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.

Fund Commentary for the fist quarter 2011 from UBS Global Asset Management (Americas) Inc. (“UBS Global AM”), the Fund’s investment manager

Market Review

As was the case during the last three months of 2010, yields across global fixed income markets moved higher in the first quarter of 2011. In the US, there were several flights to quality, triggered by the European sovereign debt crisis, geopolitical issues in the Middle East and Northern Africa, and the devastating earthquake and tsunami in Japan. However, these proved to be temporary occurrences as investor risk appetite quickly returned. Against this backdrop and increased inflationary pressures, US Treasury yields rose across the curve during the first quarter, with yields on two-year and 10-year Treasuries rising by 0.19% and 0.17%, respectively.

Performance Review

For the first quarter of 2011, the Fund posted a net asset value total return of 0.87% and a market price total return of -4.28%. The Fund, on a net asset value return basis, outperformed the Investment Grade Bond Index, 1 which posted a return of 0.65%% for the quarter.

Security selection and sector allocation were the primary drivers of performance during the first quarter. In terms of security selection, the Fund's holdings in the investment grade corporate bond sector contributed to results. This was particularly true in the financials and industrials subsectors. Security selection of commercial mortgage-backed securities (CMBS) also contributed to results, as our preference for lower- quality investment grade securities was rewarded.

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.)


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.

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