National Post from Toronto, Ontario, Canada • 2

2 October 16, 1982 The Financial Post THE TURN PAGE Hopes running high Film investors seek financial scene close-up Continued from page 1 (and a feeling that our inflation rate, too, will at least be moving in the right direction); the expected subnormal U.S. recovery from its recession depths; the large scaling down in investment spending by corporations and the consequent rollback in borrowing demands; and, importantly, greater tolerance by the U.S. Federal Reserve Board (Fed) in letting money supply expand. This switch in focus has some analysts scratching their heads. Says one observer: "In the same way as the one-sided focus on financial demands six months ago was irrational, totally ignoring them now is also a little irrational." The turnaround in thinking has been swift.

In dramatic fashion, in mid-August, Kaufman reversed his previous view and said the "present decline in interest rates will continue." For long-term rates, the fall would be about three percentage points to 9-10 over the next 12 months. For Canada's resident bear, the economics department at Toronto-based investment dealer McLeod Young Weir the view is that instead of the Canadian prime rate closing out 1982 at 20 (as expected in early spring), a more modest 14 is predicted. And, for yearend 1983, instead of an expected rate of 25, the assessment is that it will be only 1 3. Moving down MYW economist Frank Hracs now sees our prime rate (led by U.S. developments) moving down some more, then rising moderately through next spring and summer, and then falling, as another economic slowdown hits the U.S.

and Canada. Smooth sailing, it's not. And Canadian and U.S. analysts pretty well agree that much depends on the Fed's willingness to let money supply grow (or not grow). Some analysts contend that the upcoming U.S.

congressional elections and with the stagnant economy a big issue could well mean the Fed may delay actions it otherwise may take. There's already concern in some quarters that the impetus to lower rates may be running out of steam. Specifically, the Fed can't keep supplying reserves to the banking system at the same pace as it has been doing in the past and still hit its monetary targets (see chart p. 1 The U.S. money-supply levels may be inflated because of deposit-switching and the introduction of new deposit forms, but a continent of traders trained in taking an active interest in the money supply might think otherwise.

As the Bank of Canada found out, the link between the money supply and the economy is often baffling. Robert Sinche, an economist with New York-based investment banker Bear, Stearns calculates that nonbor-rowed reserves the stuff that fuels money-supply growth have grown at an annual rate of about 13 over the past three months and about 10 over the past six months. Says Sinche: "The Fed may passively tolerate faster money growth, but will not actively encourage a continuation of these trends. We don't think the Fed has the ability to maintain an actively stimulative policy for very long because of the market's concern in a deregulated system." Thus, the key question is the Fed's response to the recent overshooting of its monetary targets, still offside despite last week's billion drop. Will the Fed allow this to continue (and thereby throw its very own policy out the window), or will it intervene (which means higher rates) so that once again growth gets back on target? Says Sinche, who thinks there isn't any more downside to rates over the next three months: "The fundamentals suggest that the Fed will continue to have monetary problems so that it will have to initiate some more restraint.

The case for much lower rates is just not there." And Sinche says the longer the Fed waits to address the issue, the bigger the problems it will have in the future, "and the more serious the backup in rates will be." Other analysts think rates can indeed move lower. In that camp is Norman Heimlich, chief economist at Montreal-based investment dealer F.H. Deacon, Hodgson who says: "There's no way the Fed will tighten up because the economy is still so depressed. Our basic forecast is that interest rates in 1983 will be lower than they are at present." Heimlich points to current confusion surrounding U.S. money-supply data, and says until those structural shifts are sorted out.

the Fed given the weak economy will be prepared to "tolerate, within limits, a faster growth in the money supply." That, together with moves by Bank of Canada to allow narrower interest-rate differentials all, our economy is much worse than should mean a drop in Canadian rates of between two and three percentage points over the next several months. Peter Sacks, vice-president at investment dealer Pitfield Mackay Ross also expects lower rates in the months ahead. He says the Fed, "in order to promote economic activity, seems prepared to temporarily tolerate growth in the money supply above its target range. The trend to lower interest rate levels should continue with the authorities plumbing for the bottom." But getting there, Sacks says, won't be direct: instead, the reaction to the weekly money numbers coupled with interpreting monetary action undertaken by the Fed will provide for a volatile interest-rate pattern. MYW's Frank Hracs says: "The money supply is telling the Fed to tighten, but they know they shouldn't because the economy is still going down.

