Edgar Filing: FORT DEARBORN INCOME SECURITIES INC

NOVEMBER 8, 2002

DEAR SHAREHOLDER:

This financial report covers the fiscal year ended September 30, 2002, which
is our thirtieth fiscal year of operations.

Against the backdrop of September 11, conflicting signs of economic health
provided the fodder for high levels of interest rate volatility throughout the
year. Over the first six months of the fiscal year, the benchmark ten-year
Treasury bond yield increased 82 basis points followed by a precipitous drop of
182 basis points by year-end. With a loose monetary policy in place, early 2002
economic data suggested the economy had grown at a rate much higher than the
market expected, setting a higher interest rate trend in motion. However, the
consensus economic forecast soon shifted toward our view that real economic
growth would trend between 2.0% and 3.0%.

As 2002 progressed, the market began to question if consumer spending could
continue to keep the real economy on track as unemployment figures rose and
consumer confidence indicators fell. Corporate spending continued to decline as
entire industries were forced to work off excess financial and operating
leverage. In an effort to preserve cash flow, many large U.S. corporations were
required to combat declining revenue through reduced head count and capital
expenditures. Some companies also needed to address serious flaws in corporate
governance, as investor confidence began to wane. Given this environment
combined with the recent threat of war against Iraq, markets reacted with risk
aversion driving asset prices through equilibrium. As a result, interest rates
fell to unsustainable levels.

We currently believe interest rates, across the entire yield curve, are
below fair value and have positioned the portfolio accordingly. Our strategy
towards spread sectors continues to favor high credit quality bonds issued in
the commercial mortgage backed and asset backed sectors in lieu of corporate
bonds with similar credit quality. As general corporate bond spreads increased
to accommodate the added credit and liquidity risk in the market, we continue to
look for attractive lending opportunities to corporations with stable or
improving credit fundamentals. We anticipate our total exposure to investment-
grade corporate bonds will increase during the next fiscal year. The defensive
posture in terms of duration and credit strategy is expected to continue
generating strong relative returns while preserving capital in this period of
excessive volatility.

Net investment income for the year was $0.95 per share and net realized and
unrealized loss on investments totaled $0.07 per share. On September 30, 2002,
the net asset value per share was $15.71 and the stock closed that day at $15.10
per share.

During the fiscal year, the Board of Directors declared regular quarterly
dividends of $0.25 per share payable on December 14, 2001, $0.24 per share
payable on March 22, 2002 and June 14, 2002, and $0.23 per share payable on
September 13, 2002. In addition to the regular dividends, the Board declared a
capital gains distribution of $0.16 per share payable on December 14, 2001.

No new shares of capital stock were issued in the fiscal year. On September
30, 2002, there were 8,775,665 shares of capital stock outstanding and the net
assets applicable to those shares were $137.9 million.

At the end of the fiscal year the 136 issues in the portfolio had an average
market yield of 5.41%, an average Moody's quality rating of A1, an average
nominal duration of 7.0, and an average maturity of 14.9 years. The distribution
of the portfolio maturities and quality was as follows:

Maturites
-----------------------------------------

0-1 year 4.2%
1-3 years 12.6
3-5 years 1.9
5-10 years 46.7
10-20 years 11.3
20 plus years 23.3
------
100.0%
Quality
-----------------------------------------
Treasury, Agency and Aaa 41.7%
Aa 9.9
A 21.9
Baa 23.5
Below Baa 3.0
------
100.0%

STOCK REPURCHASE PLAN:

On July 28, 1988, the Board of Directors of the Company approved a
resolution to repurchase up to 700,000 of its common shares. The Company may
repurchase shares, at a price not in excess of market and at a discount from net
asset value, if and when such repurchases are deemed appropriate and in the
shareholder's best interest. Any repurchases will be made in compliance with
applicable requirements of the federal securities law.

Under such law, the Company is required to give written notice to all
shareholders of its intention to purchase stock within six months of the actual
repurchase of shares. This report is to serve as notice to all shareholders with
respect to any shares repurchased within the next six months pursuant to the
Company's stock repurchase plan.

Audited financial statements for the year ended September 30, 2002, and a
list of the securities owned on that date are included in this report.

Sincerely,

/s/ Jeffrey J. Diermeier

Jeffrey J. Diermeier, CFA
PRESIDENT

FORT DEARBORN INCOME SECURITIES, INC. is a closed-end bond fund investing
principally in investment grade long-term fixed income debt securities. The
primary objective of Fort Dearborn 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.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Fort Dearborn Income Securities, Inc.
MARKET VALUE OF INDEX AND SHARE PRICE(1) WITH ALL DIVIDENDS REINVESTED AS OF
SEPTEMBER 30, 2002

