January 12, 2010

Dear Unitholders:

The net asset value of the Fund as of December 31, 2009 was $2918.07 per unit in Canadian dollars. This represents a 20.9% increase for the year and a 1.2% increase for the fourth quarter in Canadian dollars. The strength in the Canadian dollar in 2009 substantially hurt our reported U.S. dollar returns. In U.S. dollars, the Fund rose 41.5% for the year and 3.7% during the fourth quarter.   Year to date our results are well ahead of the Indexes listed in the table below and ahead of the average U.S. Small-cap Growth Manager who gained 36.2%.

As we began 2009 the meltdown in global financial markets threatened a global depression.   Most stock markets were down unprecedented amounts during 2008 and Formula Growth Fund was not immune to the carnage.   It was our belief, given the extent of the collapse, that the real possibility of depression was well reflected in stock markets around the globe.  Therefore, we strongly differed with the consensus view that stocks should be shunned.

Our decision to remain fully invested served us well in 2009 as the Fund went on to register our 9th best year since 1960.  We were relieved to close out the decade with a strong year.  We hope it marks the beginning of a run of prosperous years for U.S. stocks and Formula Growth Fund.

The past decade will be remembered for its leveraged asset bubbles, two severe recessions, 10% unemployment, terrorism, jailed CEOs, and over-zealous yet incompetent regulators and politicians.   It is little wonder the decade is a lost one for the world’s equity markets.   Since 1999 the MCSI World Index, covering the developed markets, is down in the aggregate 20% while the U.S. market as measured by the S&P 500 is down 24%.  The Fund is down 8% U.S. over the decade.  Only the 1930’s are comparable to the poor performance of the past ten years. Essentially only the narrow emerging and commodity markets have managed positive aggregate returns this past decade.

Given the negative long term results most investors remain sceptical of the stock market.   For instance since last March investors have pulled $13 billion out of U.S. stock mutual funds and poured $239 billion into bond funds according to Morningstar Inc. We believe investors have not broadly accepted the fact that we are in the early stages of a potentially big economic recovery.   Given the cash on the sidelines there is plenty of firepower available to drive stock prices higher when the scepticism subsides.

Liquidity and a poor trailing 10 year performance for stocks are not sufficient reasons alone to propel stock prices higher in coming years.  Fundamentals must also be aligned.  The poor performance has made stock valuations much less expensive than their lofty levels at the beginning of the decade.   In this low interest rate era, cheap valuations and resumption in growth in earnings per share (after the hiatus of 2007-2009) will prove to be a powerful antidote to the malaise of the 2000’s.  We remain bullish on stocks from here.

For 2009 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 additional clarification on taxes or any other matter.

On behalf of the officers and employees of Formula Growth Limited, manager of Formula Growth Fund, we appreciate your continued support and please accept our best wishes for a healthy, happy and prosperous 2010.

Yours truly,