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: 06/30/09
Date of reporting period: 7/01/08 - 6/30/09
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
THE HERZFELD
CARIBBEAN BASIN
FUND, INC.
ANNUAL REPORT
JUNE 30, 2009
================================================================================
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
Listed NASDAQ Capital Market
Symbol: CUBA
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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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- 2 -
LETTER TO STOCKHOLDERS
================================================================================
[PICTURE]
THOMAS J. HERZFELD
CHAIRMAN AND PRESIDENT
August 5, 2009
Dear Fellow Shareholders:
We are pleased to present our annual report for the period ending June 30, 2009.
On that date the Fund's net asset value was $5.35 per share, which represents a
loss of 23.72% for the one year period then ended (adjusted for distributions).
The Fund's share price closed the fiscal year at $6.07 per share, down from
$7.69 per share on June 30, 2008, and representing a 17.73% loss for the year
(adjusted for distributions). A year-end distribution of $0.211 per share was
paid on January 5, 2009, to shareholders of record December 12, 2008.
For the first six months of calendar year 2009 the Fund benefited from a
recovery in global financial markets. During that same time, the Fund's share
price was up 44.52%, and net asset value per share advanced 11.69%.
Our two-fold investment focus stresses first, companies which we believe will
benefit from a resumption of trade with Cuba and second, companies in the
Caribbean Basin which we believe have good prospects even if there is no change
in U.S. policy towards Cuba.
Over the past fiscal year, demand for goods and services of the Caribbean
remained under pressure, on the other hand, continued and steady progress has
been made in U.S. policy towards Cuba. For example, the U.S. government has
moved on a number of initiatives which could eventually pave the road towards
normalization of relations with Cuba. We are pleased that the new administration
has relaxed restrictions on cash remittances and family travel by
Cuban-Americans to Cuba. As
- 3 -
LETTER TO STOCKHOLDERS (CONTINUED)
================================================================================
[PICTURE]
ERIK M. HERZFELD
PORTFOLIO MANAGER
we noted in our last report to shareholders, we anticipated that this would be
one of the key first steps for the new incoming administration.
The level of interest in Cuba by the U.S. Congress has also increased. For
instance, Senator Max Baucus (D-MT), who heads the Senate Finance Committee, has
introduced legislation designed to ease restrictions on the sale of U.S. food to
Cuba and facilitate travel to Cuba by farmers seeking sales. Senator John Kerry
(D-MA), head of the Senate Foreign Relations Committee, has also argued for
major changes to embargo policy.
Legislation we are watching closely includes several bills aimed at eliminating
restrictions for Americans traveling to Cuba. We believe our holdings in
CARNIVAL CORPORATION (NYSE: CCL), ROYAL CARIBBEAN CRUISES LTD (NYSE: RCL), and
COPA HOLDINGS, S.A. (NYSE: CPA), are prime candidates to see an increase in
revenue from such changes in policy. Since Cuba lacks adequate hotel and airport
facilities, cruise ships are uniquely positioned to handle the early volume of
American tourists traveling to that country. Copa Holdings, S.A. through Copa
Airlines already operates daily direct service to Cuba from Panama and Mexico;
we believe the airline is in a strong position to continue to dominate in the
region.
A list of our major holdings appears on the following page. FREEPORT-MCMORAN
COPPER & GOLD INC. (NYSE: FCX) is currently our largest holding and has
benefited from the surge in commodity prices. FCX, the world's largest publicly
traded copper company, has registered a claim related to confiscated mines in
Cuba. That claim is the second biggest claim against the government of Cuba
under Title V of the International Claims Settlement Act of 1949. In addition,
we believe the holding can provide a hedge against a weaker dollar.
- 4 -
LETTER TO STOCKHOLDERS (CONTINUED)
================================================================================
Largest Allocations
The following tables present our largest investment and geographic allocations
as of June 30, 2009.
------------------------------ -------------------------------------------
GEOGRAPHIC % OF NET ASSETS LARGEST PORTFOLIO % OF NET ASSETS
ALLOCATION POSITIONS
USA 46.62% Freeport McMoran Copper & Gold 7.31%
Mexico 17.48% Watsco Incorporated 6.89%
Panama 8.50% Seaboard Corporation 6.78%
Cayman Islands 7.28% Copa Holdings S.A. 6.06%
Colombia 4.03% Consolidated Water, Inc. 5.33%
Bahamas 3.86% Carnival Corp. 4.47%
Puerto Rico 0.98% Bancolombia, S.A. 4.03%
Belize 0.74% Mastec, Inc. 3.90%
Venezuela 0.05% America Movil, S.A.B. de C.V. ADR 3.90%
Latin American Regional 0.01% Coca Cola Femsa, S.A.B.
