Methodology Book. MSCI Index Calculation Methodology

Transcription

1 Mehodology Book MSCI Index Calculaion Mehodology Las Updaed in May 2006

2 Index Calculaion Mehodology Noice and Disclaimer Copyrigh 2006 by Morgan Sanley Capial Inernaional Inc. ("MSCI"). All righs reserved. This documen and all of he informaion conained in i, including all ex, daa, graphs, chars and all oher informaion (collecively, he Informaion ) may no be reproduced or redisseminaed in whole or in par wihou prior wrien permission from MSCI. Any use of MSCI indices, daa or oher informaion requires a license from MSCI. The Informaion is for informaional purposes only and does no form a par of he erms or condiions of any agreemen you have or may ener ino wih MSCI. The Informaion may no be used o verify or correc oher daa, o creae indices, or in connecion wih offering, sponsoring, managing or markeing any securiies, porfolios, financial insrumens or producs. None of he Informaion consiues an offer o buy or sell, or a promoion or recommendaion of, any securiy, financial insrumen or produc or rading sraegy, and MSCI does no endorse, approve or oherwise express any opinion regarding any issuer, securiies, financial producs or insrumens or rading sraegies ha may be described or menioned herein. Furher, none of he Informaion is inended o consiue invesmen advice or a recommendaion o make (or refrain from making) any kind of invesmen decision and may no be relied on as such. The user of he Informaion assumes he enire risk of any use i may make or permi o be made of i. NEITHER MSCI, ANY OF ITS AFFILIATES OR ANY OTHER THIRD PARTY INVOLVED IN MAKING OR COMPILING ANY OF THE INFORMATION MAKES ANY EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE INFORMATION (OR THE RESULTS TO BE OBTAINED BY THE USE THEREOF), AND MSCI, ITS AFFILIATES AND EACH SUCH OTHER THIRD PARTY HEREBY EXPRESSLY DISCLAIM ALL IMPLIED WARRANTIES (INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF ORIGINALITY, ACCURACY, TIMELINESS, NON-INFRINGEMENT, COMPLETENESS, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE) WITH RESPECT TO ANY OF THE INFORMATION. Wihou limiing any of he foregoing, in no even shall MSCI, any of is affiliaes or any oher hird pary involved in making or compiling any of he Informaion have any liabiliy regarding any of he Informaion for any direc, indirec, special, puniive, consequenial or any oher damages (including los profis) even if noified of he possibiliy of such damages. Morgan Sanley Capial Inernaional, MSCI, ACWI, EAFE and all oher service marks referred o herein are he exclusive propery of MSCI or is affiliaes. All MSCI indices are he exclusive propery of MSCI and may no be used in any way wihou he express wrien permission of MSCI.

3 Index Calculaion Mehodology Table of Conen INTRODUCTION... 1 MSCI EQUITY INDICES... 1 SECTION 1: MSCI PRICE INDEX METHODOLOGY Price Index Level Index Marke Capializaion Price Index Level (from Securiy Informaion) Securiy Conribuion o he Index Today s Iniial Securiy Weigh Nex Day Iniial Securiy Weigh Closing Index Marke Capializaion oday USD (Unadjused Marke Cap oday USD)...7 SECTION 2: MSCI DAILY TOTAL RETURN (DTR) INDEX METHODOLOGY Calculaion Mehodology Dividend Impac DTR Index Level from Securiy Informaion (Securiy DTR) Securiy Conribuion o he Index Iniial Securiy Weigh Currency Number of Shares and Index Weighing Facor Reinvesmen Mehodology Timing of re-invesmen Re-Invesmen Rules Dividends Resuling in a Reinvesmen Only Dividends Resuling in a Reinvesmen or in a Price Adjusmen Dividends Resuling in a Price Adjusmen Only Processing Rules Dividend Daa Corporae Acions Correcions Paymen Defaul Lae Dividends Counry Excepions Taxes Definiions SECTION 3: ALTERNATIVE INDEX CALCULATIONS Gross Domesic Produc (GDP) Weighed Indices Daily Hedged Indices Overview Daily Hedged Indices based on 1-Monh Forwards Calculaion of Odd-Days Forwards Using a Linear Inerpolaion Daily Hedged Index Calculaion Formula Daily Hedged Index Example i -

4 Index Calculaion Mehodology APPENDIX I: MSCI GCC COUNTRY INDICES: SATURDAY/SUNDAY INDEX CALCULATION...22 APPENDIX II: EXCHANGE RATES...24 APPENDIX III: SINGAPORE & MALAYSIA - A HISTORY OF INCLUSION IN THE MSCI EMERGING AND DEVELOPPED MARKETS INDICES...25 APPENDIX IV: WITHHOLDING TAX RATES...28 APPENDIX V: CLOSING PRICES POLICY...29 APPENDIX VI: COUNTRY COMPOSITION OF MSCI REGIONAL INDICES...37 APPENDIX VII: FREQUENTLY ASKED QUESTIONS MSCI INDEX CALCULATION METHODOLOGY BOOK TACKED CHANGES ii -

5 Index Calculaion Mehodology Inroducion This mehodology book describes MSCI s general index calculaion mehodology for he MSCI Equiy indices, as well as alernaive index calculaions such as MSCI s Daily Hedged Indices and Daily Toal Reurn (DTR) Indices. These policies and guidelines affec all securiies across he MSCI Equiy Index series and producs. Unless oherwise saed he policies and guidelines apply herefore o all securiies in he MSCI Equiy universe. Please noe ha he index consrucion mehodology and oher guiding principles for he MSCI Sandard Index Series can be found in MSCI s Sandard Index Series mehodology book, available a MSCI Equiy Indices The MSCI Equiy Indices measure he performance of a se of equiy securiies over ime. The MSCI Equiy Indices are calculaed using he Laspeyres concep of a weighed arihmeic average ogeher wih he concep of chain-linking. MSCI counry and regional equiy indices are calculaed in local currency as well as in USD, wih price, gross and ne reurns. Index levels are also available in several oher currencies such as GBP, EUR, JPY, CAD, CHF and AUD. While he local currency series of regional indices canno be replicaed in he real world, i represens he heoreical performance of an index wihou any impac from foreign exchange flucuaions a coninuously hedged porfolio. Indices are calculaed 5 days a week, from Monday o Friday wih he excepion of a selecion of indices impaced by he Gulf Cooperaion Council (GCC) counries ha have Saurday and Sunday calculaions available. 1

