Edgar Filing: FORT DEARBORN INCOME SECURITIES INC

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )

Filed by the Registrant /X/
Filed by a Party other than the Registrant / /

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/ / Preliminary Proxy Statement
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14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12

FORT DEARBORN INCOME SECURITIES, INC.
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(Name of Registrant as Specified In Its Charter)

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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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FORT DEARBORN INCOME SECURITIES, INC.

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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To The Shareholders of
Fort Dearborn Income Securities, Inc.:

The Annual Meeting of Shareholders of Fort Dearborn Income Securities, Inc.
(the "Company") will be held on Monday, December 17, 2001, at 2:00 P.M., Chicago
time, at Brinson Partners, Inc., 209 South LaSalle Street, ninth floor, Chicago,
Illinois 60604, for the following purposes and for the transaction of such other
business as may properly come before the meeting:

(1) electing four directors; and

(2) voting to ratify or reject the selection of independent certified public
accountants made by the Board of Directors for the year ending
September 30, 2002.

The subjects referred to above are discussed in detail in the Proxy
Statement attached to this notice. Each shareholder is invited to attend the
Annual Meeting of Shareholders in person. Shareholders of record at the close of
business on October 22, 2001, have the right to vote at the meeting. WE URGE YOU
TO COMPLETE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN ORDER THAT THE
MEETING CAN BE HELD AND A MAXIMUM NUMBER OF SHARES MAY BE VOTED.

JOSEPH A. ANDERSON
SECRETARY

Chicago, Illinois
November 13, 2001

FORT DEARBORN INCOME SECURITIES, INC.
209 S. LASALLE ST., ELEVENTH FLOOR
CHICAGO, ILLINOIS 60604-1295

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PROXY STATEMENT

INTRODUCTION

This statement, which is being mailed to shareholders on or about
November 13, 2001, is furnished in connection with the solicitation of proxies
by the Board of Directors of Fort Dearborn Income Securities, Inc. (the
"Company") for use at the Annual Meeting of Shareholders (the "Annual Meeting")
to be held at Brinson Partners, Inc., 209 South LaSalle Street, ninth floor,
Chicago, Illinois 60604, on Monday, December 17, 2001, at 2:00 P.M., Chicago
time. Proxies may be solicited by mail, telephone and personal interview. The
Company may also request brokers, custodians, nominees and fiduciaries to
forward proxy material to the beneficial owners of stock of record. Any proxy
given pursuant to such solicitation and received in time for the Annual Meeting
will be voted as specified in such proxy. The enclosed proxy is revocable at any
time. The proxy may be revoked in writing, by giving a later-dated proxy, or
orally at the Annual Meeting. Signing and mailing the proxy will not affect your
right to give a later proxy or to attend the meeting and vote your shares in
person. The cost of soliciting proxies will be paid by the Company.

On October 22, 2001, the date for determination of shareholders entitled to
receive notice of and to vote at the Annual Meeting, or any adjournments
thereof, there were issued and outstanding 8,775,665 shares of Capital Stock of
the Company, each entitled to one vote, constituting all of the Company's then-
outstanding securities. For purposes of determining the outcome of the vote on a
matter, an instruction to "abstain" from voting on a proposal will be treated as
shares present and entitled to vote and will have the same effect as a vote
against the proposal. "Broker non-votes" are not counted for the purpose of
determining the number of shares present on a voting matter and have no effect
on the outcome of the vote. Any adjournment of the meeting would require the
affirmative vote of a majority of those present in person or by proxy at the
session of the meeting to be adjourned. The proxy solicited hereby confers
authority to vote for any such adjournment; however, a proxy voted against or
abstained from voting on any proposal herein would not be voted in favor of an
adjournment to permit further solicitation of proxies.

