Washington, D.C. 20549
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ITEM 1. SHAREHOLDER REPORT
The Herzfeld Caribbean Basin Fund, Inc.
|
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.
|
119 Washington Avenue, Suite 504
|
Miami Beach, FL 33139
|
(305) 271-1900
|
|
Investment Advisor
|
HERZFELD/CUBA
|
a division of Thomas J. Herzfeld Advisors, Inc.
|
119 Washington Avenue, Suite 504
|
Miami Beach, FL 33139
|
(305) 271-1900
|
|
Transfer Agent & Registrar
|
State Street Bank and Trust
|
200 Clarendon Street, 16th Floor
|
Boston, MA 02116
|
(617) 662-2760
|
|
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
|
KPMG LLP
|
191 W. Nationwide Blvd., Suite 500
|
Columbus, OH 43215
|
Listed NASDAQ Capital Market
Symbol: CUBA
Letter to Stockholders (Unaudited)
Thomas J. Herzfeld
Chairman, President and
Portfolio Manager
July 31, 2015
Dear Fellow Stockholders:
We are pleased to present our Annual Report for the period ended June 30, 2015. On that date, the net asset value (“NAV”) of The Herzfeld Caribbean Basin Fund, Inc. (NASDAQ: CUBA), (the “Fund”) was $7.43 per share. For the fiscal year ended June 30, 2015, the total investment return of the Fund was 25.40%, based on market value per share, and -11.94% based on NAV per share.*
The Fund seeks long-term capital appreciation and through investment in companies that we believe are poised to benefit from economic, political, structural and technological developments in the Caribbean Basin. An important part of this investment strategy continues to be focused on companies in the region that we believe would benefit from the resumption of U.S. trade with Cuba. Since it is impossible to predict when the U.S. embargo will be lifted, we have further concentrated on investments which we believe can do well even if there is no political or economic change with respect to Cuba.
Continued Thaw of U.S. - Cuba Relations
Since President Obama’s historic announcement of his intention to restore diplomatic ties with Cuba in December 2014, there have been numerous advances. Notable developments include: (i) Cuba’s removal from the U.S. State Sponsor of Terrorism list; (ii) the granting of new OFAC licenses to U.S. businesses to do business in Cuba; and (iii) the reopening of U.S. and Cuban embassies in Havana and Washington, D.C. The removal from the State Sponsor of Terrorism list paves the way for banking relationships, especially with the IMF and World Bank, given that this removal ends the prohibition on U.S. economic aid. Cuba was placed on this list in 1982. The reopening of embassies allows for increased travel and passport services, as well as a mechanism for Cuban nationals to travel to the U.S.
* |
The calculation of the total investment return assumes reinvestment of dividends and distributions at prices obtained by the dividend reinvestment plan. |
Letter to Stockholders (Unaudited) (continued)
Erik M. Herzfeld
Portfolio Manager
The last time the U.S. had an embassy in Cuba was during President Eisenhower’s presidency. We await with great anticipation the Pope’s visit to Cuba in September 2015 and expect the Pope’s visit to further strengthen Cuba’s relationship with the global community.
Investment on the Island
Although the restoration of U.S. relations with Cuba is still in its infancy, foreign investment has seen the developments of rapprochement between the U.S. and Cuba as a signal to increase investment ahead of U.S. businesses. For instance, reportedly both the UK and Spain plan to invest $400 million each in Cuba this year, Italy is looking to invest $96 million and other foreign investments are expected from China and the Netherlands. Foreign companies have moved quickly with MSC (Italy) basing its cruise ship, “Opera,” which holds 1,700 passengers, in Havana Harbor. The Spanish ferry operator Balearia is ready for U.S. – Cuba services with its “Pinar del Rio” vessel. Additionally, Cuba’s government reportedly reached an agreement with the Paris Club to renegotiate its $15 billion debt with 16 countries. Cuba is said to be paying $5.6 billion of the debt this year.
During the first 6 months of 2015, the gross domestic product (“GDP”) of Cuba grew 4.7% and the non-governmental GDP increased by 7%. This marks the first time in 56 years that Cuba collected its total planned revenues. Specifically, it collected 102.3% of expected revenues and the fiscal debt was only 48% of what was planned. The tourism sector increased by 16% during the first half of the year, reaching 2 million visitors by July 10th. This is 39 days earlier than this mark was reached in 2014. The non-governmental sector of the economy now encompasses approximately 600,000 workers.
There is a new sense of fervor in Washington now and just in the first quarter alone, the number of organizations lobbying the federal government with regard to the Cuban embargo has doubled from the previous quarter. Suddenly, companies that never spoke about their plans for Cuba are becoming very vocal. A number of agricultural U.S. companies, including giants such as Archer Daniels Midland and ConAgra, appear ready to invest in Cuba when it is legal and practical. Other industries including telecommunications, construction materials, and air/maritime transportation are progressing towards operations on the Island. There is a substantial impact in the entire Caribbean Basin. New flights have started in the last three months connecting Cuba to the Dominican Republic, Puerto Rico, Martinique and other nations of the region.
Letter to Stockholders (Unaudited) (continued)
Investment Strategy
Over the past fiscal year, the bear market in commodities and in Latin America has hampered the NAV performance of The Herzfeld Caribbean Basin Fund, Inc. because the region depends heavily on commodities, agriculture and tourism. The Mexican Bolsa dropped by -11.6%, converted to U.S. dollars (“USD”) over the Fund’s fiscal year. Also, the continued strength of the USD has crimped tourism outside of the U.S. because most Caribbean nations accept or peg to the USD. The strong USD has also led to depressed prices for Latin American exports like energy, metals, and agricultural goods. At first glance, when compared to the performance of the S&P 500, the performance in those sectors looks worse. However, of the 7.42% return of the S&P 500 over our fiscal year, two sectors, information technology and healthcare, were responsible for more than 5 percentage points or nearly 70% of the S&P 500 return. These two sectors are minimally represented in the Caribbean Basin because there are few such companies which are located in or derive substantial revenues from the region.
Our newest and largest addition in 2015 has been NextEra Energy, Inc. (NEE). This Florida-based clean energy company generates electricity through solar, wind and natural gas along with nuclear power through its subsidiary, NextEra Energy Partners. The majority of the company’s revenues are generated through Florida Power & Light which generates, distributes, and transmits energy to nearly half the population of Florida. With clean energy usage increasing in the U.S. and the Caribbean, we feel this company is strategically positioned to take advantage of this trend. Cuba could be an enormous opportunity for NextEra’s integrated clean energy solutions because it already has been operating successfully in Southern Florida, a region that is similar in its geography, climate, and weather patterns.
Letter to Stockholders (Unaudited) (continued)
In Cruise Line News
Our large allocation to the cruise line industry, 16.8%, has been a bright spot over the Fund’s fiscal year. Norwegian Cruise Line Holdings Ltd. (NCLH), Royal Caribbean Cruises Ltd. (RCL), Carnival Corp. (CCL, or “Carnival”), and Steiner Leisure Ltd. (STNR) returned 76.8%, 43.8%, 34.3% and 24.2% respectively over the past fiscal year. CCL received approval from the U.S. government to begin trips to Cuba in July 2015. Although these trips are slated as “social impact travel” and not traditional cruises, Arnold Donald, CEO of CCL, has gotten out in front of its main competitors, NCLH and RCL. These trips will be made on the luxurious Adonia, a 710 passenger ship, currently under the P&O Brand, operating out of Southampton, England. Carnival’s “social impact travel” limits guests to cruise for developmental, educational and environmental initiatives. The revenue generated is likely to be quite small at this time, but it may offer Carnival a strong “first mover” advantage once the embargo is lifted. We do not expect RCL and NCLH to sit on their hands while CCL makes inroads into the island nation. NCLH President, Frank Del Rio, has been vocal about cruising to Cuba. At a cruise conference in Miami, he remarked, “once the embargo is lifted, which is the main restriction, yes, we’re ready.” RCL and NCLH derive nearly half of their revenues from the Caribbean while CCL’s is only a third. Therefore, changes in the region will impact RCL and NCLH more significantly. The cruise industry will continue to be a large allocation in our Fund as it is one of the largest businesses in the Caribbean Basin. It continues to show growth as customers have been flocking to the new ships that are taking the cruising experience to the next level, combining high-end entertainment, food from world-renowned chefs, and stately rooms. STNR is the largest provider of spa services to the cruise lines and growth in the cruising industry positively affects its bottom line as well.