It doesn't make any sense to tighten, and the economy needs lower interest rates. For the time being, they want lower interest rates. They will err on the side of ease." The dilemma for the Fed, Hracs says, is to ensure a reasonable recovery through letting rates move lower without allowing the money supply to get way offside in relation to its target. "We think they will lower rates, try to get some firmness in the economy and then view the money supply again. It's arbitrary (as to the particular month) at what stage they will tighten." The alternative, Hracs says, is to abandon monetarism completely.

It was just more than three years ago that the Fed's new strategy for dealing with monetary policy was unveiled with the focus directed to controlling the growth of bank reserves and not interest rates. Is a similar about-face, or something completely different, being contemplated? The Fed's problem a weak economy but off-target money numbers brings to mind comments by Bank of Canada Governor Bouey at this year's International Monetary Fund-sponsored Per Jacobsson lecture. At that time Bouey said: "Restraint on monetary expansion is never a popular policy. In my experience, I have had much more success in convincing people that monetary policy should have been tighter at some point in the past than in convincing them of the need for restraint in the present. The temptation to put off financial discipline is always great." securities commissions for help.

In September, the Ontario and Quebec securities commissions issued a number of cease-trading orders on films for failure to make the proper financial filings. Two of them were produced by Marshall and Van der Kolk, Circle of Two and Mr. Patman. Robert Stcen, director of corporate finance at the OSC, says: "The order doesn't mean an awful lot since nobody's trading, but it's the only sanction we've got." There is some disagreement on whether the peculiarities of the film-distribution and exhibition system fit generally acceptable accounting principles. The film people say it can't and the securities commission says it should.

While an independent group of accountants decides the issue, the OSC has generally avoided applying cease-trading orders against film projects genuinely attempting to comply. The saga of Circle of Two has had investors on the edge of their seats for two years. The film property at times has resembled a hot potato, bouncing from one company to another. Originally, a firm called Boyd, Stott McDonald Ltd. was named agent to represent the unitholders during the selling of the film to distributors.

David Roffey, a vice-president there, was the man handling it. (Roffey is now vice-president, finance, at First Choice, the recently licensed national pay-TV network.) According to the prospectus filed on the sale of the units, BSM received $189,392 plus 12 of the producer's share of the producer's gross for financing arrangements and interim lending, plus Vt of the producer's gross for its work as unitholders' agent. Morguard Trust a subsidiary of BSM, received $30,000 as trustee. In early 1980, Roffey left BSM to start his own company, Jarnac Motion Picture Finance taking responsibility to represent the unitholders with him. Roffey told unitholders his company would have the same management personnel as were involved in BSM, that BSM was a shareholder in Jarnac, along with Canadian Imperial Bank of Commerce, Royal Bank, Baton Broadcasting and Roffey.

In this role, Jarnac canceled a contract with a U.S. distribution sales agent called International Creative Management and hired a Panamanian-registered company, Carolco. In March, 1981, Jarnac announced an "integration" with David Perlmutter (another Canadian film producer) company. Quadrant Films and Andy Vajna of Carloco to form Film International Sales Corp. At the end of 1981, Jarnac had been forced into receivership when Commerce and other debenture holders called their notes.

(The bank says it has nothing owing on Circle of Two, apart from loans to individual investors for their units, but By Patricia Best INVESTORS in Canadian films made during the production boom several years back are still looking for a happy ending, but for some it seems the drama has only begun. One group of investors in a film called Circle of Two, produced by William Marshall and Henrick Van der Kolk of Toronto, is organizing to find a way of getting information about their investment out of the companies involved in the production. At $10,000 a crack, units in Circle of Two were sold through a number of investment companies, principally Merrill Lynch, Royal Securities in fall, 1979. Unitholders were attracted by what seemed a winning combination of 100 tax writeoff and the chance to get rich at the movies. Instead, the 427 unitholders have yet to recoup their investment, let alone see any profit.

They now want an audit of the film's distribution sales no audit has been supplied for 1 14 years and answers to questions about the "exploitation" of the film. Complaints Unitholder complaints about the absence of financial information appears to be endemic in the film industry. Last week, an investor in a movie called The Changeling, produced by Garth Dra-binsky and Joel Michaels, filed a class-action suit on behalf of fellow investors in the film. The suit asks for a full accounting of the money spent and received from the movie; the appointment of an inspector and or auditor andor receiver to manage the business affairs of the film; and the removal of the producers from further connection with the film. The 264 investors in The Changeling have already recouped their initial investment of $25,000 per unit and made a profit.

