is the registered owner of
a Percentage Interest set forth above in that certain beneficial ownership
interest evidenced by all the Class R Certificates in the Trust Fund created
pursuant to a Pooling Agreement, dated as specified above (the "Agreement"),
among Morgan Stanley ABS Capital I Inc. (hereinafter called the "Depositor,"
which term includes any successor entity under the Agreement), the Seller, the
Custodian, and the Trustee, a summary of certain of the pertinent provisions of
which is set forth hereafter. To the extent not defined herein, the capitalized
terms used herein have the meanings assigned in the Agreement. This Certificate
is issued under and is subject to the terms, provisions and conditions of the
Agreement, to which Agreement the Holder of this Certificate by virtue of the
acceptance hereof assents and by which such Holder is bound.

         Pursuant to the terms of the Agreement, distributions will be made on
the 25th calendar day of each month or, if such 25th calendar day is not a
Business Day, the Business Day immediately following (a "Distribution Date"),
commencing on the first Distribution Date specified above, to the Person in
whose name this Certificate is registered on the last Business Day of the month
immediately preceding the month in which the related Distribution Date occurs or
the Closing Date, in the case of the first Distribution Date (the "Record
Date"), from funds in the Distribution Account in an amount equal to the product
of the Percentage Interest evidenced by this Certificate and the amount required
to be distributed to the Holders of Class R Certificates on such Distribution
Date pursuant to the Agreement.

         All distributions to the Holder of this Certificate under the Agreement
will be made or caused to be made by or on behalf of the Trustee by wire
transfer in immediately available funds to the account of the Person entitled
thereto if such Person shall have so notified the Certificate Registrar in
writing at least five Business Days prior to the Record Date immediately prior
to such Distribution Date, or by check mailed by first class mail to the address
of the Person entitled thereto, as such name and address shall appear on the
Certificate Register, provided that the Certificate Registrar may deduct a
reasonable wire transfer fee from any payment made by wire transfer.
Notwithstanding the above, the final distribution on this Certificate will be
made after due notice by the Trustee of the pendency of such distribution and
only upon presentation and surrender of this Certificate at the office or agency
appointed by the Trustee for that purpose as provided in the Agreement.


                                    EX C-1-2
<PAGE>

         This Certificate is one of a duly authorized issue of Certificates
designated as Morgan Stanley ABS Capital I Inc. Trust Mortgage Pass-Through
Certificates of the Series specified on the face hereof (herein called the
"Certificates") and representing the Percentage Interest specified on the face
hereof.

         The Class R Certificates are limited in right of payment to certain
collections and recoveries respecting the Mortgage Loans, all as more
specifically set forth herein and in the Agreement. As provided in the
Agreement, withdrawals from the Collection Account and the Distribution Account
may be made from time to time for purposes other than distributions to
Certificateholders, such purposes including reimbursement of advances made, or
certain expenses incurred, with respect to the Mortgage Loans.

         The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Depositor, the Seller, the Custodian, the Trustee and the rights of the
Certificateholders under the Agreement at any time by the Depositor, the Seller,
the Custodian and the Trustee with the consent of the Holders of Certificates
entitled to the Voting Rights identified in the agreement. Any such consent by
the Holder of this Certificate shall be conclusive and binding on such Holder
and upon all future Holders of this Certificate and of any Certificate issued
upon the transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Agreement also
permits the amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Certificates.

         As provided in the Agreement and subject to certain limitations therein
set forth, the transfer of this Certificate is registrable in the Certificate
Register upon surrender of this Certificate for registration of transfer at the
offices or agencies appointed by the Trustee as provided in the Agreement, duly
endorsed by, or accompanied by an assignment in the form below or other written
instrument of transfer in form satisfactory to the Trustee and the Certificate
Registrar duly executed by, the Holder hereof or such Holder's attorney duly
authorized in writing, and thereupon one or more new Certificates of the same
Class in authorized denominations evidencing the same aggregate Percentage
Interest will be issued to the designated transferee or transferees.

         The Certificates are issuable in fully registered form only without
coupons in Classes and denominations representing Percentage Interests specified
in the Agreement. As provided in the Agreement and subject to certain
limitations therein set forth, Certificates are exchangeable for new
Certificates of the same Class in authorized denominations evidencing the same
aggregate Percentage Interest, as requested by the Holder surrendering the same.

         No transfer of this Certificate shall be made unless that transfer is
made pursuant to an effective registration statement under the 1933 Act and
effective registration or qualification under applicable state securities laws,
or is made in a transaction that does not require such registration or
qualification. In the event that a transfer is to be made without registration
or qualification, the Certificate Registrar shall require, in order to assure
compliance with such laws, either (i) that the Certificateholder desiring to
effect the transfer and such Certificateholder's prospective transferee each
execute a representation letter in the form described by the Agreement
certifying to the Certificate Registrar the facts surrounding the transfer, or
(ii) that the Depositor and the Certificate Registrar shall require an Opinion
of Counsel satisfactory to them that such transfer may be made without such
registration or qualification, which Opinion of Counsel shall not be an expense
of the Depositor, the Trustee or the Certificate Registrar, in their respective
capacities as such. None of the Depositor, the Certificate Registrar nor the
Trustee is obligated to register or qualify the Class of Certificates specified
on the face hereof under the 1933 Act or any other securities law or to take any
action not otherwise required under the Agreement to permit the transfer of such
Certificates without registration or qualification. Any such Certificateholder
desiring to effect such transfer shall, and does hereby agree to, indemnify the
Trustee, the Seller, the Depositor, the Certificate Registrar and any Servicer
against any liability that may result if the transfer is not so exempt or is not
made in accordance with such federal and state laws.

         The Holder of this Certificate, by its acceptance hereof, shall be
deemed for all purposes to have consented to the provisions of Section 4.02 of
the Agreement and to any amendment of the Agreement deemed necessary by counsel
of the Depositor to ensure that the transfer of this Certificate to any Person
other than a Permitted Transferee or any other Person will not cause the Trust
to cease to qualify as two separate REMICs or cause the imposition of a tax upon
the Trust.

                                    EX C-1-3
<PAGE>


         No service charge will be made for any such registration of transfer or
exchange of Certificates, but the Certificate Registrar may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any transfer or exchange of Certificates.

         The Depositor, the Seller, the Custodian, the Trustee and the
Certificate Registrar and any agent of the Depositor, the Seller, the Custodian,
the Trustee or the Certificate Registrar may treat the Person in whose name this
Certificate is registered as the owner hereof for all purposes, and none of the
Depositor, the Seller, the Custodian, the Trustee, the Certificate Registrar nor
any such agent shall be affected by notice to the contrary.

         The obligations created by the Agreement and the Trust Fund created
thereby shall terminate upon payment to the Certificateholders of all amounts
held by or on behalf of the Trustee and required to be paid to them pursuant to
the Agreement following the earlier of (i) the final payment or other
liquidation (or any advance with respect thereto) of the last Mortgage Loan
remaining in the Trust Fund, and (ii) the purchase by the party designated in
the Agreement at a price determined as provided in the Agreement from the Trust
Fund of all Mortgage Loans and all property acquired in respect of such Mortgage
Loans. The Agreement permits, but does not require, the party designated in the
Agreement to purchase from the Trust Fund all Mortgage Loans and all property
acquired in respect of any Mortgage Loan at a price determined as provided in
the Agreement. The exercise of such right will effect early retirement of the
Certificates; however, such right to purchase is subject to the aggregate
Principal Balance of the Mortgage Loans at the time of purchase being 10% or
less of the Cut-off Date Aggregate Principal Balance.

         The recitals contained herein shall be taken as statements of the
Depositor and the Trustee assumes no responsibility for their correctness.

         Unless the certificate of authentication hereon has been executed by
the Certificate Registrar, by manual signature, this Certificate shall not be
entitled to any benefit under the Agreement or be valid for any purpose.


                                    EX C-1-4
<PAGE>


         IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.

Dated:

                                       DEUTSCHE BANK NATIONAL TRUST COMPANY, as
                                         Trustee


                                       By:
                                            ------------------------------------
                                            Authorized Officer




                          CERTIFICATE OF AUTHENTICATION

         This is one of the Residual Certificates referred to in the
within-mentioned Agreement.

                                       DEUTSCHE BANK NATIONAL TRUST COMPANY, as
                                         Certificate Registrar


                                       By:
                                            ------------------------------------
                                            Authorized Signatory



                                    EX C-1-5

<PAGE>


                                  ABBREVIATIONS

         The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:

<TABLE>
<S>                                                    <C>
TEN COM - as tenants in common                          UNIF GIFT MIN ACT -  Custodian (Cust) (Minor)
                                                                             under Uniform Gifts to
TEN ENT - as tenants by the entireties                                       Minors Act

                                                                             ------------------------
JT TEN  - as joint tenants with right of survivorship                        (State)
          and not as tenants in common
</TABLE>

         Additional abbreviations may also be used though not in the above list.


                                   ASSIGNMENT

         FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto _______________________________________________________________
________________________________________________________________________________
(Please print or typewrite name, address including postal zip code, and Taxpayer
Identification Number of assignee)
________________________________________________________________________________
a Percentage Interest equal to _____% evidenced by the within asset-backed
Certificate and hereby authorize(s) the registration of transfer of such
interest to assignee on the Certificate Register of the Trust Fund.

         I (we) further direct the Certificate Registrar to issue a new
Certificate of a like Percentage Interest and Class to the above named assignee
and deliver such Certificate to the following address: _________________________
_______________________________________________________________________________.

Dated:

                                          -------------------------------------
                                          Signature by or on behalf of assignor


                                          --------------------------------------
                                          Signature Guaranteed



                                    EX C-1-6
<PAGE>


                            DISTRIBUTION INSTRUCTIONS

         The assignee should include the following for purposes of distribution:


         Distributions shall be made, by wire transfer or otherwise, in
immediately available funds to _________________________________________________
________________________________________________________________________________
for the account of _________________________, account number __________________,
or, if mailed by check, to ____________________________________________________.
Applicable statements should be mailed to ______________________________________
This information is provided by _______________________________________________,
the assignee named above, or __________________________________________________,
as its agent.


                                    EX C-1-7

<PAGE>



                                   EXHIBIT C-2

                         [FORM OF CLASS M-1 CERTIFICATE]

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE TRUSTEE OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS A CERTIFICATES
AS DESCRIBED IN THE POOLING AGREEMENT REFERRED TO HEREIN.

THIS CERTIFICATE MAY NOT BE PURCHASED BY OR TRANSFERRED TO ANY PERSON THAT HAS
NOT DELIVERED A REPRESENTATION LETTER STATING EITHER (A) THAT THE TRANSFEREE IS
NOT AN EMPLOYEE BENEFIT PLAN OR ARRANGEMENT SUBJECT TO SECTION 406 OF THE
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR A PLAN
SUBJECT TO SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE") (EACH, A "PLAN"), AND IS NOT ACTING ON BEHALF OF OR INVESTING THE ASSETS
OF A PLAN OR (B) THAT THE TRANSFEREE IS AN INSURANCE COMPANY THAT IS PURCHASING
THIS CERTIFICATE WITH FUNDS CONTAINED IN AN "INSURANCE COMPANY GENERAL ACCOUNT"
(AS SUCH TERM IS DEFINED IN SECTION V(E) OF PROHIBITED TRANSACTION CLASS
EXEMPTION 95-60 ("PTCE 95-60") AND THE CONDITIONS FOR EXEMPTIVE RELIEF UNDER
SECTIONS I AND III OF PTCE 95-60 HAVE BEEN SATISFIED. EACH PERSON WHO ACQUIRES A
BENEFICIAL INTEREST IN THIS CERTIFICATE SHALL BE DEEMED TO HAVE MADE THE
REPRESENTATIONS REQUIRED BY THE REPRESENTATION LETTER REFERRED TO IN THE
PRECEDING SENTENCE. THE POOLING AGREEMENT PROVIDES THAT ANY ATTEMPTED OR
PURPORTED TRANSFER IN VIOLATION OF THESE TRANSFER RESTRICTIONS WILL BE NULL AND
VOID AND WILL VEST NO RIGHTS IN ANY PURPORTED TRANSFEREE.

FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS BENEFICIAL
OWNERSHIP OF A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT
CONDUIT," AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF
THE CODE AND CERTAIN OTHER PROPERTY.


