Fort Dearborn Income Securities, Inc. (NYSE: FDI) is a closed-end bond fund managed by UBS Global Asset Management (Americas) Inc. The Fund invests principally in investment grade, long-term fixed income debt securities. The primary objective of the Fund is to provide its shareholders with:
- A stable stream of current income consistent with external interest rate conditions; and
- A total return over time that is above what they could receive by investing individually in the investment grade and long-term maturity sectors of the bond market.
From a sector positioning perspective, an overweight to investment grade corporate bonds, particularly financials and industrials, was the largest contributor to performance. Our CMBS exposure was also rewarded during the quarter. Conversely, our exposures to taxable municipal bonds and foreign agency securities slightly detracted from relative returns. Our agency mortgage-backed securities (MBS) were also a slight drag on results.Duration and yield curve positioning did not have a material impact on the Fund’s performance during the first quarter. (Duration is a measure of a portfolio’s sensitivity to changes in interest rates. The yield curve plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates.) Outlook The US economy is showing some signs of sustainable near-term growth, particularly as labor markets have begun to exhibit signs of recovery. In addition, accommodative monetary and fiscal policy, namely, additional quantitative easing ("QE2"), payroll tax rate reductions, and depreciation preferences enacted in December 2010 are boosting the prospects for consumer and business spending during the first half of the year. Looking past the near-term horizon, elevated private and public debt continues to impact the outlook for robust growth in the US. Additionally, with QE2 expected to end in June 2011, economic activity and liquidity characteristics in global markets are expected to moderate as the year progresses. Furthermore, uncertainty around geopolitical developments in oil-producing regions and the path of monetary policy accommodation remains high, thereby dampening economic activity prospects, raising inflationary pressures and increasing interest rate and credit spread volatility. 2 Against this backdrop we continue to favor credit spread sectors, although we remain cautious as spreads have tightened since the year-end. Disclaimers Regarding Fund Commentary - The Fund Commentary is intended to assist shareholders in understanding how the Fund performed during the period noted. Views and opinions were current as of the date of this press release. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and the Fund and UBS Global AM reserve the right to change views about individual securities, sectors and markets at any time. As a result, the views expressed should not be relied upon as a forecast of the Fund’s future investment intent. Past performance does not predict future performance. The return and value of an investment will fluctuate so that an investor's shares, when sold, may be worth more or less than their original cost. Any Fund net asset value ("NAV") returns cited in a Fund Commentary assume, for illustration only, that dividends and other distributions, if any, were reinvested at the NAV on the payable dates. Any Fund market price returns cited in a Fund Commentary assume that all dividends and other distributions, if any, were reinvested at prices obtained under the Fund's Dividend Reinvestment Plan. Returns for periods of less than one year have not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund dividends and other distributions, if any, or on the sale of Fund shares.
1 The Investment Grade Bond Index is an unmanaged index compiled by the Advisor, constructed as follows: From 12/31/81 to present—5% Barclays Capital US Agency Index (7+ years), 75% Barclays Capital US Credit Index (7+ years), 10% Barclays Capital US MBS Fixed Rate Index (all maturities) and 10% Barclays Capital US Treasury Index (7+ years). Investors should note that indices do not reflect the deduction of fees and expenses.2 “Spreads” refers to differences between the yields paid on US Treasury bonds and other types of debt, such as emerging market bonds.