1. ELECTION OF DIRECTORS

Pursuant to the retirement policy for directors, Richard M. Burridge, who is
chairman of the Board of Directors, is not standing for reelection and will
retire at the Annual Meeting. Accordingly, four directors are to be elected at
the Annual Meeting as the entire Board of Directors to hold office until the
next annual meeting or until their successors shall have been elected and shall
have qualified. If authority is granted on the accompanying proxy to vote in the
election of directors, it is the intention of the persons named in the proxy to
vote at the Annual Meeting for the election of the nominees named below. If any
of the nominees are unavailable to serve as directors, an event which the Board
of Directors does not now expect, the persons named in the proxy will vote for
such other persons as they, in their discretion, may choose. The affirmative
vote of the holders of a majority of the shares represented at the Annual
Meeting is required for the election of a director. All of the nominees are
presently directors of the Company and all have consented to serve if elected.

SHARES
BENEFICIALLY
OWNED
WHEN DIRECTLY OR
FIRST INDIRECTLY
NAMES AND AGES PRINCIPAL OCCUPATIONS BECAME SEPTEMBER 30,
OF NOMINEES AND OTHER DIRECTORSHIPS DIRECTOR 2001
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Adela Cepeda, 43..................... Founder and President of A.C. Advisory, 2000 1,000*
Inc.; Director of Lincoln National
Income Fund, Inc. and Lincoln National
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).

C. Roderick O'Neil, CFA, 70.......... Chairman, O'Neil Associates (formerly 1992 3,153
Greenspan O'Neil Associates), an
investment and financial consulting
firm; Director, Beckman Coulter, Inc.
(Since January, 1994) Director, Cadre
Institutional Investors Trust (Since
1995); Trustee, Memorial Drive Trust
(Since 1974).

Frank K. Reilly, CFA, 65............. Bernard J. Hank Professor of Finance, 1993 4,006
University of Notre Dame (since 1981);
Chairman, The Brinson Funds (since
1992); Chairman, The Brinson
Relationship Funds (since 1995);
Director, Discover Bank (since 1993);
Director, Morgan Stanley Trust, FSB
(since 1996); Director, NIBCO (since
1993); Director, Battery Park High
Yield Fund (since 1996); 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, 67................... Senior Vice President, Daiwa Securities 1993 7,000
America, Inc. (1986-1993); Senior Vice
President, First National Bank of
Chicago (1975-1985); Director, The
Brinson Funds; Director, The Brinson
Relationship Funds; Trustee, Brinson
Trust Company; Trustee, CCM Advisors
Funds; Trustee, CCMA Select Investment
Trust; 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).

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* As of November 5, 2001

The Board of Directors has an Audit Committee. The Board of Directors does
not have a nominating or compensation committee.

During the fiscal year ended September 30, 2001, five meetings of the Board
of Directors and one meeting of the Audit Committee were held. All directors
attended at least 75% of the total number of such meetings.

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, 2001 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.

COMPENSATION TABLE

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

Richard Burridge........................ $16,750 0 0 $16,750
Adela Cepeda............................ $12,750 0 0 $12,750
C. Roderick O'Neil...................... $12,750 0 0 $12,750
Frank K. Reilly......................... $12,750 0 0 $62,250
Edward M. Roob.......................... $12,750 0 0 $62,250

2. SELECTION OF INDEPENDENT AUDITORS

The Board of Directors has selected Ernst & Young LLP as auditors of the
Company for the fiscal year ending September 30, 2002. To the best knowledge of
the Board of Directors, the firm of Ernst & Young LLP has no direct or material
indirect financial interest in the Company. Under the Investment Company Act of
1940, such selection must be submitted to the shareholders for ratification or
rejection at the Annual Meeting. The Board of Directors recommends that such
selection be ratified by the shareholders of the Company. The affirmative vote
of the holders of a majority of the shares represented at the Annual Meeting is
required for ratification. Representatives of Ernst & Young LLP will attend the
Annual Meeting, have an opportunity to make a statement and be available to
respond to appropriate questions from shareholders. On September 27, 2001 the
Board of Directors selected Ernst & Young LLP as the independent auditors for
the Company for the fiscal year ending September 30, 2001 to fill the vacancy
resulting from the cessation of the client-auditor relationship by KPMG LLP as
described below.

