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Article by DailyStocks_admin    (07-11-08 07:20 AM)

MSCI INC. CEO Henry A Fernandez bought 148000 shares on 7-10-2008 at $31.67

BUSINESS OVERVIEW

Overview

We are a leading provider of investment decision support tools to investment institutions worldwide. We produce indices and risk and return portfolio analytics for use in managing investment portfolios. Our products are used by institutions investing in or trading equity, fixed income and multi-asset class instruments and portfolios around the world. Our flagship products are our international equity indices marketed under the MSCI brand and our equity portfolio analytics marketed under the Barra brand. Our products are used in many areas of the investment process, including portfolio construction and optimization, performance benchmarking and attribution, risk management and analysis, index-linked investment product creation, asset allocation, investment manager selection and investment research.

Our clients include asset owners such as pension funds, endowments, foundations, central banks and insurance companies; institutional and retail asset managers, such as managers of pension assets, mutual funds, exchange traded funds (“ETFs”), hedge funds and private wealth; and financial intermediaries such as broker-dealers, exchanges, custodians and investment consultants. As of November 30, 2007, we had a client base of over 2,900 clients across 66 countries. We had 19 offices in 15 countries to help serve our diverse client base, with approximately 53% of our revenue from clients in the Americas, 33% in Europe, the Middle East and Africa (“EMEA”), 8% in Japan and 6% in Asia-Pacific (not including Japan), based on fiscal year 2007 revenues.

Our principal sales model is to license annual, recurring subscriptions to our products for use at specified locations by a given number of users for an annual fee paid upfront. The substantial majority of our revenues comes from these annual, recurring subscriptions. Over time, as their needs evolve, our clients often add product modules, users and locations to their subscriptions, which results in an increase in our revenues per client. Additionally, a rapidly growing source of our revenues comes from clients who use our indices as the basis for index-linked investment products such as ETFs. These clients commonly pay us a license fee based on the investment product’s assets. We also generate a limited amount of our revenues from certain exchanges that use our indices as the basis for futures and options contracts and pay us a license fee based on their volume of trades.

History and Development of Our Company

MSCI Inc. was formed as a Delaware corporation in 1998. Our two shareholders were Morgan Stanley (“Morgan Stanley”) and Capital Group International, Inc. (“Capital Group International”). On December 1, 2004, we acquired Barra, Inc. On November 20, 2007, we completed an initial public offering of 16.1 million shares of our class A common stock, 2.1 million of which were purchased pursuant to the underwriters’ exercise of their over-allotment option. The net proceeds from the offering were $265.0 million after deducting $20.3 million of underwriting discounts and commissions and $4.5 million of other offering expenses.

We were a pioneer in developing the market for international equity index products and equity portfolio risk analytics tools. MSCI introduced its first equity index products in 1969 and Barra launched its first equity risk analytics products in 1975. Over the course of more than 30 years, our research organization has accumulated an in-depth understanding of the investment process worldwide. Based on this wealth of knowledge, we have created and continue to develop, enhance and refine sophisticated index construction methodologies and risk models to meet the growing, complex and diverse needs of our clients’ investment processes. Our models and methodologies are the intellectual foundation of our business and include the innovative algorithms, formulas and analytical and quantitative techniques that we use, together with market data, to produce our products. Our long history has allowed us to build extensive databases of proprietary index and risk data, as well as to accumulate valuable historical market data, which we believe would be difficult to replicate and which provide us with a substantial competitive advantage.

Our Products and Services

Our primary products consist of equity indices, equity portfolio analytics and multi-asset class portfolio analytics. We also have product offerings in the areas of fixed income portfolio analytics, hedge fund indices and risk models, and energy and commodity asset valuation analytics. Our products are generally comprised of proprietary index data, risk data and sophisticated software applications. Our index and risk data are created by applying our models and methodologies to market data. For example, we input closing stock prices and other market data into our index methodologies to calculate our index data, and we input fundamental data and other market data into our risk models to produce our risk forecasts for individual securities and portfolios of securities. Our clients can use our data together with our proprietary software applications, third-party applications or their own applications in their investment processes. Our software applications offer our clients sophisticated portfolio analytics to perform in-depth analysis of their portfolios, using our risk data, the client’s portfolio data and fundamental and market data. Our products are marketed under three leading brands. Our index products are typically branded “MSCI.” Our portfolio analytics products are typically branded “Barra.” Our energy and commodity analytics products are typically branded “FEA.”

Equity Index Products

Our MSCI-branded equity index products are designed to measure returns available to investors across a wide variety of markets ( e.g. , Europe, Japan or emerging markets), size ( e.g ., small capitalization or large capitalization), style ( e.g. , growth or value) and industries ( e.g ., banks or media). As of November 30, 2007, we calculated over 100,000 equity indices daily.

Approximately 2,150 clients worldwide subscribed to our equity index products for use in their investment portfolios and for market performance measurement and analysis in fiscal 2007. In addition to delivering our products directly to our clients, as of November 30, 2007, we also had 49 third-party financial information and analytics software providers who distribute our various equity index products worldwide. The performance of our equity indices is also frequently referenced when selecting investment managers, assigning return benchmarks in mandates, comparing performance and providing market and academic commentary. The performance of certain of our indices is reported on a daily basis in the financial media.

Our primary equity index products are:




MSCI International Equity Indices

The MSCI International Equity Indices are our flagship index products. They are designed to measure returns available to international investors across a variety of public equity markets. As of November 30, 2007, the indices included 56 country indices across developed and emerging markets, as well as various regional composite indices built from the component country indices, including the well-known MSCI EAFE (Europe, Asia-Pacific (not including Japan), and Far East), MSCI World and MSCI Emerging Markets Indices. The MSCI EAFE Index is licensed as the basis of the iShares MSCI EAFE Index Fund, the second largest exchange traded fund in the world with over $50.9 billion of assets as of November 30, 2007. In addition, the International Equity Indices include industry indices, value and growth style indices and large-, mid-, and small-capitalization size segment indices.

The MSCI International Equity Indices are the most widely used international equity indices in the industry. We continue to enhance and expand this successful product offering. Recent examples include the introduction of the MSCI Global Investable Market Indices methodology, the MSCI Global Islamic Indices and the MSCI GCC Countries Indices.




MSCI Domestic Equity Indices

The MSCI Domestic Equity Indices are designed to measure the returns available to domestic investors in the U.S., Japan and China public equity markets. In addition to offering a total market index, each of these domestic country index series includes value and growth style indices, and in the case of the U.S. and Japan, large-, mid-, small- and micro-capitalization size segment indices.




Global Industry Classification Standard (GICS)

The Global Industry Classification Standard was developed and is maintained jointly by us and Standard & Poor’s. We designed this classification system to respond to our clients’ needs for a consistent, accurate and complete framework for classifying companies into industries. The GICS has been widely accepted as an industry analysis framework for investment research, portfolio management and asset allocation. Our equity index products classify constituent securities according to the GICS.

We also offer GICS Direct, a product developed jointly with Standard & Poor’s. GICS Direct is a database of more than 36,000 active companies and 40,000 securities classified by sector, industry group, industry and sub-industry in accordance with the proprietary GICS methodology.

Equity Portfolio Analytics Products

Our Barra-branded equity portfolio analytics products assist investment professionals in analyzing and managing risks and returns for equities at both the asset and portfolio level in major equity markets worldwide. Barra equity risk models identify and analyze the factors that influence equity asset returns and risk. Our most widely used Barra equity products utilize our fundamental multi-factor equity risk model data to help our clients construct, analyze, optimize and manage equity portfolios. Our multi-factor risk models identify common factors that influence stock price movements, such as industry group and style characteristics, based on market and fundamental data. The proprietary risk data available in our products identifies an asset’s or a portfolio’s sensitivities to these common factors. Risk not attributable to the common factors is risk unique to the asset.

