Fort Dearborn Income Securities, Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED

MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number: 811-02319

 

 

Fort Dearborn Income Securities, Inc.

 

 

(Exact name of registrant as specified in charter)

One North Wacker Drive, Chicago, IL 60606-2807

 

 

(Address of principal executive offices) (Zip code)

Tammie Lee, Esq.

UBS Global Asset Management (Americas) Inc.

1285 Avenue of the Americas

New York, NY 10019

(Name and address of agent for service)

Copy to:

Bruce G. Leto, Esq.

Stradley Ronon Stevens & Young LLP

2600 One Commerce Square

Philadelphia, PA 19103

Registrant’s telephone number, including area code: 212-821 3000

Date of fiscal year end: September 30

Date of reporting period: June 30, 2015

Item 1. Schedule of Investments

Fort Dearborn Income Securities, Inc.

Industry diversification (unaudited)

As a percentage of net assets

As of June 30, 2015

 

 

  

Bonds

   

Corporate bonds

   

Automobiles

      1.60 % 

Banks

      22.01  

Building products

      0.49  

Capital markets

      3.33  

Chemicals

      3.84  

Commercial services & supplies

      0.76  

Communications equipment

      0.24  

Construction materials

      0.96  

Consumer finance

      1.03  

Diversified financial services

      3.61  

Diversified telecommunication services

      1.48  

Electric utilities

      0.82  

Electronic equipment, instruments & components

      0.22  

Energy equipment & services

      0.46  

Food & staples retailing

      0.59  

Gas utilities

      0.58  

Hotels, restaurants & leisure

      1.19  

Household durables

      0.79  

Insurance

      6.56  

IT services

      0.44  

Life sciences tools & services

      0.11  

Machinery

      1.50  

Media

      3.93  

Metals & mining

      3.85  

Oil, gas & consumable fuels

      10.95  

Paper & forest products

      1.23  

Pharmaceuticals

      0.04  

Real estate investment trust (REIT)

      0.63  

Real estate management & development

      0.24  

Technology hardware, storage & peripherals

      1.06  

Thrifts & mortgage finance

      0.46  

Tobacco

      2.72  

Trading companies & distributors

      1.43  
  

 

 

  

Total corporate bonds

      79.15 % 

Asset-backed security

      0.19  

Collateralized debt obligations

      4.40  

Commercial mortgage-backed securities

      6.52  

Mortgage & agency debt securities

      1.63  

Residential mortgage-backed securities

      0.48  

Municipal bonds

      1.67  

US government obligations

      2.74  

Non-US government obligation

      0.82  
  

 

 

  

Total bonds

      97.60 % 

Common stock

      0.05  

Preferred Stock

      0.09  

Short-term investment

      0.17  

Options purchased

      0.23  
  

 

 

  

Total investments

      98.14 % 

Cash and other assets, less liabilities

      1.86  
  

 

 

  

Net assets

      100.00 % 
  

 

 

  
 

Fort Dearborn Income Securities, Inc.

Portfolio of investments — June 30, 2015 (unaudited)

 

 

    Face
amount		      Value  

Bonds: 97.60%

      

Corporate bonds: 79.15%

      

Brazil: 4.34%

      

Banco do Brasil SA,

      

9.000%, due 06/18/241,2,3

    $ 585,000      $ 527,787  

Caixa Economica Federal,

      

2.375%, due 11/06/171

      1,400,000        1,347,500  

Petrobras Global Finance BV,

      

5.375%, due 01/27/21

      1,130,000        1,084,777  

6.250%, due 03/17/24

      400,000        384,608  

6.875%, due 01/20/40

      1,275,000        1,129,599  

Vale Overseas Ltd.,

      

4.375%, due 01/11/22

      1,465,000        1,427,972  
     

 

 

  

Total Brazil corporate bonds

         5,902,243  
     

 

 

  

Canada: 1.99%

      

Encana Corp.,

      

6.625%, due 08/15/37

      250,000        269,184  

NOVA Chemicals Corp.,

      

5.000%, due 05/01/251

      210,000        210,788  

5.250%, due 08/01/231

      1,010,000        1,025,150  

Teck Resources Ltd.,

      

6.250%, due 07/15/41

      875,000        704,139  

Yamana Gold, Inc.,

      

4.950%, due 07/15/24

      510,000        491,248  
     

 

 

  

Total Canada corporate bonds

         2,700,509  
     

 

 

  

China: 0.21%

      

China Oil & Gas Group Ltd.,

      

5.250%, due 04/25/181

      280,000        281,400  
     

 

 

  

France: 0.60%

      

Orange SA,

      

9.000%, due 03/01/31

      575,000        811,359  
     

 

 

  

Germany: 1.22%

      

Unitymedia Hessen GmbH & Co. KG,

      

5.500%, due 01/15/231

      300,000        305,812  

Unitymedia Kabel BW GmbH,

      

6.125%, due 01/15/251

      1,300,000        1,358,500  
     

 

 

  

Total Germany corporate bonds

         1,664,312  
     

 

 

  

Indonesia: 0.33%

      

Pertamina Persero PT,

      

6.450%, due 05/30/441

      450,000        443,250  
     

 

 

  

Ireland: 1.06%

      

XL Group PLC,

      

Series E,

      

6.500%, due 04/15/172,3

      1,690,000        1,446,015  
     

 

 

  

Israel: 0.04%

      

Teva Pharmaceutical Finance IV BV,

      

3.650%, due 11/10/21

      57,000        57,955  
     

 

 

  

Italy: 0.38%

      

Generali Finance BV,

      

6.214%, due 06/16/162,3

    GBP  100,000        157,969  

Fort Dearborn Income Securities, Inc.