                                    EX C-2-1

<PAGE>

      MORGAN STANLEY ABS CAPITAL I INC. MORTGAGE PASS-THROUGH CERTIFICATES
                           SERIES 2004-SD2, CLASS M-1

evidencing a beneficial ownership interest in a portion of a Trust Fund
consisting primarily of a pool of conventional fixed-rate and adjustable-rate
one- to four-family first and second lien mortgage loans formed and sold by

                        MORGAN STANLEY ABS CAPITAL I INC.

Series 2004-SD2, Class M-1                      Original Class Certificate
                                                Principal Balance of the Class
                                                M-1 Certificates as of the
                                                Closing Date: $10,152,000
Pass-Through Rate:  Variable

Cut-off Date:  May 1, 2004                      Initial Certificate Principal
                                                Balance:  $10,152,000

First Distribution Date:  June 25, 2004         Servicers: Bank of America,
                                                N.A., Washington Mutual Bank FA
                                                and Wilshire Credit Corporation
No.
                                                Trustee:  Deutsche Bank National
                                                Trust Company
CUSIP:  [__________]
                                                Closing Date:  June 4,  2004
ISIN:  [__________]

         DISTRIBUTIONS IN REDUCTION OF THE CERTIFICATE PRINCIPAL BALANCE OF THIS
         CERTIFICATE MAY BE MADE MONTHLY AS SET FORTH HEREIN. ACCORDINGLY, THE
         OUTSTANDING CERTIFICATE PRINCIPAL BALANCE HEREOF AT ANY TIME MAY BE
         LESS THAN THE AMOUNT SHOWN ABOVE.

         THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN
         MORGAN STANLEY ABS CAPITAL I INC., THE CUSTODIAN, THE TRUSTEE, THE
         SELLER OR ANY OF THEIR AFFILIATES. THIS CERTIFICATE IS NOT GUARANTEED
         BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES.

         This certifies that _________________ is the registered owner of a
Percentage Interest (obtained by dividing the Initial Certificate Principal
Balance of this Certificate by the Original Class Certificate Principal Balance
of the Class M-1 Certificates) in that certain beneficial ownership interest
evidenced by all the Class M-1 Certificates in the Trust Fund created pursuant
to a Pooling Agreement, dated as specified above (the "Agreement"), among Morgan
Stanley ABS Capital I Inc. (hereinafter called the "Depositor," which term
includes any successor entity under the Agreement), the Seller, the Custodian
and the Trustee, a summary of certain of the pertinent provisions of which is
set forth hereafter. To the extent not defined herein, the capitalized terms
used herein have the meanings assigned in the Agreement. This Certificate is
issued under and is subject to the terms, provisions and conditions of the
Agreement, to which Agreement the Holder of this Certificate by virtue of the
acceptance hereof assents and by which such Holder is bound.

         Pursuant to the terms of the Agreement, distributions will be made on
the 25th calendar day of each month or, if such 25th calendar day is not a
Business Day, the Business Day immediately following (a "Distribution Date"),
commencing on the first Distribution Date specified above, to the Person in
whose name this Certificate is registered on the Business Day immediately
preceding such Distribution Date (the "Record Date"), from funds in the
Distribution Account in an amount equal to the product of the Percentage
Interest evidenced by this Certificate and the amount required to be distributed
to the Holders of Class M-1 Certificates on such Distribution Date pursuant to
the Agreement provided, however, that if any Class M-1 Certificate becomes a
Definitive Certificate, the Record Date for such Certificate will be the last
Business Day of the month immediately preceding the month in which the related
Distribution Date occurs.


                                    EX C-2-2
<PAGE>

         All distributions to the Holder of this Certificate under the Agreement
will be made or caused to be made by or on behalf of the Trustee by wire
transfer in immediately available funds to the account of the Person entitled
thereto if such Person shall have so notified the Certificate Registrar in
writing at least five Business Days prior to the Record Date immediately prior
to such Distribution Date, or by check mailed by first class mail to the address
of the Person entitled thereto, as such name and address shall appear on the
Certificate Register, provided that the Certificate Registrar may deduct a
reasonable wire transfer fee from any payment made by wire transfer.
Notwithstanding the above, the final distribution on this Certificate will be
made after due notice by the Trustee of the pendency of such distribution and
only upon presentation and surrender of this Certificate at the office or agency
appointed by the Trustee for that purpose as provided in the Agreement.

         The Class M-1 Pass-Through Rate on each Distribution Date will be a
rate per annum equal to the sum of one month LIBOR plus the Class M-1
Certificate Margin. Interest will accrue on the Class M-1 Certificates during
each Interest Accrual Period at a rate equal to the lesser of (i) the Class M-1
Pass-Through Rate and (ii) the WAC Cap for such Distribution Date.

         This Certificate is one of a duly authorized issue of Certificates
designated as Morgan Stanley ABS Capital I Inc. Trust Mortgage Pass-Through
Certificates of the Series specified on the face hereof (herein called the
"Certificates") and representing a Percentage Interest in the Class M-1
Certificates.

         The Class M-1 Certificates are limited in right of payment to certain
collections and recoveries respecting the Mortgage Loans, all as more
specifically set forth herein and in the Agreement. As provided in the
Agreement, withdrawals from the Collection Account and the Distribution Account
may be made from time to time for purposes other than distributions to
Certificateholders, such purposes including reimbursement of advances made, or
certain expenses incurred, with respect to the Mortgage Loans.

         This certificate is subordinated in right of payment to the Class A
Certificates as described in the Pooling Agreement referred to herein.

         The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Depositor, the Seller, the Custodian, the Trustee and the rights of the
Certificateholders under the Agreement at any time by the Depositor, the Seller,
the Custodian and the Trustee with the consent of the Holders of Certificates
entitled to the Voting Rights identified in the agreement. Any such consent by
the Holder of this Certificate shall be conclusive and binding on such Holder
and upon all future Holders of this Certificate and of any Certificate issued
upon the transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Agreement also
permits the amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Certificates.

         As provided in the Agreement and subject to certain limitations therein
set forth, the transfer of this Certificate is registrable in the Certificate
Register upon surrender of this Certificate for registration of transfer at the
offices or agencies appointed by the Trustee as provided in the Agreement, duly
endorsed by, or accompanied by an assignment in the form below or other written
instrument of transfer in form satisfactory to the Trustee the Certificate
Registrar duly executed by, the Holder hereof or such Holder's attorney duly
authorized in writing, and thereupon one or more new Certificates of the same
Class in authorized denominations evidencing the same aggregate Percentage
Interest will be issued to the designated transferee or transferees.

         The Certificates are issuable in fully registered form only without
coupons in Classes and denominations representing Percentage Interests specified
in the Agreement. As provided in the Agreement and subject to certain
limitations therein set forth, Certificates are exchangeable for new
Certificates of the same Class in authorized denominations evidencing the same
aggregate Percentage Interest, as requested by the Holder surrendering the same.

         No service charge will be made for any such registration of transfer or
exchange of Certificates, but the Certificate Registrar may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any transfer or exchange of Certificates.

                                    EX C-2-3
<PAGE>

         The Depositor, the Seller, the Custodian, the Trustee and the
Certificate Registrar and any agent of the Depositor, the Seller, the Custodian,
the Trustee or the Certificate Registrar may treat the Person in whose name this
Certificate is registered as the owner hereof for all purposes, and none of the
Depositor, the Seller, the Custodian, the Trustee, the Certificate Registrar nor
any such agent shall be affected by notice to the contrary.

         The obligations created by the Agreement and the Trust Fund created
thereby shall terminate upon payment to the Certificateholders of all amounts
held by or on behalf of the Trustee and required to be paid to them pursuant to
the Agreement following the earlier of (i) the final payment or other
liquidation (or any advance with respect thereto) of the last Mortgage Loan
remaining in the Trust Fund, and (ii) the purchase by the party designated in
the Agreement at a price determined as provided in the Agreement from the Trust
Fund of all Mortgage Loans and all property acquired in respect of such Mortgage
Loans. The Agreement permits, but does not require, the party designated in the
Agreement to purchase from the Trust Fund all Mortgage Loans and all property
acquired in respect of any Mortgage Loan at a price determined as provided in
the Agreement. The exercise of such right will effect early retirement of the
Certificates; however, such right to purchase is subject to the aggregate
Principal Balance of the Mortgage Loans at the time of purchase being 10% or
less of the Cut-off Date Aggregate Principal Balance.

         The recitals contained herein shall be taken as statements of the
Depositor and the Trustee assumes no responsibility for their correctness.

         Unless the certificate of authentication hereon has been executed by
the Certificate Registrar, by manual signature, this Certificate shall not be
entitled to any benefit under the Agreement or be valid for any purpose.


                                    EX C-2-4
<PAGE>


         IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.

Dated:

                                      DEUTSCHE BANK NATIONAL TRUST COMPANY, as
                                         Trustee


                                      By:
                                           -------------------------------------
                                           Authorized Officer


                          CERTIFICATE OF AUTHENTICATION

         This is one of the Class M-1 Certificates referred to in the
within-mentioned Agreement.

                                      DEUTSCHE BANK NATIONAL TRUST COMPANY, as
                                           Certificate Registrar


                                      By:
                                           -------------------------------------
                                           Authorized Signatory
Date of authentication:


                                    EX C-2-5
<PAGE>


                                  ABBREVIATIONS

         The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:

<TABLE>
<S>                                                    <C>
TEN COM - as tenants in common                          UNIF GIFT MIN ACT -  Custodian (Cust) (Minor)
                                                                             under Uniform Gifts to
TEN ENT - as tenants by the entireties                                       Minors Act

                                                                             -------------------------
JT TEN  - as joint tenants with right of survivorship                        (State)
          and not as tenants in common
</TABLE>

         Additional abbreviations may also be used though not in the above list.


                                   ASSIGNMENT

         FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto _______________________________________________________________
________________________________________________________________________________
(Please print or typewrite name, address including postal zip code, and Taxpayer
Identification Number of assignee)
________________________________________________________________________________
a Percentage Interest equal to _____% evidenced by the within asset-backed
Certificate and hereby authorize(s) the registration of transfer of such
interest to assignee on the Certificate Register of the Trust Fund.

         I (we) further direct the Certificate Registrar to issue a new
Certificate of a like Percentage Interest and Class to the above named assignee
and deliver such Certificate to the following address: .

Dated:

                                        -------------------------------------
                                        Signature by or on behalf of assignor


                                        -------------------------------------
                                        Signature Guaranteed


                                    EX C-2-6
<PAGE>


                            DISTRIBUTION INSTRUCTIONS

         The assignee should include the following for purposes of distribution:

         Distributions shall be made, by wire transfer or otherwise, in

immediately available funds to _________________________________________________

________________________________________________________________________________

for the account of _________________________, account number __________________,

or, if mailed by check, to ____________________________________________________.

Applicable statements should be mailed to ______________________________________

This information is provided by _______________________________________________,

the assignee named above, or __________________________________________________,

as its agent.


                                    EX C-2-7

<PAGE>


                                   EXHIBIT C-3

                         [FORM OF CLASS M-2 CERTIFICATE]

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE TRUSTEE OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS A AND CLASS
M-1 CERTIFICATES AS DESCRIBED IN THE POOLING AGREEMENT REFERRED TO HEREIN.

THIS CERTIFICATE MAY NOT BE PURCHASED BY OR TRANSFERRED TO ANY PERSON THAT HAS
NOT DELIVERED A REPRESENTATION LETTER STATING EITHER (A) THAT THE TRANSFEREE IS
NOT AN EMPLOYEE BENEFIT PLAN OR ARRANGEMENT SUBJECT TO SECTION 406 OF THE
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR A PLAN
SUBJECT TO SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE") (EACH, A "PLAN"), AND IS NOT ACTING ON BEHALF OF OR INVESTING THE ASSETS
OF A PLAN OR (B) THAT THE TRANSFEREE IS AN INSURANCE COMPANY THAT IS PURCHASING
THIS CERTIFICATE WITH FUNDS CONTAINED IN AN "INSURANCE COMPANY GENERAL ACCOUNT"
(AS SUCH TERM IS DEFINED IN SECTION V(E) OF PROHIBITED TRANSACTION CLASS
EXEMPTION 95-60 ("PTCE 95-60") AND THE CONDITIONS FOR EXEMPTIVE RELIEF UNDER
SECTIONS I AND III OF PTCE 95-60 HAVE BEEN SATISFIED. EACH PERSON WHO ACQUIRES A
BENEFICIAL INTEREST IN THIS CERTIFICATE SHALL BE DEEMED TO HAVE MADE THE
REPRESENTATIONS REQUIRED BY THE REPRESENTATION LETTER REFERRED TO IN THE
PRECEDING SENTENCE. THE POOLING AGREEMENT PROVIDES THAT ANY ATTEMPTED OR
PURPORTED TRANSFER IN VIOLATION OF THESE TRANSFER RESTRICTIONS WILL BE NULL AND
VOID AND WILL VEST NO RIGHTS IN ANY PURPORTED TRANSFEREE.

FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS BENEFICIAL
OWNERSHIP OF A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT
CONDUIT," AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF
THE CODE AND CERTAIN OTHER PROPERTY.


                                    EX C-3-1

<PAGE>

      MORGAN STANLEY ABS CAPITAL I INC. MORTGAGE PASS-THROUGH CERTIFICATES
                           SERIES 2004-SD2, CLASS M-2

evidencing a beneficial ownership interest in a portion of a Trust Fund
consisting primarily of a pool of conventional fixed-rate and adjustable-rate
one- to four-family first and second lien mortgage loans formed and sold by

                        MORGAN STANLEY ABS CAPITAL I INC.

Series 2004-SD2, Class M-2                  Original Class Certificate
                                            Principal Balance of the Class M-2
                                            Certificates as of the Closing Date:
                                            $9,025,000
Cut-off Date:  June 1, 2004

First Distribution Date:  June 25, 2004     Initial Certificate Principal
                                            Balance:  $9,025,000

No.                                         Servicers: Bank of America, N.A.,
                                            Washington Mutual Bank FA and
                                            Wilshire Credit Corporation
CUSIP:  [_______]
                                            Trustee: Deutsche Bank National
                                            Trust Company
ISIN:  [____________]
                                            Closing Date:  June 4, 2004

         DISTRIBUTIONS IN REDUCTION OF THE CERTIFICATE PRINCIPAL BALANCE OF THIS
         CERTIFICATE MAY BE MADE MONTHLY AS SET FORTH HEREIN. ACCORDINGLY, THE
         OUTSTANDING CERTIFICATE PRINCIPAL BALANCE HEREOF AT ANY TIME MAY BE
         LESS THAN THE AMOUNT SHOWN ABOVE.

         THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN
         MORGAN STANLEY ABS CAPITAL I INC., THE CUSTODIAN, THE TRUSTEE, THE
         SELLER OR ANY OF THEIR AFFILIATES. THIS CERTIFICATE IS NOT GUARANTEED
         BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES.

         This certifies that ___________ is the registered owner of a Percentage
Interest (obtained by dividing the Initial Certificate Principal Balance of this
Certificate by the Original Class Certificate Principal Balance of the Class M-2
Certificates) in that certain beneficial ownership interest evidenced by all the
Class M-2 Certificates in the Trust Fund created pursuant to a Pooling
Agreement, dated as specified above (the "Agreement"), among Morgan Stanley ABS
Capital I Inc. (hereinafter called the "Depositor," which term includes any
successor entity under the Agreement), the Seller, the Custodian and the
Trustee, a summary of certain of the pertinent provisions of which is set forth
hereafter. To the extent not defined herein, the capitalized terms used herein
have the meanings assigned in the Agreement. This Certificate is issued under
and is subject to the terms, provisions and conditions of the Agreement, to
which Agreement the Holder of this Certificate by virtue of the acceptance
hereof assents and by which such Holder is bound.

         Pursuant to the terms of the Agreement, distributions will be made on
the 25th calendar day of each month or, if such 25th calendar day is not a
Business Day, the Business Day immediately following (a "Distribution Date"),
commencing on the first Distribution Date specified above, to the Person in
whose name this Certificate is registered on the Business Day immediately
preceding such Distribution Date (the "Record Date"), from funds in the
Distribution Account in an amount equal to the product of the Percentage
Interest evidenced by this Certificate and the amount required to be distributed
to the Holders of Class M-2 Certificates on such Distribution Date pursuant to
the Agreement provided, however, that if any Class M-2 Certificate becomes a
Definitive Certificate, the Record Date for such Certificate will be the last
Business Day of the month immediately preceding the month in which the related
Distribution Date occurs.

         All distributions to the Holder of this Certificate under the Agreement
will be made or caused to be made by or on behalf of the Trustee by wire
transfer in immediately available funds to the account of the Person entitled
thereto if such Person shall have so notified the Certificate Registrar in
writing at least five Business Days prior to the Record Date immediately prior
to such Distribution Date , or by check mailed by first class mail to the
address of the Person entitled thereto, as such name and address shall appear on
the Certificate Register, provided that the Certificate Registrar may deduct a
reasonable wire transfer fee from any payment made by wire transfer.
Notwithstanding the above, the final distribution on this Certificate will be
made after due notice by the Trustee of the pendency of such distribution and
only upon presentation and surrender of this Certificate at the office or agency
appointed by the Trustee for that purpose as provided in the Agreement.


                                    EX C-3-2
<PAGE>

         The Class M-2 Pass-Through Rate on each Distribution Date will be a
rate per annum equal to the sum of one month LIBOR plus the Class M-2
Certificate Margin. Interest will accrue on the Class M-2 Certificates during
each Interest Accrual Period at a rate equal to the lesser of (i) the Class M-2
Pass-Through Rate and (ii) the WAC Cap for such Distribution Date.

         This Certificate is one of a duly authorized issue of Certificates
designated as Morgan Stanley ABS Capital I Inc. Mortgage Pass-Through
Certificates of the Series specified on the face hereof (herein called the
"Certificates") and representing a Percentage Interest in the Class M-2
Certificates.

         The Class M-2 Certificates are limited in right of payment to certain
collections and recoveries respecting the Mortgage Loans, all as more
specifically set forth herein and in the Agreement. As provided in the
Agreement, withdrawals from the Collection Account and the Distribution Account
may be made from time to time for purposes other than distributions to
Certificateholders, such purposes including reimbursement of advances made, or
certain expenses incurred, with respect to the Mortgage Loans.

         This certificate is subordinated in right of payment to the Class A and
Class M-1 Certificates as described in the Pooling Agreement referred to herein.

         The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Depositor, the Seller, the Custodian, the Trustee and the rights of the
Certificateholders under the Agreement at any time by the Depositor, the Seller,
the Custodian and the Trustee with the consent of the Holders of Certificates
entitled to the Voting Rights identified in the agreement. Any such consent by
the Holder of this Certificate shall be conclusive and binding on such Holder
and upon all future Holders of this Certificate and of any Certificate issued
upon the transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Agreement also
permits the amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Certificates.

         As provided in the Agreement and subject to certain limitations therein
set forth, the transfer of this Certificate is registrable in the Certificate
Register upon surrender of this Certificate for registration of transfer at the
offices or agencies appointed by the Trustee as provided in the Agreement, duly
endorsed by, or accompanied by an assignment in the form below or other written
instrument of transfer in form satisfactory to the Trustee and the Certificate
Registrar duly executed by, the Holder hereof or such Holder's attorney duly
authorized in writing, and thereupon one or more new Certificates of the same
Class in authorized denominations evidencing the same aggregate Percentage
Interest will be issued to the designated transferee or transferees.

         The Certificates are issuable in fully registered form only without
coupons in Classes and denominations representing Percentage Interests specified
in the Agreement. As provided in the Agreement and subject to certain
limitations therein set forth, Certificates are exchangeable for new
Certificates of the same Class in authorized denominations evidencing the same
aggregate Percentage Interest, as requested by the Holder surrendering the same.

         No service charge will be made for any such registration of transfer or
exchange of Certificates, but the Certificate Registrar may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any transfer or exchange of Certificates.

         The Depositor, the Seller, the Custodian, the Trustee and the
Certificate Registrar and any agent of the Depositor, the Seller, the Custodian,
the Trustee or the Certificate Registrar may treat the Person in whose name this
Certificate is registered as the owner hereof for all purposes, and none of the
Depositor, the Seller, the Custodian, the Trustee, the Certificate Registrar nor
any such agent shall be affected by notice to the contrary.


                                    EX C-3-3
<PAGE>

         The obligations created by the Agreement and the Trust Fund created
thereby shall terminate upon payment to the Certificateholders of all amounts
held by or on behalf of the Trustee and required to be paid to them pursuant to
the Agreement following the earlier of (i) the final payment or other
liquidation (or any advance with respect thereto) of the last Mortgage Loan
remaining in the Trust Fund, and (ii) the purchase by the party designated in
the Agreement at a price determined as provided in the Agreement from the Trust
Fund of all Mortgage Loans and all property acquired in respect of such Mortgage
Loans. The Agreement permits, but does not require, the party designated in the
Agreement to purchase from the Trust Fund all Mortgage Loans and all property
acquired in respect of any Mortgage Loan at a price determined as provided in
the Agreement. The exercise of such right will effect early retirement of the
Certificates; however, such right to purchase is subject to the aggregate
Principal Balance of the Mortgage Loans at the time of purchase being 10% or
less of the Cut-off Date Aggregate Principal Balance.

         The recitals contained herein shall be taken as statements of the
Depositor and the Trustee assumes no responsibility for their correctness.

         Unless the certificate of authentication hereon has been executed by
the Certificate Registrar, by manual signature, this Certificate shall not be
entitled to any benefit under the Agreement or be valid for any purpose.


                                    EX C-3-4
<PAGE>


         IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.

Dated:

                                       DEUTSCHE BANK NATIONAL TRUST COMPANY, as
                                             Trustee


                                       By:
                                            ------------------------------------
                                            Authorized Officer


                          CERTIFICATE OF AUTHENTICATION

         This is one of the Class M-2 Certificates referred to in the
within-mentioned Agreement.

                                       DEUTSCHE BANK NATIONAL TRUST COMPANY, as
                                            Certificate Registrar


                                       By:
                                            ------------------------------------
                                            Authorized Signatory
Date of authentication:


                                    EX C-3-5
<PAGE>


                                  ABBREVIATIONS

         The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:

<TABLE>
<S>                                                    <C>
TEN COM - as tenants in common                          UNIF GIFT MIN ACT -  Custodian (Cust) (Minor)
                                                                             under Uniform Gifts to
TEN ENT - as tenants by the entireties                                       Minors Act

                                                                             -------------------------
JT TEN  - as joint tenants with right of survivorship                        (State)
          and not as tenants in common
</TABLE>

         Additional abbreviations may also be used though not in the above list.


                                   ASSIGNMENT

         FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto _______________________________________________________________
________________________________________________________________________________
(Please print or typewrite name, address including postal zip code, and Taxpayer
Identification Number of assignee)
________________________________________________________________________________
a Percentage Interest equal to _____% evidenced by the within asset-backed
Certificate and hereby authorize(s) the registration of transfer of such
interest to assignee on the Certificate Register of the Trust Fund.

         I (we) further direct the Certificate Registrar to issue a new
Certificate of a like Percentage Interest and Class to the above named assignee
and deliver such Certificate to the following address: .

Dated:

                                         -------------------------------------
                                         Signature by or on behalf of assignor


                                         --------------------------------------
                                         Signature Guaranteed

                                    EX C-3-6
<PAGE>


                            DISTRIBUTION INSTRUCTIONS

         The assignee should include the following for purposes of distribution:

         Distributions shall be made, by wire transfer or otherwise, in

immediately available funds to _________________________________________________

________________________________________________________________________________

for the account of _________________________, account number __________________,

or, if mailed by check, to ____________________________________________________.

Applicable statements should be mailed to ______________________________________

This information is provided by _______________________________________________,

the assignee named above, or __________________________________________________,

as its agent.


                                    EX C-3-7
<PAGE>



                                   EXHIBIT C-4

                         [FORM OF CLASS X CERTIFICATES]

         FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS A
         BENEFICIAL INTEREST IN A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE
         INVESTMENT CONDUIT," AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN
         SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
         (THE "CODE") AND IN CERTAIN OTHER PROPERTY.

         THIS CLASS X CERTIFICATE IS SUBORDINATE TO THE OFFERED CERTIFICATES OF
         THIS SERIES TO THE EXTENT DESCRIBED HEREIN AND IN THE POOLING AGREEMENT
         REFERRED TO HEREIN.

         THIS CLASS X CERTIFICATE WILL NOT BE ENTITLED TO PAYMENTS UNTIL SUCH
         TIME AS DESCRIBED IN THE POOLING AGREEMENT REFERRED TO HEREIN.