Approximately 800 clients worldwide subscribed to our equity portfolio analytics products in fiscal 2007. Asset owners often request Barra risk model measurements for portfolio risk and tracking error when selecting investment managers, prescribing investment restrictions and assigning investment mandates. Our clients can use our equity portfolio analytics by installing our proprietary software applications and equity risk data in their technology platforms, by accessing our software applications and risk data via the Internet, by integrating our equity risk data into their own applications or third-party applications, like FactSet, that have incorporated our equity risk data and analytics into their offerings.

Our primary equity portfolio analytics products are:




The Barra Aegis System

Barra Aegis is our flagship equity risk management and analytics system. It is a sophisticated software application for equity risk management and portfolio analysis that is powered by our proprietary equity risk data. It is deployed by the client as a desktop application. Barra Aegis is an integrated suite of equity investment analytics modules, specifically designed to help clients actively manage their equity risk against their expected returns. It also enables clients to construct optimized portfolios based on client-specified expectations and constraints.

Barra Aegis also provides a factor-based performance attribution module which allows clients to analyze realized returns relative to risk factors by sectors, styles, currencies and regions. Barra Aegis tools also help clients identify returns attributable to stock selection skills. Additionally, using Barra Aegis’ advanced automation tools, clients can back-test their portfolio construction strategies over time.




Equity Models Direct

Our Equity Models Direct product delivers our proprietary risk data to clients for integration into their own software applications. The proprietary risk data in Equity Models Direct is also available via third-party providers. Based on their investment processes, clients select the risk data that best suits their needs. We offer proprietary risk data from the following Barra risk models:

Single Country Equity Risk Models. Our single country equity risk models identify the unique set of factors most able to explain the risk of portfolios in that market. Examples include our USE3 model (i.e., U.S. equity model, version 3) which models risk for U.S. equity assets and portfolios, and our UKE7 model which models risk for United Kingdom equity assets and portfolios. Data from the USE3 equity risk model is our most commonly licensed Barra risk data.

Global Equity Model (“GEM”). Our global equity risk model utilizes factors that best explain risks associated with multiple-country equity investing.

Barra Integrated Model (“BIM”). Our integrated model provides a detailed view of risk across markets, asset classes and currencies. It begins by identifying the factors that affect the returns of equity and fixed income securities and currencies in many countries around the world. These factors are then combined into a single global model that can forecast the risk of a multi-asset class, global portfolio.

Short-Horizon Equity Models. Our short horizon equity models, designed to forecast risk over a period of one to six months, provide portfolio managers and analysts with more responsive risk forecasts. By using daily data and placing greater emphasis on recent events, the short-horizon models adapt more quickly to changing market conditions and emerging trends.

Multi-Asset Class Portfolio Analytics Products

Our multi-asset class portfolio analytics products offer a consistent risk assessment framework for managing and monitoring investments in a variety of asset classes across an organization. The products are based on proprietary fundamental multi-factor risk models, value-at-risk methodologies and asset valuation models. They enable clients to identify, monitor, report and manage potential market risks from equities, fixed income, derivatives contracts and alternative investments, and to analyze portfolios and systematically analyze risk and return across multiple asset classes. Using these tools, clients can identify the drivers of market risk across their investments, produce daily risk reports, run pre-trade analysis and optimizations, evaluate and monitor multiple asset managers and investment teams and access correlations across a group of selected portfolios.

We have two major products in this area, which differ mainly in how they are delivered to clients and in certain functionality:




The BarraOne System . Clients access BarraOne via the Internet, using their desktop browsers. This product includes modules for risk allocation and risk budgeting, Brinson-Fachler performance attribution, and historical “as-of” analysis of portfolios.




The Barra TotalRisk System . Clients install TotalRisk on their own information technology infrastructure. This product includes simulation modules that enable clients to perform historical and Monte Carlo value-at-risk calculations.

Currently, we are actively seeking to license subscriptions only to BarraOne and related risk data for multiple asset classes. Once most of the features and functionality of Barra TotalRisk have been added to BarraOne, we plan to decommission Barra TotalRisk. We are currently offering our Barra TotalRisk clients the opportunity to transition to BarraOne.

Other Products

Our other products consist of fixed income portfolio analytics products to facilitate the investment processes of fixed income investors; hedge fund indices and risk models for use by investors in hedge funds; and energy and commodity valuation asset analytics for investors, traders and hedgers in these asset classes.




The Barra Cosmos System for Fixed Income Portfolio Analytics

Barra Cosmos enables global fixed income portfolio managers to manage risk and optimize return in a multi-currency, global bond portfolio. This adaptable product integrates specific bond, derivative and currency strategies to reflect each user’s investment style, while monitoring the overall risk exposure of the portfolio. Barra Cosmos is deployed by the client as a desktop application.




Hedge Fund Indices

Our hedge fund indices are designed to provide a broad representation of the hedge fund universe, and offer a consistent and granular classification of hedge funds into strategies. These indices contain over 3,300 funds and we regularly seek to include additional funds. We also calculate investable hedge fund indices that aim to reflect the overall structure of the hedge fund universe or relevant segments of that universe, but which consist solely of funds available on an identified third-party hedge fund platform. These hedge funds have agreed with the platform provider to accept investments from, and to provide liquidity to, investment vehicles such as tracker funds that are linked to the performance of our investable hedge fund indices. In total we calculate over 190 hedge fund indices.




Hedge Fund Risk Model

Our hedge fund risk model identifies the major factors driving the returns and risks of investments in hedge funds. It provides investors in hedge funds, such as managers of funds of hedge funds, with risk forecasts and profiles of their exposures to the major sources of risk. Given the lack of transparency among hedge funds, the model utilizes historical returns rather than position level information. This model is available in our BarraOne and Barra TotalRisk software applications.




Energy and Commodity Asset Valuation Analytics Products

Our energy and commodity valuation products are software applications that offer a variety of quantitative analytics tools for valuing, modeling and hedging physical assets and derivatives across a number of market segments including energy and commodity assets. These software applications are not provided with any market data or proprietary index or risk data. These products are typically branded “FEA” and include products such as @Energy, VaRworks and StructureTool.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

We are a leading provider of investment decision support tools to investment institutions worldwide. We produce indices and risk and return portfolio analytics for use in managing investment portfolios. Our products are used by institutions investing in or trading equity, fixed income and multi-asset class instruments and portfolios around the world. Our flagship products are our international equity indices marketed under the MSCI brand and our equity portfolio analytics marketed under the Barra brand. Our products are used in many areas of the investment process, including for portfolio construction and optimization, performance benchmarking and attribution, risk management and analysis, index-linked investment product creation, asset allocation, investment manager selection and investment research.

Our clients include asset owners such as pension funds, endowments, foundations, central banks and insurance companies; institutional and retail asset managers, such as managers of pension assets, mutual funds, ETFs, hedge funds and private wealth; and financial intermediaries such as broker-dealers, exchanges, custodians and investment consultants. We have a client base of over 2,900 clients across 66 countries. As of November 30, 2007, we had 19 offices in 15 countries to help serve our diverse client base, with approximately 53% of our clients in the Americas, 33% in EMEA, 8% in Japan and 6% in Asia-Pacific (not including Japan), based on fiscal year 2007 revenues.

We sell our products through a common sales force, produce them on common data and systems platforms and develop them in our global research and product management organizations. In evaluating our results, we focus on revenues and revenue growth by product category and operating margins encompassing the entire cost structure supporting all our operations. Our current financial focus is on accelerating our revenue growth to generate cash flow to expand our market position and capitalize on the many growth opportunities before us. Our revenue growth strategy includes: (a) expanding and deepening our relationships with the large and increasing number of investment institutions worldwide; (b) developing new and enhancing existing equity product offerings, as well as further developing and growing our investment tools for multi-asset class and fixed income investment institutions; and (c) actively seeking to acquire products, technologies and companies that will enhance, complement or expand our client base and our product offerings. See “Item 1.—Business—Growth Strategy.”