6 Index Calculaion Mehodology Secion 1: MSCI Price Index Mehodology Price indices measure he marke prices performance for a selecion of securiies. They are calculaed daily and, for a majoriy, on real ime. Each index capures he marke capializaion weighed reurn of all consiuens included in he index. 1.1 Price Index Level As a general principle, oday s index level is obained by applying he change in he marke performance o he previous period index level. IndexAdjusedMarkeCapUSD iceindexle * IndexIniialMarkeCapUSD Pr velusd = Pr iceindexlevelusd 1 IndexAdjusedMarkeCapForLocal Pr iceindexle vellocal = Pr iceindexlevellocal 1 * IndexIniialMarkeCapUSD Where: Pr iceindexlevelusd 1 is he Price Index level in USD a ime -1 IndexAdjusedMarkeCapUSD is he Adjused Marke Capializaion of he index in USD a ime IndexIniialMarkeCapUSD is he Iniial Marke Capializaion of he index in USD a ime Pr iceindexle vellocal 1 is he Price Index level in local currency a ime -1 IndexAdjusedMarkeCapForLocal is he Adjused Marke Capializaion of he index in USD convered using FX rae as of -1 and used for local currency index a ime Noe: IndexIniialMarkeCapUSD was previously called IndexUnadjusedMarkeCap Pr evioususd 1.2 Index Marke Capializaion IndexAdjusedMarkeCapUSD s I, IndexNumberOfShares = 1 * Pr icepershare * InclusionFacor * FXrae PAF IndexAdjusedMarkeCapForLocal IndexNumberOfShares ( 1 * Pr icepershare s I, 1 = FXrae * InclusionFacor * PAF ICI * ICI 1 ) IndexIniialMarkeCapUSD IndexNumberOfShares 1 * Pr icepershare 1 * s I, 1 = FXrae InclusionFacor 2

7 Index Calculaion Mehodology Where: IndexNumbe rofshares 1 is he number of shares of securiy s a ime -1. Pr icepershare is he price per share of he securiy s a ime. Pr icepershar is he price per share of securiy s a ime -1. e 1 acor InclusionF is he inclusion facor (e.g. Foreign Inclusion Facor, Domesic Inclusion Facor, Growh Inclusion Facor, Value Inclusion Facor) of he securiy s a ime. PAF is he Price Adjusmen Facor of he securiy s a ime. FXrae is he FX rae of he price currency of securiy s vs USD a ime. I is he value of 1 USD in foreign currency. 1 FXrae is he FX rae of he price currency of securiy s vs USD a ime -1. I is he value of 1 USD in foreign currency. ICI is he Inernal Currency Index of price currency a ime. The ICI is differen han 1 when a counry changes he inernal value of is currency (e.g. from Turkish Lira o New Turkish Lira ICI = 1,000,000). ICI is he Inernal Currency Index of price currency a ime Noe: The only difference in he formulas beween USD and local currency indices calculaion is ha he same exchange rae is used in he numeraor and denominaor for local currency, which means ha here is no impac of currency change in he performance. Time varian exchange raes are used for he USD calculaion. 3

8 Index Calculaion Mehodology Example of Index Calculaion. Day 1 NumberOf PricePer PricePer Inclusion FXrae FXrae - IniialMCap AdjMcapFor Shares -1 Share Share -1 Facor PAF 1 AdjMcapUSD USD Local Securiy A ,445,000 11,627,517 11,521,812 Securiy B ,224,696 2,394,737 2,244,211 Securiy C ,216,899 2,223,179 2,208,067 Securiy D ,672,000 54,121,200 54,672,000 Toal Index 70,558,595 70,366,633 70,646,090-1 daily perf PriceIndexLevelUSD % PriceIndexLevelLocal % Day 2 NumberOf PricePer PricePer Inclusion FXrae FXrae - IniialMCap AdjMcapFor Shares -1 Share Share -1 Facor PAF 1 AdjMcapUSD USD Local Securiy A ,920,530 11,445,000 12,000,000 Securiy B ,129,310 2,224,696 2,147,826 Securiy C ,231,497 2,216,899 2,222,571 Securiy D ,701,987 54,672,000 54,060,000 Toal Index 69,983,323 70,558,595 70,430,397-1 daily perf PriceIndexLevelUSD % PriceIndexLevelLocal % Day 3 NumberOf PricePer PricePer Inclusion FXrae FXrae - IniialMCap AdjMcapFor Shares -1 Share Share -1 Facor PAF 1 AdjMcapUSD USD Local Securiy A ,375,000 11,920,530 12,293,046 Securiy B ,266,667 2,129,310 2,286,207 Securiy C ,320,289 4,053,012 4,318,554 Securiy D ,264,000 53,701,987 53,904,636 Toal Index 73,225,956 71,804,839 72,802,443-1 daily perf PriceIndexLevelUSD % PriceIndexLevelLocal % 4

9 Index Calculaion Mehodology 1.3 Price Index Level (from Securiy Informaion) Anoher way o calculae he index level would be o use he iniial weigh and price reurn of he individual securiies included in he index: Pr iceindexlevelusd Pr iceindexlevellocal = Pr iceindexlevelusd = Pr iceindexlevellocal 1 *(1 + Securiy Pr iceconribuiontoindexusd ) s I, 1 *(1 + Securiy Pr iceconribuiontoindexlocal ) s I, 1.4 Securiy Conribuion o he Index Securiy Pr iceconribuiontoindexusd = IniialSecuriyWeigh * SecuriyDaily Pr ice ReurnUSD Securiy Pr iceconribuiontoindexlocal = IniialSecuriyWeigh * SecuriyDaily Pr icereurnlocal Where: SecuriyDaily Pr ice ReurnUSD is he price reurn in USD of securiy s a ime. SecuriyDaily ice ReurnLocal Pr is he price reurn of securiy s a ime convered using FX rae as of -1 and used for local currency calculaion a ime. 1.5 Today s Iniial Securiy Weigh IniialSecuriyWeigh = IndexNumberOfShares 1 FXrae 1 IndexNumberOfShares 1 ( FXrae s I, 1 * Pr icepershare 1 * Pr icepershare * InclusionFacor 1 *100 = * InclusionFacor ) s I, SecuriyIniialFullMarkeCapUSD * InclusionFacor *100 = ( SecuriyIniialFullMarkeCapUSD * InclusionFacor ) SecuriyIniialMarkeCapUSD IndexIniialMarkeCapUSD *100 5