KPMG LLP, which had been the independent auditors for the Company since its
organization, ceased its client-auditor relationship with the Company on
September 5, 2001. KPMG LLP informed the Company that such cessation was based
solely on the fact that it would not be independent if any of its partners,
principals, shareholders and employees had any financial interest in any
affiliate of the Advisor and that it could not make a determination prior to
commencing its audit of the Company's financial statements for the fiscal year
ending September 30, 2001.

For the fiscal year ended September 30, 2001, fees for services provided by
Ernst & Young LLP were as follows:

Audit....................................................... $26,000
Financial Information Systems Design and Implementation..... $ 0

All Other
Services rendered to the Advisor and to any entity
controlling, controlled by or under common control with
the Advisor that provides services to the Company....... $50,000

The Audit Committee has considered whether the provision of the above
services, other than audit services, is compatible with maintaining Ernst &
Young LLP's independence and has concluded that it is.

REPORT OF THE AUDIT COMMITTEE

All of the directors are members of the Audit Committee. Each member of the
Committee is independent as defined under the New York Stock Exchange listing
standards. Mr. Burridge is the only member of the Committee who is an
"interested person" as defined in the Investment Company Act of 1940. The
Committee operates under a written charter, adopted by the Board of Directors,
which is included in this proxy statement as Appendix A.

The Audit Committee makes recommendations concerning the retention of the
Company's independent auditors, their fees and duties, including any non-audit
related services performed by them; confers with such auditors; reviews the
Company's financial reporting activities; and confers with and makes appropriate
recommendations to personnel of the Company's investment advisor who perform
services of a financial nature for the Company. The Committee has met with
management of the Company to discuss, among other things, the Company's audited
financial statements for the year ended September 30, 2001. The Committee also
has met with the Company's independent auditors and discussed with them certain
matters required under SAS 61 (an accounting standard) including, but not
limited to, the scope of the Company's audit, the Company's financial statements
for the year ended September 30, 2001 and the Company's accounting controls. The
Committee has received the written disclosures and the letter from the Company's
independent auditors required by Independence Standards Board Standard No. 1, as
may

be modified or supplemented from time to time, and has discussed with the
independent auditors, their independence.

Based upon these reviews and discussions, the Committee has recommended to
the Board of Directors that the Company's audited financial statements be
included in the Company's Annual Report to Shareholders for the year ended
September 30, 2001.

INVESTMENT ADVISOR

Brinson Partners, Inc. ("Advisor"), 209 South LaSalle St., Chicago, Illinois
60604, is the investment advisor to the Company. The Advisor is a wholly-owned
subsidiary of UBS (USA) Inc. UBS AG (Zurich, Switzerland) owns 100% of the
common stock of UBS (USA) Inc.

OFFICERS

The Company does not pay direct compensation to officers for their services
to the Company. The Company's officers are as follows:

Jeffrey J. Diermeier, CFA, B.B.A., M.B.A. (age 49), serves as the
President of the Company. Investment Committee member, UBS Brinson, Inc.
(1998-Present); Director, Chief Investment Officer and Managing Director and
Investment Committee member, Brinson Partners, Inc.
(2000-Present); Managing Director, First Chicago Investment Advisors, N.A.
(1975-1989).

Craig G. Ellinger, CFA (age 31), serves as Vice President and Portfolio
Manager of the Company and is a Portfolio Manager in the Fixed Income Group
at Brinson Partners, 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 (age 39), who serves as Secretary-Treasurer of the
Company is an Executive Director of Brinson Partners, Inc. (since 1991) and
is currently the Vice President of Brinson Trust Company (since 1995).

