Yuri Rutman, CEO of Noci, Says Investing In Film Is Safe ForThe $10,000 & The $10,000,000 investor

The current global economic crisis, the plunging of real estate and stocks as "safe" investments, and hedge fund operators like Bernard Madoff have put an international dent into what has historically made millions of retail, private equity, and venture capital investors feel secure.

With U.S. companies folding every day if bailout funds don't rescue them, real estate, stock market, and Angel investors running for the hills, is there any industry or investment that can still be considered "safe" whether its for the $10,000 investor or the $10,000,000?

"Film, Entertainment, Media, And Hollywood in general seems to be thriving and immune from economic woes", states Yuri Rutman, the head of Noci Pictures Entertainment (www.noci.com) a Chicago and Los Angeles film production and structured finance company which is opening its doors to the smaller retail investors as well as institutional ones. "If you look at the theatrical box office receipts and DVD growth of recent films, including 'Slumdog Millionaire' which had zero movie stars, the ROI on these and numerous other films exceed the ROI and revenues of auto manufacturers, real estate, stocks, mutual funds, etc/. " adds Rutman. "Primarily because a well made film is not a local commodity that is just bough and sold once but a global one that has revenue potential from more than 50 countries and medias including theatrical, cable, tv, satellite, airline, DVD, and the huge explosion of Video on Demand".

Rutman is currently seeing that the value and opportunity for either a smaller $10,000-$250,000 retail investor or large private equity fund with millions to generate a 60-100% ROI on their investment before a film shows profits is unmatched in today's shaky economic avenues.

"Retail Investors who either want to take a 100% Federal deduction under Section 181 or “The American Jobs Creations Act” against their passive income, or corporate investors and family offices that want to take the deduction against their ordinary income can leverage their investment with monetized state tax credits to get a return before a return", stresses Rutman.

"In practical terms a $50,000 investment in a film will generate approximately a $17,500 federal tax reduction assuming an investor's tax rate is 35%, and, a $15,000 cash return from the sale of a film production tax credit assuming a film is shot in Illinois using the 30% state tax credit.

"The same holds true for larger private equity players or regular C corporations that want to reduce their overall federal tax liability. For larger deals a $10 million dollar film shooting in Illinois, $5 million would be equity, $5 million would be non-recourse debt through international pre-sales of a film” adds Rutman. “Assuming a discounted rate of about 28% (from 30%) tax credit from Illinois, that equals approximately $2.8 million dollars back into a film fund before revenues. Now assuming a Section 181 deduction is applied at a federal tax rate of 35%, an additional $1.75 million dollar reduction in Federal income taxes may be achieved so in effect investors are getting back almost $4.6 million dollars on a $5-10 million dollar investment before revenues, additional pre-sales, licensing, etc.”

“No matter how bad things are in the world, people need to be entertained”, states Yuri Rutman, Noci’s CEO. “And while the crowd mentality of panic in the U.S. financial markets exists, overseas, properly structured commercial films generate more revenues which add to bigger distributor buys with the value of the Euro vs. USD.”

Many Angel investors including billionaires,family offices from Wall Street such as Dune Capital and Elliot Associates to Silicon Valley to the Middle East to Russia have been parking their money into Hollywood.

Anil Ambani, Larry Ellison Of Oracle, Paul Allen Of Microsoft, Steven Rales, Fred Smith of Federal Express, Norman Waitt, the Co-Founder of Gateway Computers, Jeff Skoll Of Ebay, Marc Turtletaub of The Money Store, Roger Marino Of EMC Corp, Sidney Kimmel Of Jones Apparel Group, Minnesota Twins owner Bill Pohlad; Real Estate Developers Tom Rosenberg and Bob Yari, and, financiers Sheikh Waleed Al Ibrahim, Michel Litvak, and Philip Anschutz are all behind the finance of a lot of films that range from box office hits to Academy Award winners.