Cuba 0.00% de C.V. ADR 3.33%
Cash and Other 10.45%
------------------------------ ------------------------------------------
Daily net asset values and press releases on 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 to thank our fellow stockholders for their continued
support and suggestions.
Sincerely,
/s/ Thomas J. Herzfeld
Thomas J. Herzfeld
Chairman of the Board, President and
Portfolio Manager
/s/ Erik M. Herzfeld
Erik M. Herzfeld
Portfolio Manager
- 5 -
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2009
================================================================================
Shares or Principal Amount Description Fair Value
--------------------------------------------------------------------------------
Common stocks - 90.40% of net assets
Airlines - 6.55%
29,500 Copa Holdings, S.A $ 1,204,190
16,000 AirTran Holdings Inc 99,040
Banking and finance - 8.54%
26,280 Bancolombia, S.A 801,540
39,000 Banco Latinoamericano de Exportaciones, S.A 484,770
6,500 Doral Financial Corp.* 16,250
16,400 Grupo Financiero Banorte, S.A. de C.V. Series O 39,910
9,900 Grupo Financiero Inbursa, S.A.B. de C.V. Series O 26,264
50,000 Popular Inc. 110,000
3,844 W Holding Co. Inc. 54,585
10,000 Western Union Company 164,000
Communications - 12.83%
20,000 America Movil, S.A.B. de C.V. ADR 774,400
35,600 America Movil, S.A.B. de C.V. Series A 67,603
50,891 America Movil, S.A.B. de C.V. Series L 98,727
4,894 Atlantic Tele-Network, Inc. 192,285
11,900 Carso Global Telecom, S.A.B. de C.V. Series A1* 44,003
176,000 Fuego Entertainment Inc.* 26,400
871 Grupo Iusacell, S.A. de C.V. Series V* 3,009
21,120 Grupo Radio Centro, S.A.B. ADR 147,629
32,400 Grupo Televisa, S.A.B. ADR 550,800
13,400 Grupo Televisa, S.A.B. Series CPO 45,531
80,304 Spanish Broadcasting System, Inc.* 14,455
15,000 Telefonos de Mexico, S.A.B. de C.V. ADR Series L 243,150
23,800 Telefonos de Mexico, S.A.B. de C.V. Series A 19,336
78,600 Telefonos de Mexico, S.A.B. de C.V. Series L 64,156
15,000 Telmex International, S.A.B. de C.V. ADR 189,750
23,800 Telmex International Series A 14,457
78,600 Telmex International Series L 49,892
13,900 TV Azteca, S.A.B. de C.V. Series CPO 5,594
Conglomerates and holding companies - 1.15%
250,000 Admiralty Holding Company* 175
5,400 Alfa, S.A.B. de C.V. Series A 15,212
70,348 BCB Holdings Ltd.* 144,816
------------------------------
* Non-income producing
SEE ACCOMPANYING NOTES.
- 6 -
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2009 (CONTINUED)
================================================================================
Shares or Principal Amount Description Fair Value
--------------------------------------------------------------------------------
Conglomerates and holding companies (continued)
3,200 Corporacion Interamericana de Entretenimiento, S.A.B.