Airline Capacity Surge Outweighs Drop in Jet Fuel
With flight capacity across the airline industry growing, margins have been deteriorating as supply is currently outweighing demand. Additionally, many airlines have hedges for the cost of jet fuel so the large drop in prices has not translated to increased revenues. Fuel expenses have recently accounted for one-third to one-half of operating expenses for airlines. However, when those futures contracts expire, airlines should be able to rehedge at lower prices. For instance, the Gulf Coast Jet Fuel 1 year future contract on June 30, 2014 was $2.87 and a 1 year contract on June 30, 2015 was $1.90, a drop of -33.8%.
Our holdings in Copa Holdings, S.A. (CPA) and Avianca Holdings S.A. (AVH) have been disappointing. The slump in commodity prices in Latin America has slowed growth in the region leading to sharp drops in the local currencies. Over our fiscal year, CPA and AVH have dropped -40.1% and -36.2% respectively. CPA and AVH still have the overhang of cash trapped in Venezuela, as currency controls remain strict. However, we believe CPA and AVH are trading at extremely undervalued levels and depressed jet fuel prices, and the reduction in flight capacity by North American Airlines to Latin America should help these Central American-based airlines in the future.
Letter to Stockholders (Unaudited) (continued)
Commodity Selloff Continues
Continued depressed commodity prices, while good for consumers, has not boded well for companies that make their living off of them. Specialty contractor MasTec, Inc. (MTZ) has seen a slowdown in projects for energy infrastructure as the drop in oil prices has curtailed new energy projects. Making matters worse, the company announced an internal investigation by the company’s Audit Committee, along with independent counsel in connection with certain costs that allegedly should have been recognized in the second quarter of 2014 but instead were recognized in the third quarter of 2014. Although this recognition timing is not expected to impact the company’s 2014 fiscal results, it has led to a number of shareholder lawsuits. After a -35.5% drop in the company’s fiscal year, MTZ looks like a textbook value play as analysts estimate revenues to grow around 10% in 2016 and 2017.
Outlook
We see a bifurcated market in the Caribbean Basin going forward. The strength of the USD has helped domestic consumers while the opposite can be said for Latin and Central American markets. Because most of the Latin American economies depend on exporting commodities, we expect those markets to underperform as long as commodities are depressed. The countries that are net importers of commodities, like the U.S., should continue to see growth. Since the Caribbean Basin combines the U.S. and Latin American markets, we expect to see commodity intensive businesses benefit from the drop in price while the commodity producers continue to lag.
We expect positive developments in U.S. - Cuban relations in the future to lead towards a lifting of the embargo. We continue to monitor developments closely as they can positively or negatively affect our holdings. Since President Obama has made restoring relations with Cuba a priority and with a year and a half left in his term, we believe that he will try to accelerate, and possibly complete, the normalization process before he leaves office.
Letter to Stockholders (Unaudited) (continued)
Largest Allocations
The following tables present our largest investment and geographic allocations as of June 30, 2015.
Geographic Allocation
|
% of Net Assets
|
|
Largest Portfolio Positions
|
% of Net Assets
|
USA
|
53.97%
|
|
Copa Holdings, S.A
|
8.84%
|
Panama
|
15.69%
|
|
MasTec, Inc.
|
6.44%
|
Mexico
|
15.04%
|
|
Royal Caribbean Cruises Ltd.
|
5.73%
|
Cayman
|
4.23%
|
|
Lennar Corp.
|
5.46%
|
Puerto Rico
|
3.93%
|
|
Seaboard Corporation
|
5.02%
|
Bahamas
|
3.65%
|
|
Norwegian Cruise Line Holdings
|
4.91%
|
Colombia
|
2.04%
|
|
Banco Latinoamericano
|
|
Canada
|
0.74%
|
|
de Comercio Exterior, S.A.
|
4.27%
|
Belize
|
0.03%
|
|
Consolidated Water Co. Ltd.
|
3.92%
|
Latin Amer. Region
|
0.02%
|
|
Cemex, S.A.B. de C.V. ADR
|
3.22%
|
Cuba
|
0.00%
|
|
Carnival Corporation
|
3.20%
|
Cash and
|
|
|
NextEra Energy, Inc.
|
3.06%
|
Other Countries
|
0.66%
|
|
Watsco Incorporated
|
3.00%
|
Daily net asset values and press releases by the Fund are available on the Internet at www.herzfeld.com.
We would like to thank the members of the Board of Directors for their hard work and guidance and also thank our fellow stockholders for their continued support and suggestions.
|
|
Sincerely,
|
|
|
|
|
|
Thomas J. Herzfeld
Chairman of the Board,
President and Portfolio Manager
|
Erik M. Herzfeld
Portfolio Manager
|
The above commentary is for informational purposes only and does not represent an offer, recommendation or solicitation to buy, hold or sell any security. The specific securities identified and described do not represent all of the securities purchased or sold and you should not assume that investments in the securities identified and discussed will be profitable. Portfolio composition is subject to change.
Schedule of Investments as of June 30, 2015
Shares or Principal
Amount
|
|
Description
|
|
Fair Value
|
|
|
|
|
|
Common stocks - 99.36% of net assets
|
|
|
|
|
|
|
|
Airlines - 15.17%
|
|
|
|
|
|
104,794
|
|
Avianca Holdings, SA Spon ADR
|
|
$
|
1,073,091
|
|
44,550
|
|
Copa Holdings, S.A.
|
|
|
3,679,385
|
|
21,515
|
|
ERA Group Inc.*
|
|
|
440,627
|
|
18,000
|
|
Spirit Airlines, Inc.*
|
|
|
1,117,800
|
|
|
|
|
|
|
|
|
Banking and finance - 10.90%
|
|
|
|
|
19,780
|
|
Bancolombia, S.A.
|
|
|
850,540
|
|
55,166
|
|
Banco Latinoamericano de Exportaciones, S.A.
|
|
|
1,775,242
|
|
6,000
|
|
Bank of Nova Scotia
|
|
|
309,780
|
|
22,643
|
|
Evertec, Inc.
|
|
|
480,937
|
|
29,000
|
|
Popular Inc.*
|
|
|
836,940
|
|
3,844
|
|
W Holding Co. Inc.*2
|
|
|
--
|
|
14,000
|
|
Western Union Company
|
|
|
284,620
|
|
|
|
|
|
|
|
|
Communications - 8.78%
|
|
|
|
|
44,690
|
|
América Móvil, S.A.B. de C.V. ADR
|
|
|
952,344
|
|
71,200
|
|
América Móvil, S.A.B. de C.V. Series A
|
|
|
71,742
|
|
209,144
|
|
América Móvil, S.A.B. de C.V. Series L
|
|
|
223,931
|
|
11,988
|
|
Atlantic Tele-Network, Inc.
|
|
|
828,131
|
|
518,210
|
|
Fuego Enterprises Inc. (Note 3)*1,2
|
|
|
246,150
|
|
210,994
|
|
Grupo Radio Centro S.A.B. de C.V.*1,2
|
|
|
160,827
|
|
28,400
|
|
Grupo Televisa, S.A.B. ADR
|
|
|
1,102,488
|
|
10,030
|
|
Spanish Broadcasting System, Inc.*
|
|
|
67,702
|
|
|
|
|
|
|
|
|
Conglomerates and holding companies - 0.04%
|
|
|
|
|
250,000
|
|
Admiralty Holding Company*2
|
|
|
--
|
|
70,348
|
|
BCB Holdings Ltd.*
|
|
|
8,851
|
|
3,250
|
|
Marlowe Holdings Ltd.*
|
|
|
6,133
|
|
|
|
|
|
|
|
|
Construction and related -11.64%
|
|
|
|
|
146,372
|
|
Cemex S.A.B. de C.V. ADR
|
|
|
1,340,768
|
|
65,264
|
|
Cemex S.A.B. de C.V. Series CPO
|
|
|
59,979
|
|
20
|
|
Ceramica Carabobo Class A ADR*2
|
|
|
--
|
|
3,000
|
|
Martin Marietta Materials
|
|
|
424,530
|
|
134,927
|
|
MasTec, Inc.*
|
|
|
2,680,999
|
|
4,000
|
|
Vulcan Materials
|
|
|
335,720
|
|
See accompanying notes to the financial statements.
