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Global High Income Fund Inc. – Fund Commentary

Stocks in this article: GHI

Global High Income Fund Inc. (the "Fund") (NYSE: GHI) is a non-diversified, closed-end management investment company seeking high current income and, secondarily, capital appreciation through investments primarily in securities of emerging markets debt issuers.

Fund Commentary for the fourth quarter 2012 from UBS Global Asset Management (Americas) Inc. (“UBS Global AM”), the Fund’s investment advisor

Market Review

Despite periods of volatility, the emerging markets debt asset class ultimately generated strong results during the fourth quarter. US dollar-denominated emerging markets debt, as measured by the JP Morgan Emerging Markets Bond Index Global (EMBI Global), posted a 3.33% return over the period, while local currency emerging markets debt, as measured by the J.P. Morgan Government Bond Index-Emerging Markets Global Diversified (GBI-EM Global Diversified), posted an even stronger return of 4.13%.

In general, the asset class was supported by an improving economic backdrop in the US. There were also signs that China's economy was stabilizing, which alleviated concerns of a "hard landing” in China. A number of uncertainties were also lifted during the quarter, as the Federal Reserve Board ("Fed") and European Central Bank ("ECB") further spelled out their plans for policy accommodation. That said, there were still periods of investor risk aversion. This was especially true in late October, when a US court ruled that Argentina could not discriminate between its creditors in connection with a longstanding dispute between holdouts from Argentina’s 2001 sovereign default. This triggered both fears of a technical default by Argentina and several credit rating agency downgrades. However, this proved to be only a temporary setback, as the country's bonds subsequently rallied sharply.

Performance review

For the fourth quarter of 2012, the Fund posted a net asset value total return of 3.72%, and a market price total return of -0.09%. On a net asset value basis, the Fund performed in line with its benchmark, the Global High Income Fund Index (the “Index”), 1 which returned 3.73% for the quarter.

Our overweight to local Brazilian debt contributed to performance during the quarter. In particular, our longer-dated local Brazilian debt with inflation protection generated good results, as it performed well given the decline in local yields and solid demand. The Fund’s underweight allocation to US dollar-denominated debt was beneficial for results as was our country selection within that segment. Notably, overweights to higher beta (higher risk) countries, such as Venezuela, contributed to performance during the fourth quarter. Overweights to higher yielding countries such as Belarus, Serbia and Ukraine were also rewarded during the last three months of the year.

Conversely, underweights to local bonds from Indonesia and Poland, which performed well given robust demand from investors seeking to generate incremental yield, detracted from performance during the quarter.

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