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April 4, 2000

April 4, 2000

OVERVIEW

Over the past few weeks I have spoken to many of you and I have been asked on several occasions why we have done so well this year. I would like to take this opportunity to summarize our approach in the first quarter and contrast it to economic and market events.

In order to invest successfully, it is important to know who the dominant investor group consists of, and how they think. In the 1960’s the dominant investor group was wealthy individuals. Their money was, and is, primarily managed by bank trust departments and boutique firms like Guild Investment Management. In the 1980’s, many individuals began to enter the market by investing their 401K retirement plans in mutual funds. Mutual funds took a large share of this new money and began to dominate the investment landscape.

Beginning in the mid 1990’s, many individuals have taken their personal accounts (whether they be $10,000.00 or $100,000.00) and have begun to make their own investment decisions by trading stocks and speculating on the market. The great majority of these individuals have done so using a trend following “momentum” style of investing. In this style, fundamentals of the company are not thoroughly researched, but stock price action is closely watched. If the stock rises, momentum investors pile in; if it falls, they sell.

Over time, many of these traders have failed and stopped trading. Others have succeeded, and in so doing have become more sophisticated. As they have grown in knowledge, they have begun to realize that many of the market sectors that they had been enthusiastic about will encounter problems. The sectors will be faced with the age old business problems of high competition, falling prices, inventory gluts, lack of capital, and lack of marketing reach. Many of the areas that are experiencing these problems are internet related. Some examples are business to consumer retail and internet access providers. The stock prices of the troubled companies have begun to plummet. We have been avoiding these areas or have sold problem stocks short.

ATTRACTRIVE AREAS FOR INVESTMENT

At Guild Investment Management we have always been growth investors. It is our strategy to seek high quality growth companies in the U.S. and abroad. We believe our

approach of finding the best companies in the top industries will continue to be as successful as it has been since 1971. Our policy continues to be to visit the companies and to speak with customers, suppliers as well as the companies’ managements to understand their business plans and the probability of success. We continue to follow up with the companies and monitor their progress for as long as we hold them.

(1) In years to come, the internet will be used more and more to serve business and consumers. Who will benefit from this growth? We believe it will be a few high quality companies run by experienced managers who can grow in the current competitive conditions. These may be existing companies in retail technology or finance who add internet to their already well organized business plan, or they may be the best run new companies.

(2) As you know we focus on major trends in society, politics, economics and technology to identify fast growing economic and geographic sectors. Because we see technology as the leading sector today, we want to focus on these parts of the world where education in technology is strong and where consumers have embraced technology. Geographically, these are the U.S., Northern Europe, Japan, Korea, India and Chinese speaking Asia.

JAPAN

Today an important financial shift is occurring in Japan. Japanese investors have about 4 trillion U.S. dollars in savings accounts with the Japanese post office earning about 1% per year. Over 1 trillion dollars of this is maturing. Much of this money could find its way into stocks, mostly Japanese blue chips. We are carefully researching Japanese financial institutions which could capture this windfall and future windfalls as savings deposits continue to mature in coming years.

GLOBAL GROWTH

Within technology the strongest growth areas are: 1) semiconductors (2) fiber optic and broadband communications (3) software (4) wireless communications and (5) storewidth or bandwidth storage that will provide swift access to internet data stored on local servers or network attached storage devices. Many of these areas cross-fertilize and several of them will grow in excess of 50% a year for the next few years. Within these areas there are many fine companies. Our strategy is to select the best and accumulate them on price weakness.

We also believe medical technology will lead to numerous new drug and medical device breakthroughs, some of which may be partnered with potentially devastating side effects. We must look for those companies which create positive products and results, while avoiding those companies which have the possibility of creating negative ancillary effects. Within the so called “old economy”, many excellent companies in the finance and retail sectors remain grossly undervalued. All of these companies are beginning to use the Internet in their businesses. They are becoming “new economy” companies while maintaining the profitability of their traditional businesses.

CURRENCIES AND INTEREST RATES

The U.S. dollar has been strong versus the Euro in the first three months of 2000, we predict a sideways trend for the Euro for a few more months. The Japanese yen should also trend sideways after its recent strong rally versus the U.S. dollar.

We notice interest rates are rising in U.S. and Europe, sideways in Asia. We do not believe that inflation is a near term problem. Although some small price increase may occur this year, we believe that world economic trends, political trends, and the Internet (which makes goods more available and, thus, cheaper) will continue to work together to keep prices reasonable. Periodic rises in some commodity prices will be balanced with declines in others.

Global economic growth is in a very happy state with fast GDP growth across all continents, combined with low inflation. This should continue for the remainder of 2000, while world markets which have been far from dull can be expected to continue their volatility. We will use market declines to continue to make purchases at attractive prices.

Thanks for your continued confidence and best wishes for a happy and healthy spring season. Please do call us if we can be of service.