Portfolio of investments — June 30, 2015 (unaudited)

 

 

    Face
amount		      Value  

Bonds — (continued)

      

Corporate bonds — (continued)

      

Italy — (concluded)

      

Telecom Italia Capital SA,

      

6.375%, due 11/15/33

    $ 350,000      $ 358,750  
     

 

 

  

Total Italy corporate bonds

         516,719  
     

 

 

  

Luxembourg: 0.36%

      

Intelsat Jackson Holdings SA,

      

7.500%, due 04/01/21

      500,000        494,375  
     

 

 

  

Malaysia: 0.30%

  

SSG Resources Ltd.,

      

4.250%, due 10/04/224

      410,000        414,758  
     

 

 

  

Mexico: 2.65%

      

Cemex SAB de CV,

      

5.700%, due 01/11/251

      1,000,000        945,000  

5.875%, due 03/25/191

      350,000        357,770  

Petroleos Mexicanos,

      

3.500%, due 01/30/23

      1,450,000        1,368,075  

6.375%, due 01/23/45

      500,000        510,625  

6.500%, due 06/02/41

      410,000        426,400  
     

 

 

  

Total Mexico corporate bonds

         3,607,870  
     

 

 

  

Netherlands: 1.90%

      

Basell Finance Co. BV,

      

8.100%, due 03/15/271

      1,425,000        1,882,463  

LYB International Finance BV,

      

4.875%, due 03/15/44

      470,000        456,644  

LyondellBasell Industries NV,

      

4.625%, due 02/26/55

      280,000        246,580  
     

 

 

  

Total Netherlands corporate bonds

         2,585,687  
     

 

 

  

Norway: 1.64%

      

Eksportfinans ASA,

      

5.500%, due 05/25/16

      620,000        637,825  

5.500%, due 06/26/17

      1,500,000        1,589,535  
     

 

 

  

Total Norway corporate bonds

         2,227,360  
     

 

 

  

Portugal: 1.04%

      

EDP Finance BV,

      

4.900%, due 10/01/191

      1,000,000        1,041,284  

6.000%, due 02/02/181

      350,000        374,851  
     

 

 

  

Total Portugal corporate bonds

         1,416,135  
     

 

 

  

Sweden: 0.98%

      

Nordea Bank AB,

      

4.875%, due 05/13/211

      1,230,000        1,331,540  
     

 

 

  

United Kingdom: 5.26%

      

Barclays Bank PLC,

      

5.140%, due 10/14/20

      1,110,000        1,206,545  

6.050%, due 12/04/171

      900,000        979,235  

Lloyds Bank PLC,

      

6.500%, due 09/14/201

      2,300,000        2,650,992  

Fort Dearborn Income Securities, Inc.

Portfolio of investments — June 30, 2015 (unaudited)

 

 

    Face
amount		      Value  

Bonds — (continued)

      

Corporate bonds — (continued)

      

United Kingdom — (concluded)

      

Royal Bank of Scotland Group PLC,

      

5.125%, due 05/28/24

    $ 450,000      $ 449,452  

6.100%, due 06/10/23

      1,760,000        1,871,297  
     

 

 

  

Total United Kingdom corporate bonds

         7,157,521  
     

 

 

  

United States: 54.85%

      

21st Century Fox America, Inc.,

      

7.750%, due 12/01/45

      350,000        476,549  

ADT Corp.,

      

3.500%, due 07/15/22

      1,140,000        1,031,700  

AEP Texas Central Co.,

      

Series E,

      

6.650%, due 02/15/33

      495,000        619,917  

Allstate Corp.,

      

5.750%, due 08/15/532

      1,000,000        1,056,250  

Altria Group, Inc.,

      

5.375%, due 01/31/44

      850,000        899,048  

9.950%, due 11/10/38

      750,000        1,207,677  

Anadarko Holding Co.,

      

7.500%, due 10/15/26

      1,354,000        1,651,899  

AXA Financial, Inc.,

      

7.000%, due 04/01/28

      165,000        204,799  

Bank of America Corp.,

      

6.110%, due 01/29/37

      2,000,000        2,241,636  

7.750%, due 05/14/38

      1,000,000        1,331,486  

Barrick North America Finance LLC,

      

5.750%, due 05/01/43

      1,450,000        1,394,780  

Boston Properties LP, REIT,

      

3.800%, due 02/01/24

      430,000        435,168  

Building Materials Corp. of America,

      

6.750%, due 05/01/211

      320,000        333,600  

Case New Holland Industrial, Inc.,

      

7.875%, due 12/01/17

      1,500,000        1,642,500  

Caterpillar, Inc.,

      

4.300%, due 05/15/44

      400,000        392,940  

CenturyLink, Inc.,

      

Series P,

      

7.600%, due 09/15/39

      200,000        181,250  

CF Industries, Inc.,

      

4.950%, due 06/01/43

      1,500,000        1,403,512  

Citigroup, Inc.,

      

Series D,

      

5.350%, due 05/15/232,3

      2,130,000        2,005,395  

6.300%, due 05/15/242,3

      400,000        390,500  

8.125%, due 07/15/39

      1,435,000        2,059,744  

DISH DBS Corp.,

      

7.875%, due 09/01/19

      1,300,000        1,441,700  

DR Horton, Inc.,

      

4.000%, due 02/15/20

      77,000        76,592  

Energy Transfer Partners LP,

      

5.950%, due 10/01/43

      750,000        735,012  

Fort Dearborn Income Securities, Inc.

Portfolio of investments — June 30, 2015 (unaudited)

 

 

    Face
amount		      Value  

Bonds — (continued)

      

Corporate bonds — (continued)

      

United States — (continued)

      

Fidelity National Financial, Inc.,

      

5.500%, due 09/01/22

    $ 700,000      $ 736,396  

FirstEnergy Transmission LLC,

      

5.450%, due 07/15/441

      300,000        312,298  

Flextronics International Ltd.,

      

5.000%, due 02/15/23

      300,000        304,545  

Ford Motor Co.,

      

7.450%, due 07/16/31

      1,700,000        2,172,272  

Freeport-McMoRan, Inc.,

      

3.550%, due 03/01/22

      200,000        185,126  

General Electric Capital Corp.,

      

Series C,

      

5.250%, due 06/15/232,3

      2,650,000        2,716,250  

General Motors Financial Co., Inc.,

      

3.000%, due 09/25/17

      500,000        509,756  

4.750%, due 08/15/17

      850,000        897,017  

Georgia-Pacific LLC,

      

