The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended November 30, 2007 (the "Form 10-K"). This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in "Item 1A.-Risk Factors," in each of our Form 10-K and our Form 10-Q for the quarter ended May 31, 2008.

Overview

We are a leading global provider of investment decision support tools including indices and portfolio risk and performance 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 and multi-asset class 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, exchange traded funds ("ETFs"), hedge funds and private wealth; and financial intermediaries such as broker-dealers, exchanges, custodians and investment consultants. As of August 31, 2008, we had a client base of over 3,100 clients across more than 60 countries with approximately 52% of our operating revenues from the Americas, 32% from Europe, the Middle East and Africa ("EMEA"), 9% from Japan and 7% from Asia-Pacific (not including Japan). To help serve our diverse client base, we had 20 offices in 14 countries as of August 31, 2008.

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 portfolio analytics and (c) actively seeking to acquire products, technologies and companies that will enhance, complement or expand our client base and our product offerings.

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 and, in the near term, transition expenses as we separate from Morgan Stanley. As we separate from Morgan Stanley and build out our operating functions and infrastructure, we may experience changes in the split of operating expenses between cost of services and selling, general, and administrative as well as the percentage of our expenses paid in other than US dollars.

The discussion of the Company's results of operations for the three and nine months ended August 31, 2008 and 2007 is presented below. These statements, which reflect management's beliefs and expectations, are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of the risks and uncertainties that may affect the Company's future results, please see "Forward-Looking Statements" immediately preceding Part I, Item 1, "Risk Factors" in Part I, Item 1A. "Certain Factors Affecting Results of Operations" in Part II, Item 7 and other items throughout our Form 10-K, as updated in this Form 10-Q and our prior filings with the SEC. Income from interim periods may not be indicative of future results.

Results of Operations

Three Months Ended August 31, 2008 Compared to the Three Months Ended August 31,
2007:

                                                      Three Months Ended
                                                          August 31,
                                                       2008           2007        Increase/(Decrease)
                                                           (in thousands, except per share data)
Operating revenues                                  $  110,399     $ 92,407     $     17,992       19.5 %
Operating expenses:
Cost of services                                        28,131       29,354           (1,223 )     (4.2 %)
Selling, general and administrative                     37,624       23,093           14,531       62.9 %
Amortization of intangible assets                        7,125        6,697              428        6.4 %

Total operating expenses                                72,880       59,144           13,736       23.2 %

Operating income                                        37,519       33,263            4,256       12.8 %
Interest expense (income) and other, net                 7,372          344            7,028         nm
Provision for income taxes                              11,269       11,540             (271 )     (2.3 %)

Net income                                          $   18,878     $ 21,379     $     (2,501 )    (11.7 %)

Earnings per basic common share                     $     0.19     $   0.25     $      (0.06 )    (24.0 %)

Earnings per diluted common share                   $     0.19     $   0.25     $      (0.06 )    (24.0 %)

Operating margin                                          34.0 %       36.0 %

nm - Not meaningful

Operating Revenues

We group our revenues into the following four product categories:

· Equity indices

· Equity portfolio analytics

· Multi-asset class portfolio analytics

· Other products

                                                            Three Months Ended
                                                                August 31,
                                                             2008               2007     Increase/(Decrease)
                                                              (in thousands)
Equity indices:
Equity index subscriptions                            $      43,666    $      33,405   $     10,261       30.7 %
Equity index asset based fees                                18,312           16,531          1,781       10.8 %

Total equity indices                                         61,978           49,936         12,042       24.1 %
Equity portfolio analytics                                   33,659           29,452          4,207       14.3 %
Multi-asset class portfolio analytics                         8,923            6,669          2,254       33.8 %
Other products                                                5,839            6,350           (511 )     (8.0 %)

Total operating revenues                              $     110,399    $      92,407   $     17,992       19.5 %

Total operating revenues for the three months ended August 31, 2008 increased $18.0 million, or 19.5%, to $110.4 million compared to $92.4 million for the three months ended August 31, 2007. This growth was driven by an increase in our revenues related to index and analytics subscriptions and equity index asset based fees. Revenue growth was 2.0% for the three months ended August 31, 2008 compared to the three months ended May 31, 2008.