To maintain and accelerate our revenue and operating income growth, we will continue to invest in and expand our operating functions and infrastructure, including new sales and client support staff and facilities in locations around the world; additional staff and supporting technology for our research and our data management and production functions; and additional personnel and supporting technology in our general and administrative functions, particularly finance and human resources personnel required to operate as a stand-alone public company. At the same time, managing and controlling our operating expenses is very important to us and a distinct part of our culture. Over time, our goal is to keep the rate of growth of our operating expenses below the rate of growth of our revenues allowing us to expand our operating margins. However, at times, because of significant market opportunities, it may be more important to us to invest in our business in order to support increased efforts to attract new clients and to develop new product offerings, rather than emphasize short-term operating margin expansion. Furthermore, in some periods our operating expense growth may exceed our operating revenue growth due to the variability of revenues from licensing our equity indices as the basis of ETFs.

We experienced growth in both revenues and expenses during fiscal years ended November 30, 2007, 2006 and 2005. Strong revenue growth continued in equity index products during all three periods. Acceleration of revenue growth in equity portfolio analytics products during fiscal 2007 resulted in part from investments made during 2006 to enhance and add features to our Barra Aegis and Equity Models Direct product offerings. Investments made in BarraOne in 2006 contributed to growth in revenues in our multi-asset class portfolio analytics products from additional subscriptions during fiscal 2007.

Our net income disclosed in this Annual Report on Form 10-K for fiscal year 2007, which is $81.1 million ($0.96 per diluted share), is lower than the net income we disclosed in our earnings release dated January 10, 2008, which was $87.1 million ($1.03 per diluted share). This reduction in net income is due to an increased income tax provision that is composed primarily of two parts. The majority reflects increased taxes for the period 1999 through 2007 as a result of a recent settlement entered into by Morgan Stanley with New York State and New York City tax authorities. As it relates to us, the settlement requires Morgan Stanley to include us in its combined New York State and City tax returns for the period 1999 through 2007. When filing as a separate taxpayer, our New York State and New York City income taxes were lower than when calculated as part of Morgan Stanley’s combined state and local income tax return over the applicable period. Consequently, we recorded an adjustment of $3.7 million for tax and interest (net of federal tax benefit) relating to tax years 1999 through 2007 to reflect the additional taxes owed. In future periods, we expect our effective tax rate to be marginally higher due to filing a combined New York State and New York City income tax return with our parent, Morgan Stanley.

The other component of the increased income tax provision is the establishment of additional tax reserves of $1.7 million related to the potential disallowance of certain Research and Experimental tax credits previously allocated to us.

Product enhancements continued throughout 2007 and included the releases of Aegis 4.1, BarraOne 1.9 and the introduction of the MSCI Global Investable Market Indices (“GIMI”) methodology.

The higher operating expenses during fiscal years 2007 and 2006 were primarily due to increased compensation and benefit expenses for existing personnel as well as an increase in compensation and benefit expenses related to staff additions that were made during the third and fourth quarters of fiscal 2006.

Key Financial Metrics and Drivers

Revenues

Our principal sales model is to license annual, recurring subscriptions to our products for use at specified locations by a given number of client users for an annual fee paid upfront. The substantial majority of our revenues come from these annual, recurring subscriptions. These fees are recorded as deferred revenues on our consolidated statement of financial condition and are recognized each month on our income statement as the service is rendered. Over time, as their needs evolve, our clients often add product modules, users and locations to their subscriptions, which results in an increase in our revenues per client. Additionally, a rapidly growing source of our revenues comes from clients who use our indices as the basis for certain index-linked investment products such as ETFs, passive mutual funds and structured products. These clients commonly pay us a license fee based on the investment product’s assets.

We group our revenues into the following four product categories:

Equity Indices

This category includes fees from MSCI equity index data subscriptions, fees based on assets in investment products linked to our equity indices, fees from one-time licenses of our equity index historical data and fees from custom MSCI indices. We also generate a limited amount of revenues based on the trading volume of futures and options contracts linked to our indices.

Clients typically subscribe to equity index data modules for use by a specified number of users at a particular location. Clients may select delivery from us or delivery via a third-party vendor. We are able to grow our revenues for data subscriptions by expanding the number of client users and their locations and the number of third-party vendors the client uses for delivery of our data modules. The increasing scope and complexity of a client’s data requirements beyond standard data modules, such as requests for historical data or customized indices, also provide opportunities for further revenue growth from an existing client.

Revenues from our index-linked investment product licenses, such as ETFs, increase or decrease as a result of changes in value of the assets in the investment products. These changes in the value of the assets in the investment products can result from equity market price changes and investment inflows and outflows. In most cases, fees for these licenses are paid quarterly in arrears and are calculated by multiplying a negotiated basis point fee times the average daily assets in the investment product for the most recent period.

Equity Portfolio Analytics

This category includes revenues from annual, recurring subscriptions to Barra Aegis and our proprietary risk data in it; Equity Models Direct products; and our proprietary equity risk data incorporated in third-party software application offerings ( e.g. , Barra on Vendors).

Barra Aegis has many uses, including portfolio risk analysis and forecasting, optimization and factor-based portfolio performance attribution. A base subscription for use in portfolio analysis typically involves a subscription to Barra Aegis and various risk data modules. A client may add portfolio performance attribution, optimization tools, process automation tools or other features to its Barra Aegis subscription. By licensing the client to receive additional software modules and risk data, or increasing the number of permitted client users or client locations, we can increase our revenues per client further.

Our Equity Models Direct risk data is distributed directly to clients who then combine it with their own software applications or upload the risk data onto third-party applications. A base subscription to our Equity Models Direct product provides equity risk data for a single country for a set fee that authorizes two users. By licensing the client to receive equity risk model data for additional countries, or increasing the number of permitted client users or client locations, we can further increase our revenues per client.

The Barra on Vendors product makes our proprietary risk data from our Equity Models Direct product available to clients via third party providers, such as FactSet Research Systems, Inc.

Multi-Asset Class Portfolio Analytics

This category includes revenues from annual, recurring subscriptions to BarraOne and Barra TotalRisk together with our proprietary risk data for multiple asset classes. Currently, we are actively selling subscriptions only to BarraOne and related risk data. Once most of the features and functionality of TotalRisk have been added to BarraOne, we plan to decommission TotalRisk. As this happens, we will offer our TotalRisk clients the opportunity to transition to BarraOne. Therefore, as this transition takes place, revenues from this product group will increasingly come from BarraOne, partially offset by declines in revenues from TotalRisk.

Other Products

This category includes revenues from a number of products, including Barra Cosmos for fixed income analytics, MSCI hedge fund indices, Barra hedge fund risk model, and FEA energy and commodity asset valuation analytics products.

Run Rate

At the end of any period, we generally have subscription and investment product license agreements in place for a large portion of our total revenues for the following 12 months. We measure the fees related to these agreements and refer to this as our “Run Rate.” The Run Rate at a particular point in time represents the forward-looking fees for the next 12 months from all subscriptions and investment product licenses we currently provide to our clients under renewable contracts assuming all contracts that come up for renewal are renewed and assuming then-current exchange rates. For any license whose fees are linked to an investment product’s assets or trading volume, the Run Rate calculation reflects an annualization of the most recent periodic fee earned under such license. The Run Rate does not include fees associated with “one-time” and other non-recurring transactions. In addition, we remove from the Run Rate the fees associated with any subscription or investment product license agreement with respect to which we have received a notice of termination or non-renewal at the time we receive such notice, even if the notice is not effective until a later date.

Because the Run Rate represents potential future fees, there is typically a delayed impact on our operating revenues from changes in our Run Rate. In addition, the actual amount of revenues we will realize over the following 12 months will differ from the Run Rate because of:




revenues associated with new subscriptions and one-time sales;




modifications, cancellations and non-renewals of existing agreements, subject to specified notice requirements;




fluctuations in asset-based fees, which may result from market movements or from investment inflows into and outflows from investment products linked to our indices;




fluctuations in fees based on trading volumes of futures and options contracts linked to our indices;




price changes;




timing differences under GAAP between when we receive fees and the realization of the related revenues; and




fluctuations in foreign exchange rates.

