July 9, 2007

Dear Unitholder:

The net asset value of Formula Growth Fund as of June 30, 2007 was $4,211.63 per unit. For the quarter, this represents a 0.4% decrease in Canadian dollars and an 8% increase in U.S. dollars. The Canadian dollar resumed its strength during the quarter which substantially hurt our reported Canadian dollar returns.

In the second quarter, and for the year, the Fund's U.S. dollar returns were in line with or better than the U.S. stock market indexes listed in the table above. Our performance is also comparable to the average U.S. small-cap growth manager who was up 7.5% during the second quarter and gained 10.9% in the year to date period. Overall, we are satisfied with our performance in the first half yet the Canadian dollar continues to give us pause.

Since we have received a number of calls on the issue of the Canadian dollar, we felt it appropriate to spend a little time on the matter in this quarterly letter. The closing day of the second quarter saw the Canadian dollar touch a 30 year high of $0.9546 U.S. The weakening U.S. dollar drives down our reported Canadian dollar results. It is important to remember that Formula's mandate has always been to invest in non Canadian stocks, and therefore currency will always be a risk to our Canadian unit holders.

As can be seen from the enclosed Performance Review, this year's Canadian dollar results have been particularly hard hit. The Fund's 10.7% U.S. increase has been virtually wiped out by an offsetting rise in the Canadian dollar. In our 47 year history, there has only been one other quarter with a move of this kind of magnitude in the currency (June 2003).

Over the past five years, our Canadian dollar investors (and we include ourselves among this group) have unfortunately seen an 8% erosion in their Canadian dollar returns per year! Put another way, if the U.S. dollar had held constant over the past five years, the Fund would be priced in Canadian dollars at over $6000 per unit instead of today's $4212. The Canadian dollar has been one of the world's strongest currencies over the past five years . For example, it is up 48% against the U.S. dollar, 14% against the Euro, 18% against the British pound and 53% against the Japanese yen. It is widely accepted that the strength in the Canadian dollar has been primarily driven by the tremendous world-wide demand for commodities.

On top of the strength in the Canadian dollar we have also seen weakness in the U.S. dollar itself against most of the world's major currencies. This has further hurt the U.S./Canadian exchange ratio. The U.S. dollar has been weak due to the well-known difficulties in the U.S. in recent years (terrorism, the Iraq war, corporate fraud, Sarbanes Oxley etc.). Our gut feeling is that enough is enough and the worst of the decline in the U.S. dollar is behind us.

As a U.S. fund manager specializing in the niche of emerging growth stocks, we have held our own through a troubling decade for the U.S. markets. Our results have been in line or ahead of the popular U.S. indexes (expressed in U.S. dollars) since the markets began their descent in the year 2000. Over the past five years, we have made almost 12% U.S. per year which is 300 basis points ahead of the S&P500. We also compare favorably with the average U.S. growth stock manager.

It is important to recognize that the Fund is making new highs in U.S. dollars these days, as are the America markets. Our portfolio remains cheaper than the inexpensive U.S. market. Evidence of the low valuation is obvious given the preponderance of takeouts we have seen in our portfolio, as well as in the market in general. The majority of our holdings in the portfolio are delivering earnings on plan while the U.S. economy continues to lumber along. These are nascent signs that the slumbering U.S. juggernaut is awaking and that many of the issues that have been plaguing the U.S. market this decade are fading away. If these issues do moderate, there is every reason to think we should return to our historic rates of return.

Today at Formula Growth, the process, people and philosophy are the same ones that have earned the 14% U.S. dollar return over 47 years. We are convinced that the strong Loonie is offering Canadians a golden opportunity to diversify away from the narrow offerings of the Canadian market. Now is the time to load up on American stocks on sale.

For those unitholders who were unable to attend our annual general meeting on May 15th, 2007 the presentation is available here. The presentation includes additional qualitative and quantitative information that may be of interest.

For our taxable Canadian residents there are no realized capital gains so far this year. We will provide an update in the next quarterly letter.

Yours truly,