de C.V. Series B* $ 1,611
11,000 Grupo Carso, S.A.B. de C.V. Series A1 29,567
1,580 Grupo Kuo S.A.B. de C.V.* 720
20 Grupo Pochteca, S.A.B. de C.V. * 3
3,250 Shellshock Ltd. Ord.* 1,873
2,900 Vitro, S.A.B. de C.V. Series A* 1,268
27,918 Vitro, S.A.B. de C.V. ADR 33,222
Construction and related - 5.27%
21,737 Cemex S.A.B. de C.V. ADR 203,024
51,582 Cemex S.A.B. de C.V. Series CPO 48,213
20 Ceramica Carabobo Class A ADR* 4,657
17,200 Consorcio ARA, S.A.B. de C.V. 7,483
1,580 Dine S.A.B. de C.V. Series B* 720
3,583 Empresas ICA, S.A.B. de C.V.* 6,140
800 Grupo Cementos de Chichuahua, S.A.B. de C.V. 2,074
66,132 Mastec, Inc.* 775,067
Consumer products and related manufacturing - 8.13%
13,273 Grupo Casa Saba, S.A.B. de C.V. ADR 245,551
28,000 Watsco Incorporated 1,370,040
Food, beverages and tobacco - 6.06%
1,219 Alsea, S.A.B. de C.V. 692
12,000 Chiquita Brands International Inc.* 123,120
16,500 Coca Cola Femsa, S.A.B. de C.V. ADR 661,980
200 Coca Cola Femsa, S.A.B. de C.V. Series L 804
18,900 Fomento Economico Mexicano, S.A.B. de C.V. Series UBD 60,947
17,690 Fresh Del Monte Produce Inc.* 287,639
800 Gruma, S.A.B. de C.V. Series B* 820
7,600 Grupo Bimbo, S.A.B. de C.V. Series A 40,394
7,700 Grupo Modelo, S.A.B. de C.V. Series C 27,502
Housing - 1.66%
1,700 Corporacion Geo S.A.B. de C.V. Series B* 3,284
100 Desarrolladora Homex, S.A.B. de C.V.* 465
33,500 Lennar Corporation 324,615
400 Sare Holding, S.A.B. de C.V. Series B* 122
1,500 Urbi Desarrollos Urbanos, S.A.B. de C.V.* 2,278
------------------------------
* Non-income producing
SEE ACCOMPANYING NOTES.
- 7 -
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2009 (CONTINUED)
================================================================================
Shares or Principal Amount Description Fair Value
--------------------------------------------------------------------------------
Investment companies - 0.02%
4,420 Shellproof Limited $ 2,184
147 Western Asset Emerging Markets Debt Fund 2,151
Leisure - 7.61%
34,500 Carnival Corp. 889,065
32,500 Royal Caribbean Cruises Ltd. 440,050
6,000 Steiner Leisure Ltd.* 183,180
Medical - 0.21%
8,386 Micromet Inc.* 41,762
Mining - 7.33%
29,000 Freeport McMoran Copper & Gold, Inc. 1,453,190
3,813 Grupo Mexico, S.A.B. de C.V. Series B 4,169
Pulp and paper - 0.12%
6,100 Kimberly-Clark de Mexico, S.A.B. de C.V. Series A 23,274
Railroad - 3.03%
16,000 Norfolk Southern Corporation 602,720
Retail - 0.97%
3,700 Controladora Comercial Mexicana, S.A.B. de C.V.
Series UBC* 2,132
1,270 Grupo Elektra, S.A.B. de C.V. Series CPO 57,857
45,111 Wal-Mart de Mexico, S.A.B. de C.V. Series V 133,447
Service - 0.01%
700 Grupo Aeroportuario del Sureste, S.A.B. de C.V. Series B 2,741
100 Promotora Ambiental, S.A.B. de C.V.* 89
Trucking and marine freight - 12.50%
61,404 Grupo TMM, S.A.B. ADR* 54,036
1,201 Seaboard Corporation 1,347,522
1,000 Seacor Holdings, Inc. 75,240
20,000 Teekay Corporation 420,600
8,361 Teekay LNG Partners LP 163,040
66,797 Trailer Bridge, Inc.* 323,297
23,000 Ultrapetrol Bahamas Ltd.* 101,890
------------------------------
* Non-income producing
SEE ACCOMPANYING NOTES.
- 8 -
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2009 (CONTINUED)
================================================================================
Shares or Principal Amount Description Fair Value
--------------------------------------------------------------------------------
Utilities - 8.28%
12,000 Caribbean Utilities Ltd. Class A $ 100,200
66,841 Consolidated Water, Inc. 1,059,430
700 Cuban Electric Company* 3,500
40,500 Teco Energy Inc. 483,165
Other - 0.13%
13,000 Impellam Grp.* 5,887
55,921 Margo Caribe, Inc.* 14,539
300 Mexichem S.A.B. de C.V. 383
895 Siderurgica Venezolana Sivensa, S.A. ADR 3,960
79 Siderurgica Venezolana Sivensa, S.A. Series B 350
45,000 Xcelera, Inc. (Note 2)* --
TOTAL COMMON STOCKS (COST $21,915,066) $ 17,972,873
Bonds - 0% of net assets
$ 165,000 Republic of Cuba - 4.5%, 1977 - in default
(cost $63,038) (Note 2)* --
-------------
OTHER ASSETS LESS LIABILITIES - 9.60% OF NET ASSETS $ 1,908,627
-------------
NET ASSETS - 100% $ 19,881,500
=============
The investments are concentrated in the following geographic regions (as
percentages of net assets):
United States of America 46.62%
Mexico 17.48%
Panama 8.50%
Cayman Islands 7.28%
Other, individually under 5%** 20.12%
-------------
100.00%
------------------------------
* Non-income producing
** Amount includes other assets less liabilities of 9.60%
SEE ACCOMPANYING NOTES.