ANNUALIZED RETURNS
12 MONTHS SINCE INCEPTION

Fort Dearborn 9.46% 8.74%
Investment Grade Bond Index 8.96 8.09

$ WEALTH INDEX
INVESTMENT FORT
GRADE BOND INDEX DEARBORN

12/31/72 18.17 18.17
3/31/73 18.16 18.17
6/30/73 18.06 17.10
9/30/73 18.41 17.09
12/31/73 18.23 16.74
3/31/74 17.55 13.73
6/30/74 16.61 15.62
9/30/74 16.07 13.40
12/31/74 17.05 16.33
3/31/75 17.83 16.82
6/30/75 18.43 17.61
9/30/75 17.79 16.79
12/31/75 19.39 16.54
3/31/76 20.17 18.45
6/30/76 20.19 18.37
9/30/76 21.28 20.03
12/31/76 22.83 20.26
3/31/77 22.26 20.50
6/30/77 23.08 21.07
9/30/77 23.28 21.49
12/31/77 23.04 20.68
3/31/78 23.00 20.93
6/30/78 22.70 21.00
9/30/78 23.36 20.90
12/31/78 22.84 19.04
3/31/79 23.16 20.31
6/30/79 24.15 21.40
9/30/79 23.61 20.84
12/31/79 21.70 19.25
3/31/80 18.79 17.16
6/30/80 23.31 20.99
9/30/80 20.76 18.99
12/31/80 20.93 19.11
3/31/81 20.69 19.19
6/30/81 20.24 19.51
9/30/81 18.40 19.39
12/31/81 20.51 20.85
3/31/82 21.47 21.83
6/30/82 21.63 22.26
9/30/82 26.21 26.55
12/31/82 29.02 28.83
3/31/83 30.14 29.96
6/30/83 30.55 31.44
9/30/83 30.40 31.01
12/31/83 30.59 31.22
3/31/84 30.09 32.50
6/30/84 28.94 30.21
9/30/84 32.51 32.66
12/31/84 35.48 37.09
3/31/85 35.82 37.34
6/30/85 40.17 43.27
9/30/85 40.92 42.71
12/31/85 45.80 46.79
3/31/86 50.64 53.14
6/30/86 50.88 55.71
9/30/86 51.74 56.95
12/31/86 54.47 57.70
3/31/87 55.37 60.37
6/30/87 53.02 58.78
9/30/87 49.70 55.66
12/31/87 53.50 56.99
3/31/88 55.86 62.51
6/30/88 56.58 63.41
9/30/88 57.95 63.23
12/31/88 58.38 65.30
3/31/89 59.10 63.95
6/30/89 64.57 69.00
9/30/89 64.91 71.79
12/31/89 67.02 73.38
3/31/90 65.82 75.08
6/30/90 68.35 75.50
9/30/90 67.72 74.62
12/31/90 71.21 80.42
3/31/91 74.02 83.65
6/30/91 75.16 85.57
9/30/91 80.14 91.67
12/31/91 84.58 96.45
3/31/92 83.43 93.81
6/30/92 87.02 97.18
9/30/92 91.22 102.91
12/31/92 91.65 101.67
3/31/93 96.61 108.40
6/30/93 100.19 113.71
9/30/93 104.21 117.42
12/31/93 103.37 112.65
3/31/94 98.48 107.51
6/30/94 96.30 106.80
9/30/94 96.42 105.14
12/31/94 97.14 101.57
3/31/95 103.18 107.51
6/30/95 111.98 116.50
9/30/95 114.54 118.69
12/31/95 121.13 126.33
3/31/96 116.32 124.45
6/30/96 116.17 122.62
9/30/96 118.35 129.34
12/31/96 123.00 137.71
3/31/97 120.84 135.62
6/30/97 126.34 142.43
9/30/97 131.91 148.57
12/31/97 136.87 156.83
3/31/98 138.88 160.03
6/30/98 142.78 159.51
9/30/98 147.81 166.11
12/31/98 148.73 178.86
3/31/99 146.24 174.77
6/30/99 142.24 164.31
9/30/99 142.02 161.53
12/31/99 140.99 145.64
3/31/00 143.82 157.67
6/30/00 144.71 164.57
9/30/00 149.23 168.54
12/31/00 155.49 176.54
3/31/01 161.70 190.74
6/30/01 162.17 201.75
9/30/01 168.73 200.54
12/31/01 169.83 207.71
3/31/02 168.71 206.82
6/30/02 173.81 217.23
9/30/02 183.85 219.50

Returns are net of fees
(1) Share price return is impacted by changes in the premium or discount to the
net asset value (NAV). At September 30, 2002, the share price was at a 3.88%
discount to NAV.
Total Return does not reflect the deduction of taxes that a shareholder would
pay on fund distributions or the redemption of fund shares.

STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2002

ASSETS:
Portfolio of investments:
Debt securities, at value (cost $128,821,240)............. $ 131,454,365
Short-term securities, at cost, which approximates
market.................................................. 4,762,535
-------------
Total portfolio of investments........................ 136,216,900
Receivable for interest on debt securities.................. 2,016,506
Other assets................................................ 8,363
-------------
Total assets.......................................... 138,241,769
-------------
LIABILITIES:
Expenses:
Accrued investment advisory and administrative fees....... 314,740
Accrued professional fees................................. 29,300
Accrued custodial and transfer agent fees................. 24,147
Accrued other expenses.................................... 11,915
-------------
Total liabilities..................................... 380,102
-------------
NET ASSETS (equivalent to $15.71 per share for 8,775,665
shares of capital stock outstanding)....................... $ 137,861,667
=============
Analysis of Net Assets:
Shareholder capital....................................... $ 135,120,133
Accumulated undistributed net investment income........... 133,939
Accumulated net realized loss on sales of investments..... (25,530)
Unrealized appreciation on investments.................... 2,633,125
-------------
Net assets applicable to outstanding shares............... $ 137,861,667
=============

See Notes to Financial Statements.

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
SEPTEMBER 30, 2002

Investment income:
Interest income earned.................................... $ 9,312,772
-------------
Expenses:
Investment advisory and administrative fees............... 647,514
Transfer agent and dividend disbursing agent fees......... 86,367
Directors fees............................................ 77,985
Professional fees......................................... 52,642
Stockholders reports and annual meeting fees.............. 50,930
Custody fees.............................................. 41,063
Franchise taxes........................................... 9,855
Other expenses............................................ 32,169
-------------
Total expenses.............................................. 998,525
-------------
Net investment income....................................... 8,314,247
-------------
Net realized and unrealized gain (loss) on investments:
Net realized gain from investment transactions............ 623,636
Change in unrealized depreciation......................... (1,229,377)
-------------
Total realized and unrealized gain (loss) on investments.... (605,741)
-------------
Net increase in net assets from operations.................. $ 7,708,506
=============

See Notes to Financial Statements.

STATEMENT OF CHANGES IN NET ASSETS

FOR THE YEAR ENDED SEPTEMBER 30,
2002 2001
---------------- ----------------

From operations:
Net investment income....................... $ 8,314,247 $ 9,088,903
Net realized gain from investment
transactions.............................. 623,636 1,972,541
Change in unrealized appreciation
(depreciation) of investments............. (1,229,377) 5,958,527
------------ ------------
Net increase in net assets from
operations................................ 7,708,506 17,019,971
Distributions to shareholders from:
Net investment income....................... (8,424,638) (9,126,692)
Net realized gain........................... (1,404,106) --
------------ ------------
Total distributions....................... (9,828,744) (9,126,692)
------------ ------------
Net increase (decrease) in net assets..... (2,120,238) 7,893,279
Net Assets:
Beginning of period......................... 139,981,905 132,088,626
------------ ------------
End of period (including undistributed net
investment income of $133,939 and
$228,941, respectively)................... $137,861,667 $139,981,905
============ ============

See Notes to Financial Statements.

FINANCIAL HIGHLIGHTS

Financial highlights for each share of capital stock outstanding through each
period:

YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------
2002 2001 2000 1999 1998
--------- --------- --------- --------- ---------

