UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-06445
The Herzfeld Caribbean Basin Fund, Inc.
---------------------------------------
(Exact name of registrant as specified in charter)
P.O. BOX 161465, MIAMI, FLORIDA 33116
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(Address of principal executive offices) (Zip code)
THOMAS J. HERZFELD
P.O. BOX 161465, MIAMI, FL 33116
--------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 305-271-1900
Date of fiscal year end: 06/30/08
Date of reporting period: 07/01/06 - 6/30/08
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. SHAREHOLDER REPORT
[FRONT COVER]
THE HERZFELD
CARIBBEAN BASIN
FUND, INC.
ANNUAL REPORT
JUNE 30, 2008
================================================================================
The Herzfeld Caribbean Basin Fund, Inc.
The Herzfeld Building
PO Box 161465
Miami, FL 33116
(305) 271-1900
Investment Advisor
HERZFELD/CUBA
a division of Thomas J. Herzfeld Advisors, Inc.
PO Box 161465
Miami, FL 33116
(305) 271-1900
Transfer Agent & Registrar
State Street Bank and Trust
200 Clarendon Street, 16th Floor
Boston, MA 02116
(617) 443-6870
Custodian
State Street Bank and Trust
200 Clarendon Street, 5th Floor
Boston, MA 02116
Counsel
Pepper Hamilton LLP
3000 Two Logan Square
18th and Arch Streets
Philadelphia, PA 19103
Independent Auditors
Rothstein Kass & Company, LLP
101 Montgomery Street, 22nd Floor
San Francisco, CA 94104
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The Herzfeld Caribbean Basin Fund Inc.'s investment objective is long-term
capital appreciation. To achieve its objective, the Fund invests in issuers that
are likely, in the Advisor's view, to benefit from economic, political,
structural and technological developments in the countries in the Caribbean
Basin, which include, among others, Cuba, Jamaica, Trinidad and Tobago, the
Bahamas, the Dominican Republic, Barbados, Aruba, Haiti, the Netherlands
Antilles, the Commonwealth of Puerto Rico, Mexico, Honduras, Guatemala, Belize,
Costa Rica, Panama, Colombia, the United States and Venezuela ("Caribbean Basin
Countries"). The Fund invests at least 80% of its total assets in equity and
equity-linked securities of issuers, including U.S.-based companies which engage
in substantial trade with, and derive substantial revenue from, operations in
the Caribbean Basin Countries.
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Listed NASDAQ Capital Market
Symbol: CUBA
-2-
Letter to Stockholders
================================================================================
[PHOTO]
Thomas J. Herzfeld
Chairman and President
August 5, 2008
Dear Fellow Shareholders:
We are pleased to present our annual report for the period ended June 30, 2008.
On that date the Fund's net asset value was $7.31 per share, which represents a
loss of 13.12% for the one year period then ended (adjusted for distributions).
The Fund's share price closed the fiscal year at $7.69 per share, down from
$13.59 per share on June 30, 2007, and representing a 34.29% loss for the year
(adjusted for distributions). A year-end distribution of $1.28 per share was
paid in January 9, 2008, to shareholders of record December 12, 2007.
The first half of the calendar year was particularly challenging for both the
U.S. and most foreign markets. As of the date of this writing, however, both the
Fund's share price and net asset value have begun to recover, with particularly
strong gains on days when oil prices are lower.
There have been no greater headwinds in the region than the rapid appreciation
in crude oil prices. High oil prices affect nearly every industry in the
Caribbean, including shipping, tourism and infrastructure. Many of our largest
holdings, such as Royal Caribbean Cruises Ltd. (RCL), Carnival Corp. (CCL) and
Copa Holdings, S.A. (CPA) have been especially hurt as their costs have
increased as a result of rising oil prices. At current levels, we feel that much
of the high price of oil is already reflected in the valuation of these
companies, and any pullback in oil prices should benefit our portfolio.
In spite of the difficult market, the Fund traded at a premium to net asset
value most of the fiscal year, reflecting continued interest by investors.
-3-
Letter to Stockholders (Continued)
================================================================================
We continue to position the Fund's portfolio in companies we believe will
benefit from resumption of U.S. trade with Cuba and continue to monitor the
political situation in Cuba very closely. In February, Raul Castro was elected
President by the National Assembly, officially taking power from his brother
Fidel. Under Raul, the island nation has begun to show some changes. For
instance, Cubans are now allowed to stay in hotels, buy electronic products, own
cell phones, buy motorcycles and operate independent taxis. Additionally, the
government is considering changing the wage laws and reviewing the currency.
These developments could pave the way for further human rights advances.
Violations of human rights have been one of the primary arguments in favor of
keeping the U.S. Embargo against Cuba, and such positive developments, although
small steps, could lead to a reevaluation of U.S. policy.
Largest Allocations
The following tables present our largest investment and geographic allocations
as of June 30, 2008:
-------------------------------- -----------------------------------------
Geographic % of Net Assets Largest Portfolio % of Net Assets
Allocation Positions
USA 40.23% Seaboard Corporation 6.87%
Mexico 26.26% Consolidated Water Co. 4.98%
Cayman Islands 7.02% Watsco Incorporated 4.78%
Panama 6.08% Carnival Corp. 4.56%
Bahamas 5.76% Norfolk Southern Corporation 4.16%
Colombia 3.99% Coca Cola Femsa, S.A.B.
Latin American Regional 3.34% de C.V. ADR 4.05%
Netherlands Antilles 2.52% Bancolombia, S.A. 3.99%
Puerto Rico 2.35% America Movil, S.A.B.
Belize 0.71% de C.V. ADR 3.89%
Venezuela 0.04% Atlantic Tele-Network, Inc. 3.73%
Cuba 0.00% Teekay Corporation 3.50%
Cash and other 1.70%
-------------------------------- -----------------------------------------
-4-
Letter to Stockholders (Continued)
================================================================================
Daily net asset values, annual and semi-annual reports as well as press releases
and other SEC filings on the Fund are available on the Internet at
www.herzfeld.com.
I would like to thank the members of the Board of Directors for their hard work
and guidance and also to thank my fellow stockholders for their continued
support and suggestions.