Schedule of Investments as of June 30, 2015 (continued)
Shares or Principal
Amount
|
|
Description
|
|
Fair Value
|
|
|
|
|
|
Consumer products and related manufacturing - 3.00%
|
|
|
|
327,290
|
|
Grupo Casa Saba, S.A.B. de C.V.*2
|
|
$
|
--
|
|
10,100
|
|
Watsco Incorporated
|
|
|
1,249,774
|
|
|
|
|
|
|
|
|
Food, beverages and tobacco - 4.91%
|
|
|
|
|
53,874
|
|
Cleanpath Resources Corp.*
|
|
|
5
|
|
8,799
|
|
Coca Cola Femsa, S.A.B. de C.V. ADR
|
|
|
699,081
|
|
18,900
|
|
Fomento Económico Mexicano, S.A.B. de C.V. Series UBD
|
|
|
168,684
|
|
11,000
|
|
Fomento Económico Mexicano, S.A.B. de C.V. ADR
|
|
|
979,990
|
|
5,000
|
|
Fresh Del Monte Produce Inc.
|
|
|
193,300
|
|
|
|
|
|
|
|
|
Housing - 5.46%
|
|
|
|
|
44,500
|
|
Lennar Corporation
|
|
|
2,271,280
|
|
|
|
|
|
|
|
|
Investment companies - 1.45%
|
|
|
|
|
6,000
|
|
iShares MSCI Mexico Capped ETF
|
|
|
342,660
|
|
800
|
|
Latin American Discovery Fund
|
|
|
8,224
|
|
1,637
|
|
Mexico Equity & Income Fund
|
|
|
20,102
|
|
5,000
|
|
Mexico Fund Inc.
|
|
|
105,850
|
|
6,279
|
|
Salient Midstream & MLP Fund
|
|
|
126,647
|
|
70,348
|
|
Waterloo Investment Holdings Ltd.*2
|
|
|
--
|
|
|
|
|
|
|
|
|
Leisure - 16.75%
|
|
|
|
|
27,000
|
|
Carnival Corp.
|
|
|
1,333,530
|
|
36,443
|
|
Norwegian Cruise Line Holdings Ltd.*
|
|
|
2,042,266
|
|
30,313
|
|
Royal Caribbean Cruises Ltd.
|
|
|
2,385,330
|
|
22,467
|
|
Steiner Leisure Ltd.*
|
|
|
1,208,275
|
|
|
|
|
|
|
|
|
Mining - 2.39%
|
|
|
|
|
3,872
|
|
Grupo México, S.A.B. de C.V. Series B
|
|
|
11,670
|
|
32,000
|
|
Freeport McMoran Copper
|
|
|
595,840
|
|
31,900
|
|
Tahoe Resources, Inc.
|
|
|
386,947
|
|
|
|
|
|
|
|
|
Pulp and paper - 0.10%
|
|
|
|
|
18,300
|
|
Kimberly-Clark de México, S.A.B. de C.V. Series A
|
|
|
39,642
|
|
|
|
|
|
|
|
|
Railroad - 1.21%
|
|
|
|
|
5,750
|
|
Norfolk Southern Corporation
|
|
|
502,320
|
|
See accompanying notes to the financial statements.
Schedule of Investments as of June 30, 2015 (continued)
|
Shares or Principal
Amount
|
|
Description
|
|
Fair Value
|
|
|
|
|
|
|
|
Retail - 1.52%
|
|
|
|
|
1,270
|
|
Grupo Elektra, S.A.B. de C.V. Series CPO
|
|
$
|
27,926
|
|
|
1,000
|
|
Pricesmart Inc.
|
|
|
91,240
|
|
|
210,222
|
|
Wal-Mart de México, S.A.B. de C.V. Series V
|
|
|
514,346
|
|
|
|
|
|
|
|
|
|
|
Service - 0.02%
|
|
|
|
|
|
|
|
700
|
|
Grupo Aeroportuario del Sureste, S.A.B. de C.V. Series B
|
|
|
9,962
|
|
|
|
|
|
|
|
|
|
|
Trucking and Marine Freight - 6.19%
|
|
|
|
|
|
580
|
|
Seaboard Corporation*
|
|
|
2,087,420
|
|
|
2,000
|
|
Seacor Holdings, Inc.*
|
|
|
141,880
|
|
|
9,589
|
|
Teekay LNG Partners LP
|
|
|
308,766
|
|
|
36,000
|
|
Ultrapetrol Bahamas Ltd.*
|
|
|
40,680
|
|
|
|
|
|
|
|
|
|
|
Utilities - 9.01%
|
|
|
|
|
|
12,000
|
|
Caribbean Utilities Ltd. Class A
|
|
|
127,680
|
|
|
129,538
|
|
Consolidated Water, Inc.
|
|
|
1,632,178
|
|
|
700
|
|
Cuban Electric Company (Note 3)*2
|
|
|
--
|
|
|
13,000
|
|
NextEra Energy Inc.
|
|
|
1,274,390
|
|
|
40,500
|
|
Teco Energy Inc.
|
|
|
715,230
|
|
|
|
|
|
|
|
|
|
|
Other - 0.82%
|
|
|
|
|
|
25,000
|
|
Geltech Solutions Inc.*
|
|
|
19,998
|
|
|
4,420
|
|
Gusbourne PLC*
|
|
|
3,376
|
|
|
55,921
|
|
Margo Caribe, Inc.*
|
|
|
319,309
|
|
|
895
|
|
Siderurgica Venezolana Sivensa, S.A. ADR*2
|
|
|
--
|
|
|
79
|
|
Siderurgica Venezolana Sivensa, S.A. Series B*2
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
Total common stocks (cost $38,598,496)
|
|
$
|
41,345,055
|
|
|
|
|
|
|
|
|
|
|
Bonds - 0% of net assets
|
|
|
|
|
$
|
165,000
|
|
Republic of Cuba - 4.5%, 1977 - in default (Note 3)*2
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
Total bonds (cost $63,038)
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
Other assets less liabilities - 0.64% of net assets
|
|
$
|
266,345
|
|
|
|
|
|
|
|
|
|
|
Net assets - 100%
|
|
$
|
41,611,400
|
|
See accompanying notes to the financial statements.
Schedule of Investments as of June 30, 2015 (continued)
The investments are concentrated in the following geographic regions (as percentages of net assets):
United States of America
|
|
|
53.97
|
%
|
Panama
|
|
|
15.69
|
%
|
Mexico
|
|
|
15.04
|
%
|
Other, individually under 5%**
|
|
|
15.30
|
%
|
|
|
|
100.00
|
%
|
1 |
Securities have been deemed illiquid by the Advisor based on methodology approved by the Board of Directors. Illiquid securities comprised 0.98% of net assets. |
2 |
Securities have been fair valued in good faith using fair value methodology approved by the Board of Directors. Fair valued securities comprised 0.98% of net assets. |
** |
Amount includes other assets less liabilities of 0.64% |
See accompanying notes to the financial statements.
