MSCI Global Islamic Indices
Client Consultation
September 2008

MSCI Global Islamic Indices The MSCI Global Islamic Indices reflect Sharia investment principles to provide
a relevant opportunity set for Islamic investors. An independent Sharia Board
has granted a Fatwa on the MSCI Islamic Index Series Methodology,
concluding that the methodology is in compliance with generally accepted
Sharia guidelines.

 The MSCI Global Islamic Indices were launched on July 26, 2007. MSCI Barra
has just completed the first annual review of the MSCI Global Islamic Indicesfor the May 2008 Semi Annual Index Review. As of the close of June 4, 2008
the MSCI AC World Islamic index consisted of 1094 securities.

 MSCI Barra is seeking to improve its methodologies and has been listening to
its clients’ comments regarding the MSCI Islamic Index Series Methodology.

 MSCI Barra welcomes any feedback from the investment community and plans
to contact directly some market participants to solicit feedback. Please notethat the consultation may or may not lead to changes in the MSCI Global
Islamic Indices and the MSCI Islamic Index Series Methodology.

© 2008. All rights reserved.

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Outline of Consultation

1. Sharia Banking
2. Ratio Calculations
3. Dividend Purification
4. Business Activity Screening
5. Appendix© 2008. All rights reserved.

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Sharia Banking© 2008. All rights reserved.

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Sharia Banking
Current MSCI Islamic Index Series Methodology

 The current MSCI Islamic Index Series Methodology
screens companies in the Financial Services sector both fortheir compliance to Sharia principles in their revenue frombusiness activities, and for their reliance on debt andinterest in their financial structure.

 Financial Services companies that follow Sharia principles
in their business activities pass the Business Activity
screening.

 Financial Services companies that do not meet therequirements for the Financial Ratio screening are excluded
from the MSCI Global Islamic Indices.

© 2008. All rights reserved.

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Sharia Banking
Potential Enhancement to MSCI Islamic IndexSeries Methodology
MSCI Barra proposes the following potential enhancement to the MSCI
Islamic Index Series Methodology:
Islamic financial institutions would be included in the MSCI Global
Islamic Indices and would not be subject to Financial Ratio screening ifthe following criteria were fulfilled:i)

The Islamic financial institution is a separate legal entity and establishedonly to deal in transactions that are Sharia compliant.

ii)

The Islamic financial institution has an appointed Sharia Supervisory
Board that provides oversight and sign-off on all product development,implementation and monitoring along with providing on-going guidanceon all Sharia related matters and issuing pronouncements/Fatwas to that
effect, where such pronouncements/Fatwas are legally binding on theIslamic financial institution.

iii) The above should be documented in the Islamic financial institution’s
formation documents along with its audited financial statements.

© 2008. All rights reserved.

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Sharia Banking
Impact of Potential Enhancement
If the MSCI Islamic Index Series Methodology enhancements
were to be implemented as described, 13 securities would
have been eligible for addition to the MSCI Global IslamicIndices based on their constituents as of the close of August22, 2008.

© 2008. All rights reserved.

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Ratio Calculations© 2008. All rights reserved.

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Ratio Calculations
Current Calculation for Third Ratio Under Sharia investment principles, accounts receivable are viewed
as loans to distributors. However, these loans do not always involvethe explicit payment of interest. For example, accounts receivablemay be interest-free, or the interest charge may have been
incorporated into the price of the goods sold to distributors.

 Due to the special nature of accounts receivable, and based on
consultation with its clients and the recommendations of MSCI
Barra’s Sharia Advisors, the third ratio’s threshold has been set at70%.

 Other Sharia Boards can be stricter, setting the level at 49% or even
33%. On the other hand, some Sharia Boards do not recognize any
upper limit for accounts receivable.

 MSCI Barra recognises that the Sharia Boards of its clientssometimes have stricter interpretations of the third ratio.
© 2008. All rights reserved.

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Ratio Calculations
Potential Enhancements to Third Ratio

 MSCI Barra is considering two alternative potential
enhancements:
1. Include cash in the calculation of the third ratioOR
2. Decrease the threshold of the third ratio to alower level© 2008. All rights reserved.

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Ratio Calculations
Option 1: Potential Enhancement
 The third ratio of the Financial Screening is defined as:“Accounts receivables over total assets”

 MSCI Barra would modify the ratio definition to be:“Accounts receivables and cash over total assets”© 2008. All rights reserved.

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Ratio Calculations
Option 1: Impact
 The modified definition of the third ratio:− Includes securities with a low cash balance but highaccounts receivable in the MSCI Global Islamic Indices.
− Excludes securities with a high cash balance and highaccounts receivable from the MSCI Global IslamicIndices.

 If the third ratio were to be changed as described, 8
securities would have been deleted from the MSCI
Global Islamic Indices based on their constituents as ofthe close of August 22, 2008.

© 2008. All rights reserved.

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Ratio Calculations
Option 2: Potential Enhancement

 An alternative to the proposal would be to reduce
the threshold of the third ratio to a lower level.

 The threshold could be lowered to 49% or 33%© 2008. All rights reserved.

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Ratio Calculations
Option 2: Impact
 Lowering the threshold would exclude securities withaccounts receivable lower than the current threshold of70% and above the new threshold.

 If the new threshold were lowered to 49%, 11 securities
would have been deleted from the MSCI Global Islamic
Indices based on their constituents as of the close ofAugust 22, 2008.

 If the new threshold were lowered to 33%, 70 securities
would be deleted from the MSCI Global Islamic Indicesbased on their constituents as of the close of August 22,
2008.
- Which of the two options would be preferable?