Sincerely,
/s/ Thomas J. Herzfeld
Thomas J. Herzfeld
Chairman of the Board and President
-5-
Schedule of Investments as of June 30, 2008
================================================================================
Shares or Principal Amount Description Market Value
--------------------------------------------------------------------------------
Common stocks - 98.95% of net assets
Banking and finance - 9.20%
34,500 Bancolombia, S.A. $ 1,082,955
44,420 Banco Latinoamericano de Exportaciones, S.A. 719,160
6,500 Doral Financial Corp.* 88,010
16,400 Grupo Financiero Banorte, S.A. de C.V. Series O 77,195
9,900 Grupo Financiero Inbursa, S.A. de C.V. Series O 36,511
50,000 Popular Inc. 329,500
192,200 W Holding Co. Inc. 163,370
Communications - 18.80%
20,000 America Movil, S.A.B. de C.V. ADR 1,055,000
35,600 America Movil, S.A.B. de C.V. Series A 93,286
50,891 America Movil, S.A.B. de C.V. Series L 134,590
36,819 Atlantic Tele-Network, Inc. 1,012,891
11,900 Carso Global Telecom, S.A.B. de C.V. Series A1* 65,276
176,000 Fuego Entertainment Inc.* 22,880
17,000 Garmin Ltd. 728,280
871 Grupo Iusacell, S.A. de C.V. Series V* 8,453
21,120 Grupo Radio Centro, S.A.B. ADR 248,160
32,400 Grupo Televisa, S.A.B. ADR 765,288
13,400 Grupo Televisa, S.A.B. Series CPO 63,503
80,304 Spanish Broadcasting System, Inc.* 91,547
15,000 Telefonos de Mexico, S.A.B. de C.V. ADR Series L 355,200
23,800 Telefonos de Mexico, S.A.B. de C.V. Series A 27,626
78,600 Telefonos de Mexico, S.A.B. de C.V. Series L 93,370
15,000 Telmex International, S.A.B. de C.V. ADR 241,500
23,800 Telmex International Series A 19,865
78,600 Telmex International Series L 63,772
13,900 TV Azteca, S.A.B. de C.V. Series CPO 8,890
Conglomerates and holding companies - 1.75%
250,000 Admiralty Holding Company* 200
5,400 Alfa, S.A.B. de C.V. Series A 38,651
42,595 BB Holdings Ltd.* 192,853
30,300 Cockleshell Ltd. Ord.* 32,864
3,200 Corporacion Interamericana de
Entretenimiento, S.A.B. de C.V. Series B* 6,519
-----------------------
*Non-income producing
See accompanying notes
-6-
Schedule of Investments as of June 30, 2008 (continued)
================================================================================
Shares or Principal Amount Description Market Value
--------------------------------------------------------------------------------
Conglomerates and holding companies (continued)
11,000 Grupo Carso, S.A.B. de C.V. Series A1 $ 51,350
1,580 Grupo Kuo S.A.B. de C.V.* 1,150
20 Grupo Pochteca, S.A.B. de C.V. * 9
3,250 Shellshock Ltd. Ord.* 4,237
2,900 Vitro, S.A.B. de C.V. Series A 4,931
27,918 Vitro, S.A.B. de C.V. ADR 142,382
Construction and related - 5.26%
21,863 Cemex S.A.B. de C.V. ADR 540,016
49,599 Cemex S.A.B. de C.V. Series CPO 122,893
20 Ceramica Carabobo Class A ADR* 4,657
17,200 Consorcio ARA, S.A.B. de C.V. 15,892
1,580 Dine S.A.B. de C.V. Series B* 1,434
3,583 Empresas ICA, S.A.B. de C.V.* 22,457
800 Grupo Cementos de Chichuahua, S.A.B. de C.V. 4,346
67,132 Mastec, Inc.* 715,627
Consumer products and related manufacturing - 6.38%
13,273 Grupo Casa Saba, S.A.B. de C.V. ADR 434,691
31,000 Watsco Incorporated 1,295,800
Food, beverages and tobacco - 6.41%
1,219 Alsea, S.A.B. de C.V. 1,537
3,000 Chiquita Brands International Inc.* 45,510
19,500 Coca Cola Femsa, S.A.B. de C.V. ADR 1,099,605
200 Coca Cola Femsa, S.A.B. de C.V. Series L 1,133
18,900 Fomento Economico Mexicano, S.A.B. de C.V.
Series UBD 86,101
17,500 Fresh Del Monte Produce Inc.* 412,475
800 Gruma, S.A.B. de C.V. Series B* 2,191
7,600 Grupo Bimbo, S.A.B. de C.V. Series A 50,082
7,700 Grupo Modelo, S.A.B. de C.V. Series C 39,226
Housing - 1.43%
1,700 Corporacion Geo S.A.B. de C.V. Series B* 5,694
100 Desarrolladora Homex, S.A.B. de C.V.* 975
30,500 Lennar Corporation 376,370
400 Sare Holding, S.A.B. de C.V. Series B* 524
1,500 Urbi Desarrollos Urbanos, S.A.B. de C.V.* 5,190
-----------------------
*Non-income producing
See accompanying notes
-7-
Schedule of Investments as of June 30, 2008 (continued)
================================================================================
Shares or Principal Amount Description Market Value
--------------------------------------------------------------------------------
Investment companies - 6.51%
18,110 Latin America Equity Fund $ 904,051
21,140 The Mexico Fund, Inc. 741,803
139 Western Asset Emerging Markets Debt Fund 2,403
9,000 Western Asset Worldwide Income Fund 116,820
Leisure - 8.78%
37,500 Carnival Corp. 1,236,000
33,500 Royal Caribbean Cruises Ltd. 752,745
13,900 Steiner Leisure Ltd.* 394,065
Medical - 2.61%
8,386 Micromet Inc.* 22,139
23,660 Orthofix International N.V.* 684,957
Mining - 0.03%
3,600 Grupo Mexico, S.A.B. de C.V. Series B 8,176
Pulp and paper - 0.09%
6,100 Kimberly-Clark de Mexico, S.A.B. de C.V. Series A 24,865
Railroad - 4.16%
18,000 Norfolk Southern Corporation 1,128,060
Retail - 0.87%
3,700 Controladora Comercial Mexicana, S.A.B. de C.V.
Series UBC 11,114
1,270 Grupo Elektra, S.A.B. de C.V. Series CPO 46,776
45,111 Wal-Mart de Mexico, S.A.B. de C.V. Series V 178,977
Service - 0.01%
700 Grupo Aeroportuario del Sureste,
S.A.B. de C.V. Series B 3,631
100 Promotora Ambiental, S.A.B. de C.V.* 243
Trucking and marine freight - 14.08%
61,404 Grupo TMM, S.A.B. ADR* 114,825
1,201 Seaboard Corporation 1,862,751
21,000 Teekay Corporation 948,780
8,361 Teekay LNG Partners LP 220,145
-----------------------
*Non-income producing
See accompanying notes
-8-
Schedule of Investments as of June 30, 2008 (continued)
================================================================================
Shares or Principal Amount Description Market Value
--------------------------------------------------------------------------------
Trucking and marine freight (continued)
66,797 Trailer Bridge, Inc.* $ 384,751
23,000 Ultrapetrol Bahamas Ltd.* 290,030
Utilities - 8.84%
12,000 Caribbean Utilities Ltd. Class A 141,120
68,241 Consolidated Water, Inc. 1,351,172
700 Cuban Electric Company* 14,000
41,500 Teco Energy Inc. 891,835
Other - 3.74%
33,000 Copa Holdings S.A. 929,280
13,000 Impellam Grp.* 20,827
55,921 Margo Caribe, Inc.* 56,480
100 Mexichem S.A.B. de C.V. 809
843 Siderurgica Venezolana Sivensa, S.A. ADR 6,674
75 Siderurgica Venezolana Sivensa, S.A. Series B 594
45,000 Xcelera, Inc. (Note 2)* --
------------
Total common stocks (cost $27,410,900) $ 26,846,548
Bonds - 0% of net assets
$165,000 Republic of Cuba - 4.5%, 1977 - in default
(cost $63,038) (Note 2)* --
Other assets less liabilities - 1.05% of net assets $ 284,006
------------
Net assets - 100% $ 27,130,554
============
The investments are concentrated in the following geographic regions (as
percentages of net assets):
United States of America 40.23%
Mexico 26.26%
Cayman Islands 7.02%
Panama 6.08%
Bahamas 5.76%
Other, individually under 5%** 14.65%
-------
100.00%
-----------------------
*Non-income producing
**Amount includes other assets less liabilities of 1.05%
See accompanying notes.