10 Index Calculaion Mehodology Where: IndexNumbe rofshares is he number of shares of securiy s a ime -1. icepershar is he price per share of securiy s a ime Pr e 1 acor InclusionF is he inclusion facor (e.g. Foreign Inclusion Facor, Domesic Inclusion Facor, Growh Inclusion Facor, Value Inclusion Facor) of securiy s a ime. FXrae is he FX rae of he price currency of securiy s vs USD a ime -1. I is he value of 1 USD in foreign currency. 1 Noe: The SecuriyIniialFullMarkeCapInSecuriy Pr icecurrency is also available in he securiy files and corresponds o he SecuriyIn iialfullmarkecapusd muliplied by he FXrae Nex Day Iniial Securiy Weigh IniialSec uriyweigh + 1 = s I, + 1 IndexNumbe rofshares IndexNumbe ( * Pr icepershar FXrae rofshares * Pr icepershar FXrae e * InclusionF acor e + 1 * InclusionF acor + 1 *100 ) s I, + 1 SecuriyIn iialfullm arkecapus ( SecuriyIn iialfullm arkecapus D + 1 D * InclusionF acor * InclusionF acor + 1 *100 ) = SecuriyIn iialmarke CapUSD IndexInii almarkeca pusd *100 Where: rofshares IndexNumbe is he number of shares of securiy s a ime. Pr icepershare is he price per share of he securiy s a ime. InclusionF acor + 1 is he inclusion facor (e.g. Foreign Inclusion Facor, Domesic Inclusion Facor, Growh Inclusion Facor, Value Inclusion Facor) of he securiy s a ime +1. FXrae is he FX rae of he price currency of securiy s vs USD a ime. I is he value of 1 USD in foreign currency. The lis of index consiuens as of ime +1 is considered in he calculaion. Noe: The SecuriyIniialFullMarkeCapInSecuriy Pr icecurrency + 1 is also available in he securiy files and corresponds o he SecuriyIn iialfullmarkecapusd + 1 muliplied by he FXrae 6

11 Index Calculaion Mehodology 1.7 Closing Index Marke Capializaion oday USD (Unadjused Marke Cap oday USD) The value of he index marke capializaion as of he close of a day is calculaed as follows: IndexClosin gmarkecapusd Where = s I, Closin gnumberofshares * Pr icepershare FXrae Closin gnumberofshares is he number of shares of securiy s a he close of. * InclusionFacor Pr icepershare is he securiy price per share of securiy s a ime. InclusionF acor is he inclusion facor (e.g. Foreign Inclusion Facor, Domesic Inclusion Facor, Growh Inclusion Facor, Value Inclusion Facor) of he securiy s a ime. FXrae is he FX rae of he price currency of securiy s vs USD a ime. I is he value of 1 USD in foreign currency. The lis of index consiuens as of ime should be considered in he calculaion. Effecively his figure represens he shares a he close on, and does no include any of he effecs of corporae acions due a he open of he marke he nex day. The closing marke capializaion uses oday s price,, as i represens he marke capializaion a he close of he calculaion day. 7

12 Index Calculaion Mehodology Secion 2: MSCI Daily Toal Reurn (DTR) Index Mehodology Toal reurn indices measure he marke performance, including price performance and income from dividend paymens. A dividend is a disribuion of cash (or securiies) made by a company o is shareholders. The funds are aken from annual operaing profis (regular dividend), from capial and/or reserves, or from exraordinary earnings. This income is reinvesed in he index and hus makes up par of he oal index performance. MSCI s Daily Toal Reurn (DTR) mehodology reinvess cash dividends in indices he day he securiy is quoed ex-dividend (ex-dae). I applies o all index families. Cash dividends are no considered in price indices, excep for special dividends in cerain circumsances described below. The sandard Daily Toal Reurn (DTR) indices are calculaed and disribued on a daily basis. The indices are available in USD and local currency (no currency impac), wih gross and ne oal reurn. 2.1 Calculaion Mehodology DTRIndexLevelUSD DTRIndexLevelUSD = 1 ( * IndexAdjusedMarkeCapUSD + IndexDividend Im pacusd ) IndexIniialMarkeCapUSD DTRIndexLevelLocal DTRIndexLevelLocal = 1 ( IndexAdjusedMarkeCapForLocal + IndexDividend Im pacforlocal ) * IndexIniialMarkeCapUSD Where: DTRIndexLe velusd 1 is he Daily Toal Reurn index level in USD a ime -1 IndexDividend Im pacusd is he amoun of dividends in USD o be reinvesed in he index in USD a ime IndexDividend Im pacforlocal is he amoun of dividend in USD convered using FX rae as of -1 o be reinvesed in he local currency index a ime DTRIndexLe vellocal 1 he Daily Toal Reurn index level in local currency a ime -1 8

13 Index Calculaion Mehodology Dividend Impac IndexDividend Im pacusd s I, IndexNumberOfShares = ex dae 1 * DividendPerShare * FXrae InclusionFacor IndexDividend Im pacforlocal IndexNumberOfShares ( ex dae 1 s I, 1 = * DividendPerShare Fxrae * InclusionFacor ICI * ICI 1 ) Where: IndexNumbe rofshares ex dae 1 is he number of shares of he securiy s a he dividend ex-dae-1. DividendPe rshare is he dividend per share expressed in he same currency uni as he price per share of he securiy s o be reinvesed a ime DTR Index Level from Securiy Informaion (Securiy DTR) Anoher way o calculae a DTR Index would be o use he securiy iniial weigh and securiy oal reurn: DTRIndexLevelUSD DTRIndexLevelLocal = DTRIndexLevelUSD = DTRIndexLevelLocal 1 *(1 + SecuriyToal ReurnConribuionToIndexUSD ) s I, 1 *(1 + SecuriyToal ReurnConribuionToIndexLocal ) s I, Securiy Conribuion o he Index Calculaion Formulas: SecuriyToal SecuriyToal Where: Re urnconribuiontoindexusd = IniialSecuriyWeigh * SecuriyDailyToal ReurnUSD Re urnconribuiontoindexlocal = IniialSecuriyWeigh * SecuriyDailyToal ReurnLocal ilytoal urnusd ilytoal urnlocal SecuriyDa Re is he gross or ne reurn in USD of securiy s a ime. SecuriyDa Re is he gross or ne reurn of securiy s a ime convered using he FX rae as of -1 and used for local currency calculaion a ime. 9

