Alliance Atlantis Communications is spinning off its movie distribution business into an income trust.

AAC filed a preliminary prospectus dated Aug. 29 for an initial public offering of units in what it is calling the Movie Distribution Income Fund.

The fund will acquire a still-be-to-determined interest, but not control, of Motion Picture Distribution LP, which at closing will acquire AAC’s movie distribution business in Canada and the U.K.

The prospectus prices the trust units at $10 each, but does indicate how many units are to be sold. Cash flow will be distributed to fund unit holders on a monthly basis.

Alliance Atlantis’ motion picture distribution group reported total revenues of $400 million for fiscal ’03 (ending March 31), up from $331.8 million in ’02.

Direct operating expenses in ’03 were $321.8 million and direct operating profits were $78.2 million.

EBITDA for ’03 was $52.1 million, up from $45.8 million in ’02.

The income trust could have a value of over $500 million, based on a 10-times multiple of the ’03 EBITDA for AAC’s movie distribution business.

About 81% of AAC’s motion picture distribution revenues comes from its Canadian operations: Alliance Atlantis, Odeon Films and Alliance Atlantis Vivafilm (Quebec market); and 19% from the U.K. operation, Momentum Pictures.

The revenue split is $324.6 million from Canada and $75.4 million from the U.K.

Of the total Canadian revenue, 51.5% originates from the home entertainment market (video and DVD sales), 18.5% from sales to TV, 4.4% from AAC’s exhibition business and 25.1% from theatrical distribution.

In the U.K., over 70% of revenues comes from the home entertainment market.

Two-thirds of AAC motion picture revenues in ’03 originate with exclusive output agreements, covering all rights in Canada, with four U.S. based studios: New Line Cinema, Miramax Film Corp., Artisan Entertainment and Focus Features, a division of Universal Pictures formerly known as USA Film. AAC also has an agreement to distribute and market Universal Studios product in the Canadian home entertainment market.

In ’02, AAC distribution operations combined for a leading 19.1% market share in Canada. Alliance Atlantis, Odeon and Vivafilm released 83 films in the period for total gross box-office receipts of $182.8 million.

Recent motion pictures from the four major U.S. suppliers include The Lord of the Rings: The Two Towers, Gangs of New York, Chicago, Spy Kids 3-D: Game Over, About Schmidt and Austin Powers in Goldmember.

Upcoming releases include The Lord of the Rings: The Return of the King, Scary Movie 3, Quentin Tarantino’s Kill Bill, starring Uma Thurman and Lucy Liu, and Cold Mountain, starring Jude Law, Nicole Kidman and Renee Zellweger.

The AAC prospectus includes data from Kagan WorldMedia stating worldwide revenues for motion picture distributors increased from approximately $21 billion to approximately $48.9 billion during the 10-year period from 1992 to 2002, representing a compound annual growth rate of 8.8%.

In 2002, the prospectus states, the Canadian motion picture exhibition industry experienced its seventh consecutive year of growth in theatrical box-office receipts, achieving a record level of approximately $919 million, according to ACNielsen.

Motion Picture Distribution LP, or ‘The Partnership’s’ senior management team includes Victor Loewy, CEO; Patrice Theroux, president and COO; Jim Sherry, president of Canadian theatrical distribution; Guy Gagnon, president, Vivafilm; and Sally Caplan, senior VP, acquisition and business affairs, Momentum Pictures.

W. Judson Martin, senior EVP and CFO of Alliance Atlantis, will also serve as the fund’s CFO.

The underwriting syndicate for the offering will be co-led by CIBC World Markets and RBC Dominion Securities.

It is expected that the trust fund will file an amended and restated preliminary prospectus (containing additional financial information for the period ended June 30, 2003) by mid-September.

The preliminary prospectus will be posted at www.sedar.com and at www.allianceatlantis.com.