Statement of Assets and Liabilities as of June 30, 2015
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in securities, at fair value (cost $38,661,534) (Notes 2 and 3)
|
|
|
|
|
$
|
41,345,055
|
|
Foreign currency (cost $2,232)
|
|
|
|
|
|
2,166
|
|
Cash
|
|
|
|
|
|
573,533
|
|
Dividends receivable
|
|
|
|
|
|
24,277
|
|
Deferred offering costs
|
|
|
|
|
|
121,283
|
|
Other assets
|
|
|
|
|
|
18,867
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
|
|
|
42,085,181
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable for investments purchased
|
|
$
|
238,002
|
|
|
|
|
|
Accrued investment advisor fee (Note 4)
|
|
|
153,986
|
|
|
|
|
|
Foreign tax withholding
|
|
|
461
|
|
|
|
|
|
Distributions payable
|
|
|
6
|
|
|
|
|
|
Other payables
|
|
|
81,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
|
|
|
|
473,781
|
|
|
|
|
|
|
|
|
|
|
NET ASSETS (Equivalent to $7.43 per share based on 5,599,584* shares outstanding)
|
|
|
|
|
|
$
|
41,611,400
|
|
|
|
|
|
|
|
|
|
|
Net assets consist of the following:
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value; 100,000,000 shares authorized; 5,599,584* shares issued and outstanding
|
|
|
|
|
|
$
|
5,600
|
|
Additional paid-in capital
|
|
|
|
|
|
|
38,315,742
|
|
Accumulated net realized gain on investments and foreign currency
|
|
|
|
|
|
|
606,603
|
|
Net unrealized gain on investments and foreign currency (Note 5)
|
|
|
|
|
|
|
2,683,455
|
|
|
|
|
|
|
|
|
|
|
NET ASSETS
|
|
|
|
|
|
$
|
41,611,400
|
|
* |
Includes 243,200 shares issued through dividend reinvestment plan and 1,812,293 shares issued through a rights offering conducted in 2007 and 1,856,535 shares issued through a rights offering conducted in 2014. (Note 7) |
See accompanying notes to the financial statements.
Statement of Operations Year Ended June 30, 2015
INVESTMENT INCOME AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends (net of foreign withholding tax of $1,589)
|
|
|
|
|
$
|
617,996
|
|
|
|
|
|
|
|
|
|
Investment advisor fees (Note 4)
|
|
$
|
558,086
|
|
|
|
|
|
Professional fees
|
|
|
173,000
|
|
|
|
|
|
Custodian fees
|
|
|
84,000
|
|
|
|
|
|
Insurance
|
|
|
34,573
|
|
|
|
|
|
CCO salary (Note 4)
|
|
|
26,913
|
|
|
|
|
|
Transfer agent fees
|
|
|
24,000
|
|
|
|
|
|
Director fees
|
|
|
122,300
|
|
|
|
|
|
Listing fees
|
|
|
22,500
|
|
|
|
|
|
Printing and postage
|
|
|
19,893
|
|
|
|
|
|
Proxy services
|
|
|
5,887
|
|
|
|
|
|
Other
|
|
|
69,484
|
|
|
|
|
|
Total investment expenses
|
|
|
|
|
|
|
1,140,636
|
|
|
|
|
|
|
|
|
|
|
NET INVESTMENT LOSS
|
|
|
|
|
|
|
(522,640
|
)
|
|
|
|
|
|
|
|
|
|
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY
|
|
|
|
|
|
|
|
|
Net realized gain on investments and foreign currency
|
|
|
984,015
|
|
|
|
|
|
Change in unrealized appreciation/depreciation on investments and foreign currency
|
|
|
(1,853,030
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS ON INVESTMENTS
|
|
|
|
|
|
|
(869,015
|
)
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS
|
|
|
|
|
|
$
|
(1,391,655
|
)
|
See accompanying notes to the financial statements.
Statements of Changes in Net Assets
Years Ended June 30, 2015 and 2014
|
|
Year-Ended
|
|
|
Year-Ended
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
|
|
|
|
|
|
|
Net investment loss
|
|
$
|
(522,640
|
)
|
|
$
|
(267,942
|
)
|
Net realized gain on investments and foreign currency
|
|
|
984,015
|
|
|
|
4,571,398
|
|
Change in unrealized appreciation/depreciation on investments and foreign currency
|
|
|
(1,853,030
|
)
|
|
|
(53,954
|
)
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
|
|
|
(1,391,655
|
)
|
|
|
3,649,502
|
|
|
|
|
|
|
|
|
|
|
DISTRIBUTIONS TO STOCKHOLDERS
|
|
|
|
|
|
|
|
|
Realized gains
|
|
|
(3,536,700
|
)
|
|
|
(4,232,900
|
)
|
|
|
|
|
|
|
|
|
|
CAPITAL STOCK TRANSACTIONS
|
|
|
|
|
|
|
|
|
Net proceeds from shares issued in reinvestment of distributions (Note 7)
|
|
|
235,335
|
|
|
|
--
|
|
Net proceeds of rights offering (Note 7)
|
|
|
12,442,484
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
TOTAL INCREASE (DECREASE) IN NET ASSETS
|
|
|
7,749,464
|
|
|
|
(583,398
|
)
|
|
|
|
|
|
|
|
|
|
NET ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
33,861,936
|
|
|
|
34,445,334
|
|
|
|
|
|
|
|
|
|
|
Ending
|
|
$
|
41,611,400
|
|
|
$
|
33,861,936
|
|
|
|
|
|
|
|
|
|
|
ACCUMULATED NET INVESTMENT GAIN
|
|
$
|
0
|
|
|
$
|
0
|
|
See accompanying notes to the financial statements.
Financial Highlights
Years Ended June 30, 2011 through 2015
|
|
Year Ended June 30 |
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
PER SHARE OPERATING PERFORMANCE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(For a share of capital stock outstanding for each year)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of year
|
|
$
|
9.12
|
|
|
$
|
9.28
|
|
|
$
|
7.90
|
|
|
$
|
8.13
|
|
|
$
|
6.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment loss1
|
|
|
(0.11
|
)
|
|
|
(0.07
|
)
|
|
|
(0.03
|
)
|
|
|
(0.06
|
)
|
|
|
(0.06
|
)
|
Net realized and unrealized gain (loss) on investment transactions
|
|
|
(0.08
|
)
|
|
|
1.05
|
|
|
|
1.61
|
|
|
|
(0.11
|
)
|
|
|
2.07
|
|
Total from operations
|
|
|
(0.19
|
)
|
|
|
0.98
|
|
|
|
1.58
|
|
|
|
(0.17
|
)
|
|
|
2.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From net realized gains
|
|
|
(0.64
|
)
|
|
|
(1.14
|
)
|
|
|
(0.20
|
)
|
|
|
(0.06
|
)
|
|
|
--
|
|
Total distributions
|
|
|
(0.64
|
)
|
|
|
(1.14
|
)
|
|
|
(0.20
|
)
|
|
|
(0.06
|
)
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of rights offering
|
|
|
(0.86
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of year
|
|
$
|
7.43
|
|
|
$
|
9.12
|
|
|
$
|
9.28
|
|
|
$
|
7.90
|
|
|
$
|
8.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share market value, end of year
|
|
$
|
9.46
|
|
|
$
|
8.15
|
|
|
$
|
8.51
|
|
|
$
|
6.97
|
|
|
$
|
7.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment return (loss) based on market value per share
|
|
|
25.40
|
%
|
|
|
8.98
|
%
|
|
|
25.31
|
%
|
|
|
(1.39
|
%)
|
|
|
25.93
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RATIOS AND SUPPLEMENTAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of year (in 000’s)
|
|
$
|
41,611
|
|
|
$
|
33,862
|
|
|
$
|
34,445
|
|
|
$
|
29,330
|
|
|
$
|
30,169
|
|
Ratio of expenses to average net assets
|
|
|
2.97
|
%
|
|
|
2.46
|
%
|
|
|
2.50
|
%
|
|
|
2.68
|
%
|
|
|
2.66
|
%
|
Ratio of net investment loss to average net assets
|
|
|
(1.36
|
%)
|
|
|
(0.78
|
%)
|
|
|
(0.38
|
%)
|
|
|
(0.81
|
%)
|
|
|
(0.81
|
%)
|
Portfolio turnover rate
|
|
|
14
|
%
|
|
|
24
|
%
|
|
|
37
|
%
|
|
|
15
|
%
|
|
|
22
|
%
|
1 |
Computed by dividing the respective year’s amounts from the Statement of Operations by the average outstanding shares for each year presented. |
See accompanying notes to the financial statements.