8.000%, due 01/15/24

      1,300,000        1,672,324  

Goldman Sachs Group, Inc.,

      

5.750%, due 01/24/22

      1,355,000        1,541,271  

6.750%, due 10/01/37

      570,000        668,580  

Host Hotels & Resorts LP,

      

Series E,

      

4.000%, due 06/15/25

      420,000        416,879  

International Lease Finance Corp.,

      

7.125%, due 09/01/181

      1,750,000        1,951,250  

JPMorgan Chase & Co.,

      

3.375%, due 05/01/23

      360,000        349,567  

Series 1,

      

7.900%, due 04/30/182,3

      4,600,000        4,865,650  

Kinder Morgan Energy Partners LP,

      

5.625%, due 09/01/41

      700,000        656,457  

5.800%, due 03/15/35

      710,000        700,635  

6.500%, due 09/01/39

      75,000        76,903  

Kinder Morgan, Inc.,

      

6.500%, due 09/15/20

      300,000        343,052  

7.250%, due 06/01/18

      300,000        338,338  

Kroger Co.,

      

6.900%, due 04/15/38

      650,000        806,135  

Lennar Corp.,

      

4.750%, due 05/30/25

      330,000        320,100  

Liberty Mutual Group, Inc.,

      

4.250%, due 06/15/231

      1,000,000        1,028,405  

Life Technologies Corp.,

      

6.000%, due 03/01/20

      135,000        151,856  

Massachusetts Mutual Life Insurance Co.,

      

8.875%, due 06/01/391

      275,000        412,180  

MetLife, Inc.,

      

6.400%, due 12/15/36

      1,460,000        1,602,350  

Midstates Petroleum Co., Inc.,

      

10.750%, due 10/01/20

      450,000        189,000  

Fort Dearborn Income Securities, Inc.

Portfolio of investments — June 30, 2015 (unaudited)

 

 

    Face
amount		      Value  

Bonds — (continued)

      

Corporate bonds — (continued)

      

United States — (continued)

      

Morgan Stanley,

      

4.100%, due 05/22/23

    $ 1,000,000      $ 1,001,869  

Series F,

      

5.625%, due 09/23/19

      1,175,000        1,316,698  

Motorola Solutions, Inc.,

      

3.500%, due 03/01/23

      350,000        330,109  

NextEra Energy Capital Holdings, Inc.,

      

6.650%, due 06/15/672

      200,000        186,000  

ONEOK Partners LP,

      

8.625%, due 03/01/19

      215,000        255,739  

Phillips 66,

      

4.300%, due 04/01/22

      225,000        236,130  

PNC Financial Services Group, Inc.,

      

Series R,

      

4.850%, due 06/01/232,3

      1,000,000        955,000  

PNC Preferred Funding Trust I,

      

1.936%, due 03/15/171,2,3

      1,200,000        1,092,000  

Prudential Financial, Inc.,

      

5.200%, due 03/15/442

      2,305,000        2,283,102  

5.875%, due 09/15/422

      300,000        317,040  

Series B,

      

5.750%, due 07/15/33

      40,000        44,881  

Quicken Loans, Inc.,

      

5.750%, due 05/01/251

      660,000        631,950  

Realogy Group LLC,

      

7.625%, due 01/15/201

      310,000        328,290  

Regency Energy Partners LP,

      

5.500%, due 04/15/23

      1,640,000        1,669,192  

Reynolds American, Inc.,

      

7.250%, due 06/15/37

      1,325,000        1,589,012  

Ryland Group, Inc.,

      

6.625%, due 05/01/20

      310,000        344,100  

Seagate HDD Cayman,

      

3.750%, due 11/15/18

      1,050,000        1,094,661  

5.750%, due 12/01/341

      350,000        344,617  

Southern Copper Corp.,

      

3.500%, due 11/08/22

      800,000        778,880  

6.750%, due 04/16/40

      250,000        256,360  

Southern Natural Gas Co., LLC,

      

8.000%, due 03/01/32

      430,000        510,450  

Sprint Capital Corp.,

      

6.875%, due 11/15/28

      200,000        172,000  

Standard Pacific Corp.,

      

6.250%, due 12/15/21

      310,000        328,600  

Starwood Hotels & Resorts Worldwide, Inc.,

      

3.750%, due 03/15/25

      270,000        260,261  

4.500%, due 10/01/34

      180,000        167,823  

SunTrust Bank,

      

7.250%, due 03/15/18

      495,000        562,971  

Fort Dearborn Income Securities, Inc.

Portfolio of investments — June 30, 2015 (unaudited)

 

 

    Face
amount		      Value  

Bonds — (continued)

      

Corporate bonds — (concluded)

      

United States — (concluded)

      

Time Warner Cable, Inc.,

      

7.300%, due 07/01/38

    $ 600,000      $ 676,025  

8.750%, due 02/14/19

      910,000        1,080,763  

Transocean, Inc.,

      

6.800%, due 03/15/38

      835,000        624,163  

USG Corp.,

      

5.875%, due 11/01/211

      310,000        326,275  

Valero Energy Corp.,

      

7.500%, due 04/15/32

      965,000        1,174,154  

Wells Fargo Capital X,

      

5.950%, due 12/15/36

      1,475,000        1,499,338  

Williams Cos., Inc.,

      

8.750%, due 03/15/32

      177,000        214,648  

Williams Partners LP,

      

6.300%, due 04/15/40

      1,025,000        1,041,237  

Wyndham Worldwide Corp.,

      

3.900%, due 03/01/23

      1,210,000        1,185,510  

Xerox Corp.,

      

6.350%, due 05/15/18

      540,000        601,800  
     

 

 

  

Total United States corporate bonds

         74,619,894  
     

 

 

  

Total corporate bonds
(cost $106,699,115)

         107,678,902  
     

 

 

  

Asset-backed security: 0.19%

      

United States: 0.19%

      

Continental Airlines Pass Through Trust,

      

Series 2009-2, Class A,

      

7.250%, due 11/10/19
(cost $224,355)

      224,355        259,691  
     

 

 