         THIS CLASS X CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE
         SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR THE SECURITIES
         LAWS OF ANY STATE. ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS
         CERTIFICATE WITHOUT SUCH REGISTRATION OR QUALIFICATION MAY BE MADE ONLY
         IN A TRANSACTION THAT DOES NOT REQUIRE SUCH REGISTRATION OR
         QUALIFICATION AND IN ACCORDANCE WITH THE PROVISIONS OF SECTION 4.02 OF
         THE POOLING AGREEMENT REFERRED TO HEREIN.

         EXCEPT IN CONNECTION WITH THE TRANSFER OF THIS CLASS X CERTIFICATE TO A
         "NIM TRUST" IN THE MANNER SET FORTH IN SECTION 4.02(D) OF THE POOLING
         AGREEMENT, THIS CLASS X CERTIFICATE MAY NOT BE PURCHASED BY OR
         TRANSFERRED TO ANY PERSON THAT HAS NOT DELIVERED A REPRESENTATION
         LETTER STATING THAT THE TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN OR
         ARRANGEMENT SUBJECT TO SECTION 406 OF THE EMPLOYEE RETIREMENT INCOME
         SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR A PLAN SUBJECT TO
         SECTION 4975 OF THE CODE (EACH, A "PLAN"), AND IS NOT ACTING ON BEHALF
         OF OR INVESTING THE ASSETS OF A PLAN. THE POOLING AGREEMENT PROVIDES
         THAT ANY ATTEMPTED OR PURPORTED TRANSFER IN VIOLATION OF THESE TRANSFER
         RESTRICTIONS WILL BE NULL AND VOID AND WILL VEST NO RIGHTS IN ANY
         PURPORTED TRANSFEREE.

         MORGAN STANLEY ABS CAPITAL I INC. MORTGAGE PASS-THROUGH CERTIFICATES
                            SERIES 2004-SD2, CLASS X

evidencing a beneficial ownership interest in a portion of a Trust Fund
consisting primarily of a pool of conventional fixed-rate and adjustable-rate
one- to four-family first and second lien mortgage loans formed and sold by

                        MORGAN STANLEY ABS CAPITAL I INC.

Series 2004-SD2, Class X                      Servicers: Bank of America, N.A.,
                                              Washington Mutual Bank FA and
                                              Wilshire Credit Corporation
Cut-off Date:  June 1, 2004
                                              Trustee:  Deutsche Bank National
                                              Trust Company
First Distribution Date:  June 25, 2004
                                              Closing Date:  June 4, 2004
No.

Percentage Interest:  100%


                                    EX C-4-1
<PAGE>

         THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN
         MORGAN STANLEY ABS CAPITAL I INC., THE CUSTODIAN, THE TRUSTEE, THE
         SELLER AGENT OR ANY OF THEIR AFFILIATES. THIS CERTIFICATE IS NOT
         GUARANTEED BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES.

         This certifies that __________________________________ is the
registered owner of a Percentage Interest set forth above in that certain
beneficial ownership interest evidenced by all the Class X Certificates in the
Trust Fund created pursuant to a Pooling Agreement, dated as specified above
(the "Agreement"), among Morgan Stanley ABS Capital I Inc. (hereinafter called
the "Depositor," which term includes any successor entity under the Agreement),
the Seller, the Custodian and the Trustee, a summary of certain of the pertinent
provisions of which is set forth hereafter. To the extent not defined herein,
the capitalized terms used herein have the meanings assigned in the Agreement.
This Certificate is issued under and is subject to the terms, provisions and
conditions of the Agreement, to which Agreement the Holder of this Certificate
by virtue of the acceptance hereof assents and by which such Holder is bound.

         Pursuant to the terms of the Agreement, distributions will be made on
the 25th calendar day of each month or, if such 25th calendar day is not a
Business Day, the Business Day immediately following (a "Distribution Date"),
commencing on the first Distribution Date specified above, to the Person in
whose name this Certificate is registered on the last Business Day of the month
immediately preceding the month in which the related Distribution Date occurs or
the Closing Date in the case of the first Distribution Date (the "Record Date"),
from funds in the Distribution Account in an amount equal to the product of the
Percentage Interest evidenced by this Certificate and the amount required to be
distributed to the Holders of Class X Certificates on such Distribution Date
pursuant to the Agreement.

         All distributions to the Holder of this Certificate under the Agreement
will be made or caused to be made by or on behalf of the Trustee by wire
transfer in immediately available funds to the account of the Person entitled
thereto if such Person shall have so notified the Certificate Registrar in
writing at least five Business Days prior to the Record Date immediately prior
to such Distribution Date, or by check mailed by first class mail to the address
of the Person entitled thereto, as such name and address shall appear on the
Certificate Register, provided that the Certificate Registrar may deduct a
reasonable wire transfer fee from any payment made by wire transfer.
Notwithstanding the above, the final distribution on this Certificate will be
made after due notice by the Trustee of the pendency of such distribution and
only upon presentation and surrender of this Certificate at the office or agency
appointed by the Trustee for that purpose as provided in the Agreement.

         This Certificate is one of a duly authorized issue of Certificates
designated as Morgan Stanley ABS Capital I Inc. Mortgage Pass-Through
Certificates of the Series specified on the face hereof (herein called the
"Certificates") and representing the Percentage Interest specified on the face
hereof.

         The Class X Certificates are limited in right of payment to certain
collections and recoveries respecting the Mortgage Loans, all as more
specifically set forth herein and in the Agreement. As provided in the
Agreement, withdrawals from the Collection Account and the Distribution Account
may be made from time to time for purposes other than distributions to
Certificateholders, such purposes including reimbursement of advances made, or
certain expenses incurred, with respect to the Mortgage Loans.

         The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Depositor, the Seller, the Custodian, the Trustee and the rights of the
Certificateholders under the Agreement at any time by the Depositor, the Seller,
the Custodian and the Trustee with the consent of the Holders of Certificates
entitled to the Voting Rights identified in the agreement. Any such consent by
the Holder of this Certificate shall be conclusive and binding on such Holder
and upon all future Holders of this Certificate and of any Certificate issued
upon the transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Agreement also
permits the amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Certificates.

         As provided in the Agreement and subject to certain limitations therein
set forth, the transfer of this Certificate is registrable in the Certificate
Register upon surrender of this Certificate for registration of transfer at the
offices or agencies appointed by the Trustee as provided in the Agreement, duly
endorsed by, or accompanied by an assignment in the form below or other written
instrument of transfer in form satisfactory to the Trustee and the Certificate
Registrar duly executed by, the Holder hereof or such Holder's attorney duly
authorized in writing, and thereupon one or more new Certificates of the same
Class in authorized denominations evidencing the same aggregate Percentage
Interest will be issued to the designated transferee or transferees.

                                    EX C-4-2
<PAGE>

         The Certificates are issuable in fully registered form only without
coupons in Classes and denominations representing Percentage Interests specified
in the Agreement. As provided in the Agreement and subject to certain
limitations therein set forth, Certificates are exchangeable for new
Certificates of the same Class in authorized denominations evidencing the same
aggregate Percentage Interest, as requested by the Holder surrendering the same.

         No transfer of this Certificate shall be made unless that transfer is
made pursuant to an effective registration statement under the 1933 Act and
effective registration or qualification under applicable state securities laws,
or is made in a transaction that does not require such registration or
qualification. In the event that a transfer is to be made without registration
or qualification, the Certificate Registrar shall require, in order to assure
compliance with such laws, either (i) that the Certificateholder desiring to
effect the transfer and such Certificateholder's prospective transferee each
execute a representation letter in the form described by the Agreement
certifying to the Certificate Registrar the facts surrounding the transfer, or
(ii) that the Depositor and the Certificate Registrar shall require an Opinion
of Counsel satisfactory to them that such transfer may be made without such
registration or qualification, which Opinion of Counsel shall not be an expense
of the Depositor, the Trustee, or the Certificate Registrar, in their respective
capacities as such. None of the Depositor, the Certificate Registrar nor the
Trustee is obligated to register or qualify the Class of Certificates specified
on the face hereof under the 1933 Act or any other securities law or to take any
action not otherwise required under the Agreement to permit the transfer of such
Certificates without registration or qualification. Any such Certificateholder
desiring to effect such transfer shall, and does hereby agree to, indemnify the
Trustee, the Depositor, the Seller, the Certificate Registrar and the Custodian
against any liability that may result if the transfer is not so exempt or is not
made in accordance with such federal and state laws.

         No service charge will be made for any such registration of transfer or
exchange of Certificates, but the Certificate Registrar may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any transfer or exchange of Certificates.

         The Depositor, the Seller, the Custodian, the Trustee and the
Certificate Registrar and any agent of the Depositor, the Seller, the Custodian,
the Trustee or the Certificate Registrar may treat the Person in whose name this
Certificate is registered as the owner hereof for all purposes, and none of the
Depositor, the Seller, the Custodian, the Trustee, the Certificate Registrar nor
any such agent shall be affected by notice to the contrary.

         The obligations created by the Agreement and the Trust Fund created
thereby shall terminate upon payment to the Certificateholders of all amounts
held by or on behalf of the Trustee and required to be paid to them pursuant to
the Agreement following the earlier of (i) the final payment or other
liquidation (or any advance with respect thereto) of the last Mortgage Loan
remaining in the Trust Fund, and (ii) the purchase by the party designated in
the Agreement at a price determined as provided in the Agreement from the Trust
Fund of all Mortgage Loans and all property acquired in respect of such Mortgage
Loans. The Agreement permits, but does not require, the party designated in the
Agreement to purchase from the Trust Fund all Mortgage Loans and all property
acquired in respect of any Mortgage Loan at a price determined as provided in
the Agreement. The exercise of such right will effect early retirement of the
Certificates; however, such right to purchase is subject to the aggregate
Principal Balance of the Mortgage Loans at the time of purchase being 10% or
less of the Cut-off Date Aggregate Principal Balance.

         The recitals contained herein shall be taken as statements of the
Depositor and the Trustee assumes no responsibility for their correctness.

         Unless the certificate of authentication hereon has been executed by
the Certificate Registrar, by manual signature, this Certificate shall not be
entitled to any benefit under the Agreement or be valid for any purpose.


                                    EX C-4-3
<PAGE>


         IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.

Dated:

                                       DEUTSCHE BANK NATIONAL TRUST COMPANY, as
                                            Trustee


                                       By:
                                            ------------------------------------
                                            Authorized Officer


                          CERTIFICATE OF AUTHENTICATION

         This is one of the Class X Certificates referred to in the
within-mentioned Agreement.

                                       DEUTSCHE BANK NATIONAL TRUST COMPANY, as
                                            Certificate Registrar


                                       By:
                                            ------------------------------------
                                            Authorized Signatory

                                    EX C-4-4
<PAGE>


                                  ABBREVIATIONS

         The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:

<TABLE>
<S>                                                    <C>
TEN COM - as tenants in common                          UNIF GIFT MIN ACT -  Custodian (Cust) (Minor)
                                                                             under Uniform Gifts to
TEN ENT - as tenants by the entireties                                       Minors Act

JT TEN  - as joint tenants with right of survivorship                        (State)
          and not as tenants in common
</TABLE>

         Additional abbreviations may also be used though not in the above list.


                                   ASSIGNMENT

         FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto _______________________________________________________________
________________________________________________________________________________
(Please print or typewrite name, address including postal zip code, and Taxpayer
Identification Number of assignee)
________________________________________________________________________________
a Percentage Interest equal to _____% evidenced by the within asset-backed
Certificate and hereby authorize(s) the registration of transfer of such
interest to assignee on the Certificate Register of the Trust Fund.

         I (we) further direct the Certificate Registrar to issue a new
Certificate of a like Percentage Interest and Class to the above named assignee
and deliver such Certificate to the following address: _________________________
_______________________________________________________________________________.

Dated:

                                          -------------------------------------
                                          Signature by or on behalf of assignor


                                          -------------------------------------
                                          Signature Guaranteed

                                    EX C-4-5
<PAGE>


                            DISTRIBUTION INSTRUCTIONS

         The assignee should include the following for purposes of distribution:

         Distributions shall be made, by wire transfer or otherwise, in

immediately available funds to _________________________________________________

________________________________________________________________________________

for the account of _________________________, account number __________________,

or, if mailed by check, to ____________________________________________________.

Applicable statements should be mailed to ______________________________________

This information is provided by _______________________________________________,

the assignee named above, or __________________________________________________,

as its agent.


                                    EX C-4-6
<PAGE>



                                   EXHIBIT C-5

                          [FORM OF CLASS P CERTIFICATE]

         FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS A
         BENEFICIAL INTEREST IN A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE
         INVESTMENT CONDUIT," AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN
         SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
         (THE "CODE").

