October 6, 2004

Dear Unitholders:

The net asset value of Formula Growth Fund as of September 30, 2004 was $3,270.34 per unit. This price reflects a 14% decrease for the third quarter and an 8.7% decrease for the year to date period. In U.S. dollars, it represents an 8.9% decrease for the third quarter and a 6.7% decrease for the first nine months of 2004. Significant strength in the Canadian dollar during the third quarter hurt our Canadian dollar returns.

We are disappointed with our results for the third quarter and with the performance so far this year. For the quarter, our 8.9% decline trailed both the 2.3% decrease in the S+P 500 and the 3.1% fall in Russell 2000 Index. The more representative aggressive growth indexes such as the NASDAQ and the Russell Growth Index posted weaker results, decreasing 7.4% and 6.1% respectively. As well, the Fund's results were a little more in line with other small cap growth funds which dropped 6.2% during the quarter. It should be remembered that the Fund dramatically outperformed all indexes last year with a 59% US dollar return. Taking the two years together, Formula is roughly in-line with the Russell 2000 and substantially ahead of the S+P 500.

A large part of this year's relative under performance is simply due to a tough environment for aggressive growth stocks. Risk taking this year and, for that matter, for much of the past five years is out of vogue. There is a defensiveness that prevails in most parts of the U.S. economy. The corporate sector has placed an intense focus on accumulating profits and cash flows since the bubble and this has resulted in little aggressive expansion and job growth in many sectors. As a result, the climate has been difficult for Formula Growth's traditional growth sectors such as telecom, technology, consumer and health care. It has been hard to make much headway in these areas and we have had more than our fair share of earnings disappointments. Unfortunately, the asset classes which have been performing well are areas where we traditionally do not invest. These include bonds, value stocks, cyclical stocks such as energy and basic industries, and the Canadian dollar.

These factors, together with the sheer breadth of troubling news and headlines, have made caution the order of the day. The media continues to focus on the disturbing headlines - $50 oil (up 55% from the beginning of the year), soaring commodity prices, rising interest rates, continued geopolitical uncertainty, increasingly negative news in Iraq and uncertain presidential election outcomes. It is understandable that there have been stock price declines in this type of climate.

As always, we remain growth stock investors and are confident that our style of investing stands the test of time. Our 14.3% Canadian compounded return after fees since 1960 was achieved by investing in companies growing their earnings per share at above average rates. We were surprised to read that the Lehman Brothers Bond Index since 1997 had returned 7.4% versus 4.5% for the S+P 500. Clearly this is a situation that must reverse in the upcoming years as the love affair with risk aversion subsides and investors seek better returns.

At some point, this will cause equity returns to revert to their long term average of 9%. We feel that the Formula Growth portfolio is properly positioned, the valuation is inexpensive and that expectations built into our models are reasonable. We therefore look forward to our own powerful reversion to our historical compounded returns. It may perhaps have begun, as we are up 12.8% since the market turned August 12th.

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,