Fort Dearborn Income Securities, Inc. – Fund Commentary and Portfolio Statistics

NEW YORK--(BUSINESS WIRE)-- 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 second calendar 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 negative return during the second calendar quarter. Treasury yields moved higher across the curve as economic data generally improved and expectations increased that the Federal Reserve Board (the "Fed") would institute its first rate hike in nearly a decade before the end of the calendar year. All told, the yield on the two-year Treasury rose from 0.56% to 0.64%, whereas the yield on the 10-year Treasury moved from 1.94% to 2.35% during the second quarter. At its meeting that concluded on June 17, 2015, the Fed said "The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run."

The overall US bond market, as measured by the Barclays US Aggregate Index (the "Index"), declined 1.68% during the second calendar quarter.1 Most US spread sectors also posted negative total returns during the period, as they were impacted by rising Treasury yields and periods of investor risk aversion.2

Performance review

During the second quarter of 2015, the Fund posted a net asset value total return of -1.69%, and a market price total return of -2.95%. The Fund, on a net asset value total return basis, performed largely in line with the Barclays US Aggregate Index which, as previously stated, declined 1.68% during the quarter.

Among the contributors to the Fund's performance were its duration positioning. Having a duration that was shorter than that of the Index was rewarded given the rising rate environment. The Fund's investment grade corporate bond security selection was also additive for performance. Elsewhere, the Fund's allocations to collateralized loan obligations ("CLOs") and Treasury Inflation-Protected Securities ("TIPS"), as well as an underweight to agency mortgage-backed securities ("MBS"), were beneficial for results.

On the downside, the Fund's overweights to investment grade and high yield corporate bonds detracted from performance, as their spreads widened. This more than offset the benefits of our security selection in the credit space. An overweight to commercial mortgage-backed securities ("CMBS") was also a drag on results. Finally, an overweight to the long end of the yield curve hurt performance, as rates in this portion of the curve rose the most during the quarter.

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

Outlook

We have an overall positive outlook for the US economy. After a weak start to the year, economic data have improved in recent months. The labor market continues to strengthen. The housing market has shown signs of increased activity, and consumer confidence has risen. That being said, growth for the year as a whole will likely be far from robust. Overseas, economic growth in Europe, while modest, has improved of late, as has growth in Japan. Growth in China remains a concern, although its central bank has a number of tools it can use to help spur its economy.

Turning to the fixed income market, credit spreads widened during the second quarter. Looking ahead, we continue to believe that we're in an environment where investors are in the mind set of owning bonds for the collection of coupons, as we feel that we are in the latter stages of the credit cycle From a rate perspective, much will depend on the Fed’s actions. We expect the US central bank to begin the process of normalizing monetary policy in late 2015. While we feel the Fed will take a conservative approach, we believe the uncertainty surrounding rate hikes will lead to periods of volatility in the fixed income market.

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 June 30, 2015, the Fund's holdings in foreign fixed income securities were predominately denominated in US dollars.5 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 www.standardandpoors.com. 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 http://www.ubs.com/closedendfundsinfo. You may also request copies of the fund overview by calling the Closed-End Funds Desk at 888-793 8637.

©UBS 2015. All rights reserved.

The key symbol and UBS are among the registered and unregistered trademarks of UBS.

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UBS Global Asset Management
Closed-End Funds Desk: 888-793 8637
ubs.com

Source: Fort Dearborn Income Securities, Inc.

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