  

Collateralized debt obligations: 4.40%

      

Cayman Islands: 0.28%

      

LCM XVIII LP,

      

Series 19A, Class D,

      

3.782%, due 07/15/271,2,5,6

      400,000        384,000  
     

 

 

  

United States: 4.12%

      

Avery Point IV CLO Ltd.,

      

Series 2014-1A, Class C,

      

3.377%, due 04/25/261,2

      450,000        450,900  

CIFC Funding Ltd.,

      

Series 2014-1A, Class C,

      

3.075%, due 04/18/251,2

      750,000        745,500  

Dryden Senior Loan Fund,

      

Series 2014-31A, Class C,

      

3.125%, due 04/18/261,2

      800,000        802,000  

Galaxy XVIII CLO Ltd.,

      

Series 2014-18A, Class C1,

      

3.275%, due 10/15/261,2

      550,000        550,000  

Goldentree Loan Opportunities VIII Ltd.,

      

Series 2014-8A, Class D,

      

3.895%, due 04/19/261,2

      550,000        543,125  

Fort Dearborn Income Securities, Inc.

Portfolio of investments — June 30, 2015 (unaudited)

 

 

    Face
amount		      Value  

Bonds — (continued)

      

Collateralized debt obligations — (concluded)

      

United States — (concluded)

      

Goldentree Loan Opportunities X Ltd.,

      

Series 2015-10A, Class D,

      

3.634%, due 07/20/27

    $ 850,000      $ 825,350  

Halcyon Loan Advisors Funding Ltd.,

      

Series 2014-1A, Class C,

      

3.275%, due 04/18/261,2

      850,000        823,820  

JFIN CLO Ltd.,

      

Series 2014-1A, Class C,

      

3.275%, due 04/20/251,2

      450,000        443,768  

Octagon Investment Partners XIX CLO Ltd.,

      

Series 2014-1A, Class C,

      

3.125%, due 04/15/261,2

      420,000        410,785  
     

 

 

  
        5,595,248  
     

 

 

  

Total collateralized debt obligations
(cost $5,969,009)

         5,979,248  
     

 

 

  

Commercial mortgage-backed securities: 6.52%

      

United States: 6.52%

      

Americold 2010 LLC Trust,

      

Series 2010-ARTA, Class C,

      

6.811%, due 01/14/291

      695,000        794,031  

BAMLL Commercial Mortgage Securities Trust,

      

Series 2013-DSNY, Class E,

      

2.784%, due 09/15/261,2

      1,000,000        998,096  

Boca Hotel Portfolio Trust,

      

Series 2013-BOCA, Class D,

      

3.236%, due 08/15/261,2

      1,000,000        999,409  

BXHTL Mortgage Trust,

      

Series 2015-JWRZ, Class GL2,

      

3.875%, due 05/15/291,2,6

      500,000        495,000  

Commercial Mortgage Loan Trust,

      

Series 2014-CR17, Class C,

      

4.896%, due 05/10/472

      800,000        825,333  

Series 2013-LC13, Class C,

      

5.215%, due 08/10/461,2

      500,000        537,881  

Commercial Mortgage Pass Through Certificates,

      

Series 2014-CR14, Class C,

      

4.756%, due 02/10/472

      250,000        258,438  

GS Mortgage Securities Trust,

      

Series 2014-GSFL, Class D,

      

4.084%, due 07/15/311,2

      500,000        495,133  

Series 2014-GC18, Class C,

      

5.113%, due 01/10/472

      300,000        313,584  

JPMBB Commercial Mortgage Securities Trust,

      

Series 2015-C29, Class A4,

      

3.611%, due 05/15/48

      500,000        509,726  

Madison Avenue Trust,

      

Series 2013-650M, Class D,

      

4.169%, due 10/12/321,2

      500,000        515,243  

Morgan Stanley Bank of America Merrill Lynch Trust,

      

Series 2014-C17, Class B,

      

4.464%, due 08/15/472

      500,000        521,061  

Fort Dearborn Income Securities, Inc.

Portfolio of investments — June 30, 2015 (unaudited)

 

 

    Face
amount		      Value  

Bonds — (continued)

      

Commercial mortgage-backed securities — (concluded)

      

United States — (concluded)

      

Morgan Stanley Bank of America Merrill Lynch Trust — (concluded)

      

Series 2013-C13, Class C,

      

5.058%, due 11/15/462

    $ 699,000      $ 734,603  

Morgan Stanley Capital I Trust,

      

Series 2014-CPT, Class E,

      

3.560%, due 07/13/291,2

      250,000        246,397  

Starwood Retail Property Trust,

      

Series 2014-STAR, Class C,

      

2.686%, due 11/15/271,2

      125,000        124,419  

VNDO Mortgage Trust,

      

Series 2013-PENN, Class D,

      

3.947%, due 12/13/291,2

      500,000        506,316  
     

 

 

  

Total commercial mortgage-backed securities
(cost $8,908,668)

         8,874,670  
     

 

 

  

Mortgage & agency debt securities: 1.63%

      

United States: 1.63%

      

Federal Home Loan Mortgage Corp. Gold Pools,7

      

#E01127, 6.500%, due 02/01/17

      7,014        7,244  

Federal National Mortgage Association Pools,7

      

#AE1568, 4.000%, due 09/01/40

      305,655        325,621  

#688066, 5.500%, due 03/01/33

      66,844        76,235  

#793666, 5.500%, due 09/01/34

      332,750        377,222  

#802481, 5.500%, due 11/01/34

      63,848        72,403  

#596124, 6.000%, due 11/01/28

      69,387        79,619  

Federal National Mortgage Association REMIC, IO,7

      

Series 2013-87, Class IW,

      

2.500%, due 06/25/28

      4,567,390        479,792  

Series 2013-64, Class LI,

      

3.000%, due 06/25/33

      3,338,388        493,046  

Series 2011-91, Class EI,

      

3.500%, due 08/25/26

      2,559,036        283,031  

Government National Mortgage Association Pools,

      

#781029, 6.500%, due 05/15/29

      18,944        22,340  
     

 

 