14 Index Calculaion Mehodology Iniial Securiy Weigh IniialSecuriyWeigh = IndexNumberOfShares 1 FXrae 1 IndexNumberOfShares 1 ( FXrae s I, 1 * Pr icepershare 1 * Pr icepershare * InclusionFacor 1 *100 = * InclusionFacor ) s I, SecuriyIniialFullMarkeCapUSD * InclusionFacor *100 = ( SecuriyIniialFullMarkeCapUSD * InclusionFacor ) SecuriyIniialMarkeCapUSD IndexIniialMarkeCapUSD *100 Where: rofshares 1 Pr e 1 acor IndexNumbe is he number of shares of securiy s a ime -1. icepershar is he price per share of he securiy s a ime -1. InclusionF is he inclusion facor (e.g. Foreign Inclusion Facor, Domesic Inclusion Facor, Growh Inclusion Facor, Value Inclusion Facor) of he securiy s a ime. FXrae is he FX rae of he price currency of securiy s vs USD a ime -1. I is he value of 1 USD in foreign currency Currency For index calculaions, all dividends are convered ino USD a he spo rae of he ex dae Number of Shares and Index Weighing Facor A dividend amoun is expressed per share eniled o he dividend. Since he day before he ex-dae is he las day on which he share is eniled o he dividend, he oal dividend per securiy reinvesed ino an index is equal o he number of shares a he ex-dae-1 muliplied by he dividend per share. In addiion, he weighing facor of he securiy in he index is applied o he oal dividend amoun o be reinvesed. This may be he Domesic Inclusion Facor (DIF), he Foreign Inclusion Facor (FIF), he Value Inclusion Facor (VIF), he Growh Inclusion Facor (GIF) or any inclusion facor considered in he price index calculaion. 10

15 Index Calculaion Mehodology 2.2 Reinvesmen Mehodology Gross Daily Toal Reurn This series approximaes he maximum possible dividend reinvesmen. The amoun reinvesed is he dividend disribued o individuals residen in he counry of he company, bu does no include ax credis. Ne Daily Toal Reurn This series approximaes he minimum possible dividend reinvesmen. The dividend is reinvesed afer deducion of wihholding ax, applying he maximum rae applicable o insiuional invesors. MSCI uses differen wihholding ax depending if he index series is inernaional or domesic: Inernaional index series: he maximum rae applicable o non-residen insiuional invesors who do no benefi from double axaion reaies. Domesic index series: he maximum rae applicable o residen insiuional invesors For more informaion on how axes are applicable o dividends, please refer o he Appendix for deails abou he wihholding ax raes for he various counries Timing of re-invesmen The amoun of an announced dividend is re-invesed on he day he securiy is quoed ex-dividend on is principal exchange. For securiies rading on more han one exchange, MSCI uses he ex-dae a he exchange from which MSCI sources he securiy s price. If a securiy does no rade on he day i is quoed ex-dividend, he re-invesmen is posponed o he day when he securiy resumes rading Re-Invesmen Rules There are wo principal guidelines in accouning for dividends in MSCI s DTR indices: A recurring sandard dividend paid ou of curren earnings will be reinvesed among all he consiuens in an index. I is no considered in price indices A dividend ha is unusually large, i.e. greaer han 5% of he securiy cum price, or oherwise unlikely o recur on a regular basis or any dividend ha is paid for wih exraordinary profis is handled by applying a price adjusmen facor and is hence aken ino accoun in price indices as well as DTR indices. These guidelines are discussed in greaer deail below Dividends Resuling in a Reinvesmen Only The following dividends are reinvesed in he DTR Index: Regular Cash Dividend A regular cash dividend is paid ou from operaing profis: he company disribues a par of he curren year s operaing profis o is shareholders. 11

16 Index Calculaion Mehodology Opional Dividend The company offers shareholders he choice of receiving he dividend eiher in cash or in shares. For dividend reinvesmen purposes, MSCI assumes ha invesors elec he cash opion, herefore, he dividend is reinvesed in he DTR indices and a price adjusmen is no necessary. If some shareholders choose o ake he sock opion, when i is confirmed, he number of shares will be increased accordingly a he nex regularly scheduled quarerly index review. Ineres on Capial The ineres on capial dividend is a cash paymen o shareholders accouned for as a pre-ax ineres expense by he company. The balance shee and he book value do no change. Ineress on capial are common in Brazil Dividends Resuling in a Reinvesmen or in a Price Adjusmen The dividends below are reinvesed in he DTR Index if, a day prior o he ex-dae, he dividend impac on he price is less han 5%. However, if he impac is greaer han 5%, he dividend will be refleced in he index hrough a price adjusmen. Special/Exra Dividend The company declares he dividend as special or exraordinary. I is usually funded by a special even or from exraordinary profis. MSCI may consider irregular and unusually large dividends as special even if hey are no declared as such by he company. Commemoraive Dividend (memorial) A company declares a dividend as commemoraive/memorial. The funds come from exraordinary profi or cash generaed by a special even. Reroacive/Arrears Dividend Reroacive dividends are paid in Ialy when a company has o pay a dividend o revenue-guaraneed (RISP) shares o make up for previous years non-paymens. Special Dividend o Non-Domesic Shareholders A company pays is non-domesic shareholders a bonus dividend o compensae for he ax credi disribued o domesic shareholders. This is a common pracice in New Zealand. Noe ha a special dividend is considered a regular cash dividend ( regular special ) afer being disribued for hree consecuive years, and if i is proven o have been aken ou of recurring operaing profis. 12

17 Index Calculaion Mehodology Dividends Resuling in a Price Adjusmen Only A specific price adjusmen is always applied o he securiy in he following cases: Sock Dividend (sock bonus/grais issue) The company issues shares a no direc cos o he shareholders. The funds are aken ou from he curren year s earnings. In he case of a sock bonus/grais issue, he company disribues a par of he reserves (reained earnings from previous years) o is shareholders. Capial Repaymen (reurn of capial) The company reduces is capial by paying shareholders a cash reurn, which is a porion of heir original invesmen. I is neiher a dividend nor a capial gain, and he shareholders may no have o pay income or capial gains ax. The balance shee and he book value will decrease. Dividend Paid in Shares of anoher Company The company disribues sock of anoher company as a dividend. The number of shares held remains he same, bu he price will decrease by he value of he disribued securiy. MSCI considers oher cash paymens relaed o Corporae Evens, such as mergers, acquisiions, liquidaions, ec. on a case-by-case basis. 2.3 Processing Rules Dividend Daa Raw dividend daa is provided by muliple elecronic daa feeds and is checked for compleeness and correcness. MSCI s Daily Toal Reurn process requires ha dividends be confirmed by a leas wo disinc daa sources. Mos dividends are received and validaed hrough elecronic feeds, bu some evens may require confirmaion from oher sources, such as sock exchanges or he company. In addiion, MSCI moniors securiies for which a dividend is expeced based on previous dividend announcemen frequency, bu which has no ye been received hrough he regular daa sources Corporae Acions A corporae acion, which changes he number of shares ousanding for a company, may ake place beween he dividend s announcemen dae and is ex-dae. As he number of shares on he day preceding he ex-dae is used o calculae he dividend amoun o be reinvesed, MSCI will adjus he dividend o reflec he number of shares on ha day. Following cerain corporae evens, he number of shares used in MSCI index calculaions on he day prior o he ex-dae may include shares ha are no issued ye or ha are no eniled o he dividend. In hose cases, MSCI reinvess he dividend on he ex-dae as if all shares included in MSCI index calculaions were eniled o he dividend. 13

