Fort Dearborn Income Securities, Inc. 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 third quarter of 2010 from UBS Global Asset Management (Americas) Inc. ("UBS Global AM"), the Fund's investment advisor
Market Review
During the quarter, Treasuries rallied quite significantly, with both the two-year US Treasury yield and the 10-year US Treasury yield falling 18 and 42 basis points, respectively. Deflationary concerns continued throughout the quarter, along with strong and opposing views regarding the prevalence, duration and magnitude of an economic slowdown, as well as the case for the onset of deflationary pressures. In September, much of the economic data were not as weak as some had been forecasting, and, as a result, risk assets such as investment grade credit, high yield credit and equities performed reasonably well. Most fixed income market sectors outperformed US Treasuries of comparable duration during the quarter. Corporate bonds performed very strongly as investors preferred risk assets. Agency mortgage-backed securities did not fare as well in September and underperformed comparable duration US Treasuries.
Performance Review
For the third quarter 2010, the Fund posted a net asset value total return of 5.52% and a market price total return of 8.18%. The Fund outperformed the Investment Grade Bond Index's (the "Index")1 5.39% return on a net asset value return basis for the quarter. Sector allocation was the primary driver of outperformance. Our underweight to US Treasuries, in favor of high-quality, yet higher-yielding, investment grade corporate bonds and commercial mortgage-backed securities was favorable. Duration and yield curve positioning had a marginally negative impact on relative performance during the quarter. (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.)
Outlook
Looking forward, we believe that the Federal Reserve Board (the "Fed") will announce some additional measure of quantitative easing at their November meeting. We think that this measure may take the form of an increase in the size of their balance sheet, in an effort to further support the economy. The key question is whether this anticipated round of easing will have any real effect on the economy, since US Treasury rates are already at exceptionally low levels and have been for an extended period. We believe that any additional quantitative easing by the Fed will send a strong signal to the financial markets that they will not allow deflationary pressures or expectations to take hold. It is our belief that the Fed will continue to pursue their targeted annual inflation rate of 2% in the future.
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 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.
Contacts:
UBS Global Asset Management Closed-End Funds Desk, 888-793 8637