"By our standards, they're successful," says John Crabbe, the Circle of Two investor leading the unitholder revolt from Toronto. He is being helped by Wanda Grendys, a broker with Davidson Partners who sold units in the film when she was with Midland Doherty Ltd. They have scheduled a meeting of unitholders for Oct. 15. Coincidental with their efforts to organize unitholders, a group of five investors in Newfoundland hired a lawyer out of concern for their investment.

"I think this will become more and more prevalent across the country," says film investment adviser Richard Wise of Montreal. "Nearly every film project has unhappy investors who are not getting the information they want to get." Typically, "all these wonderful promises were made and now you can't find the producers." Wise recommends investors turn to there arc outstanding loans on Mr. Patman.) By then, BSM had become part of Morguard Group and as a result, Morguard entered the picture in March, 1982, as the beleaguered unitholders' representative. Morguard accountant Paul Ling says there was no audited statement on the film for 1981 because of the Jarnac receivership, and that the company has also had difficulty obtaining financial information. For example, Ling says, a copy of the contract between Jarnac and Carolco cannot be found.

Derek Bunting, vice-president, underwriting, at Merrill Lynch, has also unsuccessfully sought financial information on Circle of Two and Mr. Patman, which it also sold to investors: "We have no formal obligation but our clients put up money on this and so it's in our interest. We're not in a position to do anything about it, because we don't have a financial mallet to do it." As with the Commerce, Merrill Lynch has unsuccessfully sought answers to questions about the films, spending time and money battling Jarnac. Merrill Lynch has not sold film units since these two films. Concents The unitholders of Mr.

Patman held a meeting earlier this year because of similar concerns, and decided to appoint a new representative and considered re-editing the picture. A re-editing of Circle of Two has also been proposed. Bunting says Jarnac's receivership is not a major problem, "but the larger problem is that no one wants to buy the film." In a letter to unitholders dated Sept. 23, 1982, James Renahan, vice-president, finance, at Morguard, described concerns about: The intermingling of funds in various accounts so that Jarnac's receivers, Coopers Lybrand, find it "almost impossible" to do a proper audit. Payments on the books to various companies which cannot be verified as authorized and proper.

Receivables as indicated by Jarnac on Nov. 16, 1980, as totaling $1.25 million from sales of the film, but auditors cannot identify how much came into the company. In a statement of receipts and disbursements, the excess of receipts came to $49,236 for the period Jan. 1- May 31, 1982. The receiver is interested in litigation against certain companies that appear to owe Jarnac money, but there are no assets available to pay the costs.

Morguard has indicated it would like to appoint a lawyer with experience in the film industry to take over the management of the film from Morguard and, for a percentage fee, try to recoup the money owing by those companies that bought rights to distribute the film. Alberta teams hit field ANNOUNCEMENT IMPERIAL OIL LIMITED 10O000 BUSINESSES USE THESE CARDS TO! CONTROL AIR TRAVEL EXPENSES. LEARNTHE7REaAS0NSWHY. Continued from page 1 St. Paul's outgoing Tory MLA moved his medical practice to Tennessee earlier this year but refused to resign his seat.

His Conservative predecessor also left the riding in midterm to sell vacuum cleaners in Fort McMurray. It is to the right of the Conservatives where the menage of political aspirants becomes difficult to track. Those with scorecards are advised to write with pencils and keep erasers handy. The Social Credit has lost its three remaining MLAs. All are expected to run again, but as independents.

None of them thinks the party that once governed Alberta for 36 years should continue beating its head against the electoral wall. But the women's auxiliary of the party and other Socred veterans disagree and will field some candidates. The Western Canada Concept, the separatist-leaning group that won the Olds-Didsbury by-election last February and convinced the Conservatives to stop resting on their laurels, appears to be bleeding to death from self-inflicted wounds. Leader Gordon Kessler is running in Highwood constituency. His decision to abandon Olds-Didsbury, which he had won, was a bitter pill for party members to swallow, but went down like sugar with Conservatives.

Kessler had promised during the by-election to move to Olds-Didsbury from his home in Highwood, but obviously changed his mind. One senior Tory cites the riding switch as the fundamental undoing of the separatists. "He (Kessler) owed the voters there a debt for the rest of his political life," he says. Perhaps a more lethal blow was struck when Howard Thompson bolted the WCC the day after the election was called. Thompson, a veteran political organizer and brother of former national Socred leader Robert Thompson, was the brains behind the Olds-Didsbury win and an unsuccessful contestant for the party leadership in August.