18 Index Calculaion Mehodology Correcions A dividend ha has been reinvesed may need o be amended, due o an error in is ex-dae, in he dividend amoun, or in he dividend currency. The following rules apply: Acion is aken only if he error is discovered wihin 12 monhs of he ex dae and is in line wih he price index correcion policy, where MSCI applies a 12 monh correcion period. In he case of a correcion, MSCI will use he number of shares effecive on he day prior o he ex-dae. The correcion amoun is reinvesed on he day i is discovered. The day s spo rae is used for currency conversion. A hisorical correcion will be applied o all indices impaced by more han 50 basis poins 1 if he impac on a counry or World / EM indusry group index is over 50 basis poins. The securiy ha needs a dividend correcion may have changed is saus for index inclusion beween he ex-dae and he correcion dae. For example, his may be due o he securiy s subsequen exclusion from he index, or a change in is indusry or counry classificaion. Applying he correcion wih he curren saus may reinves dividends ino he wrong index. If here is a change in he securiy saus beween he ex-dae and he correcion dae, no correcion amoun will be reinvesed Paymen Defaul A correcion will be applied when a dividend is declared unpaid (paymen defaul). This may resul in a negaive reinvesmen. Pas index values (hisory) are no correced. The following rules apply: Acion is aken only if he paymen defaul is discovered wihin 12 monhs of he ex-dae and is in line wih he price index correcion policy, where MSCI applies a 12 monh correcion period. MSCI uses he number of shares effecive on he day prior o he original ex-dae. The defaul amoun is reinvesed on he day i is announced. The day s spo rae is used for currency conversion Lae Dividends A lae dividend is a dividend ha is only known afer is ex-dae. I is processed under he correcion policy Counry Excepions Korea: Lae Dividend Korean companies declare heir dividends afer heir ex-dae. As no esimaed dividends are available before he ex-dae and no flucuaion in he price (due o he dividend) is visible on he ex-dae, he dividends are reinvesed on he recepion dae from he daa sources wihou any correcion. MSCI will use he number of shares effecive on he day prior o he ex-dae. 1 The 50 basis poin limi is linked o he price index correcion policy and will be revised accordingly o reflec any changes in his policy. 14

19 Index Calculaion Mehodology Japan: Lae Dividend Many Japanese companies declare heir dividends afer he ex-dae. As esimaed dividends are available before he ex-dae and are broadly used, an esimaion of he dividend is reinvesed on he ex-dae. When a company does no declare an esimaed dividend, MSCI will use he previous year amoun as he esimaion. Should he difference beween he esimaed and raified dividend amoun warran correcion, i will be processed as a paymen defaul (reinvesmen wihou correcing pas index levels). USA: Redempion Righ When a company redeems shares disribued o shareholders due o a poison pill righs issue (applies mainly in USA), here may be a change in he company s capial srucure. In his case MSCI will apply a price adjusmen Taxes Taxes are applied o dividend paymens and vary depending on he company s and shareholders counry of domicile. Tax daa is moniored on a regular basis and is updaed when necessary. Tax Credi: The ax credi (voucher) can be considered as a reimbursemen of ax already received by he fiscal adminisraion. The company s annual earnings are axed before disribuion o he shareholders, and hen he shareholders pay axes on he dividend. Some counries consider i unfair o pay axes wice on he same income and herefore disribue a ax credi. The ax credi is excluded from boh MSCI gross and ne dividends. Wihholding Tax The wihholding ax is a ax on income a source, reained by he company when he dividend is paid o a shareholder. The wihholding ax rae depends on he ax saus of he shareholder. MSCI excludes he maximum wihholding ax rae applicable o insiuional invesors from MSCI ne dividends. A non-residen shareholder mus also pay axes on dividends in heir domesic counry, ogeher wih heir income axes. To avoid his double axaion, counries may sign bi-laeral double axaion reaies.. In he calculaion of he ne DTR MSCI inernaional index series, MSCI uses he wihholding ax rae applicable o foreign non-residen insiuional invesors ha do no benefi from double axaion reaies. In he calculaion of he ne DTR MSCI domesic index series, MSCI used he wihholding ax rae applicable o domesic residen insiuional invesors Corporae Tax Credi A corporae ax credi is a domesic ax applicable o he dividends of he company. In Malaysia and Singapore i is a ax paid by he company and no by he shareholders. This ax is excluded from boh gross and ne dividends. 15

20 Index Calculaion Mehodology Anicipaed Tax An anicipaed ax is reained when he dividend is paid o shareholders. This ax is reimbursed when domesic shareholders pay axes on heir annual income. Foreign invesors may be able o reclaim par of he ax, depending on he specific erms of he applicable double axaion reay. Anicipaed ax is no a ax credi, and i is included in boh MSCI gross and ne dividends Definiions Announcemen dae - he dae on which he company announces is nex dividend paymen. Recepion dae - he dae on which he informaion abou he dividend is received by MSCI from is daa sources. Record dae - he dae on which an individual mus own shares (be he holder of record) in order o receive a declared dividend or capial gains disribuion. Ex-dae - he firs day on which, if an invesor buys he securiy, he securiy no longer carries he righ o he declared dividend. 16