Equity Indices: Revenues from equity indices include fees from MSCI equity index 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 24.1% to $62.0 million in third quarter 2008 compared to the same period in 2007 and increased 3.1% compared to second quarter 2008. Revenues from equity index data subscriptions were up 30.7% to $43.7 million in third quarter 2008 reflecting growth in subscriptions across all of our MSCI Global Investable Market Indices products, including developed market, emerging market and small cap indices and sales of historical index data. The revenue growth was led by subscriptions to asset managers.

Revenues attributable to equity index asset based fees increased 10.8% to $18.3 million in third quarter 2008 from $16.5 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 $178.3 billion for third quarter 2008 compared to $155.7 billion for third quarter 2007. As of August 31, 2008, the value of assets in ETFs linked to MSCI equity indices was $166.3 billion, representing an increase of $9.8 billion, or 6.3%, from $156.5 billion as of August 31, 2007. The year-over-year growth in value of assets in ETFs linked to MSCI equity indices was attributable to net asset inflows of $35.1 billion, offset by net asset depreciation of $25.3 billion. Equity index asset based fee revenues remained unchanged compared to the second quarter.

The largest component of equity index asset based fee revenues, ETF asset based revenues, experienced a slight decline in third quarter 2008 compared to second quarter 2008. The average value of assets in ETFs linked to MSCI equity indices was $178.3 billion for third quarter 2008 compared to $184.4 billion for second quarter 2008. As of August 31, 2008, the value of assets in ETFs linked to MSCI equity indices was $166.3 billion representing a decrease of 16.7%, or $33.3 billion, from $199.6 billion as of

May 31, 2008. The $33.3 billion decrease was attributable to an outflow of the net assets as well as net asset depreciation.

The three MSCI indices with the largest amount of ETF assets linked to them as of August 31, 2008 were the MSCI EAFE, Emerging Markets and U.S. Broad Market. The values of assets linked to these indices were $40.4 billion, $31.8 billion and $10.4 billion, 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 periods indicated:

                                                         Quarter Ended

                                           2007                                2008
$ in Billions                   May     August     November       February      May       August
AUM in ETFs linked to MSCI
Indices                       $ 150.2   $ 156.5   $    191.7     $    179.2   $ 199.6     $ 166.3
Sequential Change ($ Growth
in Billions)
Market
Appreciation/(Depreciation)   $   5.9   $  (0.8 ) $     11.2     $    (15.2 ) $   9.9     $ (31.2 )
Cash Inflow/(Outflow)             8.9       7.1         24.0            2.7      10.5        (2.1 )

Total Change                  $  14.8   $   6.3   $     35.2     $    (12.5 ) $  20.4     $ (33.3 )

Source: Bloomberg and MSCI

The following table sets forth the average value of assets in ETFs linked to MSCI indices for the quarters ended in the months indicated:

                                                            Quarterly Average

                                                  2007                             2008
$ in Billions                          May     August     November     February      May     August
AUM in ETFs linked to MSCI Indices   $ 140.8   $ 155.7   $    176.9   $    183.2   $ 184.4   $ 178.3

Source: Bloomberg and MSCI

Equity Portfolio Analytics: Revenues for equity portfolio analytics include annual recurring subscriptions to Barra Aegis and our proprietary risk data, Barra 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 14.3% to $33.7 million in third quarter 2008 compared to the same period in 2007. The year-over-year increase reflects new subscriptions to our proprietary equity risk data accessed directly and bundled with Aegis. Compared to the second quarter 2008, revenues related to equity portfolio analytics remained flat.