While the glamor of the movie business may be appealing to most, at the end of the day, it is still an unknown business that many try to gamble on, and only a handful come out as winners. The real key is to minimize risk, maximize profits, and offer a steadier stream of revenues than what other alternative investments may offer such as real estate, oil & gas, commodities, hedge funds, or practically any other investment in today's market.

Traditionally a lot of media and film funds have sunk because the equity parlayed into these deals was junior. Most of these funds have, and continue to, finance large budget studio films in the $40-$100 million dollar range with senior and mezzanine debt being first and second in position while the junior equity is usually never recouped.

Instead of dazzling investors with smoke and mirror Monte Carlo simulation models that offer various IRR's and scenarios based on unpredictable film revenues streams and junior equity to trigger senior and mezz debt,the key is to offer an absolute return on investment utilizing international and U.S. public tax incentives that in certain instances can guarantee 100% or more of invested capital prior to revenues by leveraging equity positions with non-recourse debt vs. recourse debt.

"Historically, the doors to great commercial films were only open to the big private equity players. Now, its the dentist, doctor, trader, or other Angel Investor can participate with smaller amounts and still have all the upside".

For smaller individual accredited investors and family offices who are not aligned with large capitalized hedge funds and fall into the $10,000-$250,000 retail investor markeptplace, Rutman can accommodate such situations using single picture financing strategies incorporating risk minimization techniques and tax advantages that are part of the entire U.S. economic stimulus package.

”I am surprised how many accredited investors, family offices, asset managers, hedge funds, fund of funds, Venture Capitalists, tax planners, CPA’s, tax attorneys, public and private companies have no clue about these benefits”, Rutman adds. “Federal Preservation, New Markets Tax Credits, etc was the usual route for tax credit planning or alternative investments , but film production incentives offer a more liquid premium, equity, as well as a little Hollywood adventure".

Rutman continues that "Investors never realized that apart from the upside in revenues, high ROI's, etc., they are literally creating jobs. Every movie has anywhere from 50-100 people who work on it for 3-4 months and that's all the money some of them may earn in one year or more. If I can provide enough film projects that the same crew can work on year round, everyone wins at the end of the day. Now that's my definition of a 'conscious investment'".

Sovereign Wealth Funds, Private Banks, Family Offices, Pension Fund Eye Alternative Asset Class Investments In Movies, Media, & Entertainment

When defense contractor Honeywell invested nearly $600 million dollars in a film fund a few years ago, it was the beginning for many pension funds, private banks, hedge fund managers, private equity groups, and high net worth investors and family offices to enter the movie business.

And in today's economy of crashing public equity markets and non-existent real estate plays, one structured media finance company believes investing in film slates offers a high yield alternative investment.

"As an asset class, films have outperformed most industries in the world", states Yuri Rutman, head of media finance and consulting firm Noci Pictures (www.noci.com). "If you look at the more than $6 billion dollars poured into motion picture finance deals in the last 3 years, the IRR across the spectrum for both studios and independents are resilient to global economic declines in other industries."

Many Angel investors including billionaires,family offices from Wall Street such as Dune Capital and Elliot Associates to Silicon Valley to the Middle East to Russia have been parking their money into Hollywood.

Anil Ambani, Larry Ellison Of Oracle, Paul Allen Of Microsoft, Steven Rales, Fred Smith of Federal Express, Norman Waitt, the Co-Founder of Gateway Computers, Jeff Skoll Of Ebay, Marc Turtletaub of The Money Store, Roger Marino Of EMC Corp, Sidney Kimmel Of Jones Apparel Group, Minnesota Twins owner Bill Pohlad; Real Estate Developers Tom Rosenberg and Bob Yari, and, financiers Sheikh Waleed Al Ibrahim, Michel Litvak, and Philip Anschutz are all behind the finance of a lot of films that range from box office hits to Academy Award winners.