Net asset value, beginning of period... $ 15.95 $ 15.05 $ 15.11 $ 16.87 $ 16.30
------- -------- -------- -------- --------
Net investment income (1).............. 0.95 1.04 1.05 1.05 1.05
Net realized and unrealized gain (loss)
on investments........................ (0.07) 0.90 (0.06) (1.27) 0.71
------- -------- -------- -------- --------
Total from investment operations....... 0.88 1.94 0.99 (0.22) 1.76
Less distributions from:
Net investment income.............. (0.96) (1.04) (1.04) (1.04) (1.04)
Net realized gain.................. (0.16) -- (0.01) (0.50) (0.15)
------- -------- -------- -------- --------
Total distributions.................... (1.12) (1.04) (1.05) (1.54) (1.19)
------- -------- -------- -------- --------
Net asset value, end of period......... $ 15.71 $ 15.95 $ 15.05 $ 15.11 $ 16.87
======= ======== ======== ======== ========
Market price per share at end of
period................................ $ 15.10 $ 14.84 $ 13.38 $ 13.88 $ 15.75
Total investment return (market value)
(2)................................... 9.46% 18.98% 4.34% (2.76)% 11.81%
Total return (net asset value) (3)..... 5.82% 13.22% 6.77% (1.48)% 11.07%
Net assets at end of period (in
millions)............................. $137.86 $ 139.98 $ 132.09 $ 132.81 $ 148.30
Ratios of expenses to average net
assets................................ 0.73% 0.71% 0.74% 0.73% 0.71%
Ratio of net investment income to
average net assets.................... 6.07% 6.68% 7.01% 6.61% 6.29%
Portfolio turnover..................... 126.8% 142.7% 73.8% 69.9% 63.5%
Number of shares outstanding at end of
period (in thousands)................. 8,776 8,776 8,776 8,789 8,789

--------------------------

(1) Net investment income includes amortization of discounts and premiums.

(2) Total investment return (market value) reflects the market value experiences
of a continuous shareholder who made commission-free acquisitions through
distributions in accordance with the shareholder reinvestment plan.

(3) Total return (net asset value) reflects the Company's portfolio performance
and is the combination of reinvested dividend income, reinvested capital
gains distributions at NAV, if any, and changes in net asset value per
share.

See Notes to Financial Statements.

PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2002

MOODY'S
FACE VALUE RATING COST VALUE
----------- ------- ------------ ------------

DEBT SECURITIES--(96.5%)

/ / MUNICIPAL SECURITIES--(3.0%)
New Jersey Economic Development Authority,
$10,000,000 Zero Coupon Revenue Bond, due 02/15/18.... Aaa $ 3,175,028 $ 4,172,300
------------ ------------

/ / U.S. GOVERNMENT SECURITIES--(17.3%)
AGENCY OBLIGATIONS--(11.3%)
Fannie Mae Grantor Trust,
685,000 7.125%, due 01/15/30..................... (a) 766,899 849,189
Federal Home Loan Mortgage Corp.,
Guaranteed Mortgage Certificates,
85 9.000%, due 08/01/04..................... (a) 89 91
Federal National Mortgage Association,
3,973,362 6.000%, due 11/01/28..................... (a) 3,929,978 4,087,211
2,670,974 6.500%, due 08/01/32..................... (a) 2,766,962 2,769,984
985,631 7.000%, due 03/01/31..................... (a) 998,105 1,033,135
Federal National Mortgage Association,
Guaranteed Mortgage Pass Thru
Certificates,
2,331,953 6.500%, due 03/01/28..................... (a) 2,319,929 2,418,396
441,218 7.000%, REMIC, due 06/25/13.............. (a) 410,283 477,973
Freddie Mac Gold Pool,
2,638,021 6.000%, due 04/01/29..................... (a) 2,701,086 2,718,587
Government National Mortgage Association,
920,558 6.500%, due 05/15/29..................... (a) 849,359 960,938
------------ ------------
14,742,690 15,315,504
------------ ------------
DIRECT OBLIGATIONS--(6.0%)
U.S. Treasury Inflation Indexed Bonds,
3,800,000 3.000%, due 07/15/12..................... Aaa 4,022,662 4,096,415
U.S. Treasury Notes,
850,000 2.875%, due 06/30/04..................... Aaa 862,965 867,763
25,000 4.375%, due 05/15/07..................... Aaa 26,448 26,983
320,000 5.000%, due 08/15/11..................... Aaa 347,770 355,388
170,000 6.125%, due 08/15/07..................... Aaa 193,108 196,988

See Notes to Financial Statements.

PORTFOLIO OF INVESTMENTS--(CONTINUED)
SEPTEMBER 30, 2002

MOODY'S
FACE VALUE RATING COST VALUE
----------- ------- ------------ ------------

$ 2,180,000 6.250%, due 05/15/30..................... Aaa $ 2,583,049 $ 2,659,770
------------ ------------
8,036,002 8,203,307
------------ ------------
Total U.S. Government Securities.......... 22,778,692 23,518,811
------------ ------------

/ / CORPORATE BONDS AND NOTES--(76.2%)
FINANCE--(38.4%)
745,000 Anadarko Finance Co., 7.500%, due
05/01/31................................. Baa1 786,076 884,176
375,000 Avalonbay Communities, Inc., 7.500%, due
08/01/09................................. Baa1 393,623 433,408
1,915,000 Bank of America Corp., 7.400%, due
01/15/11................................. Aa3 1,985,461 2,263,486
815,000 Bank One Corp., 7.875%, due 08/01/10...... A1 874,741 988,182
1,655,000 Barclays Bank PLC, 144-A, 8.550%, due
09/29/49................................. Aa3 1,652,733 2,005,901
280,000 Boeing Capital Corp., 7.375%, due
09/27/10................................. A3 300,716 315,732
430,000 Capital One Bank, 6.875%, due 02/01/06.... Baa2 418,757 403,960
200,000 ChevronTexaco Capital Co., 3.500%, due
09/17/07................................. Aa2 199,106 203,017
1,995,000 Citigroup, Inc., 7.250%, due 10/01/10..... Aa2 2,100,486 2,286,402
335,000 Countrywide Home Loan, Inc., 5.500%, due
02/01/07................................. A3 339,231 352,450
3,000,000 CPL Transition Funding LLC, 6.250%, due
01/15/17................................. Aaa 3,243,281 3,289,316
585,000 Credit Suisse First Boston USA, Inc.,
6.500%, due 01/15/12..................... Aa3 577,652 624,577
2,800,000 CS First Boston Mortgage Securities Corp.,
7.545%, due 04/14/62..................... AAA* 3,026,625 3,326,743
635,000 DLJ Commercial Mortgage Corp., 00-CKP1,
Class A1B, 7.180%, due 08/10/10.......... Aaa 638,274 741,650
2,000,000 DLJ Commercial Mortgage Corp., 99-CG3,
Class A1B, 7.340%, due 10/10/32.......... Aaa 2,171,250 2,344,269
615,000 EOP Operating LP, 7.875%, due 07/15/31.... Baa1 624,338 685,472
590,000 FleetBoston Financial Corp., 7.375%, due
12/01/09................................. A3 628,383 670,154
1,805,000 Ford Motor Co., 7.450%, due 07/16/31...... Baa1 1,654,746 1,485,526
510,000 Ford Motor Credit Co., 5.800%, due
01/12/09................................. A3 476,279 460,498

See Notes to Financial Statements.