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 33.8% to $8.9 million in third quarter 2008 compared to $6.7 million in the same period in 2007 and increased 3.8% compared to the second quarter 2008. BarraOne revenue growth remained strong due to sales to existing clients as well as new client additions led by orders from asset managers and asset owners. The EMEA region was particularly strong reflecting demand for centralized risk reporting tools. 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, revenues from investment products linked to MSCI investable hedge fund indices and revenues from FEA energy and commodity asset valuation analytics products.

Revenues from the other products category decreased 8.0% to $5.8 million in the third quarter 2008 compared to the same period in 2007. The decline reflects a decrease in revenues of 59.0% to $0.7 million of asset based fees from investment products linked to MSCI investable hedge fund indices due to a decline in the values of assets attributable to market depreciation and investor withdrawals. We anticipate this trend to continue for the near future. The decline in revenues is partially offset by an increase of 3.6% to $1.7 million for fixed income analytics and by a 17.5% increase to $3.4 million for our energy and commodity 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;

· price changes;

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

· fluctuations in foreign exchange rates.

The following tables set forth our Run Rates as of the dates indicated and the percentage growth over the periods indicated:

                                                 As of                              Change from
                                 August 31,     August 31,     May 31,       August  31,          May 31,
                                    2008           2007         2008             2007              2008
                                            (in thousands)
Subscription based fees:
Equity indices                  $    169,284   $    136,990   $ 161,147                 23.6 %        5.1 %
Equity portfolio analytics           134,172        121,475     134,509                 10.5 %       (0.3 %)
Multi-asset class analytics           34,076         27,921      33,255                 22.0 %        2.5 %
Other                                 19,243         17,053      19,315                 12.8 %       (0.4 %)

Subscription based fees total        356,775        303,439     348,226                 17.6 %        2.5 %

Asset based fees:
Equity indices (1)                    70,172         63,201      79,358                 11.0 %      (11.6 %)
Hedge fund indices                     2,681          7,238       2,684                (63.0 %)      (0.1 %)

Asset based fees total                72,853         70,439      82,042                  3.4 %      (11.2 %)

Total run rate                  $    429,628   $    373,878   $ 430,268                 14.9 %       (0.2 %)

Changes in Run Rate between periods reflect increases from new subscriptions, decreases from cancellations, increases or decreases, as the case may be, from the change in the value of assets of investment products linked to MSCI indices, the change in trading volumes of futures and options contracts linked to MSCI indices, price changes and fluctuations in foreign exchange rates.

Aggregate and Core Retention Rates

The following table sets forth our Aggregate and Core Retention Rates for the
periods indicated:

                             Three Months Ended
                                 August 31,
                             2008           2007
Aggregate Retention Rate         92 %           92 %
Core Retention Rate              94 %           95 %

Because subscription cancellations decrease our Run Rate and ultimately our operating revenues, other key metrics are our "Aggregate Retention Rate" and our "Core Retention Rate." The Aggregate Retention Rate represents the percentage of the Run Rate as of the beginning of the period that is not cancelled during the period. The Aggregate Retention Rate is computed on a product-by-product basis. Therefore, if a client reduces the number of products to which it subscribes or switches between our products, we treat it as a cancellation. In addition, we treat any reduction in fees resulting from renegotiated contracts as a cancellation in the calculation to the extent of the reduction. Our Core Retention Rate is calculated in the same way as our Aggregate Retention Rate, except that the Core Retention Rate does not treat switches between products as a cancellation. We do not calculate Aggregate or Core Retention Rates for that portion of our Run Rate attributable to assets in investment products linked to our indices or to trading volumes of futures and options contracts linked to our indices. Aggregate and Core Retention Rates for a non-annual period are annualized.

Our Aggregate Retention Rate remained the same when comparing the third quarter 2008 to the third quarter 2007. The Core Retention Rate for the quarter ended August 31, 2008 was 94% compared to 95% for the quarter ended August 31, 2007. The decline in the Core Retention Rate is attributable to lower retention rates for Barra Aegis and Barra TotalRisk.

In recent years on average, approximately 40% of our subscription cancellations have occurred in the fourth fiscal quarter. As a result, our Aggregate Retention Rate generally has been higher during the first three fiscal quarters and lower in the fourth fiscal quarter.