         THIS CLASS P CERTIFICATE IS SUBORDINATE TO THE OFFERED CERTIFICATES OF
         THIS SERIES TO THE EXTENT DESCRIBED HEREIN AND IN THE POOLING AGREEMENT
         REFERRED TO HEREIN.

         THIS CLASS P CERTIFICATE WILL NOT BE ENTITLED TO PAYMENTS UNTIL SUCH
         TIME AS DESCRIBED IN THE POOLING AGREEMENT REFERRED TO HEREIN.

         THIS CLASS P CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE
         SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR THE SECURITIES
         LAWS OF ANY STATE. ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS
         CERTIFICATE WITHOUT SUCH REGISTRATION OR QUALIFICATION MAY BE MADE ONLY
         IN A TRANSACTION THAT DOES NOT REQUIRE SUCH REGISTRATION OR
         QUALIFICATION AND IN ACCORDANCE WITH THE PROVISIONS OF SECTION 4.02 OF
         THE POOLING AGREEMENT REFERRED TO HEREIN.

         EXCEPT IN CONNECTION WITH THE TRANSFER OF THIS CLASS P CERTIFICATE TO A
         "NIM TRUST" IN THE MANNER SET FORTH IN SECTION 4.02(D) OF THE POOLING
         AGREEMENT, THIS CLASS P CERTIFICATE MAY NOT BE PURCHASED BY OR
         TRANSFERRED TO ANY PERSON THAT HAS NOT DELIVERED A REPRESENTATION
         LETTER STATING THAT THE TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN OR
         ARRANGEMENT SUBJECT TO SECTION 406 OF THE EMPLOYEE RETIREMENT INCOME
         SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR A PLAN SUBJECT TO
         SECTION 4975 OF THE CODE (EACH, A "PLAN"), AND IS NOT ACTING ON BEHALF
         OF OR INVESTING THE ASSETS OF A PLAN. THE POOLING AGREEMENT PROVIDES
         THAT ANY ATTEMPTED OR PURPORTED TRANSFER IN VIOLATION OF THESE TRANSFER
         RESTRICTIONS WILL BE NULL AND VOID AND WILL VEST NO RIGHTS IN ANY
         PURPORTED TRANSFEREE.

         MORGAN STANLEY ABS CAPITAL I INC. MORTGAGE PASS-THROUGH CERTIFICATES
                            SERIES 2004-SD2, CLASS P

evidencing a beneficial ownership interest in a portion of a Trust Fund
consisting primarily of a pool of conventional fixed-rate and adjustable-rate
one- to four-family first and second lien mortgage loans formed and sold by

                        MORGAN STANLEY ABS CAPITAL I INC.

<TABLE>
<S>                                                 <C>
Series 2004-SD2, Class P                             Original Class Certificate Principal Balance of the
                                                     Class P Certificate as of the Closing Date:  $100
Cut-off Date:  June 1, 2004
                                                     Servicers: Bank of America, N.A., Washington Mutual
First Distribution Date:  June 25, 2004              Bank FA and Wilshire Credit Corporation

No. Trustee: Deutsche Bank National Trust Company

                                                     Closing Date:  June 4, 2004
</TABLE>


                                    EX C-5-1

<PAGE>

         THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN
         MORGAN STANLEY ABS CAPITAL I INC., THE CUSTODIAN, THE TRUSTEE, THE
         SELLER OR ANY OF THEIR AFFILIATES. THIS CERTIFICATE IS NOT GUARANTEED
         BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES.

         This certifies that __________________________________ is the
registered owner of a Percentage Interest (obtained by dividing the Certificate
Principal Balance of this Certificate by the Original Certificate Principal
Balance) of the Class P Certificates in that certain beneficial ownership
interest evidenced by all the Class P Certificates in the Trust Fund created
pursuant to a Pooling Agreement, dated as specified above (the "Agreement"),
among Morgan Stanley ABS Capital I Inc. (hereinafter called the "Depositor,"
which term includes any successor entity under the Agreement), the Seller, the
Custodian and the Trustee, a summary of certain of the pertinent provisions of
which is set forth hereafter. To the extent not defined herein, the capitalized
terms used herein have the meanings assigned in the Agreement. This Certificate
is issued under and is subject to the terms, provisions and conditions of the
Agreement, to which Agreement the Holder of this Certificate by virtue of the
acceptance hereof assents and by which such Holder is bound.

         Pursuant to the terms of the Agreement, distributions will be made on
the 25th calendar day of each month or, if such 25th calendar day is not a
Business Day, the Business Day immediately following (a "Distribution Date"),
commencing on the first Distribution Date specified above, to the Person in
whose name this Certificate is registered on the last Business Day of the month
immediately preceding the month in which the related Distribution Date occurs or
the Closing Date in the case of the first Distribution Date (the "Record Date"),
from funds in the Distribution Account in an amount equal to the product of the
Percentage Interest evidenced by this Certificate and the amount required to be
distributed to the Holders of Class P Certificates on such Distribution Date
pursuant to the Agreement.

         All distributions to the Holder of this Certificate under the Agreement
will be made or caused to be made by or on behalf of the Trustee by wire
transfer in immediately available funds to the account of the Person entitled
thereto if such Person shall have so notified the Certificate Registrar in
writing at least five Business Days prior to the Record Date immediately prior
to such Distribution Date, or by check mailed by first class mail to the address
of the Person entitled thereto, as such name and address shall appear on the
Certificate Register, provided that the Certificate Registrar may deduct a
reasonable wire transfer fee from any payment made by wire transfer.
Notwithstanding the above, the final distribution on this Certificate will be
made after due notice by the Trustee of the pendency of such distribution and
only upon presentation and surrender of this Certificate at the office or agency
appointed by the Trustee for that purpose as provided in the Agreement.

         This Certificate is one of a duly authorized issue of Certificates
designated as Morgan Stanley ABS Capital I Inc. Mortgage Pass-Through
Certificates of the Series specified on the face hereof (herein called the
"Certificates") and representing the Percentage Interest specified on the face
hereof.

         The Class P Certificates are limited in right of payment to certain
collections and recoveries respecting the Mortgage Loans, all as more
specifically set forth herein and in the Agreement. As provided in the
Agreement, withdrawals from the Collection Account and the Distribution Account
may be made from time to time for purposes other than distributions to
Certificateholders, such purposes including reimbursement of advances made, or
certain expenses incurred, with respect to the Mortgage Loans.

         The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Depositor, the Seller, the Custodian, the Trustee and the rights of the
Certificateholders under the Agreement at any time by the Depositor, the Seller,
the Custodian and the Trustee with the consent of the Holders of Certificates
entitled to the Voting Rights identified in the agreement. Any such consent by
the Holder of this Certificate shall be conclusive and binding on such Holder
and upon all future Holders of this Certificate and of any Certificate issued
upon the transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Agreement also
permits the amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Certificates.

         As provided in the Agreement and subject to certain limitations therein
set forth, the transfer of this Certificate is registrable in the Certificate
Register upon surrender of this Certificate for registration of transfer at the
offices or agencies appointed by the Trustee as provided in the Agreement, duly
endorsed by, or accompanied by an assignment in the form below or other written
instrument of transfer in form satisfactory to the Trustee and the Certificate
Registrar duly executed by, the Holder hereof or such Holder's attorney duly
authorized in writing, and thereupon one or more new Certificates of the same
Class in authorized denominations evidencing the same aggregate Percentage
Interest will be issued to the designated transferee or transferees.

                                    EX C-5-2
<PAGE>

         The Certificates are issuable in fully registered form only without
coupons in Classes and denominations representing Percentage Interests specified
in the Agreement. As provided in the Agreement and subject to certain
limitations therein set forth, Certificates are exchangeable for new
Certificates of the same Class in authorized denominations evidencing the same
aggregate Percentage Interest, as requested by the Holder surrendering the same.

         No transfer of this Certificate shall be made unless that transfer is
made pursuant to an effective registration statement under the 1933 Act and
effective registration or qualification under applicable state securities laws,
or is made in a transaction that does not require such registration or
qualification. In the event that a transfer is to be made without registration
or qualification, the Certificate Registrar shall require, in order to assure
compliance with such laws, either (i) that the Certificateholder desiring to
effect the transfer and such Certificateholder's prospective transferee each
execute a representation letter in the form described by the Agreement
certifying to the Certificate Registrar the facts surrounding the transfer, or
(ii) that the Depositor and the Certificate Registrar shall require an Opinion
of Counsel satisfactory to them that such transfer may be made without such
registration or qualification, which Opinion of Counsel shall not be an expense
of the Depositor, the Trustee, or the Certificate Registrar, in their respective
capacities as such. None of the Depositor, the Certificate Registrar nor the
Trustee is obligated to register or qualify the Class of Certificates specified
on the face hereof under the 1933 Act or any other securities law or to take any
action not otherwise required under the Agreement to permit the transfer of such
Certificates without registration or qualification. Any such Certificateholder
desiring to effect such transfer shall, and does hereby agree to, indemnify the
Trustee, the Seller, the Depositor, the Certificate Registrar and the Custodian
against any liability that may result if the transfer is not so exempt or is not
made in accordance with such federal and state laws.

         No service charge will be made for any such registration of transfer or
exchange of Certificates, but the Certificate Registrar may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any transfer or exchange of Certificates.

         The Depositor, the Seller, the Custodian, the Trustee and the
Certificate Registrar and any agent of the Depositor, the Seller, the Custodian,
the Trustee or the Certificate Registrar may treat the Person in whose name this
Certificate is registered as the owner hereof for all purposes, and none of the
Depositor, the Custodian, the Seller, the Trustee, the Certificate Registrar nor
any such agent shall be affected by notice to the contrary.

         The obligations created by the Agreement and the Trust Fund created
thereby shall terminate upon payment to the Certificateholders of all amounts
held by or on behalf of the Trustee and required to be paid to them pursuant to
the Agreement following the earlier of (i) the final payment or other
liquidation (or any advance with respect thereto) of the last Mortgage Loan
remaining in the Trust Fund, and (ii) the purchase by the party designated in
the Agreement at a price determined as provided in the Agreement from the Trust
Fund of all Mortgage Loans and all property acquired in respect of such Mortgage
Loans. The Agreement permits, but does not require, the party designated in the
Agreement to purchase from the Trust Fund all Mortgage Loans and all property
acquired in respect of any Mortgage Loan at a price determined as provided in
the Agreement. The exercise of such right will effect early retirement of the
Certificates; however, such right to purchase is subject to the aggregate
Principal Balance of the Mortgage Loans at the time of purchase being 10% or
less of the Cut-off Date Aggregate Principal Balance.

         The recitals contained herein shall be taken as statements of the
Depositor and the Trustee assumes no responsibility for their correctness.

         Unless the certificate of authentication hereon has been executed by
the Certificate Registrar, by manual signature, this Certificate shall not be
entitled to any benefit under the Agreement or be valid for any purpose.


                                    EX C-5-3
<PAGE>


         IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.

Dated:

                                   DEUTSCHE BANK NATIONAL TRUST COMPANY, as
                                       Trustee


                                   By:
                                        ----------------------------------------
                                        Authorized Officer


                          CERTIFICATE OF AUTHENTICATION

         This is one of the Class P Certificates referred to in the
within-mentioned Agreement.

                                   DEUTSCHE BANK NATIONAL TRUST COMPANY, as
                                        Certificate Registrar


                                   By:
                                        ----------------------------------------
                                        Authorized Signatory


                                    EX C-5-4
<PAGE>


                                  ABBREVIATIONS

         The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:

<TABLE>
<S>                                                    <C>
TEN COM - as tenants in common                          UNIF GIFT MIN ACT -  Custodian (Cust) (Minor)
                                                                             under Uniform Gifts to
TEN ENT - as tenants by the entireties                                       Minors Act

                                                                             -------------------------
JT TEN  - as joint tenants with right of survivorship                        (State)
          and not as tenants in common
</TABLE>

         Additional abbreviations may also be used though not in the above list.


                                   ASSIGNMENT

         FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto _______________________________________________________________
________________________________________________________________________________
(Please print or typewrite name, address including postal zip code, and Taxpayer
Identification Number of assignee)
________________________________________________________________________________
a Percentage Interest equal to _____% evidenced by the within asset-backed
Certificate and hereby authorize(s) the registration of transfer of such
interest to assignee on the Certificate Register of the Trust Fund.

         I (we) further direct the Certificate Registrar to issue a new
Certificate of a like Percentage Interest and Class to the above named assignee
and deliver such Certificate to the following address: .

