Our allocation to US dollar-denominated bonds was beneficial for results. Longer-term US Treasury yields reached all-time lows during the quarter which, in turn, supported these holdings. In particular, our long duration position in the Middle East was additive for results. On the other hand, spread widening in higher risk countries, like Argentina and Venezuela, detracted from results, offsetting the positive contributions, as mentioned above.Overall, the Fund's currency exposures detracted modestly from performance during the quarter, as our overweight to local currencies versus US dollar-denominated bonds was not rewarded. In particular, several local currencies, including Indian rupee and Ghana cedi, hurt the Fund's results. Outlook We continue to have a positive long-term outlook for the emerging markets debt asset class. Many emerging market countries are experiencing growth well above the levels of major developed markets. We believe the growth gap will at least continue in 2012, and this gap, as well as relatively low fiscal deficits, will be favorable for debt dynamics in emerging markets relative to developed markets. While volatility may stay elevated in the near term due to market uncertainty and investor risk aversion, we continue to have a positive long-term outlook for emerging markets investments. In our view, demand for emerging markets bonds is likely to be supported by both investors' search for higher-yielding securities and strong sovereign and corporate balance sheets in emerging markets. In our opinion, strong fundamental data, stable reserves, a more solid fiscal situation and lower indebtedness are signs of such strengths, especially for sovereigns, quasi-sovereigns and currencies. 3 Disclaimers Regarding Fund Commentary - The Fund Commentary is intended to assist shareholders in understanding how the Fund performed during the period noted. Views and opinions were current as of the date of this press release. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and the Fund and UBS Global AM reserve the right to change views about individual securities, sectors and markets at any time. As a result, the views expressed should not be relied upon as a forecast of the Fund’s future investment intent. Past performance does not predict future performance. The return and value of an investment will fluctuate so that an investor's shares, when sold, may be worth more or less than their original cost. Any Fund net asset value ("NAV") returns cited in a Fund Commentary assume, for illustration only, that dividends and other distributions, if any, were reinvested at the NAV on the payable dates. Any Fund market price returns cited in a Fund Commentary assume that all dividends and other distributions, if any, were reinvested at prices obtained under the Fund's Dividend Reinvestment Plan. Returns for periods of less than one year have not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund dividends and other distributions, if any, or on the sale of Fund shares.
1 Spreads refers to differences between the yields paid on US Treasury bonds and other types of debt, such as emerging market bonds.2 Global High Income Fund Index is an unmanaged index compiled by the advisor, currently constructed as follows: 50% J.P. Morgan Emerging Markets Bond Index Global (EMBI Global) and 50% J.P. Morgan Government Bond Index-Emerging Markets Global Diversified (GBI-EM Global Diversified). Investors should note that indices do not reflect the deduction of fees and expenses. 3 Quasi-sovereign bonds are securities issued by entities supported by the local government.