- 9 -
STATEMENT OF ASSETS AND LIABILITIES AS OF JUNE 30, 2009
================================================================================
ASSETS
Investments in securities, at fair value
(cost $21,978,104) (Notes 1 and 2) $17,972,873
Cash 1,966,347
Dividends receivable 16,872
Other assets 33,249
-----------
TOTAL ASSETS 19,989,341
LIABILITIES
Accrued investment advisor fee (Note 3) 66,760
Other payables 41,081
-----------
TOTAL LIABILITIES 107,841
-----------
NET ASSETS (Equivalent to $5.35 per share
based on 3,713,071 shares outstanding) $19,881,500
===========
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 26,856,478
Accumulated net realized loss on investments (2,973,460)
Net unrealized loss on investments (Notes 4 and 5) (4,005,231)
-----------
NET ASSETS $19,881,500
===========
* 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, 2009
================================================================================
INVESTMENT INCOME AND EXPENSES
Dividends and interest $ 437,395
------------
Investment advisor fees (Note 3) $ 282,795
Professional fees 92,812
Custodian fees 54,000
Insurance 45,707
CCO salary 26,913
Printing and postage 23,518
Transfer agent fees 17,500
Director fees 15,600
Listing fees 15,000
Proxy services 4,623
Other 28,939
------------
Total investment expenses 607,407
------------
NET INVESTMENT INCOME (LOSS) (170,012)
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net realized gain (loss) on investments and
foreign currency (2,917,743)
Net increase (decrease) in unrealized
appreciation (depreciation) on
investments and foreign currency (3,377,841)
------------
NET LOSS ON INVESTMENTS (6,295,584)
------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ($ 6,465,596)
============
SEE ACCOMPANYING NOTES.
- 11 -
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED JUNE 30, 2009 AND 2008
================================================================================
2009 2008
INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS:
Net investment income (loss) ($ 170,012) $ 417,567
Net realized gain (loss) on investments and
foreign currency ( 2,917,743) 3,127,940
Net increase (decrease) in unrealized
appreciation (depreciation) on
investments and foreign currency ( 3,377,841) ( 8,184,478)
------------ ------------
NET DECREASE IN NET ASSETS
resulting from operations ( 6,465,596) ( 4,638,971)
DISTRIBUTIONS TO STOCKHOLDERS:
Net investment income ( 600,032) ( 200,000)
Long-term realized gains ( 183,426) ( 4,279,807)
------------ ------------
NET DISTRIBUTIONS TO STOCKHOLDERS ( 783,458) ( 4,479,807)
------------ ------------
CAPITAL STOCK TRANSACTIONS:
Shares issued in reinvestment
of distribution
(213,222 shares in 2008) (Note 6) -- 1,692,977
Shares issued in rights offering,
net of rights offering costs
(1,812,293 shares in 2008) (Note 6) -- 18,075,138
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ( 7,249,054) 10,649,337
NET ASSETS:
Beginning 27,130,554 16,481,217
Ending $ 19,881,500 $ 27,130,554
============ ============
SEE ACCOMPANYING NOTES.
