Index Methodology MSCI Index Calculation Methodology Index Calculation Methodology for the MSCI Equity Indices August 2012 msci.com Index Methodology MSCI Index Calculation Methodology August 2012 Contents Contents ..................................................................................... 2 Introduction ............................................................................... 5 MSCI Equity Indices .................................................................... 6 Section 1: MSCI Price Index Methodology ................................ 7 1.1. Price Index Level ............................................................................................... 7 1.1.1. Index Market Capitalization ...................................................................... 7 1.1.2. Example of calculation ............................................................................ 10 1.2. Price Index Level (Alternative Calculation Formula – Contribution Method) .................................................................................................................... 11 1.2.1. Security Contribution to the Index ......................................................... 11 1.2.2. Today’s Initial Security Weight ................................................................ 11 1.2.3. Security Daily Price Return ....................................................................... 13 1.2.4. Example of calculation using contribution ............................................ 15 1.3. Next Day Initial Security Weight ................................................................ 16 1.4. Closing Index Market Capitalization Today USD (Unadjusted Market Cap Today USD) ....................................................................................................... 17 1.5. Security Index Of Price In Local ................................................................... 18 1.6. Note on Index Calculation In Local Currency ............................................ 19 1.7. Conversion of Indices Into Another Currency ............................................ 20 2. Section 2: MSCI Daily Total Return (DTR) Index Methodology ............................................................................ 22 2.1. Calculation Methodology ........................................................................... 22 2.1.1. Dividend Impact ......................................................................................... 23 2.1.2. DTR Index Level from Security Information (Security DTR)................. 23 2.1.3. Security Contribution to the Index ......................................................... 23 2.1.4. Security Daily Total Return....................................................................... 24 2.1.4.1. Security Daily Gross Return ................................................................... 24 2.1.4.2. Security Daily Net Return ....................................................................... 25 2.1.5. Initial Security Weight ............................................................................. 27 MSCI Data Operations & Technology msci.com © 2012 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document 2 Index Methodology MSCI Index Calculation Methodology August 2012 2.1.6. Currency ..................................................................................................... 29 2.1.7. Number Of Shares And Index Weighting Factor ................................. 29 2.2. Reinvestment Methodology ....................................................................... 29 2.2.1. Timing of reinvestment ........................................................................... 30 2.2.2. Reinvestment Rules.................................................................................. 30 2.2.3. Dividends Resulting in a Reinvestment Only ....................................... 30 2.2.4. Dividends Resulting in a Reinvestment or in a Price Adjustment ..... 31 2.2.5. Dividends Resulting in a Price Adjustment Only .................................. 32 2.3. Processing Rules ........................................................................................... 33 2.3.1. Dividend Data ........................................................................................... 33 2.3.2. Corporate Actions ..................................................................................... 33 2.3.3. Corrections ................................................................................................. 33 2.3.4. Payment Default ....................................................................................... 34 2.3.5. Late Dividends ........................................................................................... 34 2.3.6. Country Exceptions ................................................................................... 34 2.3.7. Taxes On Dividends .................................................................................. 36 2.3.7.1. Tax Credit ................................................................................................ 36 2.3.7.2. Withholding Tax ...................................................................................... 36 2.3.7.2.1. Country Exception ............................................................................... 37 2.3.8. Definitions .................................................................................................. 38 Appendix I: Saturday / Sunday Index Calculation ................... 40 Appendix II: Annualized Traded Value Ratio (ATVR) and Annual Traded Value ............................................................... 43 Appendix III: Exchange Rates ................................................... 46 Appendix IV: Singapore & Malaysia – A History of Inclusion in the Emerging and Developed Markets Indices ...................... 47 Appendix V: Singapore and Singapore Free ........................... 50 Appendix VI: Withholding Tax Rates ....................................... 51 Appendix VII: Closing Prices Policy .......................................... 54 Appendix VIII: Country Composition of MSCI Selected Regional Indices ....................................................................... 65 Appendix IX: MSCI Real Time Indices ...................................... 75 MSCI Data Operations & Technology msci.com © 2012 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document 3 Index Methodology MSCI Index Calculation Methodology August 2012 Appendix X: Index Calculation Methodology Using Index Divisors ..................................................................................... 77 MSCI Index Calculation Methodology Book Tracked Changes91 Client Service Information is Available 24 Hours a Day ....................................... 99 Notice and Disclaimer .............................................................................................. 99 About MSCI ............................................................................................................. 100 MSCI Data Operations & Technology msci.com © 2012 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document 4 Index Methodology MSCI Index Calculation Methodology August 2012 Introduction This methodology book describes MSCI’s general Index calculation methodology for the MSCI Equity Indices. MSCI provides two ways of calculating MSCI Equity Indices, either by using the Price Adjustment Factor (PAF) or the Index Divisors (Index Divisors methodology available as an appendix). These policies and guidelines affect all securities across the MSCI Equity Indices and products. Unless otherwise stated the policies and guidelines apply therefore to all securities in the MSCI Equity universe. Please note that the index construction methodology and other guiding principles for the MSCI Standard Indices can be found in MSCI Global Investable Market Indices Methodology Indices document, available at www.msci.com. MSCI Data Operations & Technology msci.com © 2012 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document 5 Index Methodology MSCI Index Calculation Methodology August 2012 MSCI Equity Indices The MSCI Equity Indices measure the performance of a set of equity securities over time. The MSCI Equity Indices are calculated using the Laspeyres’ concept of a weighted arithmetic average together with the concept of chain-linking. MSCI country and regional equity Indices are calculated in “local currency” as well as in USD, with price, gross and net returns. Index levels are also available in several other currencies such as AUD, BRL, CAD, CHF, CNY, EUR, GBP, HKD, INR, JPY, KRW, RUB and SGD. While the local currency series of regional indices cannot be replicated in the real world, it represents the theoretical performance of an index without any impact from foreign exchange fluctuations — a continuously hedged portfolio. Indices are calculated 5 days a week, from Monday to Friday with the exception of a selection of indices that have Saturday and Sunday calculations available. In certain cases, where there are no qualifying securities, it is possible for MSCI Indices to be empty following a security deletion or GICS change. If an index becomes empty it would be dynamically discontinued or ‘ruptured’. It is then possible for the index to be re-started once a new security qualifies for the index, and this index level would be rebased to an appropriate level