Despite the relatively flat performance in local business conditions, the Bermuda market has demonstrated its ability to advance on the strength of a thriving international business sector, Buttress Bermuda Fund shareholders have been told.

Financial statements for the $13.9 million fund's year to June 30 contained the most positive news to date, since the Island's second domestic mutual fund was launched in 1994.

For the year, the net asset value per share of the fund, exclusive of dividends, increased from $9.65 to $11.43, with the fund paying total dividends of 44 cents per share.

The quarterly dividend of the fund was increased last December from eight cents to 12 cents per share.

Total return for the period was 23 percent and compares to a return, exclusive of dividends, of 19.4 percent on the Bermuda Stock Exchange.

Buttress Bermuda Fund president and Bank of N.T. Butterfield chairman, Sir David Gibbons, reported: "After three years of investors selling out of the Bermuda market, sentiment has finally reached a turning point, leading to a spectacular rally on the local exchange starting in April 1997.

"Institutional demand was the driving force behind the market rally, with private investors also looking to acquire equities at values considered to be substantially lower than the market's potential.

"This rally has been limited to the more active BSX listed stocks, and there are instances where smaller companies with excellent fundamental valuations have been completely overlooked by investors.'' The fund reported that combined investment income for the year of $618,667 (1996: $741,693) minus expenses of $168,090 left net investment income at $450,577 (1996: $573,145).

It also reported a net gain on investments of $2,230,677, compared to a net loss in 1996 of $538,589. The increase in net assets from operations was $2,681,254, compared to $34,556 last year.

A schedule of investments for the fund show a continuation of heavy weighting in bank stocks that include 218,045 shares in the Bank of Bermuda at a cost of $4,189,895, and with a market value of $5,451,125, representing 39.4 percent of the net assets.

The fund also bought 324,401 shares of the Bank of Butterfield at a cost of $3,792,591, and which at June 30 were worth $3,730,609 and represented 26.97 percent of net assets.

Sir David said that in May, market indicators confirmed that investor demand had reached a turning point, and the fund's investment advisor took steps to restructure the portfolio, with the equity component raised to 88 percent to position the fund for a rally in the main board listings.

The main board stocks are dominated by the banking industry, and the Island's two largest banks combine for some 70 percent of BSX index weightings.

The bank chairman said, "Participation from foreign investors has been an important catalyst to offset weak demand caused by an outflow of investment funds, following the relaxation of exchange controls.

"The advisor believes these factors will continue to propel the market up, albeit at a slower pace than evidenced in the last quarter, with the main driving force centred around the bank stocks.

"In the utility sector, the key to investment decisions appears to hinge on the competitive changes in the telecommunications industry.

"The Bermuda Telephone Co. is making healthy profits, but will soon have to compete with the partnership of North Atlantic Telecommunications, BELCO Holdings Ltd. and Cable & Wireless, which propose to tap the local corporate telecommunications market, and Bermuda Digital Communications, which have plans to enter the domestic market in cellular services.

"Traditionally, investors have focused on dividend yields for determining value in utility companies...''