-9-
Statement of Assets and Liabilities as of June 30, 2008
================================================================================
ASSETS
Investments in securities, at market value (cost $27,473,938)
(Notes 1 and 2) $ 26,846,548
Cash 168,626
Receivable for securities sold 175,374
Dividends receivable 38,279
Other assets 33,249
------------
TOTAL ASSETS 27,262,076
LIABILITIES
Accrued investment advisor fee (Note 3) 106,107
Other payables 25,415
------------
TOTAL LIABILITIES 131,522
------------
NET ASSETS (Equivalent to $7.31 per share
based on 3,713,071 shares outstanding) $ 27,130,554
============
Net assets consist of the following:
Common stock, $.001 par value; 100,000,000
shares authorized; 3,713,071* shares issued
and outstanding $ 3,713
Additional paid-in capital 27,029,699
Undistributed net investment income 223,781
Accumulated net realized gain on investments 500,751
Net unrealized loss on investments (Notes 4 and 5) (627,390)
------------
NET ASSETS $ 27,130,554
============
*213,222 shares issued through dividend reinvestment plan and 1,812,293 shares
issued through rights offering (Note 6)
See accompanying notes.
-10-
Statement of Operations
Year Ended June 30, 2008
================================================================================
INVESTMENT INCOME AND EXPENSES
Dividends and interest $ 1,091,031
-----------
Investment advisor fees (Note 3) $ 364,928
Professional fees 79,535
Custodian fees 54,000
Insurance 46,665
Printing and postage 28,220
CCO salary 21,080
Transfer agent fees 17,500
Director fees 15,200
Listing fees 15,000
Proxy services 9,450
Other 21,886
-----------
Total investment expenses 673,464
-----------
NET INVESTMENT INCOME 417,567
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net realized gain on investments and foreign currency 3,127,940
Net increase (decrease) in unrealized appreciation
(depreciation) on investments and foreign currency (8,184,478)
-----------
NET LOSS ON INVESTMENTS (5,056,538)
-----------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ($4,638,971)
===========
See accompanying notes.
-11-
Statements of Changes in Net Assets
Years Ended June 30, 2008 and 2007
================================================================================
2008 2007
INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS:
Net investment income (loss) $ 417,567 ($ 263,944)
Net realized gain on investments and
foreign currency 3,127,940 1,894,365
Net increase (decrease) in unrealized appreciation
(depreciation) on investments and foreign currency (8,184,478) 2,866,877
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
resulting from operations (4,638,971) 4,497,298
DISTRIBUTIONS TO STOCKHOLDERS:
Net investment income (200,000) --
Long-term realized gains (4,279,807) (1,677,636)
------------ ------------
NET DISTRIBUTIONS TO STOCKHOLDERS (4,479,807) (1,677,636)
------------ ------------
CAPITAL STOCK TRANSACTIONS:
Shares issued in reinvestment of distribution
(213,222 shares and 9,920 shares in 2008 and
2007, respectively) (Note 6) 1,692,977 108,062
Shares issued in rights offering net of rights
offering costs (1,812,293 shares) (Note 6) 18,075,138 --
------------ ------------
TOTAL INCREASE IN NET ASSETS 10,649,337 2,927,724
NET ASSETS:
Beginning 16,481,217 13,553,493
Ending $ 27,130,554 $ 16,481,217
============ ============
See accompanying notes.
-12-
Financial Highlights
Years Ended June 30, 2004 through 2008
================================================================================
2008 2007 2006 2005 2004
---------- ---------- ---------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
(For a share of capital stock outstanding for the year)
Net asset value, beginning of year $ 9.77 $ 8.08 $ 7.33 $ 5.43 $ 3.95
---------- ---------- ---------- ---------- ----------
Operations:
Net investment income (loss)(1) 0.22 (0.14) (0.16) (0.09) (0.07)
Net realized and unrealized gain (loss) on investment
transactions(1) (1.40) 2.83 1.08 1.99 1.55
---------- ---------- ---------- ---------- ----------
Total from operations (1.18) 2.69 0.92 1.90 1.48
---------- ---------- ---------- ---------- ----------
Distributions:
From net investment income (0.06) -- -- -- --
From net realized gains (1.22) (1.00) (0.17) -- --
---------- ---------- ---------- ---------- ----------
Total distributions (1.28) (1.00) (0.17) -- --
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 7.31 $ 9.77 $ 8.08 $ 7.33 $ 5.43
---------- ---------- ---------- ---------- ----------
Per share market value, end of year $ 7.69 13.59 $ 7.57 $ 6.30 $ 4.87
---------- ---------- ---------- ---------- ----------
Total investment return (loss) based on
market value per share (34.29%) 94.61% 22.86% 29.36% 39.54%
---------- ---------- ---------- ---------- ----------
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of year (in 000's) $ 27,131 $ 16,481 $ 13,553 $ 12,292 $ 9,109
---------- ---------- ---------- ---------- ----------
Ratio of expenses to average net assets 2.74% 3.28% 3.37% 3.55% 3.67%
---------- ---------- ---------- ---------- ----------
Ratio of net investment income (loss)
to average net assets 1.70% (1.83%) (1.95%) (1.47%) (1.39%)
---------- ---------- ---------- ---------- ----------
Portfolio turnover rate 25% 28% 40% 30% 23%
---------- ---------- ---------- ---------- ----------
(1)Computed by dividing the respective year's amounts from the Statement of
Operations by the average outstanding shares for each year presented. For 2008,
amounts were computed using the weighted average outstanding shares due to the
significant one-time increase in shares from the rights offering.
See accompanying notes.
-13-
Notes to Financial Statements
================================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Related Matters
--------------------------------
The Herzfeld Caribbean Basin Fund, Inc. (the "Fund") is a non-diversified,
closed-end management investment company incorporated under the laws of the
State of Maryland on March 10, 1992, and registered under the Investment Company
Act of 1940. The Fund commenced investing activities in January 1994. The Fund
is listed on the NASDAQ Capital Market and trades under the symbol "CUBA".
The Fund's investment objective is to obtain long-term capital appreciation. The
Fund pursues its objective by investing primarily in equity and equity-linked
securities of public and private companies, including U.S.-based companies, (i)
whose securities are traded principally on a stock exchange in a Caribbean Basin
Country or (ii) that have at least 50% of the value of their assets in a
Caribbean Basin Country or (iii) that derive at least 50% of their total revenue
from operations in a Caribbean Basin Country (collectively, "Caribbean Basin
Companies"). Under normal conditions, the Fund invests at least 80% of its total
assets in equity and equity-linked securities of Caribbean Basin Countries. This
80% policy may be changed without stockholder approval upon sixty days written
notice to stockholders. The Fund's investment objective is fundamental and may
not be changed without the approval of a majority of the Fund's outstanding
voting securities.