Robert M. Fascia (age 28) serves as Assistant Secretary and Assistant
Treasurer of the Company and is an employee of Brinson Partners, Inc.,
(since 1999). He was previously employed by Stein Roe & Farnham.

PRINCIPAL SHAREHOLDERS

Generally, under the Securities and Exchange Commission rules, a person is
deemed to be the beneficial owner of a security with respect to which such
person, through any contract, arrangement, understanding, relationship or
otherwise, has or shares voting power (which includes power to vote, or direct
the voting of, such security) or investment power (which includes power to
dispose of, or direct the disposition of, such security). On September 30, 2001,
the directors and officers of the Company as a group owned or were deemed to own
beneficially, directly or indirectly, less than 1% of the outstanding shares of
Capital Stock of the Company.

SHAREHOLDER PROPOSALS

Any shareholder proposal to be presented for action at the Company's 2002
annual meeting of shareholders must be received at the Company's office not less
than 120 days prior to November 13, 2002 in order to be considered for inclusion
in that meeting's proxy materials.

OTHER MATTERS

Shareholders are urged to review the Company's Annual Report which
accompanies this Proxy Statement.

The Board of Directors does not know of any matters to be presented at the
Annual Meeting other than those mentioned in this Proxy Statement. If any other
business should come before the meeting, the persons named in the proxy will
vote thereon in accordance with their best judgment.

Please complete and sign the enclosed proxy and return it in the envelope
provided so that the meeting may be held and action taken on the matters
described herein with the greatest possible participating shares.

JOSEPH A. ANDERSON
SECRETARY/TREASURER

APPENDIX A

CHARTER OF THE FORT DEARBORN AUDIT COMMITTEE

I. Audit Committee Purpose

The Audit Committee is appointed by the Board of Directors to assist the
Board in fulfilling its oversight responsibilities. The Audit Committee's
primary duties and responsibilities are to:

- Monitor the integrity of the Company's financial reporting process
and systems of internal controls regarding finance, accounting, and
legal compliance.

- Monitor the independence and performance of the Company's
independent auditors and internal auditing department.

- Provide an avenue of communication among the independent auditors,
management, and the Board of Directors.

The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and it has direct access
to the independent auditors as well as anyone in the organization. The
Audit Committee has the ability to retain, at the Company's expense,
special legal, accounting, or other consultants or experts it deems
necessary in the performance of its duties.

II. Audit Committee Composition and Meetings

Audit Committee members shall meet the requirements of the New York Stock
Exchange. The Audit Committee shall be comprised of independent
nonexecutive directors, free from any relationship that would interfere
with the exercise of his or her independent judgment. All members of the
Committee shall have a basic understanding of finance and accounting and
be able to read and understand fundamental financial statements, and at
least one member of the Committee shall have accounting or related
financial management expertise.

Audit Committee members shall be appointed by the Board. The Committee
should meet privately in executive session at least annually with
management, the independent auditors, and as a committee to discuss any
matters that the Committee or each of these groups believe should be
discussed. In addition, the Committee should communicate with management
and the independent auditors to review the Company's financial statements
and significant findings based upon the auditors limited review
procedures.

III. Audit Committee Responsibilities and Duties

REVIEW PROCEDURES

1. Review and reassess the adequacy of this Charter at least annually.
Submit the charter to the Board of Directors for approval and have the
document published at least every three years in accordance with SEC
regulations.

2. Review the Company's annual audited financial and the report thereon.
Review should include discussion with management and independent
auditors of significant issues regarding accounting principles,
practices, and judgments. Based on such review and discussion make a
recommendation to the Board of Directors concerning the inclusion of
such audited financial statements in the Company's annual report to
shareholders.

3. In consultation with the management, the independent auditors, and the
internal auditors, consider the integrity of the Company's financial
reporting processes and controls. Discuss significant financial risk
exposures and the steps management has taken to monitor, control, and

A-1

report such exposures. Review significant findings prepared by the
independent auditors and the internal auditing department together with
management's responses.

