January 6, 2006

Dear Unitholder:

The net asset value of the Fund as of December 31, 2005 was $3,785.98 per unit in Canadian dollars. This represents a 4.2 % increase for the year and a 2.9 % increase for the fourth quarter in Canadian dollars.

In U.S. dollars, the Fund increased 7.5% for the year and 2.5% during the fourth quarter. The Fund's performance for the year was comfortably ahead of the major U.S. Indexes listed above. The performance also compares favorably with the average U.S. Small Cap Growth Fund which was up 5.7% for the year. Unlike the stellar gains in the Canadian market, it was a year of lackluster performance in the American stock markets. We view our return of 7.5% as mediocre on an absolute basis yet it was still more than twice that of the market. Accordingly we are more pleased on a relative return basis.

Over the past three years, the Fund has lost 26% of its value because of the appreciation in the Canadian currency. Put another way, if the exchange rate between the Canadian and U.S. dollar had held constant over the past three years (or we were clairvoyant enough to hedge), the price of the Fund would be $5,129 Canadian for an increase of 87%. Your guess is as good as ours with respect to when the Canadian and U.S. dollar exchange rates might stabilize. We would note, though, that the U.S. dollar was actually quite strong against most major currencies during 2005 with the Canadian dollar being one of the few exceptions.

While returns were uninspiring during 2005, there were exciting moments in the investment landscape as the U.S. economy continued to surge. Unfortunately, enthusiasm was tempered by fears over cooling house prices, widening government deficits and rising interest rates as well as continued concerns over Iraq and the war on terrorism. Essentially, the U.S. stock market absorbed all the ups and downs and in the end, no matter the strategy, most U.S. investors ended the year disappointed.

The antithesis of the U.S. malaise was the Canadian stock market, which soared. Returns were once again sensational as investors rode the coattails of the commodity boom. Not only did Canadian investors do very well in the markets but they also enjoyed the fruits of a strong currency, the removal of the foreign content limit for RRSP's, a raised RRSP contribution limit, a tax cut on dividends, and most importantly the Income Trusts were spared a tax hit. We find it hard to believe things can get any better for Canadian stocks, as we move into 2006.

After a year like 2005 we are reminded once again that the $12.5 trillion U.S. economy is extraordinarily deep and resilient. The 4% rate of growth in the U.S. economy in 2005 has been especially remarkable in light of the eight Federal Revenue Board interest rate hikes, oil prices as high as $70 a barrel and hurricane Katrina which was one of the most devastating natural disasters in American history. With this sort of performance we feel that the U.S. stock market cannot lag for long.

The depth, resilience and innovative nature of the U.S. economy are the reasons we continue to focus on U.S. equities. There are always interesting stocks to pursue in the American markets during any stage of the economic cycle. The upcoming U.S. economy should yield slowing, yet steady growth with higher interest rates. In this sort of investment environment value stocks whose businesses are more closely related to the economic cycle will be less bright. We believe that the prospects for carefully selected, smaller growth stocks should offer solid returns.

For 2005 there is no capital gain distribution. No T3 forms will be issued to our Canadian resident unitholders. Please do not hesitate to call the office if you need any clarification.

On behalf of the Officers and the Advisory Board members of Formula Growth Limited, Manager of Formula Growth Fund, please accept our best wishes for a healthy, happy and prosperous 2006!

Yours truly,