At June 30, 2008, the Fund had foreign investments in companies operating
principally in Mexico and the Cayman Islands representing approximately 26% and
7% of the Fund's net assets, respectively.
The Fund's custodian and transfer agent is State Street Bank & Trust Company
("SSBT"), 200 Clarendon Street, PO Box 9130, Boston, Massachusetts 02117.
Security Valuation
------------------
Investments in securities traded on a national securities exchange (or reported
on the NASDAQ National Market or Capital Market) are stated at the last reported
sales price on the day of valuation (or at the NASDAQ official closing price);
other securities traded in the over-the-counter market and listed securities for
which no sale was reported on that date are stated at the last quoted bid price.
Restricted securities and other securities for which quotations are not readily
available are valued at fair value as determined by the Board of Directors.
-14-
Notes to Financial Statements
================================================================================
In September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 157, "Fair Value Measurements"
(SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in accordance with generally accepted accounting principles
and expands disclosure about fair value measurements. SFAS No. 157 is effective
for fiscal years beginning after November 15, 2007. Management is currently
evaluating the impact the adoption of SFAS No. 157 will have on the Fund's
financial statements.
In February 2007, FASB issued Statement of Financial Accounting Standards No.
159, "The Fair Value Option for Financial Assets and Financial Liabilities -
including an amendment of FASB Statement No. 115" (SFAS No. 159). SFAS No. 159
permits entities to elect to measure certain financial assets and liabilities at
fair value. Unrealized gains and losses on items for which the fair value option
has been elected will be reported in earnings at each subsequent reporting date.
SFAS No. 159 is effective as of the beginning of the first fiscal year that
begins after November 15, 2007. Management is currently evaluating the impact
the adoption of SFAS No. 159 will have on the Fund's financial statements.
Income Recognition
------------------
Security transactions are recorded on the trade date. Gains and losses on
securities sold are determined on the basis of identified cost. Dividend income
is recognized on the ex-dividend date, or in the case of certain foreign
securities, as soon as the Fund is notified, and interest income is recognized
on an accrual basis. Pursuant to a custodian agreement, SSBT receives a fee
reduced by credits which are determined based on the average daily cash balance
the Fund maintains with SSBT. Credit balances used to reduce the Fund's
custodian fees for the year ended June 30, 2008 were approximately $2,362.
Discounts and premiums on debt securities purchased are amortized over the life
of the respective securities. It is the Fund's practice to include the portion
of realized and unrealized gains and losses on investments denominated in
foreign currencies as components of realized and unrealized gains and losses on
investments and foreign currency.
Deposits with Financial Institutions
------------------------------------
The Fund may, during the course of its operations, maintain account balances
with financial institutions in excess of federally insured limits.
-15-
Notes to Financial Statements
================================================================================
Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Income Taxes
------------
The Fund's policy is to continue to comply with the provisions of the Internal
Revenue Code that are applicable to regulated investment companies and to
distribute all its taxable income to its stockholders. Under these provisions,
the Fund is not subject to federal income tax on its taxable income and no
federal tax provision is required.
The Fund has adopted a June 30 year-end for federal income tax purposes.
Distributions to Stockholders
-----------------------------
Distributions to stockholders are recorded on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations which may differ from accounting principles generally accepted in
the United States of America. For the year ended June 30, 2008, a distribution
from long-term capital gains of $1.223 per share and a net investment income
distribtuion of $0.057 per share was declared on November 26, 2007, payable on
January 9, 2008 to stockholders of record December 12, 2007. The distribution
was paid in stock, unless an election to receive cash was made by the
stockholder. Shares were issued at a reinvestment price of $7.94 per share,
which was equal to the net asset value of the common shares on the payable date
of the distribution, January 9, 2008.
NOTE 2. NON-MARKETABLE SECURITY OWNED
Investments in securities, at market value include $165,000 principal, 4.5%,
1977 Republic of Cuba bonds purchased for $63,038. The bonds were listed on the
New York Stock Exchange and had been trading in default since 1960. A
"regulatory halt" on trading was imposed by the New York Stock Exchange in July
1995 and trading in the bond was suspended as of December 28, 2006. The New York
Stock Exchange has stated that following the suspension of trading, application
will be made to the Securities and Exchange Commission to delist the issue. As
of June 30, 2008, the position was valued at $0 by the Board of Directors, which
approximates the bonds' fair value.
-16-
Notes to Financial Statements
================================================================================
Investments in securities also include 45,000 shares of Xcelera, Inc. The
security traded on the Pink Sheets until the first quarter of 2007 when trading
was discontinued. As of June 30, 2008, the position was valued at $0 by the
Board of Directors, which approximates the position's fair value.
NOTE 3. TRANSACTIONS WITH AFFILIATES
HERZFELD / CUBA (the "Advisor"), a division of Thomas J. Herzfeld Advisors,
Inc., is the Fund's investment advisor and charges a monthly fee at the annual
rate of 1.45% of the Fund's average daily net assets. Total fees for the year
ended June 30, 2008 amounted to $364,928, of which $106,107 is payable as of
June 30, 2008.
During the year ended June 30, 2008, the Fund paid $34,866 of brokerage
commissions to Thomas J. Herzfeld & Co., Inc., an affiliate of the Advisor, at
an average cost per share of $0.04.
A director of the Fund serves on the Board of Directors of Margo Caribe, Inc., a
company in which the Fund has an investment.
A director of the Fund is the owner of the Advisor and Thomas J. Herzfeld & Co.,
Inc.
The Fund reimbursed the Advisor in the amount of $21,080 for the portion of the
chief compliance officer's (the "CCO") salary determined to be attributable to
the services provided as CCO of the Fund.
NOTE 4. INVESTMENT TRANSACTIONS
During the year ended June 30, 2008, purchases and sales of investment
securities were $23,986,609 and $5,237,623, respectively.
At June 30, 2008, the Fund's investment portfolio had gross unrealized gains of
$3,552,023 and gross unrealized losses of $4,179,413, resulting in a net
unrealized loss of $627,390 for financial statement purposes.
NOTE 5. INCOME TAX INFORMATION
For financial statement purposes, the Fund's net investment income for the year
ended June 30, 2008 differs from the net investment income for tax purposes due
to the tax characterization of foreign currency income received by the Fund.
Realized gains differ for financial statement and tax purposes primarily due to
differing treatments of wash sales.
As of June 30, 2008, for tax purposes the Fund's undistributed net investment
income was $223,781 and its undistributed realized gain on investments was
$556,468.
-17-
Notes to Financial Statements
================================================================================
The cost basis of securities owned for financial statement purposes is lower
than the cost basis for income tax purposes by $55,717 due to wash sale
adjustments. As of June 30, 2008, gross unrealized gains were $3,496,306 and
gross unrealized losses were $4,179,413 for income tax purposes.