PORTFOLIO OF INVESTMENTS--(CONTINUED)
SEPTEMBER 30, 2002

MOODY'S
FACE VALUE RATING COST VALUE
----------- ------- ------------ ------------

$ 1,185,000 Ford Motor Credit Co., 7.375%, due
02/01/11................................. A3 $ 1,167,803 $ 1,117,732
1,835,000 General Electric Capital Corp., 6.750%,
due 03/15/32............................. Aaa 1,801,508 1,968,131
1,130,000 General Motors Acceptance Corp., 6.875%,
due 09/15/11............................. A2 1,112,815 1,101,516
1,710,000 General Motors Acceptance Corp., 8.000%,
due 11/01/31............................. A2 1,735,511 1,657,455
665,000 Goldman Sachs Group, Inc., 6.875%, due
01/15/11................................. Aa3 664,898 737,684
2,370,000 Household Finance Corp., 6.750%, due
05/15/11................................. A2 2,355,474 2,264,175
475,000 Lehman Bros. Holdings, Inc., 6.625%, due
01/18/12................................. A2 472,554 520,479
390,000 Lincoln National Corp., 6.200%, due
12/15/11................................. A3 388,534 422,397
1,410,000 Merrill Lynch Mortgage Investors, Inc.,
96-C2, Class A3, 6.960%, due 11/21/28.... AAA* 1,496,748 1,532,776
1,640,000 Morgan Stanley, 6.750%, due 04/15/11...... Aa3 1,645,537 1,792,897
170,000 Morgan Stanley, 7.250%, due 04/01/32...... Aa3 170,973 182,647
1,029,919 Norwest Asset Securities Corp., 7.000%,
due 09/25/11............................. AAA* 1,038,287 1,054,349
1,500,000 PNC Mortgage Acceptance Corp., 99-CM1,
Class A1B, 7.330%, due 12/10/32.......... Aaa 1,608,750 1,759,880
870,000 Prudential Mortgage Capital Funding, LLC,
01-ROCK, Class A2, 6.605%, due
05/10/34................................. Aaa 874,350 989,782
1,380,000 PSE&G Transition Funding LLC, 6.450%, due
03/15/13................................. Aaa 1,445,766 1,581,893
3,000,000 PSE&G Transition Funding LLC, 6.610%, due
06/15/15................................. Aaa 3,376,875 3,447,221
1,645,000 Qwest Capital Funding, Inc., 7.900%, due
08/15/10................................. Caa1 1,707,715 740,250
285,000 Sears Roebuck Acceptance, 6.700%, due
04/15/12................................. Baa1 289,970 301,923
115,000 SLM Corp., 5.125%, due 08/27/12........... A2 114,202 119,248
500,000 U.S. Bank N.A., Minnesota, 6.375%, due
08/01/11................................. Aa3 510,881 564,463
945,000 Unilever Capital Corp., 7.125%, due
11/01/10................................. A1 1,015,849 1,128,577

See Notes to Financial Statements.

PORTFOLIO OF INVESTMENTS--(CONTINUED)
SEPTEMBER 30, 2002

MOODY'S
FACE VALUE RATING COST VALUE
----------- ------- ------------ ------------

$ 1,620,000 Wachovia Bank N.A. (Charlotte), 7.800%,
due 08/18/10............................. A1 $ 1,719,152 $ 1,966,635
350,000 Washington Mutual Bank, 6.875%, due
06/15/11................................. A3 380,807 398,061
1,025,000 Wells Fargo Bank N.A., 6.450%, due
02/01/11................................. Aa2 1,014,812 1,155,865
------------ ------------
50,201,529 52,270,955
------------ ------------
INDUSTRIAL--(16.3%)
690,000 Alcoa, Inc., 6.000%, due 01/15/12......... A2 685,935 763,914
430,000 Amerada Hess Corp., 6.650%, due
08/15/11................................. Baa2 431,576 483,232
940,000 Anheuser-Busch Cos., Inc., 9.000%, due
12/01/09................................. A1 1,116,416 1,215,241
1,815,000 AOL Time Warner, Inc., 7.625%, due
04/15/31................................. Baa1 1,784,067 1,513,256
1,270,000 Avon Products, Inc., 7.150%, due
11/15/09................................. A2 1,293,488 1,487,203
185,000 Bristol Myers Squibb Co., 5.750%, due
10/01/11................................. Aa2 180,649 199,961
720,000 Caterpillar, Inc., 6.550%, due 05/01/11... A2 721,121 827,914
900,000 Cendant Corp., 6.875%, due 08/15/06....... Baa1 899,093 905,053
330,000 Centex Corp., 9.750%, due 06/15/05........ Baa2 329,993 376,669
350,000 Coors Brewing Co., 6.375%, due 05/15/12... Baa2 348,586 396,074
1,005,000 DaimlerChrysler N.A. Holdings Corp.,
8.500%, due 01/18/31..................... A3 1,117,150 1,195,097
825,000 Deere & Co., 7.125%, due 03/03/31......... A3 841,553 949,548
150,000 Delhaize America, Inc., 9.000%, due
04/15/31................................. Baa3 138,053 127,260
180,000 Dow Chemical Co., 6.125%, due 02/01/11.... A3 182,970 190,375
375,000 First Data Corp., 5.625%, due 11/01/11.... A1 373,845 399,969
470,000 Harrah's Operating Co., Inc., 7.125%, due
06/01/07................................. Baa3 469,615 517,585
875,000 International Paper Co., 6.750%, due
09/01/11................................. Baa2 876,162 968,719
285,000 Kohl's Corp., 6.300%, due 03/01/11........ A3 288,980 318,675
1,120,000 Kraft Foods, Inc., 6.500%, due 11/01/31... A2 1,115,166 1,241,323
415,000 Kroger Co., 7.500%, due 04/01/31.......... Baa3 463,322 456,406
735,000 Occidental Petroleum Corp., 8.450%, due
02/15/29................................. Baa2 831,598 947,164
495,000 Pepsi Bottling Holdings, Inc., 144-A,
5.625%, due 02/17/09..................... A1 488,812 538,710
290,000 Rohm & Haas Co., 7.850%, due 07/15/29..... A3 319,608 365,149
695,000 Safeway, Inc., 7.250%, due 02/01/31....... Baa2 726,441 779,633

See Notes to Financial Statements.