Results of Operations

Fiscal Year Ended November 30, 2007 Compared to Fiscal Year Ended November 30, 2006

Revenues increased $59.2 million, or 19.1%, to $369.9 million for fiscal 2007 compared to fiscal 2006, with significant percentage gains across three of our four major product categories. The increase reflects increased revenues from equity indices, equity portfolio analytics, and multi-asset class portfolio analytics. Price increases added very little to our revenue growth.

Revenues from equity indices increased $43.2 million, or 27.6%, to $200.0 million in fiscal 2007 compared to fiscal 2006. Approximately $23.9 million, or 55.3%, of the revenue increase was attributable to increases in fees based on assets of investment products linked to MSCI indices, and the balance to additional index subscriptions from existing and new clients. Growth of assets in ETFs linked to our equity indices drove the higher fees we received from assets in investment products. The majority of growth in assets under management was the result of increased investment flows into the ETFs.

Revenues from equity portfolio analytics increased $10.6 million, or 9.7%, to $120.6 million in fiscal 2007 compared to fiscal 2006. The increase was the result of strong new subscription growth for our equity risk models and related analytics products with a notable increase in demand for our proprietary equity risk data through third-party software vendors. In addition, this increase was due to significantly higher retention rates for Barra Aegis.

Revenues from multi-asset class portfolio analytics increased $6.2 million, or 36.7%, to $23.1 million in fiscal 2007 compared to fiscal 2006. The increase primarily reflects additional subscriptions to BarraOne by asset owners and fund managers with notable strength from EMEA and the Americas. The increase in BarraOne revenue was offset in part by a decline in revenues from TotalRisk due to our decision in late 2006 to stop licensing subscriptions to TotalRisk.

Revenues from other products decreased $0.9 million, or 3.2%, to $26.2 million in fiscal 2007 compared to fiscal 2006. The decrease is principally the result of the cancellation of a large fixed income index subscription at the end of first quarter 2007 and decreased revenues from MSCI hedge fund indices due to declining asset levels of investment products linked to these indices. The decrease was mitigated by strong growth in our energy and commodity valuation analytics product subscriptions marketed under the FEA brand.

Total operating expenses of $240.5 million for the fiscal year ended November 30, 2007 were $13.1 million or 5.8% higher compared to fiscal 2006. Excluding the Founders Grant expense of $0.8 million, operating expenses increased 5.4% to $239.7 million for fiscal 2007 with compensation expense increasing 10.1% and non-compensation expense remaining unchanged. For fiscal 2007, compensation and benefit expenses represented 55.8% of the total operating expenses compared to 53.2% in fiscal 2006. Excluding expenses related to the Founders Grant of $0.8 million and the $9.7 million of non-recurring items in 2006 ($9.1 million of selling, general and administrative expenses, which are discussed below), expenses for fiscal 2007 increased 10.4%, comprised of compensation and benefits costs increases of 14.9% and non-compensation expenses increases of 5.3%, compared to fiscal year 2006.

Cost of services

Cost of services increased $6.3 million, or 5.4%, to $121.7 million in fiscal 2007 compared to fiscal 2006. The majority of the increase, $3.8 million, was driven by increased personnel costs that reflected hires made in the second half of 2006 in the information technology group as well as the hiring of a Chief Operating Officer. Additional market data costs, including costs associated with introducing the GIMI methodology, rent increases from adding business continuity space in Hong Kong and London, as well as higher allocations of information technology and administrative expenses from Morgan Stanley, were the largest contributors to non-compensation expense growth. As a percentage of revenues, cost of services declined to 32.9% from 37.2%.

Selling, general and administrative

Selling, general and administrative expenses increased $6.7 million, or 7.8%, to $92.5 million in fiscal 2007 compared to fiscal 2006. This increase was mainly due to an increase in compensation and benefit expenses, which increased $9.3 million, or 19.1%, due to the hiring of additional employees in the second half of 2006, and increased compensation and benefit costs for existing personnel. Overall, non-compensation expenses decreased year over year by $2.6 million, or 7.0%.

Fiscal 2006 included a number of expense items not repeated in fiscal 2007 which totaled $9.1 million. These non-recurring expenses included accrued stock based compensation expense for equity awards for retirement eligible employees, recruitment fees associated with senior staff additions and acquisition related costs. Excluding these $9.1 million of non-recurring items in 2006, expenses for fiscal 2007 increased by 20.5% compared to fiscal 2006. This increase included a 30.7% increase in compensation and benefit expenses and a 6.8% increase in non-compensation expenses. The increase in compensation and benefit expenses was driven by the full year cost in fiscal 2007 related to staff hires made in the second half of 2006 and increased compensation and benefit costs for existing personnel. Increases in non-compensation costs for fiscal 2007 were due to an increase in the allocation of general and administrative expenses from Morgan Stanley and travel expenses incurred as a result of the growth of our sales organization.

As a percentage of revenues, selling, general and administrative expenses declined to 25.0% from 27.6%.

Amortization of intangible assets

Amortization expense increased $0.2 million, or 0.8%, to $26.4 million in fiscal 2007 compared to fiscal 2006. As a percentage of revenues, amortization expense declined to 7.1% from 8.4%.

Interest and other income, net

Interest and other income, net decreased 75.6% to $3.9 million for fiscal year 2007. The net decrease was the result of an increase in gross interest expense and a reduction of gross interest income. Gross interest income decreased as a result of holding substantially lower cash balances resulting from the payment of the $973 million dividend to Morgan Stanley and Capital Group International. We experienced higher gross interest expense on account of interest due on the demand note issued to Morgan Stanley in July 2007 and, following repayment of the demand note, on borrowings of $425.0 million under the Credit Facility we entered into simultaneously with the completion of our initial public offering. See “—Liquidity and Capital Resources” below.

Provision for income taxes

Our provision for income taxes increased $16.1 million, or 44.6%, to $52.2 million for fiscal 2007. The effective tax rate for fiscal 2007 increased to 39.1% from 36.3% in fiscal 2006. The increase reflects higher taxable earnings and two significant adjustments to the tax provision.

As a result of a recent settlement entered into by Morgan Stanley with New York State and New York City tax authorities, we will now be included in the combined New York State and New York City income tax returns of Morgan Stanley, and have increased taxes, for the period 1999 through 2007. When filing as a separate taxpayer, our New York State and New York City income taxes were lower than when calculated as part of Morgan Stanley’s combined state and local income tax return over the applicable period. Consequently, we recorded an adjustment of $3.7 million for tax and interest (net of federal tax benefit) relating to tax years 1999 through 2007 to reflect the additional taxes owed.

The other component of the increased income tax provision is the establishment of additional tax reserves of $1.7 million related to the potential disallowance of certain Research and Experimental tax credits previously allocated to us.

So long as MSCI is included in the consolidated federal income tax return of Morgan Stanley and in returns filed by Morgan Stanley with certain state and foreign taxing jurisdictions, our tax liability will reflect amounts due as outlined under our tax sharing agreement dated November 20, 2007 with Morgan Stanley.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations

Three Months Ended May 31, 2008 Compared to the Three Months Ended May 31, 2007

Operating Revenues

We group our revenues into the following four product categories:




Equity indices




Equity portfolio analytics




Multi-asset class portfolio analytics




Other products

Total operating revenues for the three months ended May 31, 2008 increased $19.4 million, or 21.9%, to $108.2 million compared to $88.8 million for the three months ended May 31, 2007. This growth was driven by an increase in our revenues related to index and analytics subscriptions and equity index asset based fees, which were up 21.3% and 25.0%, respectively in the three months ended May 31, 2008. Revenue growth was 3.1% for the three months ended May 31, 2008 compared to the three months ended February 29, 2008.

Equity Indices: Revenues from equity indices includes fees from MSCI equity index data subscriptions, fees based on assets in investment products linked to our equity indices, fees from one-time licenses of our equity index historical data, fees from custom MSCI indices and, to a lesser extent, revenues based on the trading volume of futures and options contracts linked to our indices.