Permanent differences accounted for during the year ended June 30, 2008 result
from differences between book and tax accounting for foreign currency income.
Such amounts have been reclassified as follows:
Accumlated Net Accumulated Net
Investment Realized Gain on Additional Paid
Income Investments in Capital
--------------------------------------------------------------------------------
Year ended June 30, 2008 $ 6,214 $ (6,214) $ --
--------------------------------------------------------------------------------
In June, 2006, FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109"
("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in accordance with FASB Statement No. 109, "Accounting for Income
Taxes." This interpretation prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. It also provides
guidance on de-recognition, classification, interest and penalties, accounting
in interim periods, disclosure and transition. FIN 48 is effective for fiscal
years beginning after December 15, 2006, and was adopted by the Fund on July 1,
2007. The adoption had no effect on the Fund's financial statements.
NOTE 6. CAPITAL SHARE TRANSACTIONS
Rights Offering
On October 26, 2007, the Fund issued 1,812,293 common shares in connection with
a rights offering. Stockholders of record September 26, 2007 were issued one
non-transferable right for every share owned on that date. The rights entitled
the stockholders to purchase one new common share for every right held. In
addition, the Fund had the discretion to increase the number of shares of common
stock subject to subscription by up to 100% of the shares offered, or up to an
additional 1,678,556 additional shares of common stock.
The subscription price was equal to 85% of the average volume-weighted sales
price per share of the Fund's common stock on the NASDAQ Capital Market on
October 26, 2007 and the four preceding trading days. The final subscription
price was $10.04 per share. Net proceeds to the Fund were $18,075,138 after
deducting rights offering costs of $120,284. The net asset value of the Fund's
common shares was increased by approximately $0.09 per share as a result of the
share issuance.
-18-
Notes to Financial Statements
================================================================================
Year-End Distributions
On January 9, 2008, the Fund issued 213,222 common shares in connection with a
year-end distribution of $1.28 per share paid in stock. Stockholders were also
given the option of receiving the payment in cash. Shares were issued at $7.94
per share, equal to the net asset value of the Fund on the payable date of
January 9, 2008. New shares were issued at net asset value per share, therefore
the reinvestment of distributions had no effect on net asset value.
On January 12, 2007, the Fund issued 9,920 common shares in connection with the
2006 year-end distribution of $1.00 per share. The distribution was paid on
January 12, 2007 to shareholders of record December 15, 2006.
-19-
Directors and Officers of the Fund
================================================================================
Number of
Term of Portfolios
Name Position(s) Office and Principal Occupation(s) In Complex Other
Address Held Lenth of Time During Past 5 Years Overseen Directorships
and Age with Fund Served By Director Held by Director
------------------------------------------------------------------------------------------------------------------------------------
Interested Directors
--------------------
Thomas J. Herzfeld* President, three years; Chairman and President of 2 The Cuba Fund, Inc.
PO Box 161465 Chairman, 1993 to present Thomas J. Herzfeld & Co., Inc., (in registration)
Miami, FL 33116 Director a broker dealer, and Thomas J.
Age: 63 Herzfeld Advisors, Inc.
Independent Directors
---------------------
Ann S. Lieff Director three years; President of the Lieff Company, a 1 Hastings
c/o The Herzfeld Caribbean 1998 to present management consulting firm that Entertainment, Inc.;
Basin Fund, Inc. offers ongoing advisory services as Birks & Mayors, Inc.
PO Box 161465 a corporate director to several leading
Miami, FL 33116 regional and national retail operations,
Age: 56 1998-present; former CEO Spec's Music
1980-1998, a retailer of recorded music.
Michael A. Rubin Director three years; Partner of Michael A. Rubin P.A., 1 Margo Caribe, Inc.
c/o The Herzfeld Caribbean 2002 to present attorney at law; Broker, Oaks
Basin Fund, Inc. Management & Real Estate Corp.,
PO Box 161465 a real estate corporation
Miami, FL 33116
Age: 66
Kay W. Tatum, Ph.D., CPA Director three years; Chair and Associate Professor of 1 None
c/o The Herzfeld Caribbean 2007 to present Accounting, University of Miami
Basin Fund, Inc. School of Business Administration,
PO Box 161465 2004-present; Associate Professor of
Miami, FL Accounting, University of Miami
33116 1992-present; Assistant Professor of
Age: 56 Accounting, University of Miami,
1986-1992.
Officers
--------
Cecilia L. Gondor Secretary, 1993 to present Executive Vice President of N/A
PO Box 161465 Treasurer Thomas J. Herzfeld & Co., Inc.,
Miami, FL 33116 a broker dealer, and Thomas J.
Age: 46 Herzfeld Advisors, Inc.
*Mr. Herzfeld is considered an "interested person" of the Fund, as defined in
Section 2(a)(19) of the 1940 Act and the rules thereunder because of his
position with the Advisor.
-20 & 21-
Certified Rothstein, Kass & Company, LLP Beverly Hills
Public 101 Montgomery Street, 22nd Floor Dallas
Accountants San Francisco, CA 94596 Denver
Tel 415.788.6666 Grand Cayman
Fax 415.788.1890 New York
www.rkco.com Richmond
San Francisco
Walnut Creek
[LOGO] Rothstein Kass
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
To the Board of Directors and Stockbrokers of
The Herzfeld Caribbean Basin Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of The Herzfeld Caribbean Basin Fund, Inc. (the
"Fund") as of June 30, 2008, and the related statement of operations for the
year then ended, the statement of changes in net assets for each of the two
years then ended, and financials highlights for each of three years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights for each of the years in the two-year period
ended June 30, 2005 were audited by an independent registered public accounting
firm whose report dated July 14, 2005 expressed an unqualified opinion on those
financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatements. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
the internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement. Our procedures included confirmation of securities
owned as of June 30, 2008, by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Herzfeld Caribbean Basin Fund, Inc. as of June 30, 2008, the results of the
operations for the year then ended, the changes in net assets for each of the
two years in the period ended, and the financial highlights for each of the
three years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Rothstein, Kass & Company, LLP
San Francisco, California
August 15, 2008
-22-
Privacy Policy
================================================================================
Information We Collect
We collect nonpublic information about you from applications or other account
forms you complete, from your transactions with us, our affiliates or others
through transactions and conversations over the telephone.
Information We Disclose
We do not disclose information about you, or our former customers, to our
affiliates or to service providers or other third parties except on the limited
basis permitted by law. For example, we may disclose nonpublic information about
you to third parties to assist us in servicing your account with us and to send
transaction confirmations, annual reports, prospectuses and tax forms to you. We
may also disclose nonpublic information about you to government entities in
response to subpoenas.
Our Security Procedures
To ensure the highest level of confidentiality and security, we maintain
physical, electronic and procedural safeguards that comply with federal
standards to guard your personal information. We also restrict access to your
personal and account information to those employees who need to know that
information to provide services to you.
Quarterly Portfolio Reports
================================================================================
The Fund files quarterly schedules of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Form N-Q is
available by link on the Fund's website at www.herzfeld.com/cuba.htm, by calling
the Fund at 800-TJH-FUND, or on the SEC's EDGAR database at www.sec.gov. In
addition, the Form N-Q can be reviewed and copied at the SEC's public reference
room in Washington, D.C. More information about the SEC's website or the
operation of the public reference room can be obtained by calling the SEC at
800-732-0330.