PORTFOLIO OF INVESTMENTS--(CONTINUED)
SEPTEMBER 30, 2002

MOODY'S
FACE VALUE RATING COST VALUE
----------- ------- ------------ ------------

$ 1,060,000 Target Corp., 7.000%, due 07/15/31........ A2 $ 1,118,748 $ 1,226,968
1,135,000 Transocean, Inc., 7.500%, due 04/15/31.... Baa2 1,102,267 1,310,971
430,000 United Technologies Corp., 6.100%, due
05/15/12................................. A2 429,247 483,420
475,000 UST, Inc., 144-A, 6.625%, due 07/15/12.... A3 472,777 515,714
145,000 Wal-Mart Stores, Inc., 6.875%, due
08/10/09................................. Aa2 154,703 171,113
315,000 Walt Disney Co., 6.375%, due 03/01/12..... A3 314,310 334,782
310,000 Wendy's International, Inc., 6.200%, due
06/15/14................................. Baa1 309,095 349,669
665,000 Weyerhaeuser Co., 144-A, 7.375%, due
03/15/32................................. Baa2 658,430 716,027
------------ ------------
20,583,776 22,272,794
------------ ------------
UTILITIES--(7.6%)
265,000 Apache Corp., 6.250%, due 04/15/12........ A3 263,113 298,653
270,000 Commonwealth Edison Co., 144-A, 6.150%,
due 03/15/12............................. A3 270,632 302,152
680,000 ConocoPhillips, 8.750%, due 05/25/10...... A3 780,545 861,250
1,400,000 Consolidated Edison Co. of New York,
7.500%, due 09/01/10..................... A1 1,389,332 1,658,633
670,000 Devon Financing Corp., ULC, 6.875%, due
09/30/11................................. Baa2 649,604 752,350
415,000 Dominion Resources, Inc., 5.700%, due
09/17/12................................. Baa1 414,718 427,475
1,300,000 Duke Energy Field Services, LLC, 8.125%,
due 08/16/30............................. Baa2 1,406,430 1,280,214
775,000 El Paso Energy Corp., 7.800%, due
08/01/31................................. Baa2 762,645 488,250
835,000 First Energy Corp., 6.450%, due
11/15/11................................. Baa2 826,755 785,247
985,000 Mirant Americas Generation, Inc., 9.125%,
due 05/01/31............................. Ba1 1,067,861 472,800
210,000 Praxair, Inc., 6.375%, due 04/01/12....... A3 213,332 234,814
520,000 Progress Energy, Inc., 7.000%, due
10/30/31................................. Baa1 526,565 519,062
135,000 Pure Resources, Inc., 7.125%, due
06/15/11................................. Baa3 130,335 143,190
1,000,000 Sempra Energy, 7.950%, due 03/01/10....... Baa1 997,380 1,082,494
220,000 Southern Power Co., 144-A, 6.250%, due
07/15/12................................. Baa1 219,690 239,020

See Notes to Financial Statements.

PORTFOLIO OF INVESTMENTS--(CONTINUED)
SEPTEMBER 30, 2002

MOODY'S
FACE VALUE RATING COST VALUE
----------- ------- ------------ ------------

$ 300,000 Union Oil Co. of California, 7.500%, due
02/15/29................................. Baa2 $ 316,433 $ 351,713
470,000 Valero Energy Corp., 7.500%, due
04/15/32................................. Baa2 465,958 430,694
------------ ------------
10,701,328 10,328,011
------------ ------------
COMMUNICATION--(5.2%)
455,000 AT&T Corp., 8.000%, due 11/15/31.......... Baa2 396,034 420,875
140,000 AT&T Wireless Services, Inc., 7.875%, due
03/01/11................................. Baa2 116,257 107,800
760,000 AT&T Wireless Services, Inc., 8.750%, due
03/01/31................................. Baa2 837,334 547,200
315,000 BellSouth Telecommunications, 6.000%, due
10/15/11................................. Aa3 322,248 336,321
340,000 British Telecommunications, PLC, 8.375%,
due 12/15/10............................. Baa1 374,057 399,432
260,000 Cingular Wireless, 6.500%, due 12/15/11... A3 250,905 250,234
520,000 Citizens Communications Co., 9.000%, due
08/15/31................................. Baa2 538,998 462,800
575,000 Comcast Cable Communications, 6.750%, due
01/30/11................................. Baa3 556,670 534,750
170,000 Motorola, Inc., 7.625%, due 11/15/10...... Baa2 157,015 165,791
1,290,000 News America, Inc., 7.125%, due
04/08/28................................. Baa3 1,148,325 1,153,910
550,000 SBC Communications, Inc., 5.875%, due
02/01/12................................. Aa3 544,764 578,905
1,290,000 Sprint Capital Corp., 6.875%, due
11/15/28................................. Baa3 1,184,989 743,504
100,000 Tele-Communications, Inc., 7.875%, due
08/01/13................................. Baa3 85,173 94,004
260,000 Verizon New England, Inc., 6.500%, due
09/15/11................................. Aa2 244,581 270,588
960,000 Verizon New York, Inc., 7.375%, due
04/01/32................................. A1 856,171 961,258
------------ ------------
7,613,521 7,027,372
------------ ------------
INTERNATIONAL--(4.9%)
2,500,000 Augusta Funding Ltd., 7.375%, due
04/15/13................................. Aaa 2,426,113 2,788,725
180,000 Canadian National Railway Co., 6.900%, due
07/15/28................................. Baa2 179,068 203,310

See Notes to Financial Statements.

PORTFOLIO OF INVESTMENTS--(CONTINUED)
SEPTEMBER 30, 2002

MOODY'S
FACE VALUE RATING COST VALUE
----------- ------- ------------ ------------

$ 625,000 Deutsche Telekom International Finance,
8.750%, due 06/15/30..................... Baa1 $ 661,457 $ 669,900
530,000 France Telecom, 10.000%, due 03/01/31..... Baa3 606,531 586,098
365,000 Telus Corp., 8.000%, due 06/01/11......... Ba1 363,095 279,225
2,235,000 United Mexican States, 8.125%, due
12/30/19................................. Baa2 2,223,851 2,179,125
------------ ------------
6,460,115 6,706,383
------------ ------------
TRANSPORTATION--(3.8%)
190,000 Burlington Northern Santa Fe Corp.,
6.875%, due 12/01/27..................... Baa2 186,612 208,015
740,000 Burlington Northern Santa Fe Corp.,
7.082%, due 05/13/29..................... Baa2 733,571 831,808
1,500,000 Delta Airlines, Inc., 10.500%, due
04/30/16................................. Ba1 1,828,950 1,216,905
1,030,000 Erac U.S.A. Finance Co., 144-A, 8.000%,
due 01/15/11............................. Baa1 1,083,713 1,148,513
470,000 Union Pacific Corp., 6.650%, due
01/15/11................................. Baa3 474,405 528,468
3,000,000 United Airlines, Inc., 7.870%, due
01/30/19................................. Caa2 3,000,000 1,224,030
------------ ------------
7,307,251 5,157,739
------------ ------------
Total Corporate Bonds and Notes........... 102,867,520 103,763,254
------------ ------------
Total Debt Securities..................... 128,821,240 131,454,365
------------ ------------

SHARES
-----------

SHORT-TERM INVESTMENTS--(3.5%)
4,762,535 UBS Supplementary Trust U.S. Cash
Management Prime Fund.................... 4,762,535 4,762,535
------------ ------------
Total Investments (100.0%)................ $133,583,775 $136,216,900
============ ============

------------------------

(a) Moody's as a matter of policy, does not rate this issue.