© 2008. All rights reserved.

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Dividend Purification© 2008. All rights reserved.

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Dividend Purification
Potential Enhancement to MSCI Islamic IndexSeries MethodologyCurrently, the “dividend adjustment factor” is defined as:(total earnings – interest income) / total earnings



MSCI Barra is considering modifying the definition of the“dividend adjustment factor” to be:(total earnings – prohibited income) / total earningsProhibited Income includes interest income and revenues
from any prohibited activity identified in the Business
Activity screening.
- How does the potential “dividend adjustment factor” match withcurrent Sharia investment practices?
© 2008. All rights reserved.

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Business Activity Screening© 2008. All rights reserved.

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Business Activity Screening
Threshold for Revenue from Prohibited Activities Currently the Business Activity screening excludes
securities that are directly active in, or derive morethan 5% of their revenue (cumulatively) from, theactivities prohibited by Sharia law.

 The Business Activity screening could be modified toexclude securities with any involvement in theactivities prohibited by Sharia law.
-Would a stricter application of the Business Activity screening be preferable?

-Should any one prohibited business activity automatically exclude a company
when there is any involvement, for example Pork or Alcohol?

© 2008. All rights reserved.

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Business Activity Screening
Impact of Potential Business Activity Screening
Enhancement

 Changes due to stricter screening on Business Activity,
based on the constituents of the MSCI Global Islamic
Indices as of the close of August 22, 2008.
Number of Securities
Current

Alcohol
Exc luded

One Way Index T urnover

Pork
Excluded

All Activities
Exc luded

AlcoholExcluded

Pork
Exc luded

All Excluded

W orld

746

694

692

553

16.4%

17.7%

26.5%

EM344

326

325

238

13.1%

12.9%

46.8%

ACWI

1,090

1,020

1,017

791

15.9%

16.9%

28.7%

Data as of the c lose of August 22, 2008.

© 2008. All rights reserved.

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Appendix – Excerpts from the current MSCI
Islamic Index Series Methodology© 2008. All rights reserved.

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Financial Screening Ratios

Sharia investment principles do not allow investment incompanies deriving significant income from interest orcompanies that have excessive leverage. MSCI Barra
uses the following three financial ratios to screen forthese companies:

1. Total debt over total assets
2. Sum of a company's cash and interest-bearing
securities over total assets

3. Accounts receivables over total assets© 2008. All rights reserved.

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Activities Prohibited by Sharia Investment
Principles


Alcohol: distillers, vintners and producers of alcoholic beverages, including producers of beer and malt liquors, owners andoperators of bars and pubs.

Tobacco: cigarettes and other tobacco products manufacturers and retailers.

Pork related products: companies involved in the manufacture and retail of pork products.

Financial Services: commercial banks involved in retail banking, corporate lending, investment banking; companies
involved in mortgage and mortgage related services; providers of financial services, including insurance, capital markets
and specialized finance; credit agencies; stock exchanges; specialty boutiques; consumer finance services, including
personal credit, credit cards, lease financing, travel-related money services and pawn shops; financial institutions primarily
engaged in investment management, related custody and securities fee-based services ; companies operating mutualfunds, closed-end funds and unit investment trusts; financial institutions primarily engaged in investment banking andbrokerage services, including equity and debt underwriting, mergers and acquisitions; securities lending and advisory
services institutions; and insurance and reinsurance brokerage firms, including companies providing property, casualty, life
disability, indemnity or supplemental health insurance.

Defense / Weapons: manufacturers of military aerospace and defense equipment, parts or products, including defenseelectronics and space equipment.

Gambling / Casino: owners and operators of casinos and gaming facilities, including companies providing lottery andbetting services.

Music: producers and distributors of music, owners and operators of radio broadcasting systems.

Hotels: owners and operators of hotels.



Cinema: companies engaged in the production, distribution and screening of movies and television shows, owners andoperators of television broadcasting systems and providers of cable or satellite television services.

Adult Entertainment: owners and operators of adult entertainment products and activities.

© 2008. All rights reserved.

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Dividend Purification

If a company derives part of its total income from interest
income, Sharia investment principles state that thisproportion must be deducted from the dividend paid out toshareholders and given to charity.
MSCI Barra will apply a “dividend adjustment factor” to allreinvested dividends. The “dividend adjustment factor” isdefined as:(total earnings – interest income) / total earnings
In this formula, total earnings are defined as gross income, andinterest income is defined as operating and non-operatinginterest. MSCI Barra will review the “dividend adjustmentfactor” on an annual basis.

© 2008. All rights reserved.

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Notice and Disclaimer
This document and all of the information contained in it, including without limitation all text, data, graphs, charts (collectively, the “Information”) is theproperty of MSCI Inc., Barra, Inc. (“Barra”), or their affiliates (including without limitation Financial Engineering Associates, Inc.) (alone or with one ormore of them, “MSCI Barra”), or their direct or indirect suppliers or any third party involved in the making or compiling of the Information (collectively,the “MSCI Barra Parties”), as applicable, and is provided for informational purposes only. The Information may not be reproduced or redisseminated inwhole or in part without prior written permission from MSCI or Barra, as applicable.

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derived from any MSCI or Barra product or data.

Historical data and analysis should not be taken as an indication or guarantee of any future performance, analysis, forecast or prediction.

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© 2008 MSCI Barra. All rights reserved.

© 2008. All rights reserved.

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© 2008. All rights reserved.

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