4. Review with financial management and the independent auditors the
company's interim financial results prior to the release of earnings
and/or the company's interim financial statements prior to filing or
distribution. Discuss any significant changes to the Company's
accounting principles and any items required to be communicated by the
independent auditors in accordance with SAS 61 (see item 9). The Chair
of the Committee may represent the entire Audit Committee for purposes
of this review.

INDEPENDENT AUDITORS

5. The independent auditors are ultimately accountable to the Audit
Committee and the Board of Directors. The Audit Committee shall review
the independence and performance of the auditors and annually recommend
to the Board of Directors the appointment of the independent auditors or
approve any discharge of auditors when circumstances warrant.

6. Approve the fees and other significant compensation to be paid to the
independent auditors.

7. On an annual basis, the Committee should review and discuss with the
independent auditors all significant relationships they have with the
Company that could impair the auditors' independence.

8. Review the independent auditors audit plan -- discuss scope, staffing,
locations, reliance upon management, and internal audit and general
audit approach.

9. Prior to releasing the year-end earnings, discuss the results of the
audit with the independent auditors. Discuss certain matters required to
be communicated to audit committees in accordance with AICPA SAS 61.

10. Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied in its
financial reporting.

OTHER AUDIT COMMITTEE RESPONSIBILITIES

11. On at least an annual basis, review with the Company's counsel, any
legal matters that could have a significant impact on the organization's
financial statements, the Company's compliance with applicable laws and
regulations, and inquiries received from regulators or governmental
agencies.

12. Annually prepare a report to shareholders as required by the Securities
and Exchange Commission. The report should be included in the Company's
annual proxy statement.

13. Perform any other activities consistent with this Charter, the Company's
by-laws, and governing law, as the Committee or the Board deems
necessary or appropriate.

A-2

6210

Please mark your
|X| votes as in this
example.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ELECTION OF DIRECTORS AND FOR PROPOSAL 2.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION OF DIRECTORS AND FOR PROPOSAL 2.

FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of | | | | 2. Ratification of Ernst | | | | | | 3. In their discretion, the proxies are authorized
Directors. and Young LLP as to vote upon such other matters as may properly
(see reverse) independent any come before the Meeting or adjournment
accountants. thereof.

FOR, except vote withhold from the following nominee(s):
CHANGE OF ADDRESS/ | |
COMMENTS ON REVERSE SIDE.
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Please date and sign exactly as name appears hereon. Joint
owners should each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as
such.

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2001
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SIGNATURE(S) DATE

FORT DEARBORN INCOME SECURITIES, INC.

P PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF SHAREHOLDERS, DECEMBER 17, 2001
R
The undersigned, having received the Notice of Annual Meeting and Proxy Statement dated November 9, 2001 appoints M. Finley
O Maxson and Robert M. Fascia and each or any of them as proxies, with full power of substitution and revocation, to represent
the undersigned and to vote all shares (including those owned beneficially by the undersigned through the Automatic Dividend
X Investment Plan) which the undersigned is entitled to vote at the Annual Meeting of Shareholders of Fort Dearborn Income
Securities, Inc. to be held on December 17, 2001, 2:00 P.M., at Brinson Partners, Inc. 209 South LaSalle St., Ninth Floor,
Y Chicago, Illinois, and any adjournments thereof.

Election of Directors, Nominees: COMMENTS: (change of address)

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A. Cepeda, C.R. O'Neil, -------------------------------------------------------
F.K. Reilly, E.M. Roob
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(If you have written in the above space, please mark the
corresponding box on the reverse side of this card.)

YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICE BY MARKING THE APPROPRIATE BOXES ON THE REVERSE SIDE. IF YOU DO NOT MARK ANY BOXES, YOUR
PROXY WILL BE VOTED IN ACCORDANCE WITH THE THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU
SIGN AND RETURN THIS CARD.

SEE REVERSE
SIDE