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 of 2015 from UBS Global Asset Management (Americas) Inc. ("UBS Global AM"), the Fund's investment advisor

Market review

The overall US fixed income market posted a positive return during the first quarter. Treasury yields fluctuated amid a background of mixed economic data, the sharply rising US dollar, strong international demand, benign inflation and uncertainties regarding future Federal Reserve Board (the "Fed") monetary policy. All told, the yield on the two-year Treasury fell from 0.67% to 0.56%, whereas the yield on the 10-year Treasury moved from 2.17% to 1.94% during the first quarter. As expected, at its meeting in March, the Fed removed the word "patient" from its official statement regarding when it may start raising interest rates. However, Fed Chair Janet Yellen pointed out that, "…just because we removed the word "patient" from the statement doesn't mean we are going to be impatient."

The overall US bond market, as measured by the Barclays US Aggregate Index, gained 1.61% during the first quarter. 1 Most US spread sectors posted positive total returns during the period, as they were supported by overall solid demand and declining Treasury yields. 2

Performance review

During the first quarter of 2015, the Fund posted a net asset value total return of 1.90%, and a market price total return of 2.77%. On that basis, the Fund outperformed the Barclays US Aggregate Index (the "Index") which, as previously stated, gained 1.61% during the quarter.

The Fund's spread sector exposure largely contributed to performance during the first quarter. In particular, security selection and a large overweight allocation to investment grade and high yield corporate bonds were positive for returns. Overweights and security selection of commercial mortgage-backed securities ("CMBS") and collateralized loan obligations ("CLOs") were also additive for results. Elsewhere, a large underweight to agency mortgage-backed securities ("MBS") was beneficial, as the sector lagged the Index during the first quarter.

Finally, the Fund's duration and yield curve positioning detracted from results over the period. Maintaining a duration underweight relative to the Index was not rewarded given the declining interest rate environment.


Economic data in the US has recently pointed to a slowdown in economic activity, including disappointing retail sales and manufacturing numbers. We believe moderating growth was partially due to severe winter weather in parts of the country. In our view, the US economy will gain some momentum as the year progresses. That being said, we do not expect to see robust growth given continued slack in some areas of the economy, generally weak growth overseas and the impact from the stronger US dollar. We believe that the Fed will start raising interest rates later in 2015, but that its approach to policy normalization will be very gradual.

Turning to the fixed income market, the potential for higher interest rates would be a headwind for bond prices. However, we do not expect to see a sharp rise in bond yields given the global economic environment and the Fed's cautious sentiment. We believe credit fundamentals are generally sound, with large cash balances on many corporate balance sheets and low defaults. We are keeping a close eye on market technicals, as investor demand could be challenged at times given numerous geopolitical issues and if the Fed takes a more aggressive stance in terms of rate hikes.

Portfolio statistics as of March 31, 20153
Top ten countries4  

Percentage of total portfolio assets
United States     69.09 %
United Kingdom     5.26  
Brazil     4.98  
Mexico     3.21  
Cayman Islands     3.04  
Netherlands     3.00  
Canada     2.79  
Norway     1.60  
Germany     1.00  
Sweden     0.96  
Total     94.93  

Portfolio composition
Corporate bonds     79.24 %
Commercial mortgage-backed securities     6.62  
Asset-backed Securities     0.47  
Collateralized loan obligations     3.37  
Mortgage & agency debt securities     2.32  
Municipal bonds     2.69  
US government obligations     2.38  
Non-US government obligations     0.85  
Common stocks     0.04  
Preferred stocks     0.10  
Short-term investments     0.05  
Options purchased     0.00  
Cash and other assets, less liabilities     1.87  
Total     100.00  
Credit quality5   Percentage of total portfolio assets
AAA     0.0 %
US Treasury6     2.4  
US Agency6,7     1.8  
AA     0.6  
A     14.3  
BBB     57.9  
BB     10.8  
B     2.3  
CCC and below     0.7  
Non-rated     7.3  
Cash equivalents     0.0  
Other assets, less liabilities     1.9  



Net asset value per share8



Market price per share8



NAV yield8



Market yield8






Weighted average maturity


1   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, at this time, does not take active currency risk; as of March 31, 2015, 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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