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

Market Review

During the first quarter, US dollar-denominated emerging markets debt, as measured by the JP Morgan Emerging Markets Bond Index Global (EMBI Global), posted a return of 4.86%. Local market investments (in other words, emerging markets debt denominated in the currency of the issuer) posted even stronger results, finishing the quarter with a return of 8.30%, as measured by the JP Morgan Government Bond Index-Emerging Markets Global Diversified (GBI-EM Global Diversified).

As these returns indicate, the emerging markets debt asset class performed well during the quarter. The asset class began the year strongly, as emerging markets debt spreads tightened significantly in January and February. 1 This was driven by robust investor risk appetite, as economic data in the US strengthened and there were expectations for a soft landing for China's economy. In addition, concerns relating to the European sovereign debt crisis moderated, as the European Central Bank’s three-year Long-Term Refinancing Operation (LTRO) soothed the markets, at least for the time being. Greece also successfully restructured its debt with relatively little drama. Nevertheless, the asset class weakened somewhat toward the end of the quarter, as new issuance increased and investors appeared to capture some of their earlier profits.

Performance review

For the first quarter of 2012, the Fund posted a net asset value total return of 6.31%, and a market price total return of 13.52%. On a net asset value basis, the Fund slightly underperformed its benchmark, the Global High Income Fund Index (the “Index”), which returned 6.61% for the quarter. 2

During the quarter, the Fund's overweight exposure to local currencies was the main contributor to performance versus the benchmark. In particular, overweights to the Mexican and Chilean pesos, as well as the Indian rupee, were rewarded. Local market exposures, including the Fund's overweight to Brazilian inflation-linked bonds, were positive for performance as well. Elsewhere, allocations to higher yielding US dollar-denominated sovereign debt from Eastern European countries such as Belarus and Albania were beneficial, as were the Fund’s holdings of US dollar-denominated sovereign debt from Jordan and quasi-sovereign bonds from the United Arab Emirates. 3

The Fund's small overweight to the Brazilian real detracted from results, as did an underweight to the Hungarian forint at the beginning of the quarter. Underweights to some counties that experienced spread tightening during the quarter, such as Mexico, Chile, Columbia and the Ivory Coast, were also slight drags on benchmark-relative results.

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