- 12 -
FINANCIAL HIGHLIGHTS
YEARS ENDED JUNE 30, 2005 THROUGH 2009
======================================================================================================================
2009 2008 2007 2006 2005
-------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(FOR A SHARE OF CAPITAL STOCK OUTSTANDING FOR THE YEAR)
Net asset value, beginning of year $ 7.31 $ 9.77 $ 8.08 $ 7.33 $ 5.43
-------- -------- -------- -------- --------
Operations:
Net investment income (loss)(1) (0.05) 0.22 (0.14) (0.16) (0.09)
Net realized and unrealized gain (loss) on
investment transactions(1) (1.70) (1.40) 2.83 1.08 1.99
-------- -------- -------- -------- --------
Total from operations (1.75) (1.18) 2.69 0.92 1.90
-------- -------- --------
Distributions:
From net investment income (0.16) (0.06) -- -- --
From net realized gains (0.05) (1.22) (1.00) (0.17) --
-------- -------- --------- --------
Total distributions (0.21) (1.28) (1.00) (0.17) --
--------- --------
Net asset value, end of year $ 5.35 $ 7.31 $ 9.77 $ 8.08 $ 7.33
-------- -------- -------- -------- --------
Per share market value, end of year $ 6.07 $ 7.69 13.59 $ 7.57 $ 6.30
-------- -------- -------- -------- --------
Total investment return (loss) based on
market value per share (17.73%) (34.29%) 94.61% 22.86% 29.36%
-------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of year (in 000's) $ 19,882 $ 27,131 $ 16,481 $ 13,553 $ 12,292
-------- -------- -------- -------- --------
Ratio of expenses to average net assets 3.02% 2.74% 3.28% 3.37% 3.55%
-------- -------- -------- -------- --------
Ratio of net investment income (loss)
to average net assets (0.84%) 1.70% (1.83%) (1.95%) (1.47%)
-------- -------- -------- -------- --------
Portfolio turnover rate 17% 25% 28% 40% 30%
-------- -------- -------- -------- --------
(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, 2009, the Fund had foreign investments in companies operating
principally in Mexico and Panama representing approximately 17% and 9% 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
------------------
The Fund adopted the provisions of SFAS No. 157, "Fair Value Measurements"
("SFAS No. 157"), effective January 1, 2008. Under SFAS No. 157, 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.
In determining fair value, the Fund uses various valuation approaches. SFAS No.
157 establishes a fair value hierarchy for inputs 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.
- 14 -
NOTES TO FINANCIAL STATEMENTS
================================================================================
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
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.
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
- 15 -
NOTES TO FINANCIAL STATEMENTS
================================================================================
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, 2009:
LEVEL Investments in Securities
----------------------------------------
Level 1 $ 17,972,873
Level 2 $ 0
Level 3 $ 0*
*See Note 2, non-marketable securities owned
The Fund's Level 3 assets measured at fair value as of July 1, 2008 were $0.
There were no purchases, sales, or transfers of Level 3 assets during the year
ended June 30, 2009. Changes in unrealized gains (losses) for Level 3 assets
still held as of June 30, 2009 were $0.
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, 2009 were approximately $27.
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.
- 16 -
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 income 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, 2009, a distribution
from long-term capital gains of $0.0494 per share and a net investment income
distribtuion of $0.1616 per share was declared on November 12, 2008, payable on
January 5, 2009 to stockholders of record December 12, 2008. 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 $4.9896 per share,
which was the price paid by the Fund to purchase the required number of shares
in the open market in order to pay the distribution.
NOTE 2. NON-MARKETABLE AND RESTRICTED SECURITIES OWNED
Investments in securities, 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 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, 2009, the
position was valued at $0 by the Board of Directors, which approximates the
bonds' fair value.
- 17 -
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, 2009, the position was valued at $0 by the
Board of Directors, which approximates the position's fair value.
Two of the Fund's holdings are currently segregated and restricted from transfer
because they appear on the OFAC list. These securities are: $165,000 principal
value Republic of Cuba, 4.5%, 1977 in default with a fair value of $0, and 700
shares of Cuban Electric Company with a fair value of $3,500.
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, 2009 amounted to $282,795, of which $66,760 is payable as of June
30, 2009.
During the year ended June 30, 2009, the Fund paid $14,550 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 $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.
NOTE 4. INVESTMENT TRANSACTIONS
During the year ended June 30, 2009, purchases and sales of investment
securities were $3,424,049 and $5,880,414, respectively.
At June 30, 2009, the Fund's investment portfolio had gross unrealized gains of
$2,011,269 and gross unrealized losses of $6,016,500, resulting in a net
unrealized loss of $4,005,231 for financial statement purposes.
NOTE 5. INCOME TAX INFORMATION
For financial statement purposes, the Fund's net investment loss for the year
ended June 30, 2009 does not differ from the net investment loss for tax
purposes. Realized gains differ for financial statement and tax purposes
primarily due to differing treatments of wash sales.
