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 2014 from UBS Global Asset Management (Americas) Inc. ("UBS Global AM"), the Fund's investment advisor

Market review

The overall US fixed income market moved higher during the fourth quarter. Despite improving growth and the end of the Federal Reserve Board's (the "Fed") asset purchase program, intermediate- and long-terms yields declined. In contrast, short term rates increased given expectations for Fed rate hikes in 2015. All told, the yield on the two-year Treasury rose from 0.58% to 0.67%, whereas the yield on the 10-year Treasury fell from 2.52% to 2.17% during the fourth quarter. In its official statement following its last meeting of the year in December, the Fed stated: "Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy."

The overall US bond market, as measured by the Barclays US Aggregate Index, returned 1.79% during the fourth quarter, lifting its 2014 gain to 5.97% 1. Many US spread sectors posted positive total returns during the fourth quarter, although most lagged equal duration US Treasuries 2. Among the US spread sectors, long-term investment grade corporate bonds posted the strongest total returns. Although credit spreads generally widened over the period, bond prices were supported by declining Treasury yields. Commercial mortgage-backed securities (CMBS) also posted positive results during the quarter. In contrast, high yield corporate bonds generated weak results.

Performance review

During the fourth quarter of 2014, the Fund posted a net asset value total return of 0.09%, and a market price total return of -0.79%. The Fund, on a net asset value total return basis, underperformed the Barclays US Aggregate Index (the "Index") which, as previously stated, gained 1.79% during the quarter.

The Fund's spread sector exposure detracted from performance during the fourth quarter. In particular, security selection and a large overweight allocation to investment grade corporate bonds were negative for returns. Within the investment grade space, the Fund's exposures to energy and metals and mining were the largest detractors from performance. The energy sector was dragged down by sharply falling oil prices. Metals and mining was also negatively impacted by falling prices given concerns about global growth. The Fund's overweight to high yield corporate bonds also detracted from results.

On the upside, the Fund's yield curve positioning was additive to performance during the quarter. Our yield curve flattening bias was beneficial, as we had an overweight to the long end of the curve and an underweight to the short end of the curve. Tactical adjustments to the Fund's duration were also additive for returns. Elsewhere, an overweight to commercial mortgage-backed securities ("CMBS") modestly contributed to performance.

There were no significant changes made to the Fund's sector positioning during the quarter.


We maintain our positive view for the US economy. Unemployment has fallen sharply over the last year, and third quarter GDP growth was well above that of other developed countries. Against this backdrop, we expect the Fed to raise interest rates in 2015. That said, moderating inflation should give the Fed the flexibility to delay rate hikes if it deems it appropriate. We also feel the US central bank will take a slow and measured approach in terms of normalizing monetary policy. We have a less optimistic view on Europe, as growth is very weak and deflationary concerns have increased. As such, we feel the European Central Bank will be true to its word by significantly increasing its balance sheet in 2015. Likewise, we expect the Bank of Japan to remain highly accommodative as it seeks to stimulate growth and ward off deflation. Elsewhere, moderating growth in China may cause its central bank to institute more aggressive actions.

Turning to the fixed income market, we anticipate continued volatility in 2015 for both interest rates and spreads. This could be triggered by a number of factors, including mixed global economic data, uncertainties regarding future central bank monetary policy and geopolitical issues. While this may be unnerving at times, we believe it will breed numerous investment opportunities in 2015.


Portfolio statistics as of December 31, 20143
Top ten countries4  

Percentage of total portfolio assets
United States   72.19%
United Kingdom   5.21
Brazil   5.14
Mexico   2.93
Netherlands   2.87
Cayman Islands   2.60
Canada   1.66
Norway   1.62
Sweden   0.96
Germany   0.76
Total   95.94

Portfolio composition
Corporate bonds   78.84%
Commercial mortgage-backed securities   6.87
Asset-backed Securities   2.38
Collateralized loan obligations   2.55
Mortgage & agency debt securities   2.02
Municipal bonds   2.69
US government obligations   1.67
Non-US government obligations   0.91
Common stocks   0.04
Preferred stocks   0.10
Short-term investments   0.24
Options purchased   0.00
Cash and other assets, less liabilities   1.69
Total   100.00
Credit quality5   Percentage of total portfolio assets
AAA   0.0%
US Treasury6   1.7
US Agency6,7   1.9
AA   0.6
A   15.0
BBB   58.3
BB   10.2
B   2.1
CCC and Below   0.5
Non-rated   7.8
Cash equivalents   0.2
Other assets, less liabilities   1.7
Total   100.0


Net asset value per share8


Market price per share8


NAV yield8


Market yield8



5.14 yrs

Weighted average maturity

10.25 yrs

  The Barclays US Aggregate Index is an unmanaged broad-based index designed to measure the US dollar-denominated, investment grade, taxable bond market. The index includes bonds from the Treasury, government-related, corporate, mortgage-backed, asset-backed and commercial mortgage-backed sectors.
2 A spread sector refers to non-government fixed income sectors, such as investment grade or high yield bonds, commercial mortgage-backed securities (CMBS), etc.
3 The Fund's portfolio is actively managed, and its portfolio composition will vary over time.
4 The Fund does not take active currency risk; as of December 31, 2014, the Fund's holdings in foreign fixed income securities were predominately denominated in US dollars.

Credit quality ratings shown in the table are based on those assigned by Standard & Poor's Financial Services LLC, a part of McGraw-Hill Financial, ("S&P") to individual portfolio holdings. S&P is an independent ratings agency. Rating reflected represents S&P individual debt issue credit rating. While S&P may provide a credit rating for a bond issuer (e.g., a specific company or country); certain issues, such as some sovereign debt, may not be covered or rated and therefore are reflected as non-rated for the purposes of this table. Credit ratings range from AAA, being the highest, to D, being the lowest, based on S&P's measures; ratings of BBB or higher are considered to be investment grade quality. Unrated securities do not necessarily indicate low quality. Further information regarding S&P's rating methodology may be found on its website at Please note that any references to credit quality made in the commentary preceding the table may reflect ratings based on multiple providers (not just S&P) and thus may not align with the data represented in this table.
6 S&P downgraded long-term US government debt on August 5, 2011 to AA+. Other rating agencies continue to rate long-term US government debt in their highest ratings categories.
7 Includes agency debentures and agency mortgage-backed securities.
8 Net asset value (NAV), market price and yields will fluctuate. NAV yield is calculated by multiplying the current quarter's dividend by 4 and dividing by the quarter-end net asset value. Market yield is calculated by multiplying the current quarter's dividend by 4 and dividing by the quarter-end market price.
9 Duration is a measure of price sensitivity of a fixed income investment or portfolio (expressed as % change in price) to a 1 percentage point (i.e., 100 basis points) change in interest rates, accounting for optionality in bonds such as prepayment risk and call/put features.

Any performance information reflects the deduction of the Fund's fees and expenses, as indicated in its shareholder reports, such as investment advisory and administration fees, custody fees, exchange listing fees, etc. It does not reflect any transaction charges that a shareholder may incur when (s)he buys or sells shares (e.g., a shareholder's brokerage commissions).

Disclaimers Regarding Fund Commentary - The Fund Commentary is intended to assist shareholders in understanding how the Fund performed during the period noted. The 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.

Investing in the Fund entails specific risks, such as interest rate, credit and US government securities risks as well as derivatives risks. Further information regarding the Fund, including a discussion of principal objectives, investment strategies and principal risks, may be found in the fund overview located at . You may also request copies of the fund overview by calling the Closed-End Funds Desk at 888-793 8637.

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