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

Market Review

During the second quarter, US dollar-denominated emerging markets debt, as measured by the JP Morgan Emerging Markets Bond Index Global (EMBI Global), posted a return of 2.47%. Although sovereign spreads widened by approximately 33 basis points (bps), declining 10-year US Treasury yields—down from 2.21% to 1.64%—outweighed the detractions and kept the overall market return positive. 1 Local market investments delivered weak results, ending the quarter with a loss of approximately 1.21%, based on the JP Morgan GBI-EM Global Diversified Index. Depreciating currencies versus the US dollar was the main detractor, while local yields added to the overall performance by following US Treasury yields down from 6.4% at the end of March to 6.1% at the end of the second quarter, as measured by the same index.

Rising global stock market volatility, fears of a US recession and persistent doubts about sovereign risk in Europe continued to impact global markets. Market concerns and risk aversion increased significantly ahead of elections in Greece and France in the beginning of May. The failure of the Greek elections to form a reform-oriented coalition government was followed by increased volatility and a massive selloff in all higher-risk asset classes. These events are likely to have an impact on emerging market countries’ economies, as well. However, we believe the long-term effect on emerging markets debt should be limited.

Performance review

The Fund posted a net asset value total return of -0.32% and a market price total return of -6.87% for the second quarter of 2012. On a net asset value basis, the Fund underperformed its benchmark, the Global High Income Fund Index (the “Index”), which returned 0.65% for the quarter. 2

During the quarter, the Fund's local market bond exposures were positive for performance, as yields reached historic lows in June 2012. Overweights in Brazil, Mexico and South Africa contributed significantly to performance.

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