* Standard & Poor's Corporation rating. Security is not rated by Moody's
Investor Service, Inc.

144-A Securities exempt from registration under Rule 144-A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At
September 30, 2002, the value of these securities amounted to $5,466,037
or 4.01% of the total portfolio of investments.

REMIC Real Estate Mortgage Investment Conduit

See Notes to Financial Statements.

NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002

1. SIGNIFICANT ACCOUNTING POLICIES

Fort Dearborn Income Securities, Inc. ("the Company") is registered under
the Investment Company Act of 1940, as amended, as a diversified closed-end
management company. The Company invests principally in investment grade
long-term fixed income debt securities with the primary objective of providing
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.

The following is a summary of the significant accounting policies followed
by the Company in the preparation of its financial statements. The preparation
of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

A. SECURITY VALUATIONS -- Investments are valued based on available quoted
bid prices on the valuation date. Short-term securities are valued at amortized
cost, which approximates value.

B. INVESTMENT INCOME AND SECURITY TRANSACTIONS -- Interest income is
recorded on the accrual basis. Dividend income is recorded on the ex-dividend
date. Security transactions are accounted for on the trade date. The Company has
elected to amortize market discount and premium on all issues purchased.
Realized gains and losses from security transactions and unrealized appreciation
and depreciation of investments are reported on a first-in first-out basis.

C. FEDERAL INCOME TAXES -- It is the Company's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.

At September 30, 2002, the components of accumulated earnings on a tax basis
were as follows:

Accumulated earnings $ 320,064
Undistributed long term capital gains 166,223
Accumulated capital and other losses (354,379)
Unrealized appreciation 2,609,625
----------
Total accumulated earnings $2,741,533
----------

The differences between book-basis and tax-basis unrealized appreciation is
attributable to the tax deferral of losses on wash sales.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 2002

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Net realized gains or losses may differ for financial and tax reporting
purposes as a result of post October 31 losses, which are not recognized for tax
purposes until the first day of the following fiscal year along with losses from
wash sales.

At September 30, 2002 for federal income tax purposes, the cost for long and
short-term investments is $133,607,275, the aggregate gross unrealized
appreciation is $8,775,489, and the aggregate gross unrealized depreciation is
$6,165,864, resulting in net unrealized appreciation of investments of
$2,609,625.

2. NET ASSET VALUATIONS

The net asset value of the Company's shares is determined each week as of
the close of business on the last day on which the New York Stock Exchange is
open, on the last business day of each month, on the eighth trading day prior to
the dividend payment date and on the last business day of each calendar quarter,
if such days are other than the last business day of the week.

3. DISTRIBUTIONS

The tax character of distributions paid during the fiscal years ended
September 30, 2002 and September 30, 2001 were as follows:

DISTRIBUTIONS PAID FROM: 2002 2001
------------------------ ---------- ----------

Ordinary income $8,424,638 $9,126,692
Capital gains 1,404,106 --
---------- ----------
$9,828,744 $9,126,692
========== ==========

Dividends and distributions payable to shareholders are recorded by the
Company on the record date. Net realized gains from the sale of investments, if
any, are distributed annually. Net investment income and realized gains and
losses for federal income tax purposes may differ from that reported on the
financial statements because of permanent and temporary book and tax basis
differences. Permanent book and tax differences of $15,389 were reclassified
from accumulated net realized gain (loss) on investments to undistributed net
investment income due to gains from paydown adjustments related to
mortgage-backed securities.

Distributions from net realized gains for book purposes may include
short-term capital gains, which are included as ordinary income for tax
purposes.

4. CAPITAL STOCK

At September 30, 2002, there were 12,000,000 shares of $.01 par value
capital stock authorized, and shareholder capital of $135,120,133. During the
year ended September 30, 2002 no new shares were issued as part of the dividend
reinvestment plan and no shares were repurchased in the open market.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 2002

5. PURCHASES AND SALES OF SECURITIES

Purchases and sales (including maturities) of portfolio securities during
the year ended September 30, 2002, were as follows: debt securities and
preferred stock, $68,677,583 and $82,410,898, respectively; short-term
securities, $47,012,015 and $42,868,693, respectively: and United States
government debt obligations, $100,412,532 and $91,917,258, respectively.

6. MANAGEMENT AND OTHER FEES

Under an agreement between the Company and UBS Global Asset Management
(Americas) Inc. (formerly Brinson Partners, Inc.) ("the Advisor"), the Advisor
manages the Company's investment portfolio, maintains its accounts and records,
and furnishes the services of individuals to perform executive and
administrative functions for the Company. In return for these services, the
Company pays the Advisor a quarterly fee of 1/8 of 1% (annually 1/2 of 1%) of
the Company's average weekly net assets up to $100,000,000 and 1/10 of 1%
(annually 2/5 of 1%) of average weekly net assets in excess of $100,000,000.

The Company pays each of its directors (except the Chairman) at the rate of
$9,000 annually to serve as directors and $750 for each Board of Directors
meeting attended. The Company pays the Chairman at the rate of $13,000 annually
to serve in such capacity and $750 for each Board of Directors meeting attended.

The following table sets forth as to each Director the compensation paid to
such Director in the fiscal year ended September 30, 2002 for service on the
Board of the Company and, in the case of Messrs. Reilly and Roob, on the boards
of three other investment companies for which the Advisor performed investment
advisory services.

PENSION OR
RETIREMENT
BENEFITS
ACCRUED AS
AGGREGATE PART OF ESTIMATED TOTAL COMPENSATION
COMPENSATION COMPANY ANNUAL BENEFITS FROM COMPANY AND
NAME OF DIRECTOR FROM COMPANY EXPENSES UPON RETIREMENT FUND COMPLEX
---------------- ------------ ---------- --------------- ------------------

Adela Cepeda.......................... $12,750 -- -- $12,750
C. Roderick O'Neil.................... 15,750 -- -- 15,750
Frank K. Reilly....................... 12,750 -- -- 64,350
Edward M. Roob........................ 12,750 -- -- 64,350
J. Mikesell Thomas.................... 7,000 -- -- 7,000

All Company officers serve without direct compensation from the Company.