  

Total mortgage & agency debt securities
(cost $2,090,678)

         2,216,553  
     

 

 

  

Residential mortgage-backed securities: 0.48%

      

United States: 0.48%

      

GSR Mortgage Loan Trust,

      

Series 2006-2F, Class 3A4,

      

6.000%, due 02/25/36
(cost $767,827)

      789,286        653,079  
     

 

 

  

Municipal bonds: 1.67%

      

Illinois: 1.26%

      

State of Illinois, GO Bonds,

      

5.665%, due 03/01/18

      710,000        758,351  

5.877%, due 03/01/19

      885,000        951,747  
     

 

 

  
        1,710,098  
     

 

 

  

New Jersey: 0.14%

      

New Jersey State Turnpike Authority Revenue Bonds,

      

Series F,

      

7.414%, due 01/01/40

      140,000        194,419  
     

 

 

  

Fort Dearborn Income Securities, Inc.

Portfolio of investments — June 30, 2015 (unaudited)

 

 

    Face
amount		      Value  

Bonds — (concluded)

      

Municipal bonds — (concluded)

      

Tennessee: 0.27%

      

Metropolitan Government of Nashville & Davidson County Convention Center Authority Revenue Bonds,

      

6.731%, due 07/01/43

    $ 300,000      $ 371,256  
     

 

 

  

Total municipal bonds
(cost $2,114,465)

         2,275,773  
     

 

 

  

US government obligations: 2.74%

      

US Treasury Bond,

      

2.500%, due 02/15/45

      1,325,000        1,166,106  

US Treasury Inflation Indexed Bond (TIPS),

      

0.750%, due 02/15/45

      500,000        458,888  

US Treasury Inflation Indexed Notes (TIPS),

      

0.125%, due 04/15/16

      325,000        349,997  

0.125%, due 07/15/24

      1,475,000        1,433,335  

US Treasury Note,

      

2.000%, due 02/15/25

      325,000        315,758  
     

 

 

  

Total US government obligations
(cost $3,800,695)

         3,724,084  
     

 

 

  

Non-US government obligation: 0.82%

      

Brazil: 0.82%

      

Federative Republic of Brazil,

      

5.000%, due 01/27/45
(Cost $1,264,097)

      1,290,000        1,115,850  
     

 

 

  

Total bonds
(cost $131,838,909)

         132,777,850  
     

 

 

  
     Shares         

Common stock: 0.05%

      

United States: 0.05%

      

WMIH Corp.*
(cost $14,157)

      25,741        67,184  
     

 

 

  

Preferred stocks: 0.09%

      

United States: 0.09%

      

Ally Financial, Inc.

      

7.000%, due on 07/29/151,3

      21        21,220  

JPMorgan Chase & Co.

      

5.450%, due on 03/1/183

      4,000        94,320  
     

 

 

  

Total preferred stocks
(cost $119,357)

         115,540  
     

 

 

  

Short-term investment: 0.17%

      

Investment company: 0.17%

      

UBS Cash Management Prime Relationship Fund8
(cost $234,151)

      234,151         234,151  
     

 

 

  

Fort Dearborn Income Securities, Inc.

Portfolio of investments — June 30, 2015 (unaudited)

 

 

    Number of
contracts		      Value  

Options purchased: 0.23%

      

Call options: 0.14%

      

30 Year US Treasury Bonds, strike @ USD 151.00, expires July 2015

    $ 87      $ 187,594  
     

 

 

  

Put options: 0.08%

      

5 Year US Treasury Notes, strike @ USD 118.25, expires August 2015

      278        76,016  

Japanese Government 10 Year Bond, strike @ JPY 146.00, expires August 2015

      8        31,376  
     

 

 

  
        107,392  
     

 

 

  
     Notional
Amount		         

Options purchased on credit default swaps on credit indices: 0.01%5

      

Expiring 07/15/15. If exercised the payment from the counterparty will be made upon the occurrence of a failure to pay, obligation acceleration, repudiation or restructuring of referenced obligation specified in the CDX.NA.IG Series 24 Index and the Fund receives quarterly fixed rate of 1.000% per annum. Underlying credit default swap terminating 06/20/20. European style. Counterparty: JPMCB

    $ 13,685,000        23,996  
     

 

 

  

Total options purchased
(cost $403,634)

         318,982  
     

 

 

  

Total investments: 98.14%
(cost $132,610,208)

         133,513,707  

Cash and other assets, less liabilities — 1.86%

         2,532,381  
     

 

 

  

Net assets — 100.00%

       $ 136,046,088  
     

 

 

  

Fort Dearborn Income Securities, Inc.

Portfolio of investments — June 30, 2015 (unaudited)

 

Notes to portfolio of investments

Aggregate cost for federal income tax purposes was substantially the same as for book purposes; and net unrealized appreciation consisted of:

 

Gross unrealized appreciation

    $ 4,051,086   

Gross unrealized depreciation

      (3,147,587 ) 
  

 

 

  

Net unrealized appreciation of investments

    $ 903,499   
  

 

 

  

For a listing of defined portfolio acronyms, counterparty abbreviations and currency abbreviations that are used throughout the Portfolio of investments as well as the tables that follow, please refer to the end of this report.

