Fort Dearborn Income Securities, Inc. (the "Fund") (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 fourth quarter 2011 from UBS Global Asset Management (Americas) Inc. (“UBS Global AM”), the Fund’s investment advisor

Market Review

Following two quarters when the financial markets were generally characterized by heightened risk aversion, risk appetite returned at times during the last three months of 2011. The change in investor sentiment was, in part, due to expectations that the US would not experience a double-dip recession. Additionally, in October there were signs that some progress had been made in the European sovereign debt crisis, although hopes of a resolution faded as the quarter progressed. Turning to the economy, there were a number of better than expected data points in the fourth quarter, as unemployment trended lower, manufacturing activity improved and there were signs that the housing market may be closer to reaching a bottom. Against this backdrop, the spread sectors (non-US Treasuries), such as commercial mortgage-backed securities (CMBS) and investment grade credit, generated positive results and outperformed comparable duration Treasuries.

Performance Review

For the fourth quarter of 2011, the Fund posted a net asset value total return of 2% and a market price total return of 4.98%. The Fund, on a net asset value return basis, underperformed the Investment Grade Bond Index (the “Index”), 1 the Fund’s benchmark, which posted a return of 2.44% for the quarter.

Overall, sector allocation detracted from performance during the quarter. The largest negative was our positioning within industrials. In particular, having underweights versus the benchmark to the capital goods and consumer non-cyclical subsectors were drags on the Fund's relative results, as their spreads 2 narrowed during the quarter amid increased investor risk appetite. In contrast, an out-of-benchmark exposure to CMBS positively contributed to results as securitized markets performed well given some improving economic data that alleviated fears of a double-dip recession.

Somewhat offsetting the negatives associated with the Fund’s sector allocation was security selection during the quarter. While our capital goods and consumer non-cyclical underweights detracted from results, security selection within the two subsectors contributed to performance. Security selection in the electric utilities subsector was also rewarded during the quarter.

Duration and yield curve positioning did not meaningfully impact the Fund’s performance during the fourth quarter. While slight adjustments were made to the Fund's duration, it was generally neutral to that of the benchmark. Likewise, our positioning on the yield curve did not meaningfully deviate from the benchmark. (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.)


Economic data in the US have improved in recent months, indicating that the economy has gained some momentum. While headwinds remain, it now appears more likely that gross domestic product growth in the US could increase somewhat in 2012. Also supporting the economy, in our view, will be continued accommodation by the Federal Reserve Board (the "Fed"). The Fed has indicated its intention of keeping the federal funds rate within a historically low range of 0% to 0.25% until late 2014. Additionally, the Fed has left the door open to another round of quantitative easing should the economy falter and unemployment remain elevated. Going forward, the US economy could potentially be weakened by the issues related to the European sovereign debt crisis as well as the political gridlock in Washington DC heading into the November elections. We also expect volatility in the financial markets to remain elevated given a continuation of the macro issues that fostered a "risk-on/risk-off" mentality in 2011. Given this uncertain environment, we continue to have a fairly neutral overall risk exposure in the portfolio.

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.

Copyright Business Wire 2010