Fort Dearborn Income Securities, Inc. invest in shares of the UBS
Supplementary Trust U.S. Cash Management Prime Fund ("Supplementary Trust"). The
Supplementary Trust is an investment company managed by the Advisor. The
Supplementary Trust is offered as a cash management option only to mutual funds
and other accounts managed by the Advisor.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 2002

6. MANAGEMENT AND OTHER FEES (CONTINUED)

The Supplementary Trust pays no management fees. Distributions from the
Supplementary Trust are reflected as interest income on the statement of
operations. Amounts relating to those investments at September 30, 2002 and for
the period ended are summarized as follows:

% OF
COST OF SALES INTEREST NET
FUND PURCHASE PROCEEDS INCOME VALUE ASSETS
---- ----------- ----------- -------- ---------- --------

UBS Supplementary Trust U.S. Cash
Management Prime Fund................. $47,012,015 $42,868,693 $53,802 $4,762,535 3.5%

7. MORTGAGE BACKED SECURITIES AND OTHER INVESTMENTS

The Company invests in Mortgage Backed Securities (MBS), representing
interests in pools of mortgage loans. These securities provide shareholders with
payments consisting of both principal and interest as the mortgages in the
underlying mortgage pools are paid. Most of the securities are guaranteed by
federally sponsored agencies -- Government National Mortgage Association (GNMA),
Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage
Corporation (FHLMC). However, some securities may be issued by private,
non-governmental corporations. MBS issued by private entities are not government
securities and are not directly guaranteed by any government agency. They are
secured by the underlying collateral of the private issuer. Yields on privately
issued MBS tend to be higher than those of government backed issues. However,
risk of loss due to default and sensitivity to interest rate fluctuations is
also higher.

The Company invests in Collateralized Mortgage Obligations (CMOs). A CMO is
a bond, which is collateralized by a pool of MBS. The Company also invests in
REMICs (Real Estate Mortgage Investment Conduit) which are simply another form
of CMO. These MBS pools are divided into classes or tranches with each class
having its own characteristics. The different classes are retired in sequence as
the underlying mortgages are repaid. For instance, a Planned Amortization
Class (PAC) is a specific class of mortgages, which over its life will generally
have the most stable cash flows and the lowest prepayment risk. A GPM (Graduated
Payment Mortgage) is a negative amortization mortgage where the payment amount
gradually increases over the life of the mortgage. The early payment amounts are
not sufficient to cover the interest due, and therefore, the unpaid interest is
added to the principal, thus increasing the borrower's mortgage balance.
Prepayment may shorten the stated maturity of the CMO and can result in a loss
of premium, if any has been paid.

The Company invests in Asset Backed Securities, representing interests in
pools of certain types of underlying installment loans or leases or by revolving
lines of credit. They often include credit enhancement that help limit
investors' exposure to the underlying credit. These securities are valued on the
basis of timing and certainty of cash flows compared to investments with similar
durations.

REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Directors of
Fort Dearborn Income Securities, Inc.

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Fort Dearborn Income Securities, Inc., (the
"Company") as of September 30, 2002, and the related statement of operations for
the year then ended, and the statement of changes in net assets and the
financial highlights for each of the two years in the period ended
September 30, 2002. These financial statements and financial highlights are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights for each of the three years in the period ended
September 30, 2000, were audited by other auditors whose report dated
October 26, 2000, expressed an unqualified opinion on the financial highlights.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of September 30, 2002, by correspondence
with the custodian and others. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Fort
Dearborn Income Securities, Inc. as of September 30, 2002, and the results of
its operations for the year then ended and the changes in its net assets and
financial highlights for each of the two years in the period then ended, in
conformity with accounting principles generally accepted in the United States.

/s/ Ernst & Young LLP

New York, New York
November 8, 2002

REPORT ON THE AUTOMATIC DIVIDEND INVESTMENT PLAN (UNAUDITED)

THE COMPANY'S AUTOMATIC DIVIDEND INVESTMENT PLAN, OPERATED FOR THE
CONVENIENCE OF THE SHAREHOLDERS, HAS BEEN IN OPERATION SINCE THE DIVIDEND
PAYMENT OF MAY 5, 1973.

For the year ended September 30, 2002, 79,406 shares were purchased for the
Plan participants. The breakdown of these shares is listed below:

WHERE
NO. OF SHARES
DIVIDEND SHARES AVERAGE WERE
PAYMENT DATE PURCHASED PRICE PURCHASED
--------------------------------------------------------------------

December 14, 2001 31,512 $15.31 Open Market
March 22, 2002 16,450 $14.95 Open Market
June 14, 2002 16,082 $15.25 Open Market
September 13, 2002 15,362 $15.16 Open Market

As explained in the Plan, shares are purchased at the lower of the market
value (including commission) or net asset value, depending upon availability.
The expense of maintaining the Plan, $1.35 for each participating account per
dividend payment, is borne by the Company. Shareholders who have not elected to
participate in the Plan receive all dividends in cash.

The Plan had 779 participants on September 13, 2002. Under the terms of the
Plan, any shareholder may terminate participation by giving written notice to
the Company. Upon termination, a certificate for all full shares, plus a check
for the value of any fractional interest in shares, will be sent to the
withdrawing shareholders, unless the sale of all or part of such shares is
requested. ANY REGISTERED SHAREHOLDER WHO WISHES TO PARTICIPATE IN THE PLAN MAY
DO SO BY WRITING TO EQUISERVE TRUST COMPANY N.A. OF NEW YORK, P.O. BOX 2500,
JERSEY CITY, NJ 07303-2500 OR CALLING THEM AT (800) 446-2617. A copy of the Plan
and enrollment card will be mailed to you. Shareholders who own shares in
nominee name should contact their brokerage firm. All new shareholders will
receive a copy of the Plan and a card, which may be signed to authorize
reinvestment of dividends pursuant to the Plan.

THE INVESTMENT OF DIVIDENDS DOES NOT RELIEVE PARTICIPANTS OF ANY INCOME TAX
WHICH MAY BE PAYABLE THEREON. THE COMPANY STRONGLY RECOMMENDS THAT ALL AUTOMATIC
DIVIDEND INVESTMENT PLAN PARTICIPANTS RETAIN EACH YEAR'S FINAL STATEMENTS ON
THEIR PLAN PARTICIPATION AS A PART OF THEIR PERMANENT TAX RECORD. THIS WILL
ENSURE THAT COST INFORMATION IS AVAILABLE IF AND WHEN IT IS NEEDED.

FOR THE YEAR ENDED SEPTEMBER 30, 2002, THERE WERE: (I) NO MATERIAL CHANGES
IN THE COMPANY'S INVESTMENT OBJECTIVES OR POLICIES, (II) NO CHANGES IN THE
COMPANY'S CHARTER OR BY-LAWS THAT WOULD DELAY OR PREVENT A CHANGE OF CONTROL OF
THE COMPANY, (III) NO MATERIAL CHANGES IN THE PRINCIPAL RISK FACTORS ASSOCIATED
WITH INVESTMENT IN THE COMPANY, AND (IV) NO CHANGE IN THE PERSON PRIMARILY
RESPONSIBLE FOR THE DAY-TO DAY MANAGEMENT OF THE COMPANY'S PORTFOLIO.