21 Index Calculaion Mehodology Secion 3: Alernaive Index Calculaions 3.1 Gross Domesic Produc (GDP) Weighed Indices The MSCI GDP Index Series offers an alernaive o marke capializaion-weighed indices for global and regional asse allocaion purposes. In he MSCI GDP Index Series, counry weighs are based on he size of he counry s economy raher han he size of is equiy marke. While equiy markes can have performancerelaed peaks and roughs, GDP figures are more sable over ime. The MSCI GDP Index Series includes he MSCI GDP ACWI, World, EAFE, Europe, EMU and EM Indices. Annual Index Review and Counry Weighs The MSCI GDP Index Series is rebalanced annually in May. The rebalancing dae has been changed in 2002 o May from June o coincide wih he annual full index review of he MSCI Sandard Index Series. The counry weighs of he MSCI GDP Index Series are rese every year on he basis of he previous year s GDP figures. Aferwards, he counry weighs flucuae wih changes in performance and marke capializaion in he MSCI Sandard Counry Indices unil he nex rebalancing. The primary sources for GDP daa are he Organizaion for Economic Cooperaion and Developmen (OECD), he Inernaional Moneary Fund (IMF) and oher various governmen organizaions. In some cases, GDP esimaes may be used if final figures are no available a he ime of he rebalancing. MSCI uses GDP figures for he calculaion of he GDP weighed indices. GDP figures provided by he OECD are in USD a curren prices and curren exchanges raes. IMF GDP figures are provided in local currency and convered in USD a he period average marke rae. For GDP figures in local currency provided by oher sources, MSCI applies an average of he previous year s daily exchange raes o calculae he USD-equivalen GDP figures. For he Emerging Markes (EM) GDP Index as well as All Counry World Index (ACWI) GDP Index, MSCI provides hisorical index levels back o June 30, Prior hisorical index levels for hese indices are only available on a cusom basis. Changes in counry indices wihin EM and ACWI or migraions from Emerging o Developed Marke indices are implemened o coincide wih he Annual GDP Index Review. As such, as of he close of June 29, 2001, MSCI Egyp and Morocco were added o he EM and ACWI GDP indices whils MSCI Sri Lanka was removed. Simulaneously, MSCI Greece migraed from he Emerging o he Developed Markes GDP indices. As a reminder, Developed Markes (DM) GDP Indices, such as The World Index, EAFE and Europe have a price index level hisory available since December 31, 1969 on a monhly basis, and since December 31, 1987 on a daily basis, whereas EMU s enire index level hisory goes back o June 30, In addiion o he counry migraions menioned above, he mos recen counry level changes include he inclusion of MSCI Porugal ino he Developed Markes GDP indices as of he close of June 30, 1998, and he removal of MSCI Malaysia as of he close of Sepember 30,

22 Index Calculaion Mehodology Securiy level Weighs The weigh of a securiy in he GDP Index Series is deermined by muliplying he weigh of he securiy in he MSCI Sandard Counry Index by he curren weigh of he counry in he regional MSCI GDP Index. SW GDP = SW STD * CW GDP_CUR Where: SW GDP SW STD CW GDP_CUR securiy weigh in he regional MSCI GDP Index securiy weigh in he MSCI Sandard Counry Index curren counry weigh in he regional MSCI GDP Index Curren counry weigh: CW GDP_CUR = (CounryGDP INI * McapCounry CUR /McapCounry INI ) SUM (CounryGDP INI * McapCounry CUR /McapCounry INI ) Where: CW GDP_INI McapCounry CUR McapCounry INI Sandard Index iniial counry weigh in he regional MSCI GDP Index a he las rebalancing curren counry marke capializaion in he MSCI Sandard Index iniial counry marke capializaion a he las rebalancing in he MSCI 3.2 Daily Hedged Indices Overview MSCI calculaes currency hedged indices for each developed marke counry as well as several emerging markes (on a cusom basis) and for developed markes regional indices, including MSCI EAFE. Daily hedged indices represen a close esimaion of he reurn ha can be achieved by hedging he currency exposures of he index in he one-monh forward marke a each end of day. The MSCI Hedged Indices inegrae he hedging of each currency in he index for one monh agains he base currency by selling he base currency a he one-monh Forward rae. The amoun of Forwards sold represens he value (or he marke capializaion) of he index as of he close of he las rading day of he monh, i.e. reflecing changes in he composiion of he index implemened as of he close of ha day. This approach is designed o replicae he hedging process of porfolio managers who ypically sell Forwards for an amoun corresponding o he value of heir porfolio as of he close of he las rading day of he monh. Afer one monh, a similar ransacion is hen se up for an amoun represening he new monh-end value of he index. No adjusmen o he hedge is done during he monh o accoun for changes in he indices due o price movemen of securiies, corporae evens, addiion, deleions or any oher changes. In oher words he amoun hedged equal o he value of he index as of he close of he las rading day of he monh is kep consan over he whole monh. This simple approach replicaes he hedging process in place in many acual porfolios. The Spo and 1-monh Forward exchange raes used are hose published by WM/Reuers a 4:00 p.m. London ime. Before May 2002, he MSCI Hedged Indices were compued on a monhly basis. The daily indices have been back-calculaed o he end of December 2001, using he daily hedged mehodology described below. 18

23 Index Calculaion Mehodology Daily Hedged Indices based on 1-Monh Forwards Marking o marke he Forward conrac on a daily basis Afer consuling wih invesors, MSCI has come o he conclusion ha he mos appropriae approach o compue daily hedged indices is o derive hem from he curren monhly hedged indices by marking o marke he Forwards on a daily basis. This is based on he consideraion ha MSCI s curren approach which uses a monhly hedging is well acceped, as i replicaes he process ha invesors mos commonly use o hedge heir porfolios. This means ha daily hedged indices need o be based on a daily evaluaion of he exising monhly hedged indices. This can be calculaed by marking o marke he 1-monh Forward on a daily basis. A relaively precise way of marking he Forward o marke is o use an equal and offseing Forward posiion. For insance, afer 8 days, he Forward would be marked o marke using a 22-days offseing Forward in he case of a monh when he las business day of he monh is he 30 h (i.e = 22). This approach is more precise han an alernaive ha would use he Spo exchange rae o mark o marke he Forward, as i akes ino accoun he ineres rae differenial beween he hedged currency and he base currency for he remaining par of he monh. MSCI has implemened his more exac approach. Pricing he Offseing Forward In heory he value of he offseing Forward could eiher be obained from he marke or calculaed wih a linear inerpolaion. However, ypically, only a limied number of sandard duraion of Forwards is available in he marke. These raes are called enors, and represen one day, one week, one monh, ec. This means ha oher duraions for Forwards (called odd-days Forwards) are generally no available bu mus be calculaed by inerpolaion. For he sake of simpliciy, MSCI uses a linear inerpolaion based solely on he 1- monh Forwards o esimae he value of odd-days Forwards every day during he whole monh. Odd-days Forwards are compued simply as he Spo rae plus he premium or discoun beween he Spo and he 1- monh Forward, pro raed for he number of days unil he las business day of he monh. Missing Forward Raes If he Forward rae is missing on a given day, he previous day s premium or discoun of he Forward rae over he Spo rae will be added o he curren Spo exchange rae. If here is a disrupion in he Forward marke, MSCI will analyze he siuaion and a decision o coninue or disconinue he compuaion of he hedged indices will be made on a case by case basis Calculaion of Odd-Days Forwards Using a Linear Inerpolaion MSCI use a linear inerpolaion formula o compue odd-days forwards. The general formula is as follows: FFRae + Odd days ( FFRae FXRae ) odd days = FXRae ( 1 monh) * 19 ToalNumberOfCalendarDaysDuringMonh To compue a linear inerpolaion, he following process is used, using as an example daa as of February 12, 2002: a) Check if oday is he las business day of he monh, in which case, he Spo exchange rae is used and here is no need o compue a linear inerpolaion.