Dated:

                                           -------------------------------------
                                           Signature by or on behalf of assignor


                                           -------------------------------------
                                           Signature Guaranteed

                                    EX C-5-5


<PAGE>


                            DISTRIBUTION INSTRUCTIONS

         The assignee should include the following for purposes of distribution:
         Distributions shall be made, by wire transfer or otherwise, in
immediately available funds to _________________________________________________
________________________________________________________________________________
for the account of _________________________, account number __________________,
or, if mailed by check, to ____________________________________________________.
Applicable statements should be mailed to ______________________________________
This information is provided by _______________________________________________,
the assignee named above, or __________________________________________________,
as its agent.


                                    EX C-5-6
<PAGE>




                                    EXHIBIT D

                             MORTGAGE LOAN SCHEDULE

                        [On File at Dewey Ballantine LLP]



                                       D-1
<PAGE>




                                    EXHIBIT E



                                   [Reserved]




                                       E-1
<PAGE>



                                   EXHIBIT F-1

                   FORM OF INITIAL CERTIFICATION OF CUSTODIAN

                                     [DATE]

[Depositor]

[Seller]

[Trustee]

                  Re:      Morgan Stanley ABS Capital I Inc. Trust 2004-SD2,
                           Mortgage Pass-Through Certificates, Series 2004-SD2,
                           issued pursuant to the Pooling Agreement, dated as of
                           June 1, 2004, among Morgan Stanley ABS Capital I
                           Inc., as depositor (the "Depositor"), Morgan
                           Stanley Mortgage Capital Inc., as seller
                           (the "Seller"), and Deutsche Bank National
                           Trust Company, as custodian and as trustee (in such
                           capacity, the "Trustee").

Gentlemen:

         In accordance with Section 2.02 of the above-captioned Pooling
Agreement (the "Pooling Agreement"), the undersigned, as Custodian, hereby
certifies that as to each Mortgage Loan listed in the Mortgage Loan Schedule
(other than any Mortgage Loan paid in full or listed on the attached exception
report) ), (i) all documents required to be delivered to it pursuant to Sections
2.01(A)(i)-(v) and 2.01(B)(i)-(vi), (vii) (provided, that the Custodian provides
no certification that the related recognition agreement is in substantially the
same form as the standard "AZTECH" form) and (viii) (but only to the extent of
the UCC-1 financing statement delivered pursuant to (viii))and, to the extent
actually delivered to the Custodian, the documents described in Sections
2.01(A)(vi) and 2.01(B)(viii) (except for the UCC-1 financing statement) and
(ix) of the Pooling Agreement are in its possession, (ii) such documents have
been reviewed by it and have not been mutilated, damaged or torn and relate to
such Mortgage Loan and (iii) based on its examination and only as to the
foregoing, the information set forth in the Mortgage Loan Schedule that
corresponds to items (1), (2), (7), (8) and (13) (solely as of the Origination
Date and not as of the Cut-off Date) of the Mortgage Loan Schedule accurately
reflects information set forth in the Mortgage File.

         The Custodian has made no independent examination of any documents
contained in each Mortgage File beyond the review of the Mortgage File
specifically required in the Pooling Agreement. The Custodian makes no
representations as to: (i) the validity, legality, sufficiency, enforceability
or genuineness of any of the documents contained in each Mortgage File of any of
the Mortgage Loans identified on the Mortgage Loan Schedule, or (ii) the
collectibility, insurability, perfection, priority, effectiveness or suitability
of any such Mortgage Loan. Notwithstanding anything herein to the contrary, the
Custodian has made no determination and makes no representations as to whether
(i) any endorsement is sufficient to transfer all right, title and interest of
the party so endorsing, as Noteholder or assignee thereof, in and to that
Mortgage Note or (ii) any assignment is in recordable form or sufficient to
effect the assignment of and transfer to the assignee thereof, under the
Mortgage to which the assignment relates.

         Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the Pooling Agreement.

                                       DEUTSCHE BANK NATIONAL TRUST COMPANY,
                                            as Custodian




                                       By:
                                          --------------------------------------
                                          Name:
                                               ---------------------------------
                                          Title:
                                                --------------------------------

                                      F-1-1

<PAGE>



                                   EXHIBIT F-2

                    FORM OF FINAL CERTIFICATION OF CUSTODIAN

                                     [DATE]

[Depositor]

[Seller]

[Trustee]

                  Re:      Morgan Stanley ABS Capital I Inc. Trust 2004-SD2,
                           Mortgage Pass-Through Certificates, Series 2004-SD2,
                           issued pursuant to the Pooling Agreement, dated as of
                           June 1, 2004, among Morgan Stanley ABS Capital I
                           Inc., as depositor (the "Depositor"), Morgan
                           Stanley Mortgage Capital Inc., as seller
                           (the "Seller"), and Deutsche Bank National
                           Trust Company, as custodian and as trustee (in such
                           capacity, the "Trustee").

Gentlemen:

         In accordance with Section 2.02 of the above-captioned Pooling
Agreement (the "Pooling Agreement"), the undersigned, as Custodian, hereby
certifies that as to each Mortgage Loan listed in the Mortgage Loan Schedule
(other than any Mortgage Loan paid in full or listed on the attached exception
report) ), (i) all documents required to be delivered to it pursuant to Sections
2.01(A)(i)-(v) and 2.01(B)(i)-(vi), (vii) (provided, that the Custodian provides
no certification that the related recognition agreement is in substantially the
same form as the standard "AZTECH" form) and (viii) (but only to the extent of
the UCC-1 financing statement delivered pursuant to (viii)) and, to the extent
actually delivered to the Custodian, the documents described in Sections
2.01(A)(vi) and 2.01(B)(viii) (except for the UCC-1 financing statement) and
(ix) of the Pooling Agreement are in its possession, and (ii) such documents
have been reviewed by it and have not been mutilated, damaged or torn and relate
to such Mortgage Loan.

         The Custodian has made no independent examination of any documents
contained in each Mortgage File beyond the review of the Mortgage File
specifically required in the Pooling Agreement. The Custodian makes no
representations as to: (i) the validity, legality, sufficiency, enforceability
or genuineness of any of the documents contained in each Mortgage File of any of
the Mortgage Loans identified on the Mortgage Loan Schedule, or (ii) the
collectibility, insurability, perfection, priority, effectiveness or suitability
of any such Mortgage Loan. Notwithstanding anything herein to the contrary, the
Custodian has made no determination and makes no representations as to whether
(i) any endorsement is sufficient to transfer all right, title and interest of
the party so endorsing, as Noteholder or assignee thereof, in and to that
Mortgage Note or (ii) any assignment is in recordable form or sufficient to
effect the assignment of and transfer to the assignee thereof, under the
Mortgage to which the assignment relates.

         Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the Pooling Agreement.

                                        DEUTSCHE BANK NATIONAL TRUST COMPANY,
                                             as Custodian




                                        By:
                                           -------------------------------------
                                           Name:
                                                --------------------------------
                                           Title:
                                                 -------------------------------


                                      F-2-1

<PAGE>



                                   EXHIBIT F-3

                        FORM OF RECEIPT OF MORTGAGE NOTE

                                     [DATE]

[Depositor]

[Seller]

[Trustee]

                  Re:      Morgan Stanley ABS Capital I Inc. Trust 2004-SD2,
                           Mortgage Pass-Through Certificates, Series 2004-SD2,
                           issued pursuant to the Pooling Agreement, dated as of
                           June 1, 2004, among Morgan Stanley ABS Capital I
                           Inc., as depositor (the "Depositor"), Morgan
                           Stanley Mortgage Capital Inc., as seller
                           (the "Seller"), and Deutsche Bank National
                           Trust Company, as custodian and as trustee (in such
                           capacity, the "Trustee").

Gentlemen:

         In accordance with Section 2.01 of the above-captioned Pooling
Agreement (the "Pooling Agreement"), for each Mortgage Loan listed in the
Mortgage Loan Schedule (other than any Mortgage Loan listed in the attached
schedule), it has received the original Mortgage Note, endorsed either (A) in
blank or (B) in the following form: "Pay to the order of Deutsche Bank National
Trust Company, as Trustee under the Pooling Agreement, dated as of June 1, 2004,
among Morgan Stanley Mortgage Capital Inc., Morgan Stanley ABS Capital I Inc.
and Deutsche Bank National Trust Company, Morgan Stanley ABS Capital I Inc.
Trust, Series 2004-SD2, without recourse," or with respect to any lost Mortgage
Note, an original Lost Note Affidavit, together with a copy of the related
Mortgage Note.

         Based on its review and examination and only as to the foregoing
documents, such documents appear regular on their face and related to such
Mortgage Loan.

         The Custodian has made no independent examination of any documents
contained in each Mortgage File beyond the review specifically required in the
Pooling Agreement. The Custodian makes no representations as to: (i) the
validity, legality, sufficiency, enforceability or genuineness of any of the
documents contained in each Mortgage File of any of the Mortgage Loans
identified on the Mortgage Loan Schedule, or (ii) the collectibility,
insurability, perfection, priority, effectiveness or suitability of any such
Mortgage Loan. Notwithstanding anything herein to the contrary, the Custodian
has made no determination and makes no representations as to whether (i) any
endorsement is sufficient to transfer all right, title and interest of the party
so endorsing, as Noteholder or assignee thereof, in and to that Mortgage Note or
(ii) any assignment is in recordable form or sufficient to effect the assignment
of and transfer to the assignee thereof, under the Mortgage to which the
assignment relates.

         Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the Pooling Agreement.

                                     DEUTSCHE BANK NATIONAL TRUST COMPANY,
                                          as Custodian




                                     By:
                                        ----------------------------------------
                                        Name:
                                             -----------------------------------
                                        Title:
                                              ----------------------------------


                                      F-3-1

<PAGE>



                                    EXHIBIT G

                        MORTGAGE LOAN PURCHASE AGREEMENT

                                   [See Tab 2]





                                     EX G-1

<PAGE>



                                    EXHIBIT H



                                   [Reserved]









                                     EX H-1

<PAGE>



                                    EXHIBIT I



                                   [Reserved]






                                     EX I-1
<PAGE>



                                    EXHIBIT J

                            FORM OF INVESTMENT LETTER





                                                     ____________, 20__




Morgan Stanley ABS Capital I Inc.
1585 Broadway
New York, New York 10036
Attention:  Michelle Wilke

Deutsche Bank National Trust Company,
  as Trustee,
1761 East St. Andrew Place
Santa Ana, California 92705
Attention:  Trust Administration - MS04S2


                  Re:      Morgan Stanley ABS Capital I Inc. Trust 2004-SD2,
                           Mortgage Pass-Through Certificates, Series 2004-SD2

Ladies and Gentlemen:

In connection with our acquisition of the above Certificates we certify that (a)
we understand that the Certificates are not being registered under the
Securities Act of 1933, as amended (the "Act"), or any state securities laws and
are being transferred to us in a transaction that is exempt from the
registration requirements of the Act and any such laws, (b) we have such
knowledge and experience in financial and business matters that we are capable
of evaluating the merits and risks of investments in the Certificates, (c) we
have had the opportunity to ask questions of and receive answers from the
Depositor concerning the purchase of the Certificates and all matters relating
thereto or any additional information deemed necessary to our decision to
purchase the Certificates, (d) either (i) we are not an employee benefit plan
that is subject to Section 406 of the Employee Retirement Income Security Act of
1974, as amended, or a plan or arrangement that is subject to Section 4975 of
the Internal Revenue Code of 1986, as amended, and are not acting on behalf of
any such plan or arrangement or investing the assets of any such plan or
arrangement to effect such acquisition or (ii) (except in the case of a Class R,
Class X or Class P Certificate) we are an insurance company that is purchasing
this certificate with funds contained in an "insurance company general account"
(as such term is defined in Section V(e) of Prohibited Transaction Class
Exemption 95-60 ("PTCE 95-60") and the conditions for exemptive relief under
Sections I and III of PTCE 95-60 have been satisfied, (e) we have not, nor has
anyone acting on our behalf offered, transferred, pledged, sold or otherwise
disposed of the Certificates, any interest in the Certificates or any other
similar security to, or solicited any offer to buy or accept a transfer, pledge
or other disposition of the Certificates, any interest in the Certificates or
any other similar security from, or otherwise approached or negotiated with
respect to the Certificates, any interest in the Certificates or any other
similar security with, any person in any manner, or made any general
solicitation by means of general advertising or in any other manner, or taken
any other action, that would constitute a distribution of the Certificates under
the Securities Act or that would render the disposition of the Certificates a
violation of Section 5 of the Securities Act or require registration pursuant
thereto, nor will act, nor has authorized or will authorize any person to act,
in such manner with respect to the Certificates, (f) to the extent that the
Certificate transferred is a Class X Certificate, we are a bankruptcy-remote
entity and (g) we are a "qualified institutional buyer" as that term is defined
in Rule 144A under the Securities Act and have completed either of the forms of
certification to that effect attached hereto as Annex 1 or Annex 2. We are aware
that the sale to us is being made in reliance on Rule 144A. We are acquiring the
Certificates for our own account or for resale pursuant to Rule 144A and
further, understand that such Certificates may be resold, pledged or transferred
only (i) to a person reasonably believed to be a qualified institutional buyer
that purchases for its own account or for the account of a qualified
institutional buyer to whom notice is given that the resale, pledge or transfer
is being made in reliance on Rule 144A, or (ii) pursuant to another exemption
from registration under the Securities Act.


