July 8, 2009

Dear Unitholders:

The net asset value of the Formula Growth Fund as of June 30, 2009 was $2,720.65 per unit. For the quarter, this represents a 12.4% increase in Canadian dollars and a 21.9% increase in U.S. dollars. In the first half, our strong results were well ahead of the U.S. indexes listed in the table below. We were also strongly ahead of the average U.S. small-cap growth manager who gained 11.4% year-to-date.

The Fund’s 21.9% increase in the second quarter of 2009 represents the 25th quarter (out of 196) in our 49 year history that the Fund has experienced a 20% return. Usually these out-sized quarterly gains for the Fund imply continued solid results in the subsequent quarter and not an inevitable correction. Fifteen times the next-quarter return has been positive with an average return of 15.1%. Conversely the other nine times have yielded negative returns averaging 8.6%.

This very strong quarter increases our confidence that the U.S. economy is slowly recovering. The market is a terrific anticipatory mechanism and it rarely pays to second guess its behaviour by dwelling on current headlines. This recovery should be more obvious by some time next year. Investors need to remember that stock markets rally well before the end of recessions.

After a decade of negative returns U.S. investors are unhappy. Historically every time the market’s compound rate of return is negative for ten years the following decade has been substantially positive. There is some $5 trillion on the sidelines earning next to zero at today’s deposit rates. This cash will flow back into stocks at some point. The overly conservative investor might be late to the recovery as the best moves are often made early.

For those Unitholders who were unable to attend our annual meeting on May 25th, 2009, the presentation is available online at our website www.formulagrowth.ca. 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,