Fairvest Corporation and Institutional Shareholder Services, Inc. - MRRS Decision

Headnote

MRRS - advisor registration relief for companythat provides proxy advisory services - subject to certain conditions.

Applicable Ontario Statutory Provisions

Securities Act, R.S.O. 1990, c. S.5, as amended,ss. 25(1)(c), 74(1).

IN THE MATTER OF

THE SECURITIES LEGISLATIONOF

ALBERTA, BRITISH COLUMBIA,MANITOBA, NEW BRUNSWICK,

NEWFOUNDLAND AND LABRADOR,NOVA SCOTIA, ONTARIO,

PRINCE EDWARD ISLAND, QUEBEC,SASKATCHEWAN,

NORTHWEST TERRITORIES ANDNUNAVUT

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEWSYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

FAIRVEST CORPORATION

AND INSTITUTIONAL SHAREHOLDERSERVICES, INC.

MRRS DECISION DOCUMENT

1. WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") ineach of Alberta, British Columbia, Manitoba, New Brunswick,Newfoundland and Labrador, Nova Scotia, Ontario, Prince EdwardIsland, Quebec, Saskatchewan, Northwest Territories and Nunavut(the "Jurisdictions") has received an applicationfrom Fairvest Corporation ("Fairvest") and InstitutionalShareholder Services, Inc. ("ISS") for a decisionunder the securities legislation of the Jurisdictions (the"Legislation") that the requirements contained inthe Legislation to be registered as an advisor (the "RegistrationRequirements") do not apply to Fairvest, ISS or theirofficers and employees;

2. AND WHEREAS pursuant to the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),the Alberta Securities Commission is the principal regulatorfor this application;

3. AND WHEREAS, unless otherwise defined,the terms herein have the meaning set out in National Instrument14-101 or in Quebec Securities Commission Notice 14-101;

4. AND WHEREAS Fairvest and ISS have representedto the Decision Makers that:

4.1 Fairvest is a corporation, incorporatedunder the Nova Scotia Companies Act and a wholly owned subsidiaryof ISS, carrying on business as a proxy advisory servicein which it provides proxy voting advice to institutionalinvestors in Canada with respect to matters to be votedon at meetings of shareholders of issuers incorporated ororganized in Canada;

4.2 Fairvest advises its institutional clientswith respect to their voting as shareholders of public issuerson issues presented to them in management proxy circularsin connection with annual and other shareholder meetings;

4.3 Fairvest's advice is usually based oncorporate governance considerations and is provided to itsclients by electronic means;

4.4 in some instances Fairvest undertakesto exercise voting rights on behalf of an institutionalclient in accordance with the client's proxy voting guidelines,in which case the voting is administered by employees ofISS in Rockville, Maryland;

4.5 ISS is a Delaware Corporation with itshead office in Rockville, Maryland, U.S.A., which providessimilar proxy advisory services to institutional investors;

4.6 Fairvest also provides its proxy advisoryservices under the ISS rubric to institutional clients ofISS;

4.7 the majority of ISS's clients are institutionalinvestors in the United States, including pension fundssubject to the U.S. Employee Retirement Income SecurityAct of 1974 ("ERISA"), as a result of which ISSis subject to supervision by the U.S. Department of Laborwith respect to services performed for such pension funds;

4.8 ISS is registered as an investment adviserunder the U.S. Investment Advisers Act of 1940 and is thereforealso subject to supervision by the U.S. Securities and ExchangeCommission ("SEC");

4.9 apart from services performed by Fairvestfor ISS's institutional clients, ISS provides its proxyadvisory services with respect to shareholder issues relatingto corporations incorporated in the United States, the UnitedKingdom, Europe, Japan and emerging markets;

4.10 most of the clients who receive theseservices are institutional investors in the United States,but a few of these clients are institutional investors inCanada, some of which are also clients of Fairvest;

4.11 Fairvest's institutional clients andISS's institutional clients in Canada include public andprivate pension funds, managers of mutual funds and portfoliomanagers registered as advisors under applicable securitieslegislation, all of whom hold investment assets of at least$100 million;

4.12 these institutional clients look toFairvest or ISS for proxy voting advice with respect tocorporate proposals coming before meetings of shareholdersof issuers in which they hold securities, but not for advicewith respect to investing in such issuers or the meritsof such investments, as they have internal or external portfoliomanagers who perform their own investment analysis concerninginvestments or are themselves registered portfolio managers;

4.13 although a number of portfolio managersprovide Fairvest or ISS with their corporate governanceguidelines on the basis of which Fairvest or ISS may exerciseproxies on their behalf, Fairvest and ISS do not considertheir investment guidelines in providing services to them;

4.14 Fairvest also provides access to itsproxy voting advice to a small number of subscribers whoare interested in its voting recommendations for informationalpurposes;

4.15 in the course of their proxy advisoryservices, Fairvest and ISS sometimes provide advice on corporatetransactions such as amalgamations, mergers and other typesof reorganizations which may result in a trade in securitiesby their institutional clients;

4.16 voting advice on such transactionsmay take into account the merits of a proposed transaction;

4.17 such transactions represent a smallproportion of the proposals on which Fairvest and ISS provideproxy voting advice (less than two per cent in 2002), andany trades that may result from a vote by shareholders onan amalgamation, merger or similar transaction are incidentalto their business of providing proxy advisory services;

4.18 because a vote on an amalgamation,merger or similar transaction may result in a trade in securities,some doubt exists whether Fairvest and ISS are "advisors"under the Legislation and, therefore, whether they are subjectto the Registration Requirements;

5. AND WHEREAS under the System, this MRRSDecision Document evidences the decision of each DecisionMaker (collectively, the "Decision");

6. AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Maker with the jurisdiction to makethe Decision has been met;

7. THE DECISION of the Decision Makers underthe Legislation is that the Registration Requirements shallnot apply to Fairvest, ISS or their officers and employees,provided that proposals to approve corporate transactionsof the type described in paragraph 4.15 do not exceed fiveper cent of the proposals on which Fairvest and ISS provideproxy voting advice to clients in Canada in any year.

February 19, 2003.

"Glenda A. Campbell"                    "JerryA. Bennis"