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 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.


We maintain our positive outlook for emerging markets debt. Within this asset class, we believe that local currencies will be the main contributor to performance in 2013, and that they will be supported by superior growth rates verses their developed country counterparts. In addition, it's likely that the Fed and ECB will continue to pursue their highly accommodative monetary policies for the foreseeable future. In contrast, many emerging market central banks appear closer to ending their easing cycles. Against this backdrop, the yield difference between local emerging and developed country currencies should remain stable or increase, which should be beneficial for local currencies. Elsewhere, we feel that US dollar-denominated spreads are now fairly valued and, therefore, we pared our allocation in December. We have a more neutral outlook for local bonds in 2013.

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 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.

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