24 Index Calculaion Mehodology b) Obain he dae of he las business day of he monh, in our example February 28, c) Obain he 1-monh Forward rae as of oday, i.e. February 12, 2002, for example CAD / USD. This Forward seles in one monh. d) Compue he price difference beween he Spo and he 1-monh Forward, as of oday, February 12, 2002, called he premium (or discoun). In his example, he Spo is a , so he premium is e) Using a linear inerpolaion, compue he value, as of oday, February 12, 2002, of a Forward wih a duraion equal o he number of days unil he las business day of he monh. In our example, he las business day of he monh is he 28 h, so he duraion of he Forward is = 16 days. The value of a 16 day Forward is esimaed as he Spo rae plus he premium pro raed for he period. The oal number of days aken ino accoun is he number of days in he monh, in our example 28, as here are 28 days in February Inerpolaed value of a Forward for 16 days = *(16 / 28) = = Daily Hedged Index Calculaion Formula There are hree componens o a securiy s hedged reurns: 1. The performance of he unhedged securiy in he hedged currency (for example U.S. dollars) 2. The cos o hedge on he Forward conrac 3. The gain or loss on he Spo exchange rae The hedge impac, expressed in percen, is calculaed as he difference beween he cos o hedge on he Forward conrac and he acual gain or loss on he Spo exchange rae. Tha is: Percen Hedge Impac Securiyi = FXRae M 1 FXRaeM 1 FFRaeM 1 FFRaeodd day Where FXRae M1= Spo FX Rae (currency/usd) a he close of previous monh FFRae M1= Forward exchange rae (currency/usd) a he close of previous monh FFRae odd-day= Inerpolaed odd-days Forward Rae (currency/usd) The oal impac of he hedge for he index is compued as: N Hedge Impac Index = Weigh i * Hedge Impac Securiyi i= 1 Cos o hedge on he fwd conrac Esimaed gain or loss when marking o marke The hedged performance is he combinaion of he unhedged performance and he percen hedged impac. If Index M1 and Index odd-days denoe he unhedged index levels in USD a he close of he previous monh and a he odd-days, respecively, hen: 20

25 Index Calculaion Mehodology Indexodd days Performance of Hedged Index a he end of he monh = 1 + Hedge Impac IndexM 1 If all securiies in he index rade in he same currency, he hedge impac is he same for all securiies and he formula can be simplified o: Esimaion of he performance of he monhly Hedged Index afer days = Indexodd days FXRae M 1 FXRaeM IndexM 1 FFRaeM 1 FFRaeodd day Daily Hedged Index Example This example is similar o he example for he monhly Hedged Indices, excep ha we have, afer 8 days, he following figures (numbers are no real figures). All securiies rade in he same currency and he simplified formula can again be used in his example. The Forward rae is he same, as we sill use a 1-monh Forward o hedge. Spo and Forward Raes Index Levels in USD FXRae 1= Kroner/USD Index 1 =100 FFRae 1= Kroner/USD Index days 8 =94.54 FFRae duraion days 22 = Kroner/USD Index Hedged 1 = 100 Esimaed Percen Hedged Impac = [ / / ] = 5.205% Performance of Hedged Index = 94.54/100 + [ / / ] 1= % Esimaed Hedged Index 1w = 100 * ( ) = Afer 8 days, invesors can esimae ha he reurn on heir invesmen is 0.255% by marking i o marke, bu his is only an inerim esimaion afer 8 days, while he Forward sill has 22 days o go. As has been shown above, he realized reurn a he end of he monh is 0.337%. 21

26 Index Calculaion Mehodology Appendix I: MSCI GCC Counry Indices: Saurday/Sunday Index Calculaion Calculaion Mehodology Available in MSCI producs saring June 12, The MSCI Gulf Cooperaion Council (GCC) Counry Indices and he MSCI Arabian Markes Indices are calculaed on Saurdays and Sundays o reflec he performance of he markes open on hese days. In order o preserve compaibiliy wih he oher MSCI Inernaional indices, which are calculaed from Monday o Friday, MSCI will use he concep of a Monday pre-opening (inermediae) calculaion for he Saurday and Sunday calculaion. The Saurday and Sunday index performances capure he price changes and reflec corporae evens 2 effecive on hese days. The index consiuen lis is he same as he one o be used for he Monday calculaion. WM/Reuers spo FX raes as of he previous Friday will be carried forward o he Saurday and Sunday in order o perform he index calculaion in USD. No dividends are reinvesed on Saurdays or Sundays. Consequenly, he Daily Toal Reurn (DTR) index performances for hese 2 days are equal o he ones of he price index. The chain-linking for hese index series can be summarized as follows: Saurday s daily index performance is compued by comparing Saurday s adjused prices and he previous Friday s unadjused prices Sunday s daily index performance is compued by comparing Sunday s adjused prices and he previous Friday s unadjused prices Monday s daily index performance is compued, as currenly, by comparing Monday s adjused prices and he previous Friday s unadjused prices Iniial Weighs Thursday Friday Saurday Sunday Consiuens Monday Friday calculaion Saurday calculaion Sunday calculaion Monday calculaion 2 In case of a corporae even occurring on a Saurday, a Price Adjusmens Facor (PAF) will be applied o he securiy marke capializaions on Saurday, Sunday and Monday. In case of a corporae even occurring on a Sunday, a PAF will be applied o he securiy marke capializaion on Sunday and Monday. 22