Revenues related to equity indices increased 25.7% to $60.1 million in second quarter 2008 compared to $47.8 million in the same period in 2007 and increased 2.9% compared to first quarter 2008. Revenues from equity index subscriptions were up 26.0% to $41.8 million in second quarter 2008 from $33.2 million in the same period in 2007, reflecting growth in subscriptions to our MSCI Global Investable Market Indices, with particular strength in subscriptions to our core and small cap developed market and emerging market indices as well as strong sales of historical index data. We experienced growth across all client types led by asset managers, typically our largest client category.

Revenues attributable to equity index asset based fees increased 25.0% to $18.3 million in second quarter 2008 from $14.6 million in the same period in 2007 led by growth in our ETF asset based fee revenues. The average value of assets in ETFs linked to MSCI equity indices was $184.4 billion for second quarter 2008 compared to $140.8 billion for second quarter 2007. As of May 31, 2008, the value of assets in ETFs linked to MSCI equity indices was $199.6 billion, representing an increase of $49.4 billion, or 32.9%, from $150.2 billion as of May 31, 2007. Approximately 90% of the year-over-year growth in value of assets in ETFs linked to MSCI equity indices was attributable to net asset inflows and 10% was attributable to net asset appreciation.

Compared to first quarter 2008, equity index asset based fee revenues declined 6.5% as a result of the declines in non-ETF asset based revenues. These non-ETF asset based revenues include fees from passive mutual funds, futures and options, and other structured products.

Our ETF asset based revenues were flat in second quarter 2008 compared to first quarter 2008. The average value of assets in ETFs linked to MSCI equity indices was $184.4 billion for second quarter 2008 compared to $183.2 billion for first quarter 2008. As of May 31, 2008, the value of assets in ETFs linked to MSCI equity indices was $199.6 billion representing an increase of 11.4%, or $20.4 billion, from $179.2 billion as of February 29, 2008. The $20.4 billion increase was attributable to asset inflows of $10.5 billion and asset appreciation of $9.9 billion. The majority of the $10.5 billion of asset inflows came from established ETFs; however, ETFs introduced over the last twelve months also contributed to the inflows. The value of assets in ETFs linked to MSCI indices decreased $22.8 billion from $199.6 billion as of May 31, 2008 to $176.8 billion as of June 30, 2008, primarily as a result of market depreciation.

The three MSCI indices with the largest amount of ETF assets linked to them as of May 31, 2008 were the MSCI EAFE, Emerging Markets and Japan Indices. The assets linked to these indices were $49.0 billion, $40.6 billion and $11.2 billion in assets, respectively.

The following table sets forth the value of assets in ETFs linked to MSCI indices and the sequential change of such assets as of the dates indicated:

quity Portfolio Analytics: Revenues for equity portfolio analytics include annual recurring subscriptions to Barra Aegis and our proprietary risk data, Equity Models Direct products and our proprietary equity risk data incorporated in third-party software application offerings (Barra on Vendors).

Revenues related to equity portfolio analytics products increased 12.2% to $33.9 million in second quarter 2008 compared to $30.2 million in the same period in 2007 and increased 4.8% compared to the first quarter 2008. The year-over-year increase reflects continued new subscriptions of our proprietary equity risk data accessed through our Equity Models Direct and Barra on Vendors products. Overall growth reflects an increase in demand for our tools used in managing equity portfolio risk and enhancing equity trading strategies; however, we did experience an increase in cancellations from the closing of quantitative portfolio management teams at several of our clients during the quarter.

Multi-Asset Class Portfolio Analytics : Revenues for multi-asset class portfolio analytics include revenues from recurring subscriptions to BarraOne and Barra TotalRisk and for our proprietary risk data for multiple asset classes. Revenues related to multi-asset class portfolio analytics increased 94.6% to $8.6 million in second quarter 2008 compared to $4.4 million in the same period in 2007 and increased 8.9% compared to the first quarter 2008. The year-over-year increase is primarily attributable to revenue growth from BarraOne due primarily to strong demand from asset managers and asset owners for our risk management application used for internal risk reporting and compliance reporting. We also benefited from licensing to existing clients our performance attribution module which was launched in first quarter 2008. We are in the process of decommissioning our client-hosted product, TotalRisk, and are providing clients the opportunity to transition to our web-based BarraOne product.

Other Products: The other products category includes revenues from Barra Cosmos for fixed income analytics, MSCI hedge fund indices and FEA energy and commodity asset valuation analytics products.

Revenues from the other products category decreased 11.3% to $5.6 million in second quarter 2008 compared to the same period in 2007. The decline reflects a decrease in revenues of 66.8% to $0.5 million of asset based fees from investment products linked to MSCI hedge fund indices and a decrease in revenues of 19.8% to $1.8 million for fixed income analytics which was partially offset by a 28.2% increase to $3.3 million for our energy and commodity analytics products. The decline in hedge fund indices revenues reflects the decline in the values of assets in investment products linked to our hedge fund indices, which is attributable to market depreciation and investor withdrawals. We anticipate this trend to continue for the near future.

Run Rate

At the end of any period, we generally have subscription and investment product license agreements in place for a large portion of our total revenues for the following 12 months. We measure the fees related to these agreements and refer to this as our “Run Rate.” The Run Rate at a particular point in time represents the forward-looking fees for the next 12 months from all subscriptions and investment product licenses we currently provide to our clients under renewable contracts assuming all contracts that come up for renewal are renewed and assuming then-current exchange rates. For any license whose fees are linked to an investment product’s assets or trading volume, the Run Rate calculation reflects an annualization of the most recent periodic fee earned under such license. The Run Rate does not include fees associated with “one-time” and other non-recurring transactions. In addition, we remove from the Run Rate the fees associated with any subscription or investment product license agreement with respect to which we have received a notice of termination or non-renewal at the time we receive such notice, even if the notice is not effective until a later date.

Because the Run Rate represents potential future fees, there is typically a delayed impact on our operating revenues from changes in our Run Rate. In addition, the actual amount of revenues we will realize over the following 12 months will differ from the Run Rate because of:




revenues associated with new subscriptions and one-time sales;




modifications, cancellations and non-renewals of existing agreements, subject to specified notice requirements;




fluctuations in asset-based fees, which may result from market movements or from investment inflows into and outflows from investment products linked to our indices;




price changes;




timing differences under GAAP between when we receive fees and the realization of the related revenues; and




fluctuations in foreign exchange rates.

CONF CALL

Michael Neborak

Thank you, operator. Good morning and thank you for joining us for our first quarter 2008 earnings call. Please note that earlier this morning the company issued a press release describing its results for the first quarter 2008. A copy of that release can be viewed on the company’s website at mscibarra.com, under Investor Relations.

This presentation may contain forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made, which reflect management’s current estimates, projections, expectations or beliefs and which are subject to risks and uncertainties that may cause actual results to differ materially.

For a discussion of additional risks and uncertainties that may affect the future results of the company, please see Forward-Looking Statements in our 10-K dated February 28, 2008, and filed with the Securities and Exchange Commission.

Today’s earnings call may also include discussion of certain non-GAAP financial measures. Please refer to today’s earnings release for the required reconciliation of the non-GAAP financial measures for the most directly comparable GAAP financial measures and other related disclosures.

Since we will be referring to run rate frequently in our discussion this morning, let me remind you that our run rate at a given point in time represents the forward-looking fees for all subscriptions and product licenses that we will record over the next 12 months, assuming no cancellations and no new sales.

The run rate is a good indicator of future accounting revenue. Please refer to Tables 2A and 2B in our press release for a detailed explanation.

The agenda for today’s call is as follows: first, Henry will summarize the first quarter and provide an update on our major initiatives. Second, I’ll review the first quarter financial results. Following our formal remarks, we’ll open the call up for questions.

With that, let me turn the call over to Henry.

Henry Fernandez

Thank you, Mike. Before I review our first quarter results, let me refer you to our press release we issued this morning as well.