Notes to Financial Statements
NOTE 1. 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, as amended and follows accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, “Financial Services - Investment Companies”. 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.
Under the Fund’s organizational documents, its Officers and Directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve any future potential claims that may be made against the Fund. However, based on experience, management expects the risk of loss to be remote.
The Fund’s custodian and transfer agent is State Street Bank and Trust Company (“SSBT”), 200 Clarendon Street, PO Box 9130, Boston, Massachusetts 02117.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Security Valuation
In accordance with accounting principles generally accepted in the United States of America (“GAAP”), fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.
Notes to Financial Statements
In determining fair value, the Fund uses various valuation approaches. In accordance with GAAP, a fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.
Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows:
Level 1:
|
quoted prices in active markets for identical investments
|
Level 2:
|
other significant observable inputs (including quoted prices for identical investments in markets that are not active, quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)
|
Level 3:
|
significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)
|
The availability of valuation techniques and observable inputs can vary from security to security and is affected by a wide variety of factors including, the type of security, whether the security is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined. Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the securities existed. Accordingly, the degree of judgment exercised by the Fund in determining fair value is greatest for securities categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls, is determined based on the lowest level input that is significant to the fair value measurement.
Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Fund’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Fund uses prices and inputs that are current as of the measurement date, including periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many securities. This condition could cause a security to be reclassified to a lower level within the fair value hierarchy.
Notes to Financial Statements
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.
The following table summarizes the classification of the Fund’s investments by the above fair value hierarchy levels as of June 30, 2015:
LEVEL
|
Investments in Securities
|
Level 1
|
$40,618,769
|
Level 2
|
$319,309
|
Level 3
|
$406,977
|
|
Investment in Securities
at Value Level 3
|
Balance as of 6/30/14
|
$146
|
Realized/Unrealized gain/(loss)
|
($146)
|
Net purchases
|
0
|
Transfer into Level 3
|
$406,977
|
Transfer out of Level 3
|
0
|
Balance as of 6/30/15
|
$406,977
|
Additional quantitative disclosures for assets in which Level 3 inputs are used in determining fair value are presented when there are significant Level 3 investments at the end of the period.
|
Quantitative Information about Level 3 Fair Value Measurements
|
|
Investment
|
Fair Value at June 30, 2015
|
Valuation Basis at June 30, 2015
|
Valuation Technique
|
Unobservable Input(s)
|
Range
|
Selected Value
|
Private Placement (Restricted)
|
$246,150
|
Market Approach
|
Market Transaction Method
|
Precedent Transactions (Private Market)
|
$0.40-$0.50
|
$0.475
|
Equity Security
|
$160,827
|
Market Approach
|
Market Transaction Method
|
Precedent Transaction
|
$0.95
|
$0.95
|
|
|
|
|
Discount for lack of liquidity
|
1%-20%
|
20%
|
TOTAL
|
$406,977
|
|
|
|
|
|
INVESTMENTS
|
|
|
|
|
|
|
Notes to Financial Statements
All transfers are recognized by the Fund at the end of each reporting period. Transfers from Level 2 to Level 1 were $12,227, transfers from Level 1 to Level 2 were $319,309, and transfers from Level 2 to Level 3 were $406,977. Transfers between Levels 1 and 2 related to the availability of trade information near the valuation date. Transfers between Levels 2 and 3 related to a change to fair valuation by the Board of Directors due to a limited amount of trading and lack of available information with respect to transactions in the primary market.
Under procedures approved by the Directors, the Advisor provides administration and oversight of the Fund’s valuation policies and procedures, which are reviewed at least annually by the Directors. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.
The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available. Under these procedures, the Advisor convenes on a regular and ad hoc basis to review such securities and considers a number of factors, including valuation methodologies and significant unobservable valuation inputs, when arriving at a fair value. The Advisor may employ a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values and other relevant information for the investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discount may be applied due to the nature or duration of any restrictions on the disposition of investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The Advisor employs various methods for calibrating these valuation approaches including a regular view of valuation methodologies, key inputs and assumptions, transactional back-testing or disposition analysis and reviews of any related market activity.
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, 2015 were approximately $0. 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.
Notes to Financial Statements
Foreign Currency
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts and investments denominated in a foreign currency, if any, are translated into U.S. dollar amounts at current exchange rates on the valuation date. Purchases and sales of investments denominated in foreign currencies are translated into U.S. dollar amounts at the exchange rate on the respective dates of such transactions.
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.
Counterparty Brokers
In the normal course of business, substantially all of the Fund’s money balances and security positions are custodied with the Fund’s custodial broker, SSBT. The Fund transacts with other brokers. The Fund is subject to credit risk to the extent any broker with which it conducts business is unable to fulfill contractual obligations on its behalf. The Fund’s management monitors the financial condition of such brokers and does not anticipate any losses from these counterparties.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP 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 of 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 income tax provision is required.
The Fund has adopted a June 30 year-end for federal income tax purposes.
Notes to Financial Statements
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, 2015, a distribution from long-term capital gains of $0.596 per share and from short-term capital gains of $0.039 per share was declared on December 18, 2014.
NOTE 3. RESTRICTED SECURITIES OWNED
Investments in securities include $165,000 principal, 4.5%, 1977 Republic of Cuba bonds purchased for $63,038 that are currently segregated and restricted from transfer. 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 bonds 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, 2015, the position was valued at $0 by the Board of Directors.
Investments in securities also include 700 shares of Cuban Electric Company, purchased for $5,817, which are currently segregated and restricted from transfer. As of June 30, 2015, the position, was valued at $0 by the Board of Directors.
Investments in securities also include 500,000 shares of Fuego Enterprises, Inc. purchased for $125,000 that are Rule 144A securities which as of June 30, 2015 were restricted as to the resale to institutional investors. As of June 30, 2015, the restricted portion of the position was valued at $237,500 by the Board of Directors. This security has been deemed illiquid by the Advisor based on procedures approved by the Board of Directors.
NOTE 4. 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, 2015 amounted to $558,086 of which $153,986 is payable as of June 30, 2015.
Mr. Thomas Herzfeld is the owner of the Advisor.
The Fund reimbursed the Advisor in the amount of $26,913 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.
Notes to Financial Statements
NOTE 5. INVESTMENT TRANSACTIONS
During the year ended June 30, 2015, purchases and sales of investment securities were $14,395,577 and $5,160,942, respectively.
At June 30, 2015, the Fund’s investment portfolio had gross unrealized gains of $7,862,643 and gross unrealized losses of $5,179,122, resulting in a net unrealized gain on investments of $2,683,521 for financial statement purposes.
NOTE 6. INCOME TAX INFORMATION
As of June 30, 2015, for tax purposes the Fund’s accumulated net realized gain on investments was $873,316.
The cost basis of securities owned for financial statement purposes is lower than the cost basis for income tax purposes by $266,713 due to wash sale adjustments and book-to-tax adjustments to partnership investment. As of June 30, 2015, gross unrealized gains were $7,921,268 and gross unrealized losses were $5,504,460 for income tax purposes.