SUPPLEMENTAL INFORMATION (UNAUDITED)

BOARD OF DIRECTORS & OFFICERS

The Company is governed by a Board of Directors which oversees the Company's
operations. Each Director serves until the next annual meeting of shareholders
or until his or her successor is elected and qualified. Officers are appointed
by the Directors and serve at the pleasure of the Board. The table below shows,
for each Director and Officer, his or her name, address and age, the position
held with the Company, the length of time served as a Director or Officer of the
Company, the Director's or Officer's principal occupations during the last five
years, other directorships held by the Director or Officer, the number of funds
in the Fort Dearborn fund complex overseen by the Director or for which a person
served as an Officer, and shares owned by the Director or Officer.

NUMBER OF
PORTFOLIOS IN SHARES BENEFICIALLY
POSITION/ FUND COMPLEX OWNED DIRECTLY
TERM/TIME PRINCIPAL OCCUPATIONS OVERSEEN BY OR INDIRECTLY
NAME, AGE AND ADDRESS SERVED AND OTHER DIRECTORSHIPS DIRECTOR SEPTEMBER 30, 2002
--------------------- -------------- ------------------------------ ------------- -------------------

DIRECTORS:

C. Roderick O'Neil, CFA, 71 Director and Chairman, O'Neil Associates 1 3,398
O'Neil & Associates Chairman of (formerly Greenspan O'Neil
P.O. Box 405 the Board of Associates), an investment and
South Glastonbury, CT 06073 Directors financial consulting firm;
since 1992 Director, Beckman Coulter,
Inc. (Since January, 1994)
Director, Cadre Institutional
Investors Trust (Since 1995);
Trustee, Optimum Qu Fund
(Since 2002).

Adela Cepeda, 44 Director Founder and President of A.C. 1 1,000
A.C. Advisory, Inc. since 2000 Advisory, Inc.; Director of
Three First National Plaza, Lincoln National Income Fund,
Suite 1515 Inc. and Lincoln National
Chicago, Illinois 60602 Convertible Securities Fund.
Former Managing Director and
co-founder of Abacus Financial
Group, Inc., (1991-1995); Vice
President, Smith Barney,
Harris Upham & Co. Inc.,
(1980-1991).

Frank K. Reilly, CFA, 66 Director Bernard J. Hank Professor of 4 4,706
College of Business Administration, since 1993 Finance, University of Notre
Room 307A Dame (since 1981); Chairman,
University of Notre Dame The UBS Funds (since 1992);
Notre Dame, IN 46556-0399 Chairman, The UBS Relationship
Funds (since 1995); Director,
Discover Bank (since 1993);
Director, Morgan Stanley
Trust, FSB (since 1996);
Director, NIBCO (1993-2001);
Director, Battery Park High
Yield Fund (1996-2001); Board
of Governors, Association for
Investment Management and
Research (1993-2000) Chairman,
1998-1999; Board of Trustees,
Institute of Chartered
Financial Analysts (1993-2000)
Chairman, 1996-1997; Board of
Regents, Financial Analysts
Seminar (1992-2001); Board of
Trustees, Research Foundation
of the Association of
Investment Management and
Research (since 1996).

Edward M. Roob, 68 Director Senior Vice President, Daiwa 4 7,000
Fort Dearborn Income Securities, Inc. since 1993 Securities America, Inc.
C/o UBS Global Asset Management (1986-1993); Senior Vice
(Americas) Inc. President, First National Bank
One N. Wacker Drive of Chicago (1975-1985);
Chicago, Illinois 60606 Director, The UBS Funds;
Director, The UBS Relationship
Funds; Trustee, UBS Global
Asset Management Trust
Company; Trustee, CCM Advisors
Funds; Trustee, CCMA Select
Investment Trust; Trustee
A.H.A. Investment Funds;
Member, Board of Governors
Chicago Stock Exchange,
(1988-1991); Member U.S.
Treasury and Federal Agency
Advisory Committee,
(1972-1985). Member, Committee
for Specialist Assignment and
Evaluation, Chicago Stock
Exchange, (1993-1999).

J. Mikesell Thomas, 51 Director Independent Financial Advisor, 1 --
Fort Dearborn Income Securities, Inc. since 2002 (April, 2001-Present);
C/o UBS Global Asset Management Managing Director, Lazard
(Americas) Inc. Freres & Co. (1995-2001);
One N. Wacker Drive First Chicago Corporation,
Chicago, Illinois 60606 (1973-1994) Executive Vice
President and Co-Head
Corporate and Institutional
Banking, (1992-1995),
Executive Vice President and
Co-Head, Merchant Banking,
(1989-1992), Executive Vice
President and Chief Financial
Officer, (1986-1989), Senior
Vice President and Treasurer,
(1980-1986), Assistant
Treasurer, (1976-1980), First
Scholar Management Development
Program, (1973-1976). Director
and Chairman of Finance
Committee, Evanston
Northwestern Healthcare; Vice
President of Board of
Trustees, Mid-Day Club;
Leadership Greater Chicago
Association.

OFFICERS:

Jeffrey J. Diermeier, President Investment Committee member,
CFA, B.B.A., M.B.A., 50* since 2000 UBS Global Asset Management
(Americas) Inc.
(1998-Present); Director,
Chief Investment Officer and
Managing Director and
Investment Committee member,
UBS Global Asset Management
(Americas) Inc.
(2000-Present); Managing
Director, First Chicago
Invest-ment Advisors, N.A.
(1975-1989).

Craig G. Ellinger, CFA, 32* Vice President Portfolio Manager in the Fixed
& Portfolio Income Group at UBS Global
Manager Asset Management (Americas)
since 2001 Inc. (since 2000). He
previously served in a similar
position at PPM America, Inc
(1997-2000) and was a
Commissioned Bank Examiner at
the Federal Deposit Insurance
Corporation (1992-1997).

Joseph A. Anderson, 40* Secretary & Executive Director of UBS
Treasurer Global Asset Management
since 1992 (Americas) Inc. (since 1991)
and is currently the Vice
President of UBS Global Asset
Management Trust Company
(since 1995).

Robert M. Fascia, 29* Assistant Associate Director of UBS
Secretary & Global Asset Management
Assistant (Americas) Inc., (since 1999).
Treasurer He was previously employed by
since 2000 Stein Roe & Farnham.

* This person's business address is UBS Global Asset Management (Americas)
Inc., UBS Tower, One North Wacker Drive, Chicago, IL 60606.

FORT DEARBORN INCOME SECURITIES, INC.
One N. Wacker Drive
38th Floor
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(312) 525-7877

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LEGAL COUNSEL
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Mail stock certificates to:
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FORT DEARBORN INCOME SECURITIES, INC.

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FORT
DEARBORN
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SECURITIES,
INC.

ANNUAL REPORT
SEPTEMBER 30, 2002