Rutman is more optimistic about film as a superior growth oriented long term investment because its not based on regional factors and has a global base. "When educated about properly structuring leveraged film finance which may also include U.S. and international tax incentives to minimize the risk", states Rutman, "many private bankers, sovereign wealth funds, high net worth investors, family offices, and pension plans understand that they are not gambling on one film hoping to win a film festival. When a company is looking to finance 40,50, 75 films there is more than just upside on revenues from each one but a final exit strategy after 5-7 years that can bring 300-400% returns on capital invested".

source: FPR

"Film, Entertainment, Media, And Hollywood in general seems to be thriving and immune from economic woes", states Rutman. "If you look at the theatrical box office receipts and DVD growth of recent films, including 'Slumdog Millionaire' or "Twilight" which had zero movie stars, the ROI on these and numerous other films exceed the ROI and revenues of auto manufacturers, real estate, stocks, mutual funds, etc. Primarily because a well made film is not a local commodity that is just bough and sold once but a global one that has revenue potential from more than 50 countries and medias including theatrical, cable, tv, satellite, airline, DVD, and the huge explosion of Video on Demand".

While some private equity outfits may balk at the notion that Hollywood is safe, Rutman adds "this country was built based on blue chip industries and for the retail investors, Wall Street and Real Estate was the path to go. Well, when retail investors as well as institutional investors are transitioning from brick and mortar investments to the film business, the underlying factor is 'why'?"

Rutman's Noci Pictures Entertainment is currently advising on several structured film slates as well launching their own in house deal which also has a new U.S. theatrical distribution entity which will be headed by the former Chairman and President of a major movie studio.

"From prospective clients inquiring if IRS Section 181 benefits can be transferred to foreign investors to family offices and wealth managers wondering how an investment in film slate deals can offer their clients an absolute return based on monetizing state and international tax incentives as part of revenue streams, I am amazed by the stratification in investment needs from $1 million to $20 million", Rutman adds.

"Some U.S. investors and C corporations are looking for a strict 100% deduction of their investment under IRS Section 181. Overseas investors simply want a high yield asset class that has long term appreciation such as our hybrid film slate and 100% control over U.S. theatrical distribution".

Rutman's model offers in some cases a 40-70% ROI on equity prior to revenues. "I don't know any business that you can start today where you know exactly what your ROI will be exclusive of proformas and risk analysis. Its like owning a piece of 50 fast food franchises where the total return from each and the final sale of all will net you a nice premium".

Investing in Film Via IRS Section 181 Vs. New Markets Tax Credits in Real Estate Development

THE NEW MARKETS TAX CREDIT

The New Markets Tax Credit (NMTC) Program permits taxpayers to receive a credit against Federal income taxes for making qualified equity investments in designated Community Development Entities (CDEs). Substantially all of the qualified equity investment must in turn be used by the CDE to provide investments in low-income communities. The credit provided to the investor totals 39 percent of the cost of the investment and is claimed over a seven-year credit allowance period. In each of the first three years, the investor receives a credit equal to five percent of the total amount paid for the stock or capital interest at the time of purchase. For the final four years, the value of the credit is six percent annually. Investors may not redeem their investments in CDEs prior to the conclusion of the seven-year period.

An organization wishing to receive awards under the NMTC Program must be certified as a CDE by the Fund.

To qualify as a CDE, an organization must:

* be a domestic corporation or partnership at the time of the certification application;

* demonstrate a primary a mission of serving, or providing investment capital for, low-income communities or low-income persons; and

* maintain accountability to residents of low-income communities through representation on a governing board of or advisory board to the entity.

The FEDERAL HISTORIC PRESERVATION TAX INCENTIVES PROGRAM

The 20% tax credit Preservation Tax Incentives reward private investment in rehabilitating historic properties such as offices, rental housing, and retail stores. Abandoned or under-used schools, warehouses, factories, churches, retail stores, apartments, hotels, houses, and offices in many cities have been restored to life in a manner that retains their historic character. The Preservation Tax Incentives have also helped to create moderate and low-income housing in historic buildings.

Under the provisions of the Tax Reform Act of 1986, a 20% tax credit is available for the substantial rehabilitation of commercial, agricultural, industrial, or rental residential buildings that are certified as historic. The credit may be subtracted directly from federal income taxes owed by the owner.