We announced that we intend to file shortly a registration statement on Form S-1 with the U.S. Securities and Exchange Commission for the sale by Morgan Stanley of up to $28 million shares of MSCI Class A common stock par value of $0.01 per share or up to 28% of its economic interest in MSCI.

Morgan Stanley currently has an 81% economic interest in MSCI. The proposed offering is consistent with Morgan Stanley’s previous indication that it might sell a portion of its ownership interest in MSCI and that it may ultimately divest its entire interest in MSCI.

This announcement is neither an offer to sell nor a solicitation of an offer to buy shares of Class A common stock. Any offering of these securities will be made only by means of a prospectus and a related prospectus supplement. Due to securities regulations, we will not be able to make further comments about this announcement.

Now on to our first quarter financial performance. In my remarks, when I discuss top line numbers, I will be referring only to run rate figures while Mike in his presentation will focus on accounting figures for revenues.

I should also point out that while some of the numbers I will refer to can be found in table 2A of the Earnings Release, I will also make references to run rates not included in the release, particularly those related to our client segment.

We started fiscal 2008 with a very strong first quarter. Operating revenues increased 20.5% in the first quarter compared to the year ago period. Adjusted EBITDA increased 29.4% and our adjusted EBITDA margin reached almost 45%.

The strength was, again, broad based across broad categories, geographic regions and client types. Even more impressive and pleasing to us is the fact that we are able to produce record revenues and very strong adjusted EBITDA growth in the context of lower growth in our ETF fees as a result of declines in equity values worldwide and increased volatility.

Our first quarter performance also highlights continued strong demand for our performance measurement and portfolio risk management tools among new and existing clients worldwide.

This demand is evident in the year-over-year growth of 22% in the run rate for our subscription based fees. We also experienced close to 30% growth from the run rate in our asset based fees. And, while the latter run rate declined compared to the end of the fiscal 2007 year we remain very excited about the secular growth prospect for revenues from exchange traded fund fees.

In terms of the outlook, we remain very comfortable that our revenue and EBITDA over time will be in line with our financial target; namely, revenue growth in the mid teens and adjusted EBITDA margin in the low 40s.

That said, in any given quarter, we estimate that our level of profitability will fall within a range of 40% to 50% depending on the rate of revenue growth, particularly by our high margin exchange traded fund fees and depending on the pace of investments in important initiatives for continued growth, and in nearer term duplicate costs we are incurring as we replace services currently provided to us by Morgan Stanley.

Now let me provide you a bit more color on our first quarter results. Please note that the run rate growth figures that I will refer to represent the percentage change from the run rate as of February 29, 2008 compared to the run rate as of February 29, 2007, unless otherwise specified.

Overall, our current run rate increased 23.4% to $413.3 million, with an increase of 22% in our index and analytics subscription based fees and almost 30% in our asset based fees.

In terms of product categories, the run rate in equity indices increased 28.4% to $227.5 million. The break down within equity indices, our equity index subscription fees had one of the best quarters ever. Our run rate grew 21.4% to $154.1 million, reflecting strong growth in data subscriptions worldwide.

We continue to benefit from the enhancements made to our international equity indices with the launch of GIMI, our Global Investable Market Indices. Growth in subscriptions for our Small Cap series was also particularly strong. New indices launched in Q1 include frontier markets and Asia APEX 50, which will add to revenues over time.

For our equity index asset-based fees, the run rate increased 38.5% to $73.4 million, with the vast majority of the increase due to asset inflows into ETFs linked to MSCI indices.

This performance, while strong, represents a decline in the run rate compared to the end of the fourth quarter of 2007. Michael will go through ETF numbers in detail. Asset inflows remain positive and new ETFs linked to MSCI indices continue to be introduced into the market.

However the benefit from this trend has not been able to offset the impact from declines in a number of equity markets. Importantly though, we maintain our global market shares in ETFs linked to our indices in the mid-20s.

In addition, unlike most of our competitors, we have over 30 ETFs with over $1 billion in assets which underscores the breadth and the depth of the ETF link to MSCI equity indices. We remain very positive about the outlook for ETFs given the very attractive attributes of this investment vehicle worldwide.

In terms of new ETFs, 13 of them linked to MSCI equity indices were launched in the first quarter of 2008 compared to 29 for all of fiscal 2007 and our pipeline remains very strong. Please note it will take some time for these new products to contribute meaningfully to revenue growth.

In Equity Portfolio Analytics, we also had one of our best quarters ever, with run rate growth of 17.7% to $131.3 million. This performance was led by a 48% increase in the subscription base of our equity risk content, which includes sales of our equity risk data to clients who incorporate it into their own internal system and restate of sales through third party vendors such as FactSet.

Demand was strong for equity risk content from clients in most regions of the world. This strength was evident in strong gross new sales as well as higher retention rate for equity risk content.

The growth in Barra Aegis slowed moderately to 8% from the 9% reported for the fourth quarter. Sales for Barra Aegis were a bit softer, largely reflecting the deferral of sales as clients await the launch of GEM-2 for our new and enhanced global equity risk model. We expect GEM-2 to be launched in the second half of this fiscal year.

The run rate for our Multi-Asset Class Analytics increased 35.4% to $31.7 million. The run rate for BarraOne within the Multi-Asset Class category increased 57.6% to $19.2 million, reflecting our efforts to increase new sales through product enhancement.

The growth in BarraOne is mitigated by the impact of our decision at the end of 2006 to stop licensing TotalRisk, our older multi-asset class analytic system. Please also note that sales in BarraOne tend to be uneven throughout the year, resulting in variability in our quarterly performance.

The run rate of BarraOne compared to the end of fiscal fourth quarter of 2007, increased only 3.4% as an example of that variability. That said, we continue to see strong demand from both asset owners, and investment managers worldwide and we expect this trend to continue as we expand BarraOne analytical functionality and asset class coverage.

In first quarter 2008, we launched historical value at risk and performance attributions tools within BarraOne which should contribute to revenues in the coming quarters.

The run rate for our other products increased 15.8% to $18.4 million. With strong growth in our energy and commodity valuation analytics, which was mitigated by declines in fees from our hedge fund indices.

Let me now give you more color on our client segment. On a run rate basis we experienced good growth across all client types, reflecting growth from both new and existing clients worldwide.

Approximately 18% of our gross sales, excluding asset based fee clients, during the quarter came from new clients. This was on par with what we experienced for all of fiscal 2007.

In first quarter 2008 compared to fourth quarter 2007, we added 54 net new clients for a total of 2,980 clients worldwide, this count excluding again our asset based fee clients. We added new clients in virtually all product categories, geographic regions and client types.

Our run rate for asset managers increased 21.2% to $283.3 million. We experienced strong double digit growth across all regions with asset managers. As you know, asset managers is our largest client category by a significant margin, accounting for 68% of our total run rate.

We continue to make inroads with hedge fund clients as evidenced by the 47.9% increase in the run rate to $20.7 million for this category, particularly with our equity risk content products.

We also see hedge funds increasing subscriptions to our equity indices for back testing purposes. We expect to bolster our focus on hedge funds with the opening of our new Stamford, Connecticut office in the third quarter of this year.

Growth in our run rate for asset owners, primarily pension funds, accelerated to 26% to $19 million reflecting good growth for our equity indices, Equity Portfolio Analytics, and Multi-Asset Class Analytics, pretty much across the board of all our major product categories.

The run rate growth for broker dealers also accelerated in the first quarter of this year, increasing 27.6% to $40 million and compared to 11.4% in the fourth quarter of 2007.

We continue to see good demand for equity risk content and equity index linked products from broker dealers. However, as we have noted previously, this client segment can be volatile, and it is relatively small for us, accounting for approximately 10% of our run rate.

Now let me turn my attention to the balance of 2008. In fiscal 2008 we remain focused on our three major client initiatives. This includes, first, growing our revenue base from asset managers through up selling and cross selling all of our products and bringing in new clients.

