The Bank of Bermuda's family of mutual funds has passed one billion dollars in value, shareholders were advised in a quarterly letter this month.

The letter, from president and CEO Charles Vaughan-Johnson, said that there was a $200-million inflow during the last quarter.

The bank also said that Bermudians had readily accepted the EasyLink Card, launched last December, with some 17,000 card holders accumulating a total of more than $90,000 in cash-back bonuses.

Mr. Vaughan-Johnson noted the growth in the Island's retail sector during the first quarter, rising by 6.9 percent (4.4 percent net of inflation of 2.5 percent).

He said overseas purchases appear to have fallen.

In commenting on the construction industry, he found it encouraging to see major projects in hand, such as several hotel improvement schemes, the hospital and the Prospect school.

But he said, "Other projects in the private sector need to be nurtured and progressed, without creating an excess which would be inflationary.'' In international business, he said that there were 230 new exempted undertakings during the first quarter, which would be 920 annualised, just off the 1995 figure of 983. And there was a continuing demand from companies seeking a physical presence here.

The bank chief was optimistic that tourism had stabilised and was on an upswing, especially with off-season arrival figures showing a modest increase in numbers, although spending was down.

In tourism, Mr. Vaughan-Johnson said, "Much has yet to be done to re-establish a competitive position. The unadjusted balance of payments position for 1995 shows a strong surplus on current account and even when adjusted is likely to be close to $70 million (1994: $53 million).

"Divisions within the ruling United Bermuda Party continue to occupy centre stage. In spite of this, progress is being made in the reduction of crime, the prevention and treatment of drug abuse and new approaches to the promotion of tourism.'' Commenting on the international scene, the bank president said recent events had forced financial market participants to realise that the economic environment was "decidedly less friendly''.

He said: "The adjustment to interest rate expectations that began in February has continued in the last three months, with the result that most major bond and equity markets have struggled to make progress.

"Liquidity factors continue to provide support to stock markets and, in some instances, have led to speculative excesses.'' But the latest economic data in the United States had been better than expected and bond market prices were reflecting an expected tightening this summer in the monetary policy.

First quarter figures showed sufficient strength in domestic demand, and a rebound in output should soon bring fresh concerns about containing capacity.

European financial markets, other than Germany, had received support from continued interest rate reductions, helped by currency gains against the deutschmark.

The low interest rate regime in Japan was near an end, as it appeared that the Japanese economy was in the process of a self-sustaining upturn.

Better than expected growth in the 1995 fourth quarter had been followed by an expansion of the economy in the 1996 first quarter, the strongest expansion in over 20 years.

LETTER TO SHAREHOLDERS -- Bank president and CEO Charles Vaughan-Johnson.