October 1, 2002

Dear Unitholder:

There is little doubt that the third quarter was horrendous for investors. The Fund's 25.5% decline underperformed the market as can be seen from the quarterly results of the indexes listed below. In Canadian dollars, we declined 22.1% during the quarter.

On a year to date basis, our 37.3% drop is roughly in line with the more aggressive indexes similar to the Fund such as the NASDAQ (down 39.9%) and the Russell Growth (down 35.5%). Even the blue chip S&P 500 has declined 29.0% this year. According to Lipper, other U.S. growth funds are down between 31% and 34% depending on the market cap sizes of the stocks held. The bear market has not been confined only to the U.S. as Canada's TSE 300 is down 20% and the European Stoxx index is down 35%. Essentially, unless a fund was siginificantly in cash or held large short positions, it has been next to impossible to avoid large losses.

While we are deeply frustrated and disappointed with our short term results, our relative underperformance does not surprise us from a historical perspective. The Fund typically performs worse than the market in bearish times but far better when the market turns in bullish periods.

The Fund underperforms in bear markets primarily for three reasons. Firstly, when the economy is poor and end market demand is weak, it is often more difficult for smaller companies to deliver on their earnings given their narrowly focused business plans. Secondly, small cap companies often require capital to grow and in difficult times the capital markets shut down. Thirdly, small companies typically have fewer shares outstanding available to trade. These issues of illiquidity and greater risk conspire to magnify stock price declines. Remember, these are the same forces that drive stock prices up equally dramatically when the bull market starts again.

While we are aware that recent results are of utmost importance, we take some solace in the fact that our long term record by far outperforms all of the indexes listed above. For example, $10,000 Canadian invested in the Fund ten years ago would have grown to $33,000 or to $115,000 in twenty years. The same amount invested in the S&P 500 would have grown to only $25,000 in ten years or $86,000 over twenty years.

Our mandate is to run a fully invested portfolio and, as such, it is inevitable that we will have significant losses during extremely weak markets. Quite simply, there are times when stocks just do not work. We wish we could see these periods coming but, unfortunately, we feel market timing cannot be achieved on a sustainable basis. Instead, in these bearish periods, we try to position the portfolio as best we can so that when the climate turns more positive we will more than recover any short term losses. It is our strong conviction that you must be on the field before the game commences or you run the risk of missing the upswing entirely. So far, over our 42 year history, this practice has served us very well.

We hope that the following five examples from the last 30 years help illustrate this principle. We have added a little color to describe some of the fears which were occupying the minds of investors at the time. We have also attached a thirty year chart of the Fund to give a little graphical perspective. Everything is expressed in Canadian dollars.

FORMULA GROWTH FUND
Performance vs. NASDAQ and S&P 500
From September 30, 1972 to September 30, 2002
(Expressed in Canadian Currency)

FORMULA GROWTH FUND
Performances vs. NASDAQ and S&P 500
From September 30, 1972 to September 30, 2002 (Canadian Dollar)

September 1974

• Fund declines 58% over the previous twenty-one months
• NASDAQ down 59% and the S&P 500 down 47%
• President Nixon forced to resign
• United States defeated in Vietnam
• Arab Oil embargo in full swing, creating the worst recession since the great depression
• New York City on the verge of bankruptcy

Subsequent Result

• Fund increased from $24 per unit to $462 or 1,825% over the next 105 months

July 1984

• Fund declines 28% over previous 13 months
• NASDAQ down 23% and S&P 500 down 4%
• Over-abundance of technology initial public offerings failed miserably
• Double digit inflation
• High double digit interest rates
• Bulging and growing budget deficits

Subsequent Result

• Fund increased from $331 to $732 or 121% over the next 37 months.

November 1987

• Fund declines 39% over preceding three months
• NASDAQ drops 33% and the S&P 500 31%
• Crash of 1987 thought by popular market gurus of the day to be predictive of 30 years of depression and despair.

Subsequent Result

• Fund rises by 40% over the next 21 months from $493 to $689.

October 1990

Fund declines 36% over preceding 4 months

• NASDAQ drops 28% and the S&P 500 falls 15%
• Dennis Levine and Ivan Boesky shake investor confidence with inside trading scandals
• Michael Milken being tried for stock manipulation and Drexel Burnham goes bankrupt
• Saddam Hussein's Iraq invades Kuwait and pundits predict $100 barrels of oil and years of another Vietnam
• Charles Keating, CEO of American Saving and Loan, jailed for fraud and the whole U.S. Savings and Loans industry almost collapses

Subsequent Result

• Fund rises by 853% or from $389 per unit to $3,706 over the next 90 months.

August 1998

Fund declines 23% over preceding 4 months

• NASDAQ drops 12% and the S&P 500 6%
• Russia defaults on its debt and the financial markets unravel
• Greenspan must bail out banking and brokerage system due to the demise of Long Term Capital - a hedge fund run by John Meriwether and Myron Scholes
• Press coins popular term "Asian Contagion" to describe the severe problems in the Far East

Subsequent Result

• Fund rises by 86% from $2,859 per unit to $5,307 over the next 24 months.

The recent declines since the beginning of the current bear market in August 2000 rival any we have experienced in the past. We have no reason to believe that the subsequent outcome of this one will be any different than the others illustrated above. We remain the same organization with the same philosophy operating in the same market for the past 42 years. The longer term perspective we take on investing allows us to sleep at night, knowing that growth stocks offer the best investment returns over the long run.

Unfortunately, we remain in the after-math of a rapidly deflating stock market bubble which, together with the war on terrorism and a sputtering U.S. economy, have resulted in a very poor investment climate. Adding to this we have witnessed severe lapses in corporate governance and a significant number of companies whose earnings continue to fall short of expectations. As a result, investors have gone from believing in any investment idea at the top to utter disbelief today. Perversely, this disillusionment is a sign of the bottom. This, in addition to other important signals such as mutual fund redemptions, insider buying, corporate share buy backs and much more reasonable valuations on stocks all point to a bottoming process. We have no idea when the bottom will be made but, unlike the majority of investors, we know that a turn will occur and we will be there when it does.

For our taxable Canadian residents there are no realized capital gains so far this year. It is extremely unlikely there will be any this year.

Yours truly,