FCCM Directory

Introduction

First Chicago Capital Markets, Inc. ("FCCM") is a broker-dealer registered with the Securities and Exchange Commission and a member of the National Association of Securities Dealers, Inc. FCCM acts as an underwriter, broker and dealer of certain debt instruments as permitted by the Federal Reserve Board and is a primary dealer in obligations of the U.S. Governments. FCCM is an indirect wholly owned subsidiary of First Chicago Corporation (the "Corporation").

The Corporation is the 11th largest bank holding company in the United States with assets of $65.9 billion, stockholder equity of $3.9 billion and 17,000 employees worldwide as of year end 1994. The stock of the Corporation is listed on the New York, Chicago, Pacific, and London stock exchanges. At December 31, 1994 there were no significant concentrations of ownership (more than 5%) of First Chicago Corporation common stock, other than one domestic corporation which had beneficial ownership of 5.5% of the Corporation's common stock. The Corporation has been actively involved in the municipal bond business since the 1920's. Prior to 1989, the Corporation's Municipal Bond underwriting business was conducted by The First National Bank of Chicago ("FNBC"), a separate subsidiary of the Corporation and an affiliate of FCCM.

In 1989 First Chicago Capital Markets, Inc. was organized as a Section 20 subsidiary of First Chicago Corporation to take advantage of the greater powers to deal in certain securities offered to bank holding company subsidiaries. FCCM has full powers to deal in all forms of municipal revenue bonds (including non-rated, industrial development and other private activity bonds) as well as corporate bonds. In addition, FCCM can introduce its customers to personnel of FNBC and other affiliates which offer a variety of commercial banking services to support debt financing including risk management (swaps, caps, and other derivatives), credit (letters and lines) and trustee services. FCCM currently has 197 employees, 62 of whom are in the Municipal and Public Finance Departments.

FCCM Public Finance

The Public Finance Division is the origination and structuring arm of FCCM's municipal securities business. Staffed with 26 professionals, it is organized in four specialized areas of municipal finance with a team of experts dedicated to each area.

General Government Finance, Private Activity, Higher Education and Cultural Institutions, Health Care Finance

FCCM Municipal Sales & Distribution Capabilities

A team of twelve institutional specialists markets municipal securities to mutual funds, investment managers, trusts, insurance companies, banks, corporations and dealers. These institutional investors account for over 80% of FCCM's sales.

FCCM's affiliate subsidiary, First Chicago Investment Services, Inc. maintains a staff of 46 sales people who market municipal securities, among other securities, to retail investors.

Another specialized sales group of 17 professionals within FCCM markets securities to all major corporations, many medium sized companies, and medium and small banks and insurance companies throughout the country. These specialists market the full range of tax-exempt securities, including bonds, notes, demand notes and commercial paper, as well as taxable securities and foreign exchange.

FCCM's largest institutional investors are mutual funds representing 58% of dollar volume; investment managers and trusts represent 18%; insurance companies, banks, corporations, individuals and dealers comprise the remaining 24%. Approximately 50% of our investors are located in the east, with 31% in the Midwest and 19% on the west coast.

First Chicago has 268 registered representatives. All but four of these are located at One First National Plaza in Chicago. FCCM also maintains a New York underwriting office staffed with four registered representatives.

Innovative Ideas

Tax-exempt issuers use "derivatives" in certain circumstances for lowering their immediate as well as future borrowing costs or to achieve certain debt repayment structures. Derivatives enable issuers to: (1) enhance the credit of their bonds, (2) take advantage of arbitrage opportunities that exist between tax-exempt and taxable markets, and (3) synthetically advance refund bonds that are ineligible to be directly advance refunded in the municipal market.

The market for certain derivative products is primarily driven by the demands of investors-particularly the large institutional buyers of municipal bonds. Over the last few years, as interest rates declined, these investors sought new products to increase the yield on their tax-exempt portfolios and leverage their position. Accordingly, financing structures with embedded derivatives (swaps, caps) were developed to satisfy the demand of investors and at the same time lower issuers' overall borrowing cost.

Derivative products in times of rising interest rates are less developed than those products designed for a declining rate environment. However, derivative approaches still can be used to provide cost-effective financing in an increasing interest rate environment.

When appointed to underwrite a bond or note issue, FCCM analyzes the proposed structure of the issue to determine whether or not any derivative product would be sufficiently attractive to investors to produce advantages for the issuer. The advantages could be in the form of a lower interest cost or a more attractive debt service structure.