Proxy Voting Policies and Procedures
================================================================================
A description of the policies and procedures used to determine how to vote
proxies relating to portfolio securities is available without charge, upon
request, by calling the Fund at 800-TJH-FUND, or by accessing the SEC's website
at www.sec.gov.
Information on how the investment adviser voted proxies on the Fund's behalf for
the twelve month period ended June 30 is provided in the Fund's Form N-PX which
is is available on the SEC's EDGAR database at www.sec.gov. In addition, the
Form N-PX can be reviewed and copied at the SEC's public reference room in
Washington, D.C. More information about the SEC's website or the operation of
the public reference room can be obtained by calling the SEC at 800-732-0330.
-23-
THE HERZFELD CARIBBEAN BASIN FUND, INC.
The Herzfeld Building
P.O. Box 161465
Miami, FL 33116
ITEM 2. CODE OF ETHICS
(a) The registrant, as of the end of the period covered by this report, has
adopted a code of ethics that applies to the registrant's principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, regardless of whether these
individuals are employed by the registrant or a third party.
(c) There have been no amendments, during the period covered by this report, to
a provision of the code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, regardless of whether these
individuals are employed by the registrant or a third party, and that relates to
any element of the code of ethics description.
(d) The registrant has not granted any waivers, including an implicit waiver,
from a provision of the code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions, regardless of
whether these individuals are employed by the registrant or a third party, that
relates to one or more of the items set forth in paragraph (b) of this item's
instructions.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the registrant's board of
directors has determined that Dr. Kay Tatum is an "audit committee financial
expert" serving on its audit committee and that she is "independent" as such
terms are defined by Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) - (d)
Set forth in the table below are audit fees and non-audit related fees billed to
the registrant by its principal accountant (the "Auditor") for the audit of the
registrant's annual financial statements and services provided by the Auditor in
connection with statutory and regulatory filings during and for the Registrant's
fiscal years ended June 30, 2007 and 2008.
Fiscal Year Audit-Related Tax All Other
Ended June 30, Audit Fees Fees Fees(1) Fees(2)
2007 $36,500 $4,500 $5,250 $0
2008 $39,500 $12,500 $12,000 $0
(1) These fees related to services consisting of the review or preparation of
U.S. federal, state, local and excise tax returns
(2) These fees related to services consisting of accounting consultations,
agreed upon procedure reports, attestation reports, comfort letters and review
of statutory and regulatory filings.
(e) The registrant's Audit Committee charter requires that the Audit Committee
pre-approve all auditing services and non-audit services (including the fees for
such services and terms thereof) to be performed for the registrant by its
Auditor, and the committee has not adopted pre-approval policies and procedures,
although it may determine to do so in the future. The engagement to render
auditing and non-auditing services would be presented to and pre-approved by the
Audit Committee. All of the audit, audit-related and tax services described
above for which the Auditor billed the registrant fees for the fiscal years
ended June 30, 2007 and 2008 were pre-approved by the Audit Committee.
(f) Not applicable.
(g) The aggregate non-audit fees bills by the registrant's Auditor for services
rendered to the registrant, and rendered to the registrant's investment adviser,
and any entity controlling, controlled by, or under common control with the
adviser that provides ongoing services to the registrant for each of the last
two fiscal years of the registrant were $0 for 2007 and $0 for 2008.
(h) Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
(a) The registrant has a separately-designated standing audit committee
established in accordance with Section 3(a)(58)(A) of the Exchange Act. As of
June 30, 2007, the registrant's audit committee was comprised of Kay W. Tatum,
Ann S. Lieff, and Michael A. Rubin.
(b) Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
(a) Not applicable as schedule is included as part of the report to shareholders
filed under Item 1 of this Form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
A copy of the registrant's proxy voting policies and procedures as well as its
adviser's policies and procedures are attached hereto as Appendix A.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a)(1) Thomas J. Herzfeld, Chairman and President of The Herzfeld Caribbean
Basin Fund, Inc. serves as the portfolio manager of the Fund and has held this
position since its inception in 1993. This information is as of August 29, 2008.
(a)(2)(i) and (ii) Mr. Herzfeld is also portfolio manager for approximately 46
other accounts comprising $48 million under management, and 0 pooled investment
vehicles comprising $0 under management, however, none of the these accounts are
managed with an investment strategy similar to the Fund's. The Fund is the only
investment company managed by Mr. Herzfeld; the Fund has total assets of
approximately $27 million.
(a)(2)(iii) No accounts are charged fees based on performance. For accounts
other than the Fund, fees are calculated as a percentage of the value of assets
under management at the end of each quarter.
(a)(2)(iv) The Fund does not believe that any material conflicts are likely to
arise through Mr. Herzfeld's management of other accounts in addition to the
Fund in that there is very little overlap in the type of investments made for
the Fund and other accounts, which generally trade shares of closed-end funds.
The Fund is permitted, to a limited extent, to buy shares of other closed-end
funds and occasionally other clients or Mr. Herzfeld may buy shares of
securities also held in the portfolio of the Fund. The advisor and the Fund have
adopted procedures overseen by the Chief Compliance Officer ("CCO") intended to
monitor compliance with such policies which include conflicts which may occur
regarding allocation of investment opportunities between the Fund and other
account. The CCO of the Fund reports directly to the Board of Directors at least
annually.
(3) Mr. Herzfeld receives no direct compensation from the Fund for his services
as Portfolio Manager. Mr. Herzfeld is 100% owner of the Advisor, a Subchapter S
Corporation, therefore he profits from the success of the Advisor and is taxed
on its profits.
(4)(a) Range of value of shares of the Fund owned by Mr. Herzfeld as of June 30,
2008: $100,001-$500,000.
(4)(b) Range of value of shares of the Fund owned by Mr. Herzfeld as of the date
of this filing: $100,001-$500,000.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END FUND MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
----------------------------------------------------------------------------------------------------------------------
(c) Total Number of (d) Maximum Number
Shares Purchased as of Shares that May
Part of Publicly Yet Be Purchased
(a) Total Number of (b) Average Price Announced Plans or Under the Plans or
Period Shares Purchased Paid Per Share Programs Programs
----------------------------------------------------------------------------------------------------------------------
Month #1 (beginning 0 n/a n/a n/a
January 1, 2006 and
ending January 31, 2008)
----------------------------------------------------------------------------------------------------------------------
Month #2 (beginning 0 n/a n/a n/a
February 1, 2006 and
ending February 28,
2008)
----------------------------------------------------------------------------------------------------------------------
Month #3 (beginning 0 n/a n/a n/a
March 1, 2006 and
ending March 31, 2008)
----------------------------------------------------------------------------------------------------------------------
Month #4 (beginning 0 n/a n/a n/a
April 1, 2006 and
ending April 30, 2008)
----------------------------------------------------------------------------------------------------------------------
Month #5 (beginning May 0 n/a n/a n/a
1, 2006 and ending May
31, 2008)
----------------------------------------------------------------------------------------------------------------------
Month #6 (beginning 0 n/a n/a n/a
June 1, 2006 and ending
June 30, 2008)
----------------------------------------------------------------------------------------------------------------------
Total 0 n/a n/a n/a
----------------------------------------------------------------------------------------------------------------------
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the stockholders
may recommend nominees to the registrant's board of directors, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR
240.14a-101), or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers, or
persons performing similar functions, have concluded that the registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR
270.30a-3(c))) are effective, as of a date within 90 days of the filing date of
the report that includes the disclosure required by this paragraph, based on
their evaluation of these controls and procedures required by Rule 30a-3(b)
under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under
the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or
240.15d-15(b)).