Futures contracts

 

     Expiration
date		    Cost/
(proceeds)		     Value     Unrealized
appreciation/
(depreciation)		  

US Treasury futures buy contracts:

          

US Long Bond, 93 contracts (USD)

    September 2015    $ 14,220,013     $ 14,028,469     $ (191,544 ) 

US Ultra Bond, 64 contracts (USD)

    September 2015      10,024,253       9,860,000       (164,253 ) 

5 Year US Treasury Notes, 60 contracts (USD)

    September 2015      7,167,310       7,155,469       (11,841 ) 

US Treasury futures sell contracts:

          

US Long Bond, 71 contracts (USD)

    September 2015      (10,967,700 )     (10,709,907 )     257,793  

US Ultra Bond, 20 contracts (USD)

    September 2015      (3,147,471 )     (3,081,250 )     66,221  

10 Year US Treasury Notes, 271 contracts (USD)

    September 2015      (34,443,356 )     (34,192,578 )     250,778  

Interest rate futures sell contracts:

          

90 Day Euro-Dollar, 206 contracts (USD)

    December 2015      (51,197,073 )      (51,224,475 )      (27,402 ) 

90 Day Euro-Dollar Time Deposit, 214 contracts (USD)

    September 2016      (52,761,191 )      (52,884,750 )      (123,559 ) 
         

 

 

  

Net unrealized appreciation on futures contracts

           $ 56,193  
         

 

 

  

Credit default swaps on credit indices — sell protection9

 

Counterparty

  

Referenced index10

  

Notional amount

   Termination
date		     Payments
received
by  the
Fund11		     Upfront
payments
(made)/
received		     Value     Unrealized
appreciation
(depreciation)		     Credit
spread12

BOA

   CMBX.NA.BB. Series 6 Index   USD  1,400,000     05/11/63        5.000 %    $ (3,694 )   $ (8,096 )   $ (11,790 )    3.136%

BOA

   CMBX.NA.BB. Series 6 Index   USD  1,400,000     05/11/63        5.000       25,312       (8,096 )     17,216      3.136

BOA

   CMBX.NA.BBB. Series 6 Index   USD  7,000,000     05/11/63        3.000       (161,194 )     (45,638 )     (206,832 )    2.654
         

 

 

    

 

 

    

 

 

    
          $ (139,576 )   $   (61,830 )   $   (201,406 )  

Credit default swaps on corporate issues — buy protection13

 

Counterparty

   

Referenced obligation10

   

Notional amount

    Termination
date		      Payments
made
by the
Fund11		      Upfront
payments
received		      Value     Unrealized
appreciation		  

CITI

    Prudential Financial Inc. bond,
6.100%, due 06/15/17		    USD  1,410,000      03/20/20         1.000%       $  26,899      $ (20,184 )   $ 6,715  
              

 

 

     

 

 

    

 

 

  

Fort Dearborn Income Securities, Inc.

Portfolio of investments — June 30, 2015 (unaudited)

 

Credit default swaps on corporate issues — sell protection9

 

Counterparty

   

Referenced obligation10

   

Notional amount

    Termination
date		      Payments
received
by the
Fund11		     Upfront
Payments
made		     Value      Unrealized
appreciation		      Credit
spread12		  

CITI

    MetLife Inc. bond,
4.750%, due 02/08/21		    USD  1,410,000      03/20/20         1.000 %    $ (18,471 )   $  22,166      $ 3,695        0.661 %
             

 

 

    

 

 

     

 

 

     

Centrally cleared interest rate swap agreements

 

Notional amount      Termination
date		     

Payments

made by

the Fund11

   

Payments received by

the Fund11

    Value     Unrealized
appreciation/
(depreciation)		  
AUD   5,000,000        04/17/25       6 month BBSW    2.695%    $ (209,817 )   $ (209,817 )
USD   7,250,000        02/15/41       2.600%    3 month USD LIBOR      525,536       512,512  
           

 

 

    

 

 

  
            $ 315,719     $ 302,695  

Options written

 

     Expiration
date		    Premiums
received		      Value  

Call option

         

30 Year US Treasury Bonds, 87 contracts, strike @ USD 154.00

    July 2015    $ 105,909      $ (92,438 ) 

Put options

         

5 Year US Treasury Notes, 57 contracts, strike @ USD 119.25

    August 2015      47,118        (37,406 ) 

Euro-Bund, 48 contracts, strike @ EUR 147.50

    August 2015      52,898        (24,081 ) 

Options written on credit default swaps on credit indices5

         

If option exercised payment from the counterparty will be received upon the occurrence of a failure to pay, obligation acceleration, repudiation or restructuring of the referenced obligation specified in the CDX.NA.HY Series 24 Index and the Fund pays quarterly fixed rate of 5.000% per annum. Underlying credit default swap terminating 06/20/20. European style. Counterparty: JPMCB, Notional Amount USD 6,850,000

    August 2015      15,070        (6,064 ) 

If option exercised payment from the counterparty will be received upon the occurrence of a failure to pay, obligation acceleration, repudiation or restructuring of the referenced obligation specified in the CDX.NA.IG Series 24 Index and the Fund pays quarterly fixed rate of 1.000% per annum. Underlying credit default swap terminating 06/20/20. European style. Counterparty: JPMCB, Notional Amount USD 13,685,000

    October 2015      32,502        (32,699 ) 
     

 

 

     

 

 

  

Total options written

       $ 253,497      $ (192,688 ) 
     

 

 

     

 

 

  

Written options activity for the period ended June 30, 2015 was as follows:

 

     Number of
contracts		     Premiums
received		  

Options outstanding at September 30, 2014

      566      $ 192,581   

Options written

      1,902        1,299,501   

Options terminated in closing purchase transactions

      (2,276 )      (1,286,157 ) 

Options expired prior to exercise

      —        —   
  

 

 

    

 

 

  

Options outstanding at June 30, 2015

      192      $ 205,925   
  

 

 

    

 

 

  

 

Written swaptions activity for the period ended June 30, 2015 was as follows:

 

  

Swaptions outstanding at September 30, 2014

      $ 17,325   

Swaptions written

        117,322   

Swaptions terminated in closing purchase transactions

        (87,075 ) 

Swaptions expired prior to exercise

        —   
    

 

 

  

Swaptions outstanding at June 30, 2015

      $ 47,572   
    

 

 

  

Fort Dearborn Income Securities, Inc.

