Profits on sales of fixed-income securities have eclipsed earnings from annuities at First Chicago Corp.'s brokerage, and they're closing in on mutual funds.

"Our individual bond sales have just taken off," said Richard A. Davies, managing director of First Chicago Investment Management Co.

Though he declined to say how much money the company made last year from sales of bonds and Treasury instruments, Mr. Davies said the profits rivaled those from mutual funds.

But there's a hitch: To bring earnings on bond sales close to those on mutual funds, First Chicago's brokerage had to sell six times more bonds than mutual funds.

That's because commissions on bond sales are razor thin, rarely topping 2% of the face value of the investment. Mutual funds and annuities, in contrast, pay commissions that range upwards of 4% of assets invested.

Mr. Davies said First Chicago's brokerage customers invested more than $1 billion in bonds and Treasury instruments during 1994 -double 1993's level. Mutual fund sales totaled $150 million in 1994.

First Chicago's experience is largely in keeping with an industry trend. Last year, as interest rates climbed, investors flocked to fixed-rate securities.

One reason is that these investments appeal to the conservative streak in bank customers, said Kurt Cerulli, principal of Cerulli Associates, Boston.

Also, he said, "I think a lot of bank reps haven't been through a bear market and overreacted more than a seasoned broker would have," instructing customers to move their assets out of mutual funds and into fixed-rate investments, Mr. Cerulli said.

But the fact that profits on individual bonds had outstripped those from annuities at First Chicago surprised some observers.

Kenneth Kehrer, a Princeton, N.J.-based analyst, said the experience at most banks is quite different. Fixed-rate annuities sales "skyrocketed" last year, accounting for 30% to 80% of bank retail investment sales nationwide, he said.

Michael E. Corrigan, managing partner of Protective Financial and Insurance Services, a Santa Barbara, Calif.-based investment products marketer said his fixed-rate annuity sales have doubled since last year and now account for 50% of the company's business.

Mr. Davies said First Chicago started to focus on selling fixed-income securities around midyear 1994, despite the thin margins.

"Our philosophy is to get the assets in now, and the profits will come later," he said.

To handle the rush of business, First Chicago will be recruiting more brokers experienced in bond sales. The new brokers will focus on small- business customers, which up until now the company has done a poor job of attracting, Mr. Davies said.

"We needed people that would get out there and pound the pavement," he said. "You can't just wait for customers to come in and ask for these products."

First Chicago also is trying to drum up referrals by giving customer service representatives rate sheets that compare yields on fixed-income investments with those on deposits.

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