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d))
that occurred during the registrant's last fiscal half-year (the registrant's
second fiscal half-year in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
ITEM 12. EXHIBITS.
(a) (1) Code of ethics is filed as Exhibit 99.CodeEth to the N-CSR filing dated
8/31/05.
(a)(2) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section
302 of the Sarbanes-Oxley Act of 2002 are filed herewith as Exhibits 99.302
Cert.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 906
of the Sarbanes-Oxley Act of 2002 are filed herewith as Exhibits 99.906 Cert.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
The Herzfeld Caribbean Basin Fund, Inc.
By: /s/ Thomas J. Herzfeld
-------------------------
Thomas J. Herzfeld
President and Chairman
Date: August 29, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Thomas J. Herzfeld
-------------------------
Thomas J. Herzfeld
President and Chairman
Date: August 29, 2008
By: /s/ Cecilia L. Gondor
-------------------------
Cecilia L. Gondor
Secretary and Treasurer
(Principal Financial Officer)
Date: August 29, 2008
APPENDIX A
THE HERZFELD CARIBBEAN BASIN FUND, INC.
Proxy Voting Policy and Procedures
The Board of Directors of The Herzfeld Caribbean Basin Fund, Inc. (the "Fund")
hereby adopts the following policy and procedures with respect to voting proxies
relating to portfolio securities held by the Fund:
Policy
It is the policy of the Board of Directors of the Fund (the "Board") to delegate
the responsibility for voting proxies relating to portfolio securities held by
the Fund to the Fund's investment adviser (the "Adviser") as a part of the
Adviser's general management of the Fund, subject to the Board's continuing
oversight.' The voting of proxies is an integral part of the investment
management services that the Adviser provides pursuant to the advisory contract.
The Adviser may, but is not required to, delegate the responsibility for voting
proxies relating to portfolio securities held by the Fund to a sub-adviser
("Sub-Adviser") retained to provide investment advisory services, if applicable.
If such responsibility is delegated to a Sub-Adviser, then the Sub-Adviser shall
assume the fiduciary duty and reporting responsibilities of the Adviser under
these policy guidelines.
Fiduciary Duty
The right to vote a proxy with respect to portfolio securities held by the Fund
is an asset of the Fund. The Adviser, to which authority to vote on behalf of
the Fund is delegated, acts as a fiduciary of the Fund and must vote proxies in
a manner consistent with the best interest of the Fund and its shareholders.
Procedures
The following are the procedures adopted by the Board for the administration of
this policy:
A. Review of Adviser Proxy Voting Procedures. The Adviser with authority to vote
proxies on behalf of the Fund shall present to the Board its policies,
procedures and other guidelines for voting proxies at least annually, and must
notify the Board promptly of material changes to any of these documents.
B. Voting Record Reporting. No less than annually, the Adviser shall report to
the Board a record of each proxy voted with respect to portfolio securities of
the Fund during the year. With respect to those proxies that the Adviser has
identified as involving a conflict of interest(2), the Adviser shall submit a
separate report indicating the nature of the conflict of interest and how that
conflict was resolved with respect to the voting of the proxy.
Revocation
The delegation by the Board of the authority to vote proxies relating to
portfolio securities of the Fund is entirely voluntary and may be revoked by the
Board, in whole or in part, at any time.
Annual Filing
The Fund shall file an annual report of each proxy voted with respect to its
portfolio securities during the twelve-month period ended June 30 on Form N-PX
not later than August 31 of each year.
Disclosures
The Fund shall include in its annual report to stockholders:
A description of this policy and of the policies and procedures used by the
Adviser to determine how to vote proxies relating to portfolio securities (3);
and
A statement disclosing that information regarding how the Fund voted proxies
relating to portfolio securities during the most recent 12-month period ended
June 30 is available without charge, upon request, by calling the Fund's
toll-free telephone number and on the SEC website(4).
The Fund shall also include in its annual and semi-annual reports to
stockholders:
A statement disclosing that a description of the policies and procedures used by
or on behalf of the Fund to determine how to vote proxies relating to portfolio
securities of the Funds is available without charge, upon request, by calling
the Fund's toll-free telephone number and on the SEC website.(5)
A statement disclosing that information regarding how the Fund voted proxies
relating to portfolio securities during the most recent 12-month period ended
June 30 is available without charge, upon request, by calling the Fund's
toll-free telephone number and on the SEC website.(6)
Review of Policy.
At least annually, the Board shall review this Policy to determine its
sufficiency and shall make and approve any changes that it deems necessary from
time to time
----------
(1) This policy is adopted for the purpose of the disclosure requirements
adopted by the Securities and Exchange Commission, Release Nos. 33-8188,
34-47304, IC-25922.
(2) As it is used in this document, the term "conflict of interest" refers to
a situation in which the Adviser or Sub-Adviser or affiliated persons of
the Adviser or Sub-Adviser have a financial interest in a matter presented
by a proxy other than the obligation it incurs as investment adviser to
the Fund which compromises the Adviser's or Sub-Adviser's independence of
judgment and action with respect to the voting of the proxy.
(3) This disclosure shall be included in the annual report next filed by the
Fund, on Form N-CSR on or after July 1, 2003.
(4) Id.
(5) This disclosure shall be included in the report next filed by the Fund on
or after July 1, 2003.
(6) Id..
THOMAS J. HERZFELD ADVISORS, INC.
PROXY VOTING
POLICIES AND PROCEDURES
I. POLICY
Thomas J. Herzfeld Advisors, Inc. (the "Adviser") acts as discretionary
investment adviser for various clients, including The Herzfeld Caribbean Basin
Fund, Inc. an investment company registered under the Investment Company Act of
1940, as amended, and clients governed by the Employee Retirement Income
Security Act of 1974 ("ERISA").
Selected clients, including The Herzfeld Caribbean Basin Fund, Inc. have elected
to have the Adviser vote proxies or act on the other shareholder actions on
their behalf, while other clients vote proxies themselves.
When voting proxies or acting on corporate actions for clients, the Adviser's
utmost concern is that all decisions be made in the best interest of its clients
(for ERISA accounts, plan beneficiaries and participants, in accordance with the
letter and spirit of ERISA). The Adviser will act in a manner deemed prudent and
diligent and which is intended to enhance the economic value of the assets of
its clients' accounts.