Secondly, increasing our penetration among hedge funds, particularly equity long/short hedge funds by focusing on sales of Equity Portfolio Analytics; and third, increasing our revenues from asset owners primarily pension funds by selling subscriptions to our multi asset class portfolio analytics as we expand our asset class coverage.

In terms of new product development in the balance of 2008 for equity index asset-based fees, we expect to see new licensing agreements for our indices as new ETFs are launched.

So far, in fiscal 2008, there were 18 new ETFs linked to our equity indices. While these will contribute moderately to revenues in the near term, they highlight investor demand for these investment vehicles linked to MSCI equity indices, and reaffirm our excitement about this secular growth prospects for ETFs and the revenue opportunities for us from licensing our indices as the basis for these new ETFs.

In addition, asset in-flows to existing ETFs should help drive revenue growth for us in 2008. However, it is difficult to predict the impact of financial market conditions on the asset levels in existing ETFs.

In terms of product development on equity index subscription side, we remain very focused on sales of our Global Investable Market Indices, as well as the recent index launches, including the MSCI from peer market indices, and the APEX Asia 50 index.

In particular, our new frontier market indices have shown good signs in the marketplace since their launch early in the first quarter. The launch of short and leveraged indices is also on track for the second quarter.

In Equity Portfolio Analytics, we plan to release GEM-2, our enhanced global equity risk model, in the third fiscal quarter, which should contribute to sales of Barra Aegis. As I mentioned earlier, we have seen some deferrals of sales of Barra Aegis as clients await the introduction of GEM-2.

GEM-2 will be a significant release of a new version of our global risk models, which is one of our most broadly used equity models. We will be releasing a long horizon and short horizon versions of this model.

In addition, we plan to release Barra Aegis 4.2 to be able to accommodate the new GEM-2. In multi asset class portfolio analytics, we delivered BarraOne 3.0 and the performance attribution model in the first quarter.

We have seen very strong interest in this performance attribution module, particularly from our AMEA clients. We also do continue to expect to launch additional functionality this year including Barra back-testing, Monte Carlo Barra and new derivative coverage.

In addition, we’re continuing to transition clients to BarraOne from total risk. With respect to expenses in 2008, let me make a few comments. We expect to incur initial setup costs as well as duplicate costs related to the ongoing separation of certain administrative functions from Morgan Stanley.

Throughout this separation process, we will remain very disciplined in our approach to investment spending and overall expense management, and therefore are confident that we will maintain an adjusted EBITDA margin in line with our target of low 40s.

One of the ways in which we plan to manage our expenses is by taking advantage of low cost centers around the world. We are a global company with many offices around the world, and we have years of experience operating in various regions of the world.

We should be able to capitalize on this skill set and knowledge base by expanding our operations into locations outside of major financial centers, and therefore work costs are lower.

After this period of transition, we will expand our investment program given the many opportunities we see for profitable growth of our business. In sum, we are very pleased with our first quarter results, as a public company, and we are off to a very strong start in fiscal 2008.

I will now turn it over to Mike for a more detailed review of our first quarter financial performance.

Michael Neborak

Thank you, Henry. I’m going to describe in more detail our financial performance. Please note that, unless otherwise specified, numbers and percent change figures represent the comparison between first quarter 2008 and first quarter 2007.

First, our operating revenues. For the first quarter 2008, operating revenues increased 20.5% to $105 million. We saw good growth in both our subscription and asset-based fee revenues, which were up 15.3% and 50%, respectively.

The first quarter was among the best quarters ever for revenue growth in our subscription-based fee business. Subscription-based fees represent approximately 80% of our run rate. On a sequential basis, revenue growth was 3.2% and negatively impacted by lower growth in revenues from ETF fees.

Now let me talk a little bit about revenue performance by product. Our largest product category is equity indices, representing 56% of first quarter revenues. Revenues related to this category increased 26.4% to $58.4 million compared to first quarter 2007.

Within equity indices, we have two categories: equity index subscriptions and equity index asset based fees. For equity index subscriptions, we were up 17.1% to $38.8 million.

As you may recall, this product category includes fees from MSCI equity index data subscriptions, fees from one-time licenses of our equity index historical data, and fees from custom MSCI indices.

We continue to see strong client adoption of GIMI, with notable success of our enhanced Small Cap index series. In addition, sales from custom indices continue to be strong.

Revenues attributable to the equity asset-based fee products increased 50.1% to $19.6 million in the first quarter of 2008, compared to the same period in 2007.

On a sequential basis, the revenue growth for equity index asset-based fee products was 4.9% because of declines in equity markets worldwide and increased volatility.

While we continue to introduce new ETFs into the market, the asset values linked to existing ETFs have been negatively impacted by these declines in equity markets around the world.

Equity index asset-based fee growth in Q1 2008 versus Q1 2007 was primarily driven by higher AUM and ETFs linked to MSCI indices. Approximately 97% of the increase in AUM compared with a year ago is attributable to asset inflows, and 3% attributable to asset appreciation.

More specifically, assets in ETFs linked to MSCI equity indices increased $43.8 billion, or 32.4%, to $179.2 billion as of February 29, 2008, compared to February 28, 2007. However, on a sequential basis, assets in ETFs linked to MSCI equity indices decreased $12.5 billion, or 6.5%, from $191.7 billion as of November 30, 2007.

As you can see in Table 2B in our press release, the run rate for equity index asset-based fees declined from year end. Importantly however, we continued to see positive asset inflows during the first quarter.

Of the $12.5-billion decrease from November 30, 2007, $15.2 billion was attributable to asset depreciation, which was partially offset by an increase of approximately $2.7 billion in value of such assets from asset inflows.

A majority of the $2.7 billion increase came from new ETFs launched during the last 12 months. It is also worth noting that the outflows were largely contained to domestic U.S. ETFs.

With the exception of Japan, we saw positive inflows for our international ETFs. Said another way, our flagship ETFs remain well positioned to benefit from a financial market upswing.

Our second largest major product category is Equity Portfolio Analytics, 31% of first quarter revenues. Revenues for this category increased 10.1% to $32.3 million in the first quarter of 2008.

I want to remind people again this product category includes Barra Aegis, our proprietary equity risk data and software, Models Direct, which is our risk data that clients can access through their own software, and BarraOne vendors, our risk data, which clients access through third party vendors.

First quarter revenue growth was particularly strong in our proprietary equity risk data access for our Equity Models Direct and BarraOne vendor products. This growth reflects an increase in the demand for our tools that aid clients in managing risk, developing quantitative portfolio management expertise and enhancing their equity trading strategies.

Barra Aegis also contributed to revenue growth, although to a lesser extent than our Equity Models Direct and BarraOne vendor products.

Revenues for Multi-Asset Class Portfolio Analytics, which represented just under 8% of first quarter revenues, increased 84.3% to $7.9 million. This product category includes our BarraOne and Barra TotalRisk products which provide risk data and performance attribution for multiple asset classes.

The increase is largely attributable to strong new subscriptions to BarraOne. Although on a sequential basis, Multi-Asset Class Analytics revenues increased only 2.5%, we continued to see strong demand from asset owners and asset managers, and we expect this trend to continue as we expand our asset class coverage.

As Henry mentioned, we launched historical value at risk and performance attribution tools within BarraOne during the first quarter. These enhancements should continue to contribute to revenue growth in the coming quarters.

Revenues from other products category, 6% of first quarter revenues decreased 12.5%, $6.3 million. This category includes FEA, energy and commodity asset valuation analytics and MSCI hedge fund indices.

Revenue growth from FEA was strong. However, FEA growth was offset by the large cancellation of a fixed income subscription at the end of the first quarter 2007 and decreased revenues from MSCI hedge fund indices due to declining asset levels.

So that’s an overview of the revenue picture. I’m going to now talk about expenses. Operating expenses increased 22.2% to $70.3 million in the first quarter of 2008.

The large increase is primarily due to three factors: Founders Grant expenses; set up and duplicate costs related to ongoing separation of certain administration functions from Morgan Stanley and public company costs.

If we exclude Founders Grant expense of $4.8 million, operating expenses increased by 13.9% to $65.5 million.