Permanent differences accounted for during the year ended June 30, 2015 result from differences between book and tax accounting for the characterization of foreign currency losses and the reclassification of the Fund’s net investment loss for tax purposes. Such amounts have been reclassified as follows:
|
Accumulated Net
Investment Loss
|
Realized Loss on
Investments
|
Accumulated Net
Additional Paid
in Capital
|
Year ended June 30, 2015
|
$522,640
|
($105,044)
|
($417,596)
|
In accordance with GAAP, the Fund is required to determine whether a tax position is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Fund files an income tax return in the U.S. federal jurisdiction, and may file income tax returns in various U.S. states and foreign jurisdictions. Generally the Fund is no longer subject to income tax examinations by major taxing authorities for years before June 30, 2012. The tax benefit recognized is measured as the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. De-recognition of a tax benefit previously recognized results in the Fund recording a tax liability that reduces ending net assets.
The Fund’s policy would be to recognize accrued interest expense to unrecognized tax benefits in interest expense and penalties in operating expenses. There were none for the year ended June 30, 2015.
Notes to Financial Statements
The tax character of distributions paid to shareholders during the fiscal year ended June 30, 2015 and June 30, 2014 were as follows: ordinary income, $71,408 and $0, and long-term capital gains, $3,465,295 and $4,232,900, respectively.
NOTE 7. CAPITAL SHARE TRANSACTIONS
2007 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 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.
2014 Rights Offering
On December 12, 2014, the Fund issued 1,856,535 common shares in connection with a rights offering. Stockholders of record October 9, 2014 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 three rights held. In addition, the Fund had the discretion to increase the number of shares of common stock subject to subscription by up to 50% of the shares offered, or up to an additional 618,845 shares of common stock.
The subscription price was equal to 95% of the average volume-weighted closing sales price per share of the Fund’s common stock on the NASDAQ Capital Market on December 4, 2014 and the four preceding trading days. The final subscription price was $6.77 per share. The Fund issued the entire 50% optional secondary oversubscription. Net proceeds to the Fund were $12,442,484, after deducting rights offering costs of $126,034. The net asset value of the Fund’s common shares was decreased by approximately $0.86 per share, as a result of the share issuance.
Year-End Distributions
No distribution was declared during the fiscal year ended June 30, 2011.
On January 9, 2012, the Fund paid a year-end distribution of $0.0634 per share in cash.
On December 26, 2012, the Fund paid a year-end distribution of $0.196 per share in cash.
Notes to Financial Statements
On January 7, 2014, the Fund paid a year-end distribution of $1.140 per share in stock. Stockholder were also given the option of receiving the payment in cash. Shares were purchased in the open market to pay the distribution at a reinvestment price of $8.2657 per share including brokerage commissions.
On January 7, 2015 the Fund paid a year-end distribution of $0.635 per share in cash. Stockholders enrolled in the Fund’s dividend reinvestment plan received stock, issued by the Fund at $7.85 per share, equal to 95% of the closing market price of the stock on January 7, 2015, pursuant to the Fund’s Dividend Reinvestment Plan. The Fund issued a total of 29,978 common shares in connection with its year-end distribution.
NOTE 8. INVESTMENT RISKS
Foreign Securities Risk
Securities traded in foreign markets have often (though not always) performed differently from securities traded in the United States. However, such investments often involve special risks not present in U.S. investments that can increase the chances that the Fund will lose money. In particular, the Fund is subject to the risk that because there may be fewer investors on foreign exchanges and a smaller number of securities traded each day, it may be more difficult for the Fund to buy and sell securities on those exchanges. In addition, prices of foreign securities may go up and down more than prices of securities traded in the United States.
Foreign Economy Risk
The economies of certain foreign markets may not compare favorably with the economy of the United States with respect to such issues as growth of gross national product, reinvestment of capital, resources and balance of payments position. Certain foreign economies may rely heavily on particular industries or foreign capital and are more vulnerable to diplomatic developments, the imposition of economic sanctions against a particular country or countries, changes in international trading patterns, trade barriers and other protectionist or retaliatory measures. Investments in foreign markets may also be adversely affected by governmental actions such as the imposition of capital controls, nationalization of companies or industries, expropriation of assets or the imposition of punitive taxes. In addition, the governments of certain countries may prohibit or impose substantial restrictions on foreign investments in their capital markets or in certain industries. Any of these actions could severely affect securities prices or impair the Fund’s ability to purchase or sell foreign securities or transfer the Fund’s assets or income back into the United States, or otherwise adversely affect the Fund’s operations.
Other potential foreign market risks include foreign exchange controls, difficulties in pricing securities, defaults on foreign government securities, difficulties in enforcing legal judgments in foreign courts and political and social instability. Legal remedies available to investors in certain foreign countries may be less extensive than those available to investors in the United States.
Notes to Financial Statements
Currency Risk
Securities and other instruments in which the Fund invests may be denominated or quoted in currencies other than the U.S. Dollar. Changes in foreign currency exchange rates may affect the value of the Fund’s portfolio. Because the Fund’s assets are primarily invested in securities of Caribbean Basin Companies, and because some portion of revenues and income may be received in foreign currencies while Fund distributions will be made in dollars, the dollar equivalent of the Fund’s net assets and distributions would be adversely affected by reductions in the value of the foreign currencies relative to the dollar. For this reason, changes in foreign currency exchange rates can affect the value of the Fund’s portfolio. Generally, when the U.S. Dollar rises in value against a foreign currency, a security denominated in that currency loses value because the currency is worth fewer U.S. Dollars. Conversely, when the U.S. Dollar decreases in value against a foreign currency, a security denominated in that currency gains value because the currency is worth more U.S. Dollars. This risk, generally known as “currency risk,” means that a strong U.S. Dollar may reduce returns for U.S. investors while a weak U.S. Dollar may increase those returns. The Fund is managed with the assumption that most of its stockholders hold their assets in U.S. Dollars. As a result, and because distributions are made in U.S. Dollars, other non-U.S. investors will be adversely affected by reductions in the value of the U.S. Dollar relative to their home currency.
Geographic Concentration Risk
The Fund may invest from time to time a substantial amount of assets in issuers located in a single country or a limited number of countries. If the Fund concentrates its investments in this manner, it assumes the risk that economic, political and social conditions in those countries will have a significant impact on its investment performance. The Fund’s investment performance may also be more volatile if it concentrates its investments in certain countries, especially emerging market countries.
NOTE 9. SUBSEQUENT EVENTS
Management has evaluated the impact of subsequent events on the Fund, through the date the financial statements were issued, and has determined that there were no subsequent events that required disclosure in the financial statements.
|
KPMG LLP
Suite 500
191 West Nationwide Blvd.
Columbus, OH 43215-2568
|
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of The Herzfeld Caribbean Basin Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of The Herzfeld Caribbean Basin Fund, Inc. (the Fund), including the schedule of investments, as of June 30, 2015, and the related statement of operations for the year then ended, and the statements of changes in net assets and financial highlights for each of the years in the two years 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 accompanying financial highlights for the years ended June 30, 2013 and prior were audited by prior auditors whose report thereon dated August 16, 2013, expressed an unqualified opinion on those financial statements and 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 misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of June 30, 2015, by correspondence with the custodian and brokers; or other appropriate auditing procedures. 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 Fund as of June 30, 2015, the results of its operations for the year then ended, and the changes in its net assets and its financial highlights for each of the years in the two years then ended, in conformity with U.S. generally accepted accounting principles.
Columbus, Ohio
August 21, 2015
|
KPMG LLP is a Delaware limited liability partnership,
the U.S. member firm of KPMG International Cooperative
(“KPMG International”), a Swiss entity.
|
|
Directors and Officers of the Fund (Unaudited)
Name
Address
and Age
|
Position(s)
Held
with Fund
|
Term of Office and
Length of Time Served
|
Principal Occupation(s)
During Past 5 Years
|
Number of Portfolios
In Complex Overseen
By Director
|
Other
Directorships
Held by Director
|
Interested Directors
|
|
|
|
|
|
Thomas J. Herzfeld*
119 Washington Avenue, Suite 504
Miami Beach, FL 33139
Age: 70
|
President, Portfolio
Manager, Chairman,
Director
|
three years; 1993 to present
|
Chairman and President of Thomas J. Herzfeld & Co., Inc., a broker dealer 1981-2010, and Thomas J. Herzfeld Advisors, Inc., 1984-present.
|
2
|
The Cuba Fund, Inc.