                                     EX J-1

<PAGE>


                                                            ANNEX 1 TO EXHIBIT J

            QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
            --------------------------------------------------------

          [FOR TRANSFEREES OTHER THAN REGISTERED INVESTMENT COMPANIES]

         The undersigned (the "Buyer") hereby certifies as follows to the
parties listed in the Rule 144A Transferee Certificate to which this
certification relates with respect to the Certificates described therein:

         1. As indicated below, the undersigned is the President, Chief
Financial Officer, Senior Vice President or other executive officer of the
Buyer.

         2. In connection with purchases by the Buyer, the Buyer is a "qualified
institutional buyer" as that term is defined in Rule 144A under the Securities
Act of 1933, as amended ("Rule 144A") because (i) the Buyer owned and/or
invested on a discretionary basis $_________ in securities (except for the
excluded securities referred to below) as of the end of the Buyer's most recent
fiscal year (such amount being calculated in accordance with Rule 144A and (ii)
the Buyer satisfies the criteria in the category marked below.

            ----- Corporation, etc. The Buyer is a corporation (other than a
                  bank, savings and loan association or similar institution),
                  Massachusetts or similar business trust, partnership, or
                  charitable organization described in Section 501(c)(3) of the
                  Internal Revenue Code of 1986, as amended.

            ----- Bank. The Buyer (a) is a national bank or banking institution
                  organized under the laws of any State, territory or the
                  District of Columbia, the business of which is substantially
                  confined to banking and is supervised by the State or
                  territorial banking commission or similar official or is a
                  foreign bank or equivalent institution, and (b) has an audited
                  net worth of at least $25,000,000 as demonstrated in its
                  latest annual financial statements, a copy of which is
                  attached hereto.

            ----- Savings and Loan. The Buyer (a) is a savings and loan
                  association, building and loan association, cooperative bank,
                  homestead association or similar institution, which is
                  supervised and examined by a State or Federal authority having
                  supervision over any such institutions or is a foreign savings
                  and loan association or equivalent institution and (b) has an
                  audited net worth of at least $25,000,000 as demonstrated in
                  its latest annual financial statements, a copy of which is
                  attached hereto.

            ----- Broker-dealer. The Buyer is a dealer registered pursuant to
                  Section 15 of the Securities Exchange Act of 1934.

            ----- Insurance Company. The Buyer is an insurance company whose
                  primary and predominant business activity is the writing of
                  insurance or the reinsuring of risks underwritten by insurance
                  companies and which is subject to supervision by the insurance
                  commissioner or a similar official or agency of a State,
                  territory or the District of Columbia.

            ----- State or Local Plan. The Buyer is a plan established and
                  maintained by a State, its political subdivisions, or any
                  agency or instrumentality of the State or its political
                  subdivisions, for the benefit of its employees.

            ----- ERISA Plan. The Buyer is an employee benefit plan within the
                  meaning of Title I of the Employee Retirement Income Security
                  Act of 1974.

                                     EX J-2
<PAGE>

            ----- Investment Advisor. The Buyer is an investment advisor
                  registered under the Investment Advisors Act of 1940.

            ----- Small Business Investment Company. Buyer is a small business
                  investment company licensed by the U.S. Small Business
                  Administration under Section 301(c) or (d) of the Small
                  Business Investment Act of 1958.

            ----- Business Development Company. Buyer is a business development
                  company as defined in Section 202(a)(22) of the Investment
                  Advisors Act of 1940.

         3. The term "securities" as used herein does not include (i) securities
of issuers that are affiliated with the Buyer, (ii) securities that are part of
an unsold allotment to or subscription by the Buyer, if the Buyer is a dealer,
(iii) securities issued or guaranteed by the U.S. or any instrumentality
thereof, (iv) bank deposit notes and certificates of deposit, (v) loan
participations, (vi) repurchase agreements, (vii) securities owned but subject
to a repurchase agreement and (viii) currency, interest rate and commodity
swaps.

         4. For purposes of determining the aggregate amount of securities owned
and/or invested on a discretionary basis by the Buyer, the Buyer used the cost
of such securities to the Buyer and did not include any of the securities
referred to in the preceding paragraph, except (i) where the Buyer reports its
securities holdings in its financial statements on the basis of their market
value, and (ii) no current information with respect to the cost of those
securities has been published. If clause (ii) in the preceding sentence applies,
the securities may be valued at market. Further, in determining such aggregate
amount, the Buyer may have included securities owned by subsidiaries of the
Buyer, but only if such subsidiaries are consolidated with the Buyer in its
financial statements prepared in accordance with generally accepted accounting
principles and if the investments of such subsidiaries are managed under the
Buyer's direction. However, such securities were not included if the Buyer is a
majority-owned, consolidated subsidiary of another enterprise and the Buyer is
not itself a reporting company under the Securities Exchange Act of 1934, as
amended.

         5. The Buyer acknowledges that it is familiar with Rule 144A and
understands that the seller to it and other parties related to the Certificates
are relying and will continue to rely on the statements made herein because one
or more sales to the Buyer may be in reliance on Rule 144A.

         6. Until the date of purchase of the Rule 144A Securities, the Buyer
will notify each of the parties to which this certification is made of any
changes in the information and conclusions herein. Until such notice is given,
the Buyer's purchase of the Certificates will constitute a reaffirmation of this
certification as of the date of such purchase. In addition, if the Buyer is a
bank or savings and loan is provided above, the Buyer agrees that it will
furnish to such parties updated annual financial statements promptly after they
become available.





                                   ---------------------------------------------
                                   Print Name of Transferor




                                   By:
                                      ------------------------------------------
                                      Name:
                                      Title:




                                   Date:
                                        ----------------------------------------



                                     EX J-3
<PAGE>


                                                            ANNEX 2 TO EXHIBIT J

            QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
            --------------------------------------------------------

           [FOR TRANSFEREES THAT ARE REGISTERED INVESTMENT COMPANIES]

         The undersigned (the "Buyer") hereby certifies as follows to the
parties listed in the Rule 144A Transferee Certificate to which this
certification relates with respect to the Certificates described therein:

         1. As indicated below, the undersigned is the President, Chief
Financial Officer or Senior Vice President of the Buyer or, if the Buyer is a
"qualified institutional buyer" as that term is defined in Rule 144A under the
Securities Act of 1933, as amended ("Rule 144A") because Buyer is part of a
Family of Investment Companies (as defined below), is such an officer of the
Adviser.

         2. In connection with purchases by Buyer, the Buyer is a "qualified
institutional buyer" as defined in SEC Rule 144A because (i) the Buyer is an
investment company registered under the Investment Company Act of 1940, as
amended and (ii) as marked below, the Buyer alone, or the Buyer's Family of
Investment Companies, owned at least $100,000,000 in securities (other than the
excluded securities referred to below) as of the end of the Buyer's most recent
fiscal year. For purposes of determining the amount of securities owned by the
Buyer or the Buyer's Family of Investment Companies, the cost of such securities
was used, except (i) where the Buyer or the Buyer's Family of Investment
Companies reports its securities holdings in its financial statements on the
basis of their market value, and (ii) no current information with respect to the
cost of those securities has been published. If clause (ii) in the preceding
sentence applies, the securities may be valued at market.

            ----- The Buyer owned $______ in securities (other than the excluded
                  securities referred to below) as of the end of the Buyer's
                  most recent fiscal year (such amount being calculated in
                  accordance with Rule 144A).

            ----- The Buyer is part of a Family of Investment Companies which
                  owned in the aggregate $ ________ in securities (other than
                  the excluded securities referred to below) as of the end of
                  the Buyer's most recent fiscal year (such amount being
                  calculated in accordance with Rule 144A).


         3. The term "Family of Investment Companies" as used herein means two
or more registered investment companies (or series thereof) that have the same
investment adviser or investment advisers that are affiliated (by virtue of
being majority owned subsidiaries of the same parent or because one investment
adviser is a majority owned subsidiary of the other).

         4. The term "securities" as used herein does not include (i) securities
of issuers that are affiliated with the Buyer or are part of the Buyer's Family
of Investment Companies, (ii) securities issued or guaranteed by the U.S. or any
instrumentality thereof, (iii) bank deposit notes and certificates of deposit,
(iv) loan participations, (v) repurchase agreements, (vi) securities owned but
subject to a repurchase agreement and (vii) currency, interest rate and
commodity swaps.

         5. The Buyer is familiar with Rule 144A and understands that the
parties listed in the Rule 144A Transferee Certificate to which this
certification relates are relying and will continue to rely on the statements
made herein because one or more sales to the Buyer will be in reliance on Rule
144A. In addition, the Buyer will only purchase for the Buyer's own account.

         6. Until the date of purchase of the Certificates, the undersigned will
notify the parties listed in the Rule 144A Transferee Certificate to which this
certification relates of any changes in the information and conclusions herein.
Until such notice is given, the Buyer's purchase of the Certificates will
constitute a reaffirmation of this certification by the undersigned as of the
date of such purchase.



                                     EX J-4
<PAGE>

                                        ----------------------------------------
                                        Print Name of Transferor




                                        By:
                                           -------------------------------------
                                           Name:
                                           Title:




                                        IF AN ADVISER:



                                        ----------------------------------------
                                                   Print Name of Buyer




                                        Date:
                                             -----------------------------------



                                     EX J-5
<PAGE>



                                    EXHIBIT K

                               TRANSFER AFFIDAVIT

                MORGAN STANLEY ABS CAPITAL I INC. TRUST 2004-SD2,
                       MORTGAGE PASS-THROUGH CERTIFICATES,
                                 SERIES 2004-SD2

STATE OF                            )
                                    ) ss.:
COUNTY OF                           )

         The undersigned, being first duly sworn, deposes and says as follows:

         1. The undersigned is an officer of ___________________, the proposed
Transferee of an Ownership Interest in a Class R Certificate (the "Certificate")
issued pursuant to the Pooling Agreement, (the "Agreement"), relating to the
above-referenced Series, by and among Morgan Stanley ABS Capital I Inc., as
depositor (the "Depositor"), Morgan Stanley Mortgage Capital Inc., as seller
(the "Seller") and Deutsche Bank National Trust Company, as custodian and as
trustee (in such capacity, the "Trustee"). Capitalized terms used, but not
defined herein or in Exhibit 1 hereto, shall have the meanings ascribed to such
terms in the Agreement. The Transferee has authorized the undersigned to make
this affidavit on behalf of the Transferee for the benefit of the Depositor and
the Trustee.

         2. The Transferee is not, as of the date hereof, and will not be, as of
the date of the Transfer, a "disqualified organization" within the meaning of
Section 860E(e)(5) of the Internal Revenue Code of 1986. The Transferee will
endeavor to remain other than a disqualified organization for so long as it
retains its Ownership Interest in the Certificate. The Transferee is acquiring
the Certificate for its own account or for the account of another Investor from
which it has received an affidavit and agreement in substantially the same form
as this affidavit and agreement.

         3. The Transferee has historically paid its debts as they came due and
will continue to pay its debts as they come due in the future.

         4. The Transferee has no present knowledge or expectation that it will
be unable to pay any United States taxes owed by it or become insolvent or
subject to a bankruptcy proceeding for so long as the Certificate remains
outstanding.

         5. The Transferee has been advised of, and understands that as the
holder of a noneconomic residual interest it may incur tax liabilities in excess
of any cash flows generated by the interest. The Transferee intends to pay such
taxes associated with holding the Certificate as they become due.