Operating Expenses

Operating expenses increased 23.2% to $72.9 million in third quarter 2008 compared to $59.1 million in third quarter 2007. Founders grant expenses totaled $5.3 million for the three months ended August 31, 2008. Excluding the founders grant expenses, operating expenses increased 14.2% to $67.6 million in third quarter 2008, with increases in compensation and non-compensation expenses of 19.2% and 8.6%, respectively. Expenses associated with the replacement of services currently provided by Morgan Stanley were $7.8 million in third quarter 2008 and were not significant in third quarter 2007, and the allocation expense for services currently provided by Morgan Stanley was $3.9 million in third quarter 2008 compared to $7.0 million in third quarter 2007 and $5.8 million in second quarter 2008.

Compensation and benefits expenses represent the majority of our expenses across all of our operating functions and represent approximately 60% of our total operating expenses. These expenses generally contribute to the majority of our expense increases from period to period, reflecting existing staff compensation and benefit increases and increased staffing levels. Continued growth of our staff in emerging market locations around the world is an important factor in our ability to manage and control the growth of our compensation and benefit expenses. An important location for us is Mumbai, India, where we have increased our staff levels significantly since commencing our operations there in early 2004 with a small staff in data management and production. Subsequently, we expanded the scale of our operations there by adding teams in research and administration, as well as by continuing to expand the data management and production team. Another important location for us is Budapest, Hungary, where we opened an office in August 2007. We plan to continue to develop this location as an important information technology center, software engineering center and client service center.

Compensation expense in third quarter 2008 was $42.5 million, an increase of $11.3 million from third quarter 2007. The increase is a result of $5.3 million of expenses related to the founders grant, $2.4 million attributable to people hired in connection with replacing services provided by Morgan Stanley and $3.6 million attributable to higher compensation costs for existing staff and new hires, including personnel hired in emerging market centers.

In fiscal 2007, no stock based compensation was granted to employees in addition to the one time founders grant. Similar to years prior to fiscal 2007, we expect to pay stock based compensation to employees for fiscal 2008.

The number of full-time employees increased by 96 to 724 on August 31, 2008 from 628 on August 31, 2007 and by 38 from 686 on May 31, 2008. On August 31, 2008, 120 full-time employees were located in Budapest and Mumbai compared to 56 on August 31, 2007 and 103 on May 31, 2008.

Non-compensation expense for third quarter 2008 increased $2.4 million to $30.4 million compared to third quarter 2007. The increase reflects $5.4 million related to the replacement of services currently provided by Morgan Stanley, partially offset by a $3.1 million reduction in the expense allocation from Morgan Stanley.

A significant expense for us has historically been services provided by our principal shareholder, Morgan Stanley. As a majority-owned subsidiary of Morgan Stanley, we have relied on Morgan Stanley to provide a number of administrative support services and facilities. Although we will continue to operate under a services agreement with Morgan Stanley, the amount and composition of our expenses may vary from historical levels as we replace these services with ones supplied by us or by third parties. We are investing in the expansion of our own administrative functions, including finance, legal and compliance and human resources, as well as information

technology infrastructure, to replace services currently provided by Morgan Stanley. Because of initial set-up costs and overlaps with services currently provided by Morgan Stanley, our expenses increased in the third quarter. We expect operating expense increases from initial set-up costs and overlaps with the cost of Morgan Stanley Services to continue until we have replaced services currently provided by Morgan Stanley. In addition, we are incurring additional costs as a public company, including directors' compensation, audit, listing fees, investor relations, stock administration and regulatory compliance costs.

Information technology costs, which include market data, amortization of hardware and software products, and telecommunications services, are also an important part of our expense base.

We group our expenses into three categories:

· Cost of services

· Selling, general and administrative ("SG&A")

· Amortization of intangible assets

Because compensation and benefits expenses represent the majority of our expenses in both the costs of services and SG&A expense categories, we discuss . . .