January 6, 2005

Dear Unitholder:

The net asset value of the Fund as of December 31, 2004 was $3,635.04 per unit in Canadian dollars. This represents a 1.5% increase for the year and an 11.2% increase for the fourth quarter in Canadian dollars.

In U.S. dollars, the Fund increased 9.0% for the year and a very strong 16.8% during the fourth quarter. Quite obviously, the Fund's returns were hurt by continued weakness in the U.S. dollar during 2004. In fact, over the past two years, the Fund has lost 24% of its value when expressed in Canadian currency. Put another way, if the exchange rate between the Canadian and U.S. dollar had held constant over the past two years, the price of the Fund would be $4,770 Canadian. Clearly our two year U.S. performance of +74% has been severely reduced by the rapid drop in the U.S. dollar. Though we are not experts in foreign exchange, we feel the decline in the U.S. currency is probably overdone at this point.

The Fund's performance was in line with the major U.S. Indexes listed above for the year, as well as with the average U.S. Growth Fund which was up 9.2%. The exception in the table above is the Russell 2000 which outperformed most asset classes in 2004. The performance gap between the Russell and the Fund had little to do with the fact that it is a small cap index and everything to do with the heavy weightings the Russell Index has in the solidly performing Energy, Financial and Industrial sectors. These sectors accounted for 60% of the Index's gain in 2004. Unfortunately for us, these sectors are cyclical in nature and not part of our traditional hunting ground of secular growth companies. As a result, we were a little out of step when compared to the Russell during 2004.

The year turned out to be a reasonable year for U.S. equities due to a solid post election run and a drop in the price of oil. It is important to remember, though, that much of 2004 was lackluster at best for the U.S. stock market. The forces that created this uninspiring environment are still in place as we begin 2005. At the heart of the issue for equities is the clear change in monetary policy by the U.S. Central Bank. It is difficult to anticipate large gains in stocks while the Federal Reserve raises interest rates. Yet, we think it is probable that a saw off occurs between the bears and the bulls as healthy corporate earnings, fair stock valuations and excess corporate liquidity are major positives arguing for higher stock prices going forward.

In this sort of environment, our instincts and experience tell us that the large cap world will not offer much upside. Increasing dividends and share buy back trends are telegraphing slower growth prospects for the mega caps as represented by the S& P 500 Index or the Dow. Without growth, these large stocks will likely get stuck in neutral and offer mediocre returns. Conversely, we feel that small caps will remain the sector of choice as their growth in revenue and earnings will continue to surpass that of the larger caps. Increasingly, investors hunting for growth in a growth starved landscape are likely to intensify their commitment to the small cap sector which will drive prices higher and broaden out the number of winning stocks.

For 2004 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 of Formula Growth Limited, Manager of Formula Growth Fund, please accept our best wishes for a healthy, happy and prosperous 2005!