The Historic Preservation Tax Credit Program benefits the owner, the occupants, and the community by:

o Encouraging protection of landmarks through the promotion, recognition, and designation of historic structures

o Increasing the value of the rehabilitated property and returning underutilized structures to the tax rolls

o Upgrading downtowns and neighborhoods and often increasing the amount of available housing within the community.

The American Jobs Creation Act Of 2004: 100% Federal Deductions %2B 20-30% State Tax Credits!

In the United States, the 2004 enactment of Section 181 of the Internal Revenue Code of 1986 (the "Code") marked an unprecedented change in U.S. policy toward the phenomenon known as "Runaway

Production".

Runaway Production refers to a film or television production that leaves one state or country to be filmed in another purely for economic reasons. This movement occurs because producers tend to film in the location where they can minimize production costs through tax incentives, cheaper labor.

Over the years, Canada has been the greatest beneficiary of U.S. runaway productions (according to some reports, Canada has claimed up to 80% of the U.S. runaways, generating an economic impact of $10.3 billion in production output in 1998 alone).

Section 181 represents the first time that the U.S. federal government has recognized this impact by passing tax legislation to actively combat the flight of film and television programming.

Section 181 permits a 100% write-off for the cost of certain audio-visual works, regardless of what media they are destined for (e.g., theatrical, television, DVD, etc.).

An individual or company who makes an investment into Section 181 qualified productions can take a 100% deduction of their investment against their passive (individual) or ordinary (as C Corporation) income in the year their investment was

made.

The deduction can be made against active income should the investment be made by or through a widely held C corporation. The law is in effect until December 31, 2009, therefore investments must be made before that date and the money invested into qualifying productions must be spent by then by the productions.

An example, should an individual or corporation that is taxed at a 35% tax rate have passive income to take a deduction against, then should that individual make a $1 Million investment into a qualified production or film fund, the actual net investment will be $650,000 since they can take a deduction against that full $1 Million against their passive income, and 35% of $1M is $350,000, which is the value of the deduction they can make in the year they make their investment. Therefore, 1M minus $350,000 is $650,000 which is the net amount of their investment into the qualified production.

However, an investor or Company can also receive an additional 15-30% in state tax credits on the entire budget of a film BEFORE profits and other exit strategies that Noci Pictures Entertainment has in place.

This clearly shows a premium in tax credit and tax liability deduction compared with the other Federal Tax Credit Programs available.

Further, The Section 181 and State Programs benefit the tax credit investor, the producers, and the community by offering:

In the Short Term:

1. 100% passive or ordinary income deductions under the IRS Section 181 "American Jobs Creation Act" for both individuals and corporate tax payers

2. 20%-30% in State Tax Credits (depending on state)

3. Economic Development

4. Job Creation, Including For Minorities And Women

5. ROI on Investment of 60-100% prior to revenues

In Medium-Long Term it would offer

1. hedge of revenues (after Section 181 and state incentives of 60-100% ROI) back to investors from individual or a slate of films

2. Discount of future taxation from income under Section 199 for a Section 181 investment

3. Conversion Option in LLC to Common Stock for additional liquidity via reverse merger in U.S or exit IPO on London AIM



SECTION 199

Section 199 is the income section; it is called the manufacturing section of The American Jobs Creation Act, 2004. Film Production has been defined as a manufacturer but television is not. Section 199 does not apply to television.

This section says that any manufacturer (Film Production) can have some tax relief on money returned to the investor.

o from 2005 till 2007 the taxpayer is entitled to a 3% deduction

o from 2007 to 2010 they get a 6% reduction

o And from 2010 on the get a 9 % reduction.

For example, if an investor get $1.00 back on a investment in a movie after he has already written off 100%, then he will only be taxed on .94 cents if I he is given it back between 2007 to 2010. From 2010 on then an investor gets to pay taxes only on .91 cents and it stays at this 9% rate.