He now will run as an independent but within a grouping of independent candidates calling themselves the Provincial Rights Association. Another prominent member of this new club is Ray Speaker, leader of the opposition in the last Legislature as a Social Credit MLA. The association's president, Peter Aubry, a Calgary oilman, says there wasn't time to form a full-fledged political party, but its organizers still felt the need for a unified free-enterprise voice to be heard on the opposition benches in Edmonton. He dismisses the Conservatives' claim to being a free-enterprise party, by pointing to government ownership of Pacific Western Airlines and 50 of Alberta Energy Corp. "half a PetroAlberta." Another party to the right, the Alberta Reform Movement, also says it will field an unspecified number of candidates, although it also hasn't had time to organize properly.

Interim leader Tom Sindlinger is expected to run in Calgary-Buffalo, the seat he won for the Conservatives in 1979. Sindlinger subsequently was tossed out of the party for supporting the federal government's constitutional initiative. An economist by training, Sindlinger has been an effective thorn in the side of the government on issues relating to the Heritage Fund. The last political party on the scorecard is the Liberals, who are expected to produce a handful of candidates, led by the likeable oilman Nick Taylor. Given the continuing dislike of all things Liberal in the province, Taylor will probably still be in the oil business after the election.

Nobody inside Alberta is betting on anything but another massive triumph for Lougheed, who says this will be his last election. Despite the toughest economic downturn in the memory of all but the oldest Albertans and the collapse of the Alsands and Cold Lake projects the political opposition really hasn't been able to lay a glove on the premier. The irony of having seven parties vying for the affections of Alberta voters is that one party could conceivably end up winning every seat in the Legislature. While most Tories glow at such a prospect, several confess an opposition any weaker than the six members in the last 79-member Legislature wouldn't be healthy for the party or the province. which employees may purchase tickets for themselves only and which may purchase tickets for others.

EMPLOYEES LOVE IT The Air Travel Card has earned an unparalleled reputation as an air travel expense control system since it was introduced 45 years ago. Today, it is an integral part of the accounting systems of over 100,000 businesses from (6) Worldwide or North America Only. You can also select the type of air travel an employee may use. Issue the green card for worldwide travel. Issue the red card for North American travel only.

(7) Individual or Designated Use. Finally your cards can be coded to designate Employees of your company will appreciate the Air Travel Card because it is instant identification throughout the world. It is a statement about a person's position in the world business and that can come in very handy. Furthermore, it eliminates the need for charging business flights on a personal line of credit or card. Personal credit is retained for personal use.

And employees are never stranded. The cards are honored by airlines and travel agents throughout the world. They are, in fact, the cards issued by the airlines themselves, so nothing could be more welcome or acceptable. Present the card, receive your tickets. It's that easy.

ASK YOUR AIRLINE OR TRAVEL AGENT FOR DETAILS. Show this ad to your company financial officer. If you are the financial officer, contact the sales office of any major airline. And find out how right over one hundred thousand com New York to Singapore. These are the cards issued by the airlines of the world, and used by the businesses of the those that have a head start on controlling air travel expenses.

If your company is using the Air Travel Card system now, you know how invaluable it is. If your company is not using the system, here are some facts you should consider. SEVEN REASONS. U) Direct Billing. Your company is billed directly by the card-issuing airline for all employee travel charged to the card.

(2) Restricted to Air Travel Related Charges. Other travel and entertainment charges will not appear on your air travel statement because the card is restricted to air travel and related charges only. (3) Flexible Billing. The air travel billing you receive is designed to fit your needs. You may even qualify for customized billing.

(4) One Statement. Your 3 TTje Financial Post Average Paid Circulation is (ABC ARDEN R. HAYNES Arden R. Haynes has been appointed president of Imperial Oil Limited effective October 1, 1982. A native of Saskatchewan, Haynes joined Imperial Oil in 1951, following graduation from the University of Manitoba.

He held a variety of marketing positions until 1973 when he was appointed vice-president and general manager of the marketing department. In 1974 he was elected a director and a senior vice-president of the company. Haynes became president and chief executive officer of Esso Resources Canada Limited in September, 1978 and, in October, 1 98 1 became chairman of the board, retaining his position as chief executive officer. He was appointed executive vice-president of Imperial Oil Limited on January 1, 1982. TORONTO 481 University M5W IA7: (416) S96-300O.