27 Index Calculaion Mehodology Index Calculaion Formulas IndexLevelLocal IndexLevelLocal Saurday / Sunday Friday * s I = ( SecuriyAdjusedFullMarkeCapForLocalSaurday / Sunday * InclusionFacorMonday ), Monday ( SecuriyIniialFullMarkeCapUSDSaurday / Sunday * InclusionFacorMonday ) s I, Monday IndexLevelUSD IndexLevelUSD Where: Saurday / Sunday Friday * s I acormonday = ( SecuriyAdjusedFullMarkeCapUSDSaurday / Sunday * InclusionFacorMonday ), Monday ( SecuriyIniialFullMarkeCapUSDSaurday / Sunday * InclusionFacorMonday ) s I, Monday InclusionF is he inclusion facor (e.g. Foreign Inclusion Facor, Domesic Inclusion Facor, Growh Inclusion Facor, Value Inclusion Facor) of he securiy s as of he following Monday. The Securiy Full Marke Caps are calculaed as follows: SecuriyAdjusedFullMarkeCapForLocal IndexNumberOfShares Saurday / Sunday = Friday * Pr icepersharesaurday / Sunday * PAFSaurday / Sunday FXrae Friday ICI * ICI Monday Friday SecuriyAdjusedFullMarkeCapUSD IndexNumberOfShares Friday FXrae Saurday / Sunday * Pr icepershare Saurday / Sunday = Saurday / Sunday * PAF Saurday / Sunday SecuriyIniialFullMarkeCapUSD IndexNumberOfShares Friday FXrae Friday Saurday / Sunday = * Pr icepershare Friday Where: rofsharesfriday IndexNumbe is he number of shares of securiy s as of he previous Friday. icepershar e Saurday / Sunday Pr is he price per share of he securiy s as of Saurday or Sunday. 23

28 Index Calculaion Mehodology Pr icepershare Friday is he price per share of securiy s as of he previous Friday. PAF Saurday / Sunday is he Price Adjusmen Facor of he securiy s as of Saurday or Sunday. FXrae Saurday / Sunday is he FX rae of he price currency of securiy s vs USD as of Saurday or Sunday. I is he value of 1 USD in foreign currency. FXrae Friday is he FX rae of he price currency of securiy s vs USD as of he previous Friday. I is he value of 1 USD in foreign currency. ICI Monday is he Inernal Currency Index of price currency as of Monday. The ICI is differen han 1 when a counry changes he inernal value of is currency (e.g. from Turkish Lira o New Turkish Lira ICI = 1,000,000). ICI is he Inernal Currency Index of price currency as of previous Friday. Friday Appendix II: Raes Closing Spo Raes Unil December 30, 1993, MSCI used he exchange raes aken from he Reuers muli conribuor pages a 4.00p.m. CET. Since December 31 s, 1993, MSCI has been using he WM/Reuers Closing Spo Raes, aken a 4pm London ime, for all he counries for which i provides indices, excep for he Lain American counries. A he ime, MSCI esablished a special foreign exchange policy for Lain American counries in view of he risks of imporan movemen of currencies in some of hese markes beween he 4pm London closing and he close of he respecive Lain American markes. Saring July 26, 2000, MSCI began o use he WM/Reuers Closing Spo Raes for all he counries i provides indices including Lain American counries. MSCI independenly moniors he exchange raes on all is index series. MSCI may under excepional circumsances elec o use alernaive sources of exchange raes if he WM/Reuers raes are no available, or if MSCI deermines ha he WM/Reuers raes are no reflecive of marke circumsances for a given currency on a paricular day. Forward Raes MSCI uses he spo and 1-monh premium/discoun as provided by WM/Reuers o compue he 1-monh Forward exchange raes. These values are aken a 4pm London ime. 24

29 Index Calculaion Mehodology Appendix III: Singapore & Malaysia - A Hisory of Inclusion in he MSCI Emerging and Developed Markes Indices Sock Markes Sock rading has a long hisory in Singapore daing back o he 1930 s. In 1960 he Malayan Sock sared rading shares publicly. There were rading floors in boh Singapore and Kuala Lumpur linked as a single marke. When Singapore spli from Malaysia he sock exchange coninued o operae as one under he name Sock of Malaysia and Singapore (SEMS). In 1973 he accord ha allowed for he converibiliy a par beween he Singapore Dollar and Malaysian Ringgi was erminaed. This led o he separaion of SEMS ino he Kuala Lumpur Sock (KLSE) and he Sock of Singapore (SES). Malaysian companies coninued o rade heavily in Singapore. MSCI Indices On December 1s 1972, he MSCI Singapore/Malaysia Index was added o he World Index. The index was developed in cooperaion wih he Overseas-Chinese Banking Corporaion, which published he same index under he name O.C.B.C. Index. As is he case wih oher MSCI indices he purpose was o rack hose securiies represenaive of Singapore. However as approximaely half he marke capializaion and liquidiy of he SES was due o Malaysian shares he index was designed o incorporae boh Singaporean companies as well as hose Malaysian shares ha raded in Singapore. This aspec was differen from oher MSCI indices, as he norm is o only include domesically lised shares. In ligh of he long inegraed hisory of he Malay Peninsula and Singapore, and he coninued dual lising of shares, i was deemed o be more represenaive o include hese Malaysian companies as represenaive of he opporuniy se of he SES. MSCI launched is emerging marke series on January 1, Among oher counry indices was an index of Malaysia wih 59 securiies. As MSCI was now covering emerging markes he MSCI Mexico index was pulled ou of MSCI World. The World Index was o be considered a developed marke index. In 1989 he Malaysian governmen announced ha Malaysian companies would be asked o delis heir shares from he SES. Previously he governmen had prohibied newly lised shares of Malaysian companies from lising on he SES. In November 1989, reacing o he Malaysian governmen announcemen, MSCI iniially announced is inenion o remove Malaysian securiies from he Singapore/Malaysia index. The following monh MSCI announced ha he erms and iming of he Malaysian delising were oo ambiguous. As a resul MSCI would ake a wai and see approach prior o removing any Malaysian securiies from he Singapore/Malaysia index. As a resul he Malaysian shares in he MSCI Singapore/Malaysia Index were effecively frozen or grandfahered. Over ime, some of hese shares were no longer lised on Singapore bu coninued o be included in he index using he Ringgi price a which hey were raded in Kuala Lumpur. In January 1992 MSCI announced a change. The Singapore/Malaysia Index was now composed of a represenaive sampling of Singaporean companies coupled wih grandfahered Malaysian securiies ha used o rade in Singapore bu were no longer rading here as a resul of he delising requiremen. Malaysia was clearly an emerging marke, for example is GDP per capia was $2,340 considerably below ha of Spain ($10,920), he lowes counry ha was currenly in he MSCI World Index. Noneheless many developed marke invesors had hisorically purchased Malaysian companies as a resul of some Malaysian companies being included in he MSCI World and EAFE Indices. Deleing all Malaysian companies from he developed marke indices could have been very disrupive o he markes. As a resul of his dilemma MSCI decided o 25