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 first quarter 2012 from UBS Global Asset Management (Americas) Inc. (“UBS Global AM”), the Fund’s investment advisor

Market Review

As was the case during the last three months of 2011, investor risk appetite was generally robust over the first quarter of 2012. Positive investor sentiment was due, in part, to overall positive economic news in the US. In particular, unemployment declined, consumer spending was solid, the manufacturing sector continued to expand and there were indications that the housing market may be finally reaching a bottom. In addition, concerns regarding the European sovereign debt crisis moderated, as Greece restructured its debt and the European Central Bank's Long-Term Refinancing Operation (LTRO) helped alleviate a European banking crisis, at least for now. Against this backdrop, spread sectors (non-US Treasuries) generated positive results and outperformed comparable duration Treasuries during the first quarter. 1

Performance Review

For the first quarter of 2012, the Fund posted a net asset value total return of 1.29% and a market price total return of 2.43%. The Fund, on a net asset value return basis, outperformed the Investment Grade Bond Index (the “Index”), the Fund’s benchmark, which posted a return of 0.62% for the quarter. 2

The key driver of results during the quarter was security selection across the corporate bond sectors, especially within financials and industrials. Overall, throughout the quarter, the Fund benefited from security selection of higher beta (riskier) financials, such as select US banks. On the heels of generally improving macroeconomic data in the US and diminished intensity of sovereign and banking risks in Europe, higher beta issuers/issues across the corporate bond market performed well. In addition to US banks, exposures and security selection in more economically sensitive sectors (most of which we are overweight), such as energy, basic industries, communications and consumer discretionary enhanced the Fund's results.

A small allocation to commercial mortgage-backed securities was rewarded, given the sector's strong results during the quarter. Positive security selection of Build America Bonds (BABs) also positively contributed to performance. BABs, while no longer issued, represent a key allocation within broad US credit indexes. As a result of the supply/demand characteristics of that market segment, certain issues have generated relatively strong performance. Elsewhere, during the quarter we increased the Fund's mortgage-backed security exposure from an underweight to a near neutral weight relative to the benchmark. This had a small positive impact on results during the quarter.

Duration and yield curve had only a modest positive impact on performance. We tactically adjusted duration during the quarter and had a bias of being generally short duration versus 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.)

Somewhat detracting from results during the quarter was our positioning in non-corporate credit. Overall, the Fund was underweight sovereign issuers during a period when global sovereign performance was rather strong. In addition, sector allocation within the corporate sector was a slight negative. In particular, while an overweight in financials was beneficial, it was not enough to offset our underweight to industrials.


We feel that the US economic expansion will continue in 2012, although growth will likely be far from robust. Against this backdrop, we expect the Federal Reserve Board (the "Fed") to maintain its accommodative monetary policy to support the economy. This was evident in January 2012, when the Fed indicated its intention of keeping the federal funds rate within a historically low range of 0% to 0.25% until at least late 2014. Elsewhere, we feel that the European sovereign debt crisis will spur continued market volatility. However, the backdrop has recently improved somewhat due to steps taken by European Union authorities and the European Central Bank.

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 “Spreads” refers to differences between the yields paid on US Treasury bonds and other types of debt, such as emerging market bonds.

2 The Investment Grade Bond Index is an unmanaged index compiled by the Advisor, constructed as follows: From 12/31/81 to present—5% Barclays US Agency Index (7+ years), 75% Barclays US Credit Index (7+ years), 10% Barclays US Mortgage Backed Securities Index (all maturities) and 10% Barclays US Treasury Index (7+ years). Investors should note that indices do not reflect the deduction of fees and expenses.

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