October 9, 2006

Dear Unitholder:

The net asset value of Formula Growth Fund as of September 30, 2006 was $3,702.73 per unit. In Canadian dollars, this price reflects a 2.5% decrease for the third quarter and a 2.2% decrease for the year to date period. In U.S. dollars, the Fund decreased 2.5% for the third quarter and has increased 2.2% for the first nine months of 2006. Strength in the Canadian dollar during the year has continued to hurt our Canadian dollar returns.

The Fund's U.S. dollar results are slightly ahead of the returns for the average U.S. small-cap fund which declined 2.7% during the third quarter and has increased 1.9% year to date. This compares to our own decline of 2.5% for the quarter and our 2.2% increase for the year. Nervous investors have favored large-cap stocks this year, especially during the challenging third quarter. It was apparent that investors sought the safety of Blue Chips and value stocks during the difficult summer months while aggressive stocks were left to languish. Accordingly, our results are lagging those of the large-cap indexes listed above as well as the more value oriented Russell 2000 index.

The U.S. stock market has been maligned in recent years as the S&P 500 has compounded at a negative 1.4% per year since the beginning of the decade. This negative return, of course, was greatly influenced by the implosion of the year 2000 stock market bubble. If returns do not improve in the next few years, the first decade of the new millennium is shaping up to be the worst ever for U.S. stocks. Bear in mind that the U.S. market has returned approximately 9% on average for the last 80 years. We believe that there is a good chance returns in the U.S. will revert to their long term average. In fact, there are already signals that the tide is quietly turning.

Many observers do not realize that U.S. stocks have been on a quiet, steady march upward for nearly four years. This rise has been accomplished with little fanfare. Since the market bottom on October 9th, 2002 the DOW is up 60%, the S&P 500 is up 72%, the NASDAQ is up 103% and the Russell 2000 is up 121%. During the same time, Formula Growth Fund has increased 125%. These are very impressive returns yet no one seems to appreciate them. Those who seem to care the least about these U.S. returns are Canadian investors who have been focused on the scintillating returns of the Toronto Stock Exchange. Canadians have also been ambivalent since these U.S. gains, when translated to Canadian dollars, have been largely wiped out by the 43% rise in the value of the Canadian dollar since October 2002.

Aside from the stealth U.S. bull market since the bottom, we see a variety of factors that give us optimism that growth stocks are poised to enter a period of better returns. Remember, though, Formula Growth could be described as a permanent bull on growth stocks as we believe rapid earnings growth does drive stock price gains over the long term. Yet, we do recognize that there are often extended periods of time where growth stocks underperform.

We are enthusiastic because:

1. Growth stocks are due for a turn. The Russell 2000 Value Index has outperformed the Russell Growth Index by an unprecedented 122% since July 26, 2000.
   
   
2. Many of the gains in the past five years have been concentrated in very narrow, cyclical sectors of the market. For example almost 44% of the five year return of the S&P 500 has come from energy and financial stocks. Energy stocks are up over 200% in the past five years. The majority of the Toronto Stock Exchange gains have also come from these same areas.
   
   
3. Valuations are compelling for growth stocks. Growth stocks now have the same price earning multiples as "value" stocks in the Russell 2000 index. Our own portfolio is very inexpensive. It is trading at approximately 14 times 2007 earnings. Our trailing multiple on the four quarters ended June 2006 is 23 times while the Russell 2000 is at 34 times. On average, we expect far greater EPS growth from our holdings than the growth which will be achieved by the Russell 2000.
   
   
4. Technology is the driver of growth in the economy and technology fundamentals and spending are showing an uptick.
   
   
5. A wave of strategic M&A and buyout activity fueled by the flood of capital in private equity and hedge funds will provide downside protection and increase valuations. We have had a number of holdings acquired or taken private this year. It also shows that management teams are optimistic and willing to play offense.
   
   
6. Corporate share repurchases have been robust as corporate cash levels are high and CEOs understand the benefits and value in shrinking their share counts when their stock prices are cheap.
   
   
7. Sentiment for growth stocks remains relatively negative among investors. This is always a good sign. Evidence of this is the fact that NASDAQ short interest is at an all time high and mutual fund flows are negative for aggressive growth funds.
   
   
8. Interest rates and inflation are in check. This, along with a slowing GDP growth rate for 2007, makes true growth company earnings more valuable in the eyes of investors.
   
   
9. The SEC recently recommended that small companies be relieved of the cost and burden of complying with Sarbanes Oxley. Hopefully this is the beginning of a movement towards less regulation.

While no one will ring a bell, we strongly suggest that the balance of this decade will be a more rewarding period for growth companies in the U.S. Formula Growth looks forward to reverting to our own historic returns as the years unfold.

For our taxable Canadian residents, there are no realized capital gains so far this year and it is unlikely that there will be an allocation this year. Should you require a confirmation of this towards the end of the year, for tax planning purposes, please do not hesitate to contact the office directly.

Yours truly,