Editorial: 596-5632 Advertising: 596-5672. Telex 06-219547. CALGARY Suite 305. 999 8th St. S.W..

T2R IJ5: (403) 244-8310. Telex 03-827954. EDMONTON Suite 512, 10089 Jasper T5J 1B2: (403) 420-6320. MONTREAL 1001 Boul. de Maisonneuve H3A 3EI: (514) 845-5141.

OTTAWA Suite 311. 151 Sparks KIP 5E3: (613) 236-0895. VANCOUVER 1 1 1 1 Melville V6F. 3V6: (604) 683-8254. Telex 04-54339.

WASHINGTON C. Room 1054, National Press Building, 529 14th 20045: (202) 347-6930. panies can be. Publishers Statement, first 6 months 1982. subject to audit).

Indaxad cwsHnat (Canada) INFOMART and QL Systems (US.) ORBIT and PREDICASTS. Indexed In print; Canadian Business index, Canadian Periodical Index and Index International. Microfiche and microfilm: Maclean Hunter Micropublishing. Commercial Oporatfomi Rein Harmatare. general man-agcr, Cuyler Bowness, assistant general manager.

Corporation Service: Complete card service $215 monthly. Customized services $1 1 a year per company. Dividend service (including 39 weekly, 1 1 monthly and one annual publication) $170 a year. Also available from Corporation Service: Survey of Mines Energy Resources, 1982 annual $45; Survey of Industrials, 1982 annual $34'; Survey of Predecessor St Defunct Companies. 1981 annual $20; Canadian Markets, 1983 annual $75; Directory of Directors.

1982 annual $50; Who's New. $25 per quarterly issue, $72 per year; Management Diary, 1983 Can-Prcf. annual Bond Record, annual 1 2.50'; Bond Record II. annual $39.50 ('plus $2 50 postage and handling, $1 for each additional copy ordered at the same time). Invortiisaill Databank: Computerized financial data bases; magnetic tapes, time-sharing and printed services.

Invortor's Difaot ot Canada: Harris, publisher 24 issues a year, $95 a year in Canada and U.S.; $125 elsewhere Subscription: Single copies. II, Yearly in Canada, $27.95. includes 50e annual subscription fee for The Financial Post Magazine; three years. $59. includes $1.50 for the Financial Post Magazine U.S.

A (excluding Financial Post Magazine) $37 95 yearly, three years $83. Overseas $85 for one year (excluding Financial Post Magazine), $237.00 for three years. Send subscriptions to: Box 9100, Postal Station A. Toronto, M5W IV5. For subscriber service, phone (416) 596-5148.

Canadian second class mail registration number 1062 (Postmasters: send form 29B to Box 9100, Postal Station A. Toronto. M5W I V5.) In U.S. second class postage paid Buffalo. New York.

(USPS 105-570). U.S. postmasters please send form 3579 to The Financial Post. P.0 Box 4541, Buffalo. Y.

14240. 30 Old Burlington London WIX 2AE, Cable Atabek, Telephone 01434-2233. Telex 51-2455. Mfctaan-Hunter PuMthfng Corp 222 Marginal Fort Lee. N.J.

07024; (201) 947-2300. 300 West Adams Chicago, 60606r (312) 726-2802 Mwibw AudH Buraau erf Circulation company receives one statement for all air travel charged during the designated billing cycle. There is nothing piecemeal about it. (5) Controlled Use. Only the employees you designate can use the card.

This enables you to stay within budget. THE Aflt TRAVEL CARD OWN THE SKY Advertising rate: Single insertion. S6.20 per agate line, S86.80 per column inch (min. one inch). Appointment notices, $12.12 per agate line.

SI69.68 per column inch. Real Estate Marketplace. $5.00 per agate line, $70 00 per column inch. Contract rates upon request. The Financial Post registered trade mark number 191,246.

Incorporating Western Business which is published from time to time as a special supplement. Contents copyright 1982 Maclean Hunter Limited A complele line ol An and Helium Balloons with your message imprinted Automatically inllates. seals and sitings in 6 seconds A Maclean Hunter publication Mi i i I i i I I i wi i i mrmmii nMncw ron unman James K. Warriltow Chairman ft CMof ExtcwtJvt Officer Donald G. Campbell Frederick Metcalf Published weekly Vol.

76, No. 42 Send for your FREE Yrp uaHoon Promotion KH containing actual (U)92MIU Windy Sal loom Ltd 4M Bath or at Si. Toronto, Ontario MoT 2M.