II. PURPOSE
The purpose of these Policies and Procedures is to memorialize the procedures
and policies adopted by the Adviser to enable it to comply with its
responsibilities and the requirements of Rule 206(4)-6 under the Investment
Advisers Act of 1940, as amended ("Advisers Act"). These Policies and Procedures
also reflect the fiduciary standards and responsibilities set forth by the
Department of Labor for ERISA accounts.
III. PROCEDURES
Cecilia Gondor, Executive Vice President of the Adviser, is ultimately
responsible for ensuring that all proxies received by the Adviser are voted in a
timely manner and voted consistently across all portfolios. Although many proxy
proposals can be voted in accordance with the Adviser's established guidelines
(see Section V. below) (the "Guidelines"), the Adviser recognizes that some
proposals require special consideration, which may dictate that the Adviser
makes an exception to the Guidelines.
Cecilia Gondor is also responsible for ensuring that all corporate actions
received by the Adviser are addressed in a timely manner and consistent action
is taken across all portfolios.
A. Conflicts of Interest. Where a proxy proposal raises a material conflict of
interest between the Adviser's interests and that of one or more its clients,
the Adviser shall resolve such conflict in the manner described below.
1. Vote in Accordance with the Guidelines. To the extent that the Adviser has
little or no discretion to deviate from the Guidelines with respect to the
proposal in question, the Adviser shall vote in accordance with such
pre-determined voting policy.
2. Obtain Consent of Clients. To the extent that the Adviser has discretion to
deviate from the Guidelines with respect to the proposal in question, the
Adviser shall disclose the conflict to the relevant clients and obtain their
consent to the proposed vote prior to voting the securities. The disclosure to
the clients will include sufficient detail regarding the matter to be voted on
and the nature of our conflict that the clients would be able to make an
informed decision regarding the vote. When a client does not respond to such a
conflict disclosure request or denies the request, the Adviser will abstain from
voting the securities held by that client's account.
B. Limitations. In certain circumstances, in accordance with a client's
investment advisory contract (or other written directive) or where the Adviser
has determined that it is in the client's best interest, the Adviser will not
vote proxies received. The following are some circumstances where the Adviser
will limit its role in voting proxies received on client securities:
1. Client Maintains Proxy Voting Authority: Where a client has not specifically
delegated the authority to vote proxies to the Adviser or that it has delegated
the right to vote proxies to a third party, the Adviser will not vote the
securities and will direct the relevant custodian to send the proxy material
directly to the client. If any proxy material is received by the Adviser, it
will promptly be forwarded to the client.
2. Terminated Account: Once a client account has been terminated with the
Adviser in accordance with its investment advisory agreement, the Adviser will
not vote any proxies received after the termination. However, the client may
specify in writing that proxies should be directed to the client for action.
3. Limited Value: If the Adviser concludes that the client's economic interest
or the value of the portfolio holding is indeterminable or insignificant, the
Adviser will abstain from voting a client's proxies. The Adviser does not vote
proxies received for securities which are no longer held by the client's
account. In addition, the Adviser generally does not vote securities where the
economic value of the securities in the client's account is less than $500.
4. Securities Lending Programs: When securities are out on loan, they are
transferred into the borrower's name and are voted by the borrower, in its
discretion. However, where the Adviser determines that a proxy vote (or
shareholder action) is materially important to the client's account, the Adviser
may recall the security.
5. Unjustifiable Costs: In certain circumstances, after doing a cost-benefit
analysis, the Adviser may abstain from voting where the cost of voting a
client's proxy would exceed any anticipated benefits of the proxy proposal.
IV. RECORD KEEPING
In accordance with Rule 204-2 under the Advisers Act, the Adviser will maintain
for the time periods set forth in the Rule (i) these proxy voting procedures and
policies, and amendments thereto; (ii) all proxy statements received regarding
client securities (provided however, that the Adviser may rely on the proxy
statement filed on EDGAR as its records)(1); (iii) a record of votes cast on
behalf of clients; (iv) records of client requests for proxy voting information;
(v) any documents prepared by the adviser that were material to making a
decision how to vote or that memorialized the basis for the decision; and (vi)
records relating to requests made to clients regarding conflicts of interest in
voting the proxy.
The Adviser will describe in its Part II of Form ADV (or other brochure
fulfilling the requirement of Rule 204-3) its proxy voting policies and
procedures and advising clients how they may obtain information on how the
Adviser voted their securities. Clients may obtain information on how their
securities were voted or a copy of our Policies and Procedures by written
request addressed to the Adviser.
V. GUIDELINES
Each proxy issue will be considered individually. The following guidelines are a
partial list to be used in voting proposals contained in the proxy statements,
but will not be used as rigid rules.
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(1) Issues regarding the issuer's Board entrenchment and Oppose anti-takeover
measures such as the following:
b. Proposals to limit the ability of shareholders to call special meetings;
c. Proposals to require super majority votes;
d. Proposals requesting excessive increases in authorized common or preferred
shares where management provides no explanation for the use or need for these
additional shares;
e. Proposals regarding "poison pill" provisions; and
f. Permitting "green mail".
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(1) Providing cumulative voting rights. Oppose
(2) "Social issues," unless specific client guidelines Oppose supersede, e.g.,
restrictions regarding South Africa.
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(3) Election of directors recommended by management, Approve except if there is
a proxy fight.
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(4) Election of auditors recommended by management, unless Approve seeking to
replace if there exists a dispute over policies.
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(5) Date and place of annual meeting. Approve
(6) Limitation on charitable contributions or fees paid to Approve lawyers.
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(7) Ratification of directors' actions on routine matters Approve since previous
annual meeting.
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(8) Confidential voting Approve Approve
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(1) Because the Adviser primarily invests its clients' assets in securities of
foreign issuers, the Adviser generally has not been receiving proxy statements
from such issuers because the laws of the countries in which these issuers are
domiciled respecting delivery of proxy statements to shareholders are different
than those of the U.S.
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Confidential voting is most often proposed by shareholders as a means of
eliminating undue management pressure on shareholders regarding their vote on
proxy issues.
The Adviser will generally approve these proposals as shareholders can later
divulge their votes to management on a selective basis if a legitimate reason
arises.
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(9) Limiting directors' liability Approve
(10) Eliminate preemptive right Approve
Preemptive rights give current shareholders the opportunity to maintain their
current percentage ownership through any subsequent equity offerings. These
provisions are no longer common in the U.S., and can restrict management's
ability to raise new capital.
The Adviser approves the elimination of preemptive rights, but will oppose the
elimination of limited preemptive rights, e.g., on proposed issues representing
more than an acceptable level of total dilution.
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(11) Employee Stock Purchase Plan Approve
(12) Establish 401(k) Plan Approve
(13) Rotate annual meeting location/date Approve
(14) Establish a staggered Board Approve Approve
(15) Eliminate director mandatory retirement policy Case-by-Case (16) Option and
stock grants to management and directors Case-by-Case
(17) Allowing indemnification of directors and/or officers Case-by-Case after
reviewing the applicable laws and extent of protection requested.
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EXHIBIT A
Chief Executive Officer - Thomas J. Herzfeld
Chief Financial Officer - Cecilia L. Gondor