(in registration)
|
Cecilia L. Gondor**
c/o The Herzfeld Caribbean
Basin Fund, Inc.
119 Washington Avenue, Suite 504
Miami Beach, FL 33139
Age: 53
|
Director
|
three years; 2014 to present
|
Managing Member of L&M Management, a real estate management business, 2014- present; Executive Vice President of Thomas J. Herzfeld & Co., Inc., a broker dealer, 1984-2010, and Thomas J. Herzfeld Advisors, Inc., 1984-2014.
|
1
|
None
|
Independent Directors
|
|
|
|
|
|
Ann S. Lieff
c/o The Herzfeld Caribbean
Basin Fund, Inc.
119 Washington Avenue, Suite 504
Miami Beach, FL 33139
Age: 63
|
Director
|
three years; 1998 to present
|
President of the Lieff Company, a management consulting firm that offers ongoing advisory services as a corporate director, 1998-present; former CEO Spec’s Music 1980- 1998, a retailer of recorded music.
|
1
|
None
|
Kay W. Tatum, Ph.D., CPA
c/o The Herzfeld Caribbean
Basin Fund, Inc.
119 Washington Avenue, Suite 504
Miami Beach, FL 33139
Age: 63
|
Director
|
three years; 2007 to present
|
Associate Professor of Accounting, University of Miami School of Business Administration, 1992-present; Chair, Department of Accounting, 2004-2008; Assistant Professor of Accounting, University of Miami, 1986-1992.
|
1
|
None
|
John A. Gelety
c/o The Herzfeld Caribbean
Basin Fund, Inc.
119 Washington Avenue, Suite 504
Miami Beach, FL 33139
Age: 47
|
Director
|
three years; 2011 to present
|
John A. Gelety, PA, attorney at law, a transactional law firm that specializes in business law, with a concentration on domestic and cross-border mergers & acquisitions, private equity and commercial transactions, 2005-present.
|
1
|
None
|
* |
Mr. Thomas J. Herzfeld is an “interested person” of the Fund, (as defined in the 1940 Act) because he is an officer of the Fund’s Advisor. |
** |
Ms. Gondor is an “interested person” (as defined in the 1940 Act) due to her former position as an officer and employee of the Fund’s Advisor and of the Fund. |
Additional information about the Directors is included in the Fund’s Prospectus.
Directors and Officers of the Fund (Unaudited)(cont’d)
Name
Address
and Age
|
Position(s)
Held
with Fund
|
Term of Office and
Length of Time Served
|
Principal Occupation(s)
During Past 5 Years
|
|
Other
Directorships
Held by Officer
|
Officers
|
|
|
|
|
|
Erik M. Herzfeld
119 Washington Avenue, Suite 504
Miami Beach, FL 33139
Age: 41
|
Portfolio Manager
|
2008 to present
|
Co- President, Thomas J. Herzfeld Advisors, Inc., 2015-present; Portfolio Manager, Thomas J. Herzfeld Advisors, Inc. 2007-present; Managing Director, Thomas J. Herzfeld Adviors, Inc., 2007- 2015. Vice President JPMorgan Chase 2000-2007, foreign exchange option trading.
|
|
Strategic Investment Partners, Inc.
|
Reanna J. M. Lee
119 Washington Avenue, Suite 504
Miami Beach, FL 33139
Age: 29
|
Secretary, Treasurer
|
2014 to present
|
In-house counsel of Thomas J. Herzfeld Advisors, Inc., 2012-present; Chief Compliance Officer of Thomas J. Herzfeld Advisors, Inc., 2013-present; Reanna J M Lee, PA, a law firm with areas of practice including intellectual property and entertainment law, 2011-present.
|
|
N/A
|
Quarterly Portfolio Reports (Unaudited)
The Fund files quarterly schedules of portfolio holdings with the Securities and Exchange Commission (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, 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 1-800-732-0330.
Proxy Voting Policies and Procedures (Unaudited)
Information regarding how the Fund voted proxies relating to portfolio securities from July 1, 2014 to June 30, 2015, and 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.
Privacy Policy (Unaudited)
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.
Dividend Reinvestment Plan (Unaudited)
Registered holders (“Stockholders”) of shares of common stock, $0.001 par value (“Common Stock”) of Herzfeld Caribbean Basin Fund, Inc. (the “Fund”) will automatically be enrolled (“Participants”) in the Fund’s Dividend Reinvestment Plan (the “Plan”) and are advised as follows:
1. |
State Street Bank & Trust Company (the “Agent”) will act as agent for each Participant. The Agent will open an account for each registered shareholder as a Participant under the Plan in the same name in which such Participant’s shares of Common Stock are registered. |
2. |
CASH OPTION. Pursuant to the Fund’s Plan, unless a holder of Common Stock otherwise elects, all dividend and capital gains distributions payable in cash (“Distributions”) will be automatically reinvested by the Agent in additional Common Stock of the Fund. Stockholders who elect not to participate in the Plan will receive all cash distributions in cash paid by check mailed directly to the shareholder of record (or, if the shares are held in street or other nominee name then to such nominee) by the Agent, as dividend paying agent. Stockholders and Participants may elect not to participate in the Plan and to receive all cash distributions of dividends and capital gains in cash by sending written instructions to the Agent, as dividend paying agent, at the address set forth below. |
3. |
MARKET PREMIUM ISSUANCES. If on the payment date for a Distribution, the net asset value per Common Stock is equal to or less than the market price per Common Stock plus estimated brokerage commissions, the Agent shall receive newly issued Common Stock (“Additional Common Stock”) from the Fund for each Participant’s account. The number of Additional Common Stock to be credited shall be determined by dividing the dollar amount of the Distribution by the greater of (i) the net asset value per Common Share on the payment date, or (ii) 95% of the market price per Common Share on the payment date. |
Dividend Reinvestment Plan (Unaudited)(continued)
4. |
MARKET DISCOUNT PURCHASES. If the net asset value per Common Stock exceeds the market price plus estimated brokerage commissions on the payment date for a Distribution, the Agent (or a broker-dealer selected by the Agent) shall endeavor to apply the amount of such Distribution on each Participant’s Common Stock to purchase Common Stock on the open market. In the event of a market discount on the payment date, the Agent will have 30 days after the dividend payment date (the “last purchase date”) to invest the dividend amount in shares acquired in open-market purchases. The weighted average price (including brokerage commissions) of all Common Stock purchased by the Agent as Agent shall be the price per Common Stock allocable to each Participant. If, before the Agent has completed its purchases, the market price plus estimated brokerage commissions exceeds the net asset value of the Common Stock as of the payment date, the purchase price paid by Agent may exceed the net asset value of the Common Stock, resulting in the acquisition of fewer Common Stock than if such Distribution had been paid in Common Stock issued by the Fund. Because of the foregoing difficulty with respect to open-market purchases, the Plan provides that if the Plan Agent is unable to invest the full dividend amount in open-market purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Agent may cease making open-market purchases and may invest the uninvested portion of the dividend amount in newly issued Common Stock at the net asset value per Common Stock at the close of business on the last purchase date. Participants should note that they will not be able to instruct the Agent to purchase Common Stock at a specific time or at a specific price. Open-market purchases may be made on any securities exchange where Common Stock are traded, in the over-the-counter market or in negotiated transactions, and may be on such terms as to price, delivery and otherwise as the Agent shall determine. Each Participant’s uninvested funds held by the Agent will not bear interest. The Agent shall have no liability in connection with any inability to purchase Common Stock within the time provided, or with the timing of any purchases effected. The Agent shall have no responsibility for the value of Common Stock acquired. The Agent may commingle Participants’ funds to be used for open-market purchases of the Fund’s shares and the price per share allocable to each Participant in connection with such purchases shall be the average price (including brokerage commissions and other related costs) of all Fund shares purchased by Agent. The rules and regulations of the Securities and Exchange Commission may require the Agent to limit the Agent’s market purchases or temporarily cease making market purchases for Participants. |
5. |
The market price of Common Stock on a particular date shall be the last sales price on the securities exchange where the Common Stock are listed on that date (currently the NASDAQ Capital Market)(the “Exchange”), or, if there is no sale on the Exchange on that date, then the average between the closing bid and asked quotations on the Exchange on such date will be used. The net asset value per Common Stock on a particular date shall be the amount calculated on that date (or if not calculated on such date, the amount most recently calculated) by or on behalf of the Fund. |
6. |