         6. The Transferee will not cause income from the Certificate to be
attributable to a foreign permanent establishment or fixed base (within the
meaning of an applicable income tax treaty) of the Transferee or another U.S.
taxpayer.

         (1)7. [A. Formula Test] The Transferee agrees that the present value of
the anticipated tax liabilities associated with holding the Certificate does not
exceed the sum of the present value of any consideration given to the Transferee
to acquire the Certificate, the present value of the expected future
distributions on the Certificate, and the present value of the anticipated tax
savings associated with holding the interest as the REMIC generates losses. The
Transferee agrees that it complied with U.S. Treasury Regulations Section
1.860E-1(c)(8) in making such representation.

-----------
(1)Insert either section 7A or 7B.

                                     EX K-1
<PAGE>

         The Transferee agrees that it is not a foreign permanent establishment
or fixed base (within the meaning of an applicable income tax treaty) of the
Transferor or another U.S. taxpayer.

         [B. Asset Test] The Transferee, at the time of the transfer, and at the
close of the Transferee's two fiscal years preceding the year of the transfer,
had gross assets for financial reporting purposes in excess of $100 million and
net assets in excess of $10 million (excluding any obligation of a person
related to the Transferee within the meaning of U.S. Treasury Regulations
Section 1.860E-1(c)(6)(ii) or any other asset if a principle purpose for holding
or acquiring the other asset was to permit the Transferee to satisfy the above
stated minimum asset requirements).

         The Transferee is an "eligible corporation," as defined in U.S.
Treasury Regulations Section 1.860E-1(c)(6)(i). The Transferee agrees, in
connection with any subsequent transfer of its Ownership Interest in the
Certificate, to transfer its Ownership Interest only to another "eligible
corporation," as defined in U.S. Treasury Regulations Section 1.860E-1(c)(6)(i),
and to honor the restrictions on subsequent transfers of the Certificate by
transferring its Ownership Interest only in a transaction that satisfies the
requirements of U.S. Treasury Regulations Section 1.860E-1(c)(4)(i), (ii) (iii)
and U.S. Treasury Regulations Section 1.860E-1(c)(5).

         The Transferee determined the consideration paid to it to acquire the
Certificate in good faith and based on reasonable market assumptions (including,
but not limited to, borrowing and investment rates, prepayment and loss
assumptions, expense and reinvestment assumptions, tax rates and other factors
specific to the Transferee).

         8. The Transferee is a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in, or under the
laws of, the United States or any political subdivision thereof, or an estate or
trust whose income from sources without the United States is includable in gross
income for United States federal income tax purposes regardless of its
connection with the conduct of a trade or business within the United States.

         9. The Transferee's taxpayer identification number is ____________.

         10. The Transferee is not an employee benefit plan that is subject to
ERISA or a plan that is subject to Section 4975 of the Code, and the Transferee
is not acting on behalf of or investing plan assets of such a plan.

         11. The Transferee has reviewed the provisions of Section 4.02(d) of
the Agreement and understands the legal consequences of the acquisition of an
Ownership Interest in the Certificate, including, without limitation, the
restrictions on subsequent Transfers and the provisions regarding voiding the
Transfer and mandatory sales. The Transferee expressly agrees to be bound by and
to abide by the provisions of Section 4.02(d) of the Agreement and the
restrictions noted on the face of the Certificate. The Transferee understands
and agrees that any breach of any of the representations included herein shall
render the Transfer to the Transferee contemplated hereby null and void.

         12. The Transferee consents to any additional restrictions or
arrangements that shall be deemed necessary upon advice of counsel to constitute
a reasonable arrangement to ensure that the Certificate will only be owned,
directly or indirectly, by a Transferee that is not a disqualified organization.

         13. The Transferee will not transfer its interest in the Certificate
for the purpose of impeding the assessment or collection of any tax.

         14. The Transferee will, in connection with any transfer that it makes
of the Certificate, deliver to the Trustee a certificate, in form and substance
satisfactory to the Trustee, that is in substantially the same form as Exhibit L
attached to the Agreement and that contains the same representations set forth
therein.

         15. The Transferee will not transfer such Certificate unless (i) it has
received from any subsequent transferee an affidavit in substantially the same
form as this affidavit containing the same representations set forth herein, and
(ii) as of the time of the transfer, it does not have actual knowledge that such
affidavit is false. The Transferee will deliver such affidavit to the Trustee
upon receipt.

                                      * * *

                                     EX K-2

<PAGE>


         IN WITNESS WHEREOF, the Transferee has caused this instrument to be
executed on its behalf, pursuant to authority of its Board of Directors, by its
duly authorized officer and its corporate seal to be hereunto affixed, duly
attested, this __ day of ________, 20__.





                                         ---------------------------------------
                                         Print Name of Transferee




                                         By:
                                            ------------------------------------
                                            Name:
                                            Title:
[Corporate Seal]

ATTEST:





[Assistant] Secretary

         Personally appeared before me the above-named __________, known or
proved to me to be the same person who executed the foregoing instrument and to
be the ___________ of the Transferee, and acknowledged that he executed the same
as his free act and deed and the free act and deed of the Transferee.

         Subscribed and sworn before me this __ day of ________, 20__.





                                         ---------------------------------------
                                         NOTARY PUBLIC

                                         My Commission expires the __ day
                                         of _________, 20__


                                     EX K-3
<PAGE>



                                    EXHIBIT L

                         FORM OF TRANSFEROR CERTIFICATE





                                                     __________, 20__




Morgan Stanley ABS Capital I Inc.
1585 Broadway
New York, New York 10036
Attention:  Michelle Wilke

Deutsche Bank National Trust Company,
  as Trustee,
1761 East St. Andrew Place
Santa Ana, California 92705
Attention:  Trust Administration - MS04S2

  Attention: __________, Re: Morgan Stanley ABS Capital I Inc. Trust 2004-SD2,
               Mortgage Pass-Through Certificates, Series 2004-SD2

Ladies and Gentlemen:

         In connection with our disposition of the above Certificates we certify
that (a) we understand that the Certificates have not been registered under the
Securities Act of 1933, as amended (the "Act"), and are being disposed by us in
a transaction that is exempt from the registration requirements of the Act, (b)
we have not offered or sold any Certificates to, or solicited offers to buy any
Certificates from, any person, or otherwise approached or negotiated with any
person with respect thereto, in a manner that would be deemed, or taken any
other action which would result in, a violation of Section 5 of the Act and (c)
to the extent we are disposing of a Residual Certificate, we have no knowledge
the Transferee is not a Permitted Transferee.

                                       Very truly yours,




                                       -----------------------------------------
                                       Print Name of Transferor




                                       By:
                                          --------------------------------------
                                                    Authorized Officer


                                     EX L-1

<PAGE>


                                    EXHIBIT M

                           FORM OF CERTIFICATION TO BE
                              PROVIDED BY DEPOSITOR
                              ---------------------


Re:      Morgan Stanley ABS Capital I Inc. Trust 2004-SD2, Mortgage Pass-Through
         Certificates, Series 2004-SD2, issued pursuant to the Pooling
         Agreement, dated as of June 1, 2004, among Morgan Stanley ABS Capital I
         Inc., as depositor (the "Depositor"), Morgan Stanley Mortgage Capital
         Inc., as seller (the "Seller") and Deutsche Bank National Trust
         Company, as custodian and as trustee (in such capacity, the "Trustee").

I, [identify the certifying individual], certify that:



         1.   I have reviewed this annual report on Form 10-K ("Annual Report"),
              and all reports on Form 8-K containing distribution or servicing
              reports (collectively with this Annual Report, the "Reports")
              filed in respect of periods included in the year covered by this
              Annual Report of the Depositor relating to the above-referenced
              trust and series of certificates;

         2.   Based on my knowledge, the information in the Reports, taken as a
              whole, does not contain any untrue statement of a material fact or
              omit to state a material fact necessary to make the statements
              made, in light of the circumstances under which such statements
              were made, not misleading as of the last day of the period covered
              by this Annual Report;

         3.   Based on my knowledge, the distribution or servicing information
              required to be provided to the Trustee by (i) the servicer under
              the Servicing Agreement, dated as of June 1, 2004 (the "Bank of
              America Servicing Agreement"), among the Depositor, the Trustee
              and [Bank of America], as servicer (in such capacity, a
              "Servicer"), (ii) the servicer under the Servicing Agreement,
              dated as of June 1, 2004 (the "WAMU Servicing Agreement"), among
              the Depositor, the Trustee and [Washington Mutual], as servicer
              (in such capacity, a "Servicer"), and (iii) the servicer under the
              Servicing Agreement, dated as of June 1, 2004 (together with the
              Bank of America Servicing Agreement and the WAMU Servicing
              Agreement, the "Servicing Agreements"), among the Depositor, the
              Trustee and Wilshire Credit Corporation, as servicer (in such
              capacity, a "Servicer"), for inclusion in the Reports is included
              in these Reports;

         4.   I am responsible for reviewing the activities performed by each
              Servicer under the related Servicing Agreement and based upon my
              knowledge and the annual compliance review required by each such
              Servicing Agreement and except as disclosed in the Reports, each
              Servicer has fulfilled its obligations under the related Servicing
              Agreement; and

         5.   The Reports disclose all deficiencies relating to each Servicer's
              compliance with the minimum servicing standards based upon the
              report provided by an independent public accountant, after
              conducting a review in compliance with the Uniform Single
              Attestation Program for Mortgage Bankers or similar procedure, as
              set forth in the Servicing Agreement, that is included in the
              Reports.


In giving the certifications above, I have reasonably relied on information
provided to me by the following unaffiliated parties: the Trustee and the
Servicers.



Date: -------------------------

-------------------------------
[Signature]
[Title]

                                     EX M-1

<PAGE>



                                    EXHIBIT N

                              DEPOSITORY AGREEMENT

                                  [See Tab 32]







                                     EX N-1
<PAGE>



                                    EXHIBIT O

                              ANNUAL CERTIFICATIONS

Re:      Morgan Stanley ABS Capital I Inc. Trust 2004-SD2, Mortgage Pass-Through
         Certificates, Series 2004-SD2, issued pursuant to the Pooling
         Agreement, dated as of June 1, 2004, among Morgan Stanley ABS Capital I
         Inc., as depositor (the "Depositor"), Morgan Stanley Mortgage Capital
         Inc., as seller (the "Seller") and Deutsche Bank National Trust
         Company, as custodian and as trustee (in such capacity the "Trustee").

I, [identify the certifying individual], certify to the Depositor and the
Trustee, if applicable, and its officers, directors and affiliates, and with the
knowledge and intent that they will rely upon this certification, that:

         1.  [To be certified by the Trustee] I have reviewed the annual report
             on Form 10-K for the fiscal year 20__ (the "Annual Report"), and
             all reports on Form 8-K containing distribution date reports filed
             in respect of periods included in the year covered by the Annual
             Report (collectively with this Annual Report, the "Reports"), of
             the Depositor relating to the above-referenced trust;

         2.  [To be certified by the Trustee] Based on my knowledge, the
             information in the distribution reports, taken as a whole, does not
             contain any untrue statement of a material fact or omit to state a
             material fact necessary to make the statements made, in light of
             the circumstances under which such statements were made, not
             misleading as of the last day of the period covered by the Annual
             Report;

         3.  [To be certified by the Trustee] Based on my knowledge, the
             distribution information required to be provided by the Trustee
             under the Pooling Agreement is included in the Reports;

         4.  [To be certified by each Servicer] I am responsible for reviewing
             the activities performed by the Servicer under the Servicing
             Agreement, dated as of June 1, 2004, among the Servicer, the
             Depositor and the Trustee (the "Servicing Agreement"), during the
             calendar year immediately preceding the date of this certificate
             (the "Relevant Year"). Based upon the review required by the
             Servicing Agreement and except as disclosed in the annual
             compliance statement or the accountant's statement provided
             pursuant to the Servicing Agreement, to the best of my knowledge,
             the Servicer has fulfilled its obligations under the Servicing
             Agreement throughout the Relevant Year; and

         5.  [To be certified by each Servicer] All significant deficiencies
             relating to the Servicer's compliance with the minimum servicing
             standards for purposes of the report provided by an independent
             public accountant, after conducting a review conducted in
             compliance with the Uniform Single Attestation Program for Mortgage
             Bankers or similar procedure, as set forth in the Servicing
             Agreement, have been disclosed to such accountant and are included
             in such reports.

[Name of Institution]

By:
    -----------------------
    Name:
    Title:
    Date:

                                     EX O-1