Portfolio of investments — June 30, 2015 (unaudited)

 

The following is a summary of the fair valuations according to the inputs used as of June 30, 2015 in valuing the Fund’s investments:

 

Description    Unadjusted quoted
prices in active
markets for
identical investments
(Level 1)		     Other significant
observable inputs
(Level 2)		    

Unobservable
inputs

(Level 3)

      Total  

Assets

          

Corporate bonds

    $  —     $ 107,678,902     $  —      $ 107,678,902  

Asset-backed security

      —       259,691       —        259,691  

Collateralized debt obligations

      —       3,768,998       2,210,250        5,979,248  

Commercial mortgage-backed securities

      —       8,379,670       495,000        8,874,670  

Mortgage & agency debt securities

      —       2,216,553       —        2,216,553  

Residential mortgage-backed securities

      —       653,079       —        653,079  

Municipal bonds

      —       2,275,773       —        2,275,773  

US government obligations

      —       3,724,084       —        3,724,084  

Non-US government obligation

      —       1,115,850       —        1,115,850  

Preferred stocks

      94,320       21,220       —        115,540  

Common stock

      67,184       —       —        67,184  

Short-term investment

      —       234,151       —        234,151  

Options purchased

      294,986       23,996       —        318,982  

Futures contracts

      574,792       —       —        574,792  

Swap agreements

      —       547,702       —        547,702  

Total

    $ 1,031,282     $ 130,899,669     $ 2,705,250      $ 134,636,201  

Liabilities

          

Futures contracts

    $ (518,599 )    $  —     $  —      $ (518,599 ) 

Swap agreements

      —       (291,831 )      —        (291,831 ) 

Options written

      (153,925 )      (38,763 )      —        (192,688 ) 

Total

    $ (672,524 )    $ (330,594 )    $  —      $ (1,003,118 ) 

At June 30, 2015, there were no transfers between Level 1 and Level 2.

 

      Collateralized
debt obligation		     Commercial
Mortgage-backed
Security		     Total  

Assets

       

Beginning balance

    $ 1,803,750      $ —      $ 1,803,750   

Purchases

      1,209,350        497,500        1,706,850   

Sales

      (534,985 )      —        (534,985 ) 

Accrued discounts (premiums)

      —        —        —   

Total realized gain

      (770 )      —        (770 ) 

Change in net unrealized appreciation/depreciation

      18,808        (2,500 )      16,308   

Transfers into Level 3

      982,092        —        982,092   

Transfers out of Level 3

      (1,267,995 )      —        (1,267,995 ) 

Ending balance

    $ 2,210,250      $ 495,000      $ 2,705,250   

The change in net unrealized appreciation/depreciation relating to the Level 3 investments held at June 30, 2015 was $16,308. Transfers into and out of Level 3 represent the value at the end of the period. At June 30, 2015, securities were transferred from Level 2 to Level 3 as the valuations are based on unobservable inputs. Securities were also transferred from Level 3 to Level 2 as the valuations are based primarily on observable inputs from an established pricing source.

Fort Dearborn Income Securities, Inc.

Portfolio of investments — June 30, 2015 (unaudited)

 

Portfolio footnotes

  * 

Non-income producing security.

  1 

Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933. These securities are considered liquid, unless noted otherwise, and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2015, the value of these securities amounted to $32,711,230 or 24.04% of net assets.

  2 

Variable or floating rate security — The interest rate shown is the current rate as of June 30, 2015 and changes periodically.

  3 

Perpetual investment. Date shown reflects the next call date.

  4 

Security exempt from registration pursuant to Regulation S under the Securities Act of 1933. Regulation S applies to securities offerings that are made outside of the United States and do not involve direct selling efforts in the United States. At June 30, 2015, the value of this security amounted to $414,758 or 0.30% of net assets.

  5 

Illiquid investment as of June 30, 2015.

  6 

Security is being fair valued by a valuation committee under direction of the Board of Trustees. At June 30, 2015, the value of these securities amounted to $879,000 or 0.65% of net assets.

  7 

On September 7, 2008, the Federal Housing Finance Agency placed the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association into conservatorship, and the US Treasury guaranteed the debt issued by those organizations.

  8 

The table below details the Fund’s investment in a fund advised by the same Advisor as the Fund. The Advisor does not earn a management fee from the affiliated UBS Relationship Fund.

 

Security description

   Value
09/30/14		     Purchases
during the
nine months
ended
06/30/15		     Sales
during the
nine months
ended
06/30/15		     Value
06/30/15		     Net income
earned from
affiliate for the
nine months
ended
06/30/15		  

UBS Cash Management Prime Relationship Fund

   $ 2,708,315      $ 17,588,616      $ 20,062,780      $ 234,151      $ 990   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

  9 

If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap agreement less the recovery value of the referenced obligation or underlying securities comprising the referenced index.

  10 

Payments from/to the counterparty will be received/made upon the occurrence of bankruptcy and/or restructuring event with respect to the referenced index/obligation.

  11 

Payments made or received are based on the notional amount.

  12 

Credit spreads, where available, represented in absolute terms, utilized in determining the market value as of period end serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default or other credit event occurring for the credit derivative. The credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced entity.

  13 

If the Fund is a buyer of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) receive from the seller of protection an amount equal to the notional amount of the swap and deliver the referenced obligation or (ii) receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap agreement less the recovery value of the referenced obligation.

Portfolio acronyms

BBSW    Bank Bill Swap Reference Rate (Australian Financial Market)
CLO    Collateralized Loan Obligations
GO    General Obligation
GS    Goldman Sachs
GSR    Goldman Sachs Residential
IO    Interest only — This security entitles the holder to receive interest payments from an underlying pool of mortgages. The risk associated with this security is related to the speed of the principal paydowns. High prepayments would result in a smaller amount of interest being received and cause the yield to decrease. Low prepayments would result in a greater amount of interest being received and cause the yield to increase.
LIBOR    London Interbank Offered Rate
REIT    Real Estate Investment Trust
REMIC    Real Estate Mortgage Investment Conduit
TIPS    Treasury inflation protected securities (“TIPS”) are debt securities issued by the US Treasury whose principal and/or interest payments are adjusted for inflation, unlike debt securities that make fixed principal and interest payments. The interest rate paid by the TIPS is fixed, while the principal value rises or falls based on changes in a published Consumer Price Index (“CPI”). Thus, if inflation occurs, the principal and interest payments on the TIPS are adjusted accordingly to protect investors from inflationary loss. During a deflationary period, the principal and interest payments decrease, although the TIPS principal amounts will not drop below their face amounts at maturity. In exchange for the inflation protection, the TIPS generally pay lower interest rates than typical US Treasury securities. Only if inflation occurs will TIPS offer a higher real yield than a conventional Treasury security of the same maturity.