Whenever the Agent receives or purchases shares or fractional interests for a Participant’s account, the Agent will send such Participant a notification of the transaction as soon as practicable. The Agent will hold such shares and fractional interests as such Participant’s agent and may hold them in the Agent’s name or the name of the Agent’s nominee. The Agent will not send a Participant stock certificates for shares unless a Participant so requests in writing or unless a Participant’s account is terminated as stated below. The Agent will vote any shares so held for a Participant in accordance with any proxy returned to the Fund by such Participant in respect of the shares of which such Participant is the record holder. |
Dividend Reinvestment Plan (Unaudited) (continued)
7. |
There is presently no service charge for the Agent serving as Participants’ agent and maintaining Participants’ accounts. The Agent may, however, charge Participants for extra services performed at their request. The Plan may be amended in the future to impose a service charge. In acting as Participants’ agent under the Plan, the Agent shall be liable only for acts, omissions, losses, damages or expenses caused by the Agent’s willful misconduct or gross negligence. In addition, the Agent shall not be liable for any taxes, assessments or governmental charges which may be levied or assessed on any basis whatsoever in connection with the administration of the Plan. |
8. |
The Agent may hold each Participant’s Common Stock acquired pursuant to the Plan together with the Common Stock of other Stockholders of the Fund acquired pursuant to the Plan in non-certificated form in the Agent’s name or that of the Agent’s nominee. Each Participant will be sent a confirmation by the Agent of each acquisition made for his or her account as soon as practicable, but in no event later than 60 days, after the date thereof. Upon a Participant’s request, the Agent will deliver to the Participant, without charge, a certificate or certificates for the full Common Stock. Although each Participant may from time to time have an undivided fractional interest in a Common Share of the Fund, no certificates for a fractional share will be issued. Similarly, Participants may request to sell a portion of the Common Stock held by the Agent in their Plan accounts by calling the Agent, writing to the Agent, or completing and returning the transaction form attached to each Plan statement. The Agent will sell such Common Stock through a broker-dealer selected by the Agent within 5 business days of receipt of the request. The sale price will equal the weighted average price of all Common Stock sold through the Plan on the day of the sale, less brokerage commissions. Participants should note that the Agent is unable to accept instructions to sell on a specific date or at a specific price. Any share dividends or split shares distributed by the Fund on Common Stock held by the Agent for Participants will be credited to their accounts. In the event that the Fund makes available to its Stockholders rights to purchase additional Common Stock, the Common Stock held for each Participant under the Plan will be added to other Common Stock held by the Participant in calculating the number of rights to be issued to each Participant. |
If a Participant holds more than one Common Stock Certificate registered in similar but not identical names or if more than one address is shown for a Participant on the Fund’s records, all of such Participant’s shares of Common Stock must be put into the same name and address if all of them are to be covered by one account. Additional shares subsequently acquired by a Participant otherwise than through the Plan will be covered by the Plan.
9. |
The reinvestment of Distributions does not relieve Participants of any federal, state or local taxes which may be payable (or required to be withheld on Distributions.) Participants will receive tax information annually for their personal records and to help them prepare their federal income tax return. For further information as to tax consequences of participation in the Plan, Participants should consult with their own tax advisors. |
Dividend Reinvestment Plan (Unaudited) (continued)
10. |
Each registered Participant may terminate his or her account under the Plan by notifying the Agent in writing at State Street Bank and Trust, P.O. Box 642, Boston, MA 02117-0642, or by calling the Agent at (617) 662-2760. Such termination will be effective with respect to a particular Distribution if the Participant’s notice is received by the Agent prior to such Distribution record date. The Plan may be terminated by the Agent or the Fund upon notice in writing mailed to each Participant at least 60 days prior to the effective date of the termination. Upon any termination, the Agent will cause a certificate or certificates to be issued for the full shares held for each Participant under the Plan and cash adjustment for any fraction of a Common Share at the then current market value of the Common Shares to be delivered to him. If preferred, a Participant may request the sale of all of the Common Shares held by the Agent in his or her Plan account in order to terminate participation in the Plan. If any Participant elects in advance of such termination to have Agent sell part or all of his shares, Agent is authorized to deduct from the proceeds the brokerage commissions incurred for the transaction. If a Participant has terminated his or her participation in the Plan but continues to have Common Shares registered in his or her name, he or she may re-enroll in the Plan at any time by notifying the Agent in writing at the address above. |
11. |
These terms and conditions may be amended by the Agent or the Fund at any time but, except when necessary or appropriate to comply with applicable law or the rules or policies of the Securities and Exchange Commission or any other regulatory authority, only by mailing to each Participant appropriate written notice at least 30 days prior to the effective date thereof. The amendment shall be deemed to be accepted by each Participant unless, prior to the effective date thereof, the Agent receives notice of the termination of the Participant’s account under the Plan. Any such amendment may include an appointment by the Agent of a successor Agent, subject to the prior written approval of the successor Agent by the Fund. |
12. |
These terms and conditions shall be governed by the laws of the State of Maryland. |
Dated: November 22, 2006
INTENTIONALLY LEFT BLANK
THE HERZFELD CARIBBEAN BASIN FUND, INC.
119 Washington Avenue
Suite 504
Miami Beach, FL 33139
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 Item 2(b) of Form N-CSR.
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
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, 2014 and 2015.
(2) These fees related to services consisting of the review or preparation of U.S. federal, state, local and excise tax returns.
(3) 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, 2014 and 2015 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 2014 and $0 for 2015.
(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, 2015, the registrant's audit committee was comprised of Kay W. Tatum, John A. Gelety, and Ann S. Lieff.
(b) Not applicable.
ITEM 6. INVESTMENTS
(a) Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period 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 a portfolio manager of the Fund and has held this position since its inception in 1993. This information is as of August 24, 2015.
Erik M. Herzfeld, Portfolio Manager of The Herzfeld Caribbean Basin Fund, Inc. serves as a portfolio manager of the Fund and has held this position since 2008. Before joining the Fund's investment adviser in 2007, Erik served in quantitative research and trading with both Lehman Brothers and JPMorgan, where he served as Vice President in New York and Asia. This information is as of August 24, 2015.
(a)(2)(i) and (ii) As of June 30, 2015, Mr. Thomas J. Herzfeld and Mr. Erik M. Herzfeld were also portfolio managers for approximately 290 other accounts comprising $213 million under management, 0 pooled investment vehicles comprising $0 under management, and one other investment company comprising approx. $42 million under management. However, none of the these accounts are managed with an investment strategy similar to the Fund's. As of the same date the Fund has total assets of approximately $42 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. Thomas J. Herzfeld's or Mr. Erik M. 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. T. 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.
(a)(4)(a) Range of value of shares of the Fund owned by Mr. Thomas J. Herzfeld as of June 30, 2015: over $1,000,000. Range of value of shares of the Fund owned by Mr. Erik M. Herzfeld as of June 30, 2015: $500,001-$1,000,000.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END FUND MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
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.
(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.
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.
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.