If we take this one step further and strip out transition costs related to our eventual separation form Morgan Stanley Services, public company costs and in the first quarter of 2007 there were a number of unusual items − there was a bad debt provision reversal and there was some unusual severance.

If you look at it after stripping that out, our core operating expenses were up approximately 5% first quarter 2008 versus first quarter 2007. I provide this figure to give you a better sense really of what the underlying trend in our expense growth is.

And the reason for the relatively modest increase in expenses is largely from the following:

Our head count was little bit lower at the end of February 2008 versus February 2007, head count was down 5.

More importantly, we had a movement of personnel to low cost centers and I’ll review that in a minute;

And finally, in general our disciplined approach to cost management, which is particularly heightened as we incurred duplicate expenses during this transition from Morgan Stanley Services, resulted in this expense growth figure.

So let me provide a little context around our expansion into low cost centers. At the end of the quarter, the number of full time employees was 652, which as I said represents a decline of 5 from the 657 that we had at February 28, 2007.

The decline in full time employees of 5 from February 28, 2007 was composed of a decline of 55 people in Berkeley, London and New York in aggregate and an increase of 39 people in Budapest and Mumbai in aggregate and an increase of 11 across other locations.

Please note that we will continue incurring initial setup costs and duplicate expenses until we take over those services now provided by Morgan Stanley. And also, please refer to the text in Table 6 in our press release for further detail on expense trends, within costs of services and SG&A.

We had interest expense of $6 million in the first quarter of 2008 compared to interest income of $5 million in first quarter of 2007.

The $10.9 million decrease was the result of an increase in interest expense and a reduction of interest income. Interest income decreased from holding substantially lower cash balances and we experienced higher interest expense because of interest due on term loan borrowings of $425 million under our credit facility.

Our effective tax rate increased modestly to 37.6% from 37.4% reflecting higher state and local income taxes.

Before I discuss net income and EPS, I would like to summarize a couple of things: one, the Founders Grant expense, changes in our capital structure and our initial public offering in terms of the additional shares being outstanding, impact the comparability of first quarter 2008 with first quarter 2007.

We incurred Founders Grant expense of $4.8 million pre-tax in the first quarter of 2008 versus $0 in the first quarter of 2007. As of February 29, 2008, we had borrowings of $419.4 million outstanding under our credit facility.

As of February 28, 2007, there was no debt outstanding and we held cash of $366 million. Consequently we recorded interest expense of $6 million in the first quarter of 2008 compared to interest income of $5 million in the first quarter of 2007.

Weighted average common shares outstanding for the first quarter of 2008, includes 16.1 million shares issued in our IPO while the first quarter of 2007 does not.

So, let me go into net income now. In the first quarter 2008, our net income declined 17.1% to $17.9 million from the first quarter of 2007. As I mentioned, the decline primarily reflects Founders Grant expense, higher interest expense and lower interest income, offset in part by improvement in operating income.

Our diluted EPS for the first quarter 2008 was $0.18 per share, a decline of 31% from the first quarter of 2007. So, in addition to the items I just mentioned, we had a higher number of diluted shares outstanding in the first quarter of 2008 compared to the first quarter of 2007 due to the additional common shares issued in conjunction with our November 2007 IPO.

Because of these changes in our capital structure and Founders Grant expense, we focus on adjusted EBITDA in order to really understand and monitor the progress of our business. The year-over-year comparison for adjusted EBITDA is not skewed by changes in our capital structures and the Founders Grant.

So, when you look at adjusted EBITDA, adjusted EBITDA increased 29.4% to $47.1 million for the first quarter of 2008 compared to the first quarter of 2007. I want to refer everybody to Table 8 in our press release for the reconciliation of adjusted EBITDA and net income.

The adjusted EBITDA margin expanded to 44.9% in the first quarter of 2008 from 41.8% in the first quarter of 2007. This increase reflects the operating leverage in the business which really results from strong revenue growth across most of our product categories, including the higher margin ETF products and disciplined cost management.

On a sequential basis, adjusted EBITDA declined $1.6 million or 3.3% due to public company costs and setup costs related from the eventual transition of services now provided by Morgan Stanley.

Fully diluted cash EPS decreased 17.3% to $0.25 in the first quarter of 2008 from $0.30 in the first quarter of 2007. We calculate cash earnings by taking net income and adding back the after tax impact from amortization of intangibles and Founders Grant expenses.

The decline in diluted cash EPS is due to interest expense and the additional shares outstanding in the first quarter 2008 versus the first quarter of 2007.

Now, let me discuss some of the metrics we use to evaluate our business. These metrics are disclosed in Tables 2A and 2B of the release. Table 2A shows the year-over-year comparison and Table B shows the sequential comparison. My discussion will focus on the year-over-year comparison.

The sequential analysis is also important because it highlights more recent trends in the business, but bear in mind, however, there is some seasonality in our business which may impact sequential trends.

Henry spoke about our run rate, so let me focus on the other key metrics.

In terms of client count, we added 54 net new clients during the first quarter of 2008 bringing the total net new clients for the 12-month period ended February 29, 2008, to 211 net new clients. We added clients across all major product categories. We added asset managers and owners, broker dealers and hedge funds.

So at the end of the first quarter 2008, we ended with 2,980 clients, excluding asset based fee clients. Our retention rate increased to 97% for the first quarter of 2008 from 95% for the first quarter of 2007 with retention rate increases in most product categories.

Retention rate in the first quarter of 2007, I want to point out, was negatively impacted by the cancellation of a large fixed-income index subscription. Excluding this cancellation, the retention rate in Q1 2007 was 96%.

Also I’d like to point out the retention rates are generally higher during the first three fiscal quarters and lower in the fourth quarter. In recent years we’ve observed, on average, that approximately 40% of our full-year subscription cancellations have occurred in the fourth quarter.

I want to remind everybody again what retention rate is. Our retention rate for any period represents a percentage of subscription run rate as of the beginning of the period that is not cancelled during the period.

If a client switches between our products, we treat it as a cancellation. Retention rates for non-annual periods are annualized. Please refer again to Tables 2A and 2B in the press release for a more detailed explanation.

While we don’t provide quarterly guidance, there are a couple of items I want to point out to assist you in your analysis; the first being, if the level of assets in ETFs licensed to our indices remains at current levels, the year-over-year growth for equity asset-based fees will be increasingly compressed as the year progresses.

Table 3 shows the quarterly progression of assets in ETFs licensed to our indices and highlights this dynamic. We expect to incur public company expenses of $5 million to $6 million in fiscal 2008.

We expect expense increases from initial setup costs and overlaps with Morgan Stanley Services to continue until we can perform those services on our own.

As in the first quarter of 2008 we will have net interest expense in the second quarter of 2008 versus net interest income in the second quarter of 2007.

At the end of February 2008 we swapped 60% of our floating rate debt into fixed-rate debt with an effective interest rate of 5.65%. Approximately $250 million of our debt is now fixed at 5.65% for the next three years, and the remaining 40%, or about $165 million, is floating at LIBOR plus 275 basis points.

We think as a result of this, our blended interest rate for the second quarter will be approximately 5.75%. And as in Q1 2008 we will have a full quarter of Founders Grant amortization expense versus none in Q2 2007.

Finally, capital expenditures this year should total approximately $15 million to $20 million, which is a large increase over the historical amount that we have experienced, and the reason for this increase during 2008 is associated with purchasing and implementing new financial information technology and human resources systems related to our eventual separation from Morgan Stanley.

I will now turn it over to Henry for some closing remarks. We will then take questions.

Henry Fernandez

Thanks, Mike. In closing, let me emphasize that the strong financial performance that we are reporting for the first quarter, as well as that for the fourth quarter of last year, is attributable to the very attractive financial characteristics of our business model.

Secondly, the breadth and the depth of our products, and then thirdly, the diversity of our revenue stream across all categories, regions of the world and client type. We remain committed to profitably growing our business and building shareholder value in the quarters and years to come.

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