Counterparty abbreviation

BOA    Bank of America
CITI    Citibank NA
JPMCB    JPMorgan Chase Bank

Currency abbreviations

AUD    Australian Dollar
EUR    Euro
GBP    Great Britain Pound
JPY    Japanese Yen
USD    United States Dollar

The Fund calculates its net asset value based on the current market value, where available, for its portfolio securities. The Fund normally obtains market values for its investments from independent pricing sources and broker-dealers. Independent pricing sources may use reported last sale prices, official market closing prices, current market quotations or valuations from computerized “evaluation” systems that derive values based on comparable investments. An evaluation system incorporates parameters such as security quality, maturity and coupon, and/or research and evaluations by its staff, including review of broker-dealer market price quotations, if available, in determining the valuation of the portfolio investments. Investments also maybe valued based on appraisals derived from information concerning the investments or similar investments received from recognized dealers in those holdings. Investments traded in the over-the-counter (“OTC”) market and listed on The NASDAQ Stock Market, Inc. (“NASDAQ”) normally are valued at the NASDAQ Official Closing Price. Other OTC securities are valued at the last bid price on the valuation date available prior to valuation. Investments which are listed on US and foreign stock exchanges normally are valued at the market closing price, the last sale price on the day the securities are valued or, lacking any sales on such day, at the last available bid price. In cases where investments are traded on more than one exchange, the investments are valued on the exchange designated as the primary market by UBS Global Asset Management (Americas) Inc. (“UBS Global AM”), the investment advisor of the Fund. If a market value is not readily available from an independent pricing source for a particular investment, that investment is valued at fair value as determined in good faith by or under the direction of the Fund’s Board of Directors (the “Board”). Various factors may be reviewed in order to make a good faith determination of an investment’s fair value. These factors include, but are not limited to, fundamental analytical data relating to the investment; the nature and duration of restrictions on disposition of the investments; and the evaluation of forces which influence the market in which the investments are purchased and sold. Certain investments in which the Fund invests are traded in markets that close before 4:00 p.m., Eastern time. Normally, developments that occur between the close of the foreign markets and 4:00 p.m. Eastern time will not be reflected in the Fund’s net asset value. However, if the Fund determines that such developments are so significant that they will materially affect the value of the Fund’s investments, the Fund may adjust the previous closing prices to reflect what is believed to be the fair value of these investments as of 4:00 p.m. Eastern time. Investments in open-end investment companies are valued at the daily closing net asset value of the respective investment company. Pursuant to the Fund’s use of the practical expedient within ASC Topic 820, investments in non registered investment companies are also valued at the daily net asset value.

The Fund’s Board of Directors (the “Board”) has delegated to the UBS Global Asset Management Global Valuation Committee (“GVC”) the responsibility for making fair value determinations with respect to the Fund’s portfolio holdings. The GVC is comprised of representatives of management, including members of the investment team.

The GVC provides reports to the Board at each quarterly meeting regarding any investments that have been fair valued, valued pursuant to standing instructions approved by the GVC, or where non-vendor pricing sources had been used to make fair value determinations when sufficient information exists during the prior quarter. Fair valuation determinations are subject to review at least monthly by the GVC during scheduled meetings. Pricing decisions, processes, and controls over fair value determinations are subject to internal and external reviews, including annual internal compliance reviews and periodic internal audit reviews of security valuations.

The types of investments for which such fair value pricing may be necessary include, but are not limited to: foreign investments under some circumstances, as discussed below, securities of an issuer that has entered into a restructuring; investments whose trading has been halted or suspended; fixed income securities that are in default and for which there is no current market value quotation; and investments that are restricted as to transfer or resale. The need to fair value the Fund’s portfolio investments may also result from low trading volume in foreign markets or thinly traded domestic investments, and when a security that is subject to a trading limit or collar on the exchange or market on which it is primarily traded reaches the “limit up” or “limit” down price and no trading has taken place at that price. Various factors may be reviewed in order to make a good faith determination of an investment’s fair value. These factors include, but are not limited to, fundamental analytical data relating to the investment; the nature and duration of restrictions on disposition of investments; and the evaluation of forces which influence the market in which the investments are purchased and sold. Valuing investments at fair value involves greater reliance on judgment than valuing investments that have readily available market quotations. Fair value determinations can also involve reliance on quantitative models employed by a fair value pricing service.

US Generally Accepted Accounting Principles (“GAAP”) requires disclosure regarding the various inputs that are used in determining the value of the Fund’s investments. These inputs are summarized into the three broad levels listed below:

Level 1 — Unadjusted quoted prices in active markets for identical investments.

Level 2 — Other significant observable inputs, including but not limited to, quoted prices for similar investments, interest rates, prepayment speeds and credit risk.

Level 3 — Unobservable inputs inclusive of the Fund’s own assumptions in determining the fair value of investments.

A fair value hierarchy has been included near the end of the Fund’s Portfolio of investments.

For more information regarding the Fund’s other significant accounting policies, please refer to the Fund’s Semi-annual report to shareholders dated March 31, 2015.

Item 2. Controls and Procedures.

 

  (a) The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (“Investment Company Act”)) are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document.

 

  (b) The registrant’s principal executive officer and principal financial officer are aware of no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act) that occurred during the registrant’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 3. Exhibits.

 

  (a) Certifications of principal executive officer and principal financial officer of registrant pursuant to Rule 30a-2(a) under the Investment Company Act is attached hereto as Exhibit EX-99.CERT.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Fort Dearborn Income Securities, Inc.
By:  

/s/ Mark E. Carver

  Mark E. Carver
  President

Date: August 31, 2015

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Fort Dearborn Income Securities, Inc.
By:  

/s/ Mark E. Carver

  Mark E. Carver
  President
Date:   August 31, 2015
By:  

/s/ Thomas Disbrow

  Thomas Disbrow
  Vice President, Treasurer and Principal Accounting Officer

Date: August 31, 2015