Global High Income Fund Inc. – Fund Commentary

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 2011 from UBS Global Asset Management (Americas) Inc. (“UBS Global AM”), the Fund’s investment advisor

Market Review

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 return of 5.12%. Local market investments (in other words, emerging markets debt denominated in the currency of the issuer) posted weaker results, finishing the quarter with a return of approximately 0.48%, as measured by the JP Morgan Government Bond Index-Emerging Markets Global Diversified (GBI-EM Global Diversified).

After a negative third quarter, October saw a rally in higher risk assets as somewhat less risk-averse investors began searching for yield. US dollar-denominated emerging markets debt spreads tightened significantly in October. 1 However, with growing concerns about the ability of European institutions to solve the sovereign debt crisis, investor confidence weakened in November. In addition, an increase in new issuance volume toward the end of the month weighed on the markets. The markets closed out the year with less liquidity, as December brought renewed concerns for the global economy, the banking sector and the situation in Europe.

Performance review

For the fourth quarter of 2011, the Fund posted a net asset value total return of 3.42%, and a market price total return of 4.72%. On a net asset value basis, the Fund outperformed its benchmark, the Global High Income Fund Index (the “Index”), 2 which returned 2.79% for the quarter.

During the quarter, the Fund's overweight exposures to high beta (high risk) countries such as Venezuela and Argentina were a positive for performance, as their US dollar-denominated bond spreads narrowed during the period. The Fund's allocation to quasi-sovereign bonds 3 also benefited results. Elsewhere, long duration in local currency-denominated bonds in Brazil and South Africa, as well as a short duration exposure in Hungary, were rewarded.

Currency exposures, overall, detracted from results. In particular, the Fund's exposures to the Brazilian real, Serbian dinar and Indian rupee were negative for performance. This more than offset the positive contributions from the Fund's underweight allocation to the Hungarian forint. Underweights to high quality US dollar-denominated bonds in Mexico, Panama and Uruguay were also not rewarded.


Many emerging market countries are experiencing growth well above that of major developed markets. It is highly likely that the growth gap will at least continue, if not widen, in the coming year. This, and relatively low fiscal deficits, are favorable for debt dynamics in emerging markets relative to those in many developed markets. Volatility is likely to remain elevated in the near-term as a result of several macro issues and investor risk aversion. However, we continue to have a positive long-term outlook for emerging markets investments. In our view, demand for emerging markets bonds will be supported by investors’ search for higher-yielding securities, and strong sovereign and corporate balance sheets in emerging markets. Solid fundamental data—stable reserves, a more solid fiscal situation and lower indebtedness—are signs of such strengths, especially for sovereigns, quasi-sovereigns and currencies. Additionally, with global growth moderating, it is likely that developing country central banks will shift their focus from raising interest rates to lowering interest rates or keeping them at already low rates. This could also support the emerging markets debt asset class.

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.

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