- 18 -
NOTES TO FINANCIAL STATEMENTS
================================================================================
As of June 30, 2009, for tax purposes the Fund's undistributed net investment
loss was $0 and its undistributed realized loss ("capital loss carryforward") on
investments was $1,256,393. This capital loss carryforward will expire, if
unutilized, as of December 31, 2017. Additionally, the Fund has post October
capital losses as of June 30, 2009, which is deferred until 2010 for tax
purposes, of $1,220,594.
The cost basis of securities owned for financial statement purposes is lower
than the cost basis for income tax purposes by $496,451 due to wash sale
adjustments. As of June 30, 2009, gross unrealized gains were $1,514,818 and
gross unrealized losses were $6,016,500 for income tax purposes.
Permanent differences accounted for during the year ended June 30, 2009 result
from differences between book and tax accounting for the characterization of
distributions and the write-off of the Fund's net investment loss for tax
purposes. Such amounts have been reclassified as follows:
Accumulated Net
Accumulated Net Realized Loss On Additional Paid
Investment Loss Investments in Capital
--------------------------------------------------------------------------------
Year ended June 30, 2009 $546,263 $(373,042) $(173,221)
--------------------------------------------------------------------------------
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.
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 period ended June 30, 2009.
The Fund files income tax returns in the U.S. federal jurisdiction and various
states jurisdictions. The tax years ended 2006 to 2008 are open and may be
subject to examination by U.S. federal, state and local income tax authorities.
- 19 -
NOTES TO 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.
YEAR-END DISTRIBUTIONS
On January 5, 2009, the Fund paid a year-end distribution of $0.211 per share
paid in stock. Stockholders 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 $4.9896 per share including brokerage commissions.
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.
- 20 -
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 Stockholders 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, 2009, 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 the four 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 the year 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 misstatement. 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
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 an 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 statements. Our procedures included confirmation of securities
owned as of June 30, 2009, by correspondence with the custodian and brokers. 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, 2009, the results of its
operations for the year then ended, the changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
four 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 12, 2009
- 21 -
DIRECTORS AND OFFICERS OF THE FUND
====================================================================================================================================
NUMBER
TERM OF PRINCIPAL OF PORTFOLIOS OTHER
NAME POSITION(S) OFFICE AND OCCUPATION(S) IN COMPLEX DIRECTORSHIPS
ADDRESS HELD LENTH OF DURING PAST OVERSEEN HELD BY
AND AGE WITH FUND TIME SERVED 5 YEARS BY DIRECTOR DIRECTOR
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTOR
-------------------
THOMAS J. HERZFELD* President, three years; Chairman and President of 2 The Cuba Fund, Inc.
PO Box 161465 Portfolio 1993 to present Thomas J. Herzfeld & Co., (in registration)
Miami, FL 33116 Manager, Inc., a broker dealer,
Age: 64 Chairman, and Thomas J. Herzfeld
Director Advisors, Inc.
INDEPENDENT DIRECTORS
---------------------
ANN S. LIEFF Director three years; President of the Lieff 1 Hastings
c/o The Herzfeld Caribbean 1998 to present Company, a management Entertainment, Inc.;
Basin Fund, Inc. consulting firm that Birks & Mayors, Inc.
PO Box 161465 offers ongoing advisory
Miami, FL 33116 services as a corporate
Age: 57 director to several retail
operations, 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 1 Margo Caribe, Inc.
c/o The Herzfeld Caribbean 2002 to present P.A., attorney at law;
Basin Fund, Inc. Broker, Oaks Management &
PO Box 161465 Real Estate Corp., a real
Miami, FL 33116 estate corporation
Age: 67
KAY W. TATUM, PH.D., CPA Director three years; Associate Professor of 1 None
c/o The Herzfeld Caribbean 2007 to present Accounting, University of
Basin Fund, Inc. Miami School of Business
PO Box 161465 Administration, 1992-present;
Miami, FL 33116 Chair, Department of
Age: 57 Accounting, 2004-2008;
Assistant Professor of
Accounting, University of
Miami, 1986-1992.
OFFICERS
--------
ERIK M. HERZFELD Portfolio 2008 to present Portfolio Manager and N/A
PO Box 161465 Manager Head of Alternative
Miami, FL 33116 Strategies, Thomas J.
Age: 36 Herzfeld Advisors, Inc.
2007-present; Vice
President JPMorgan Chase
2000-2007, foreign
exchange option trading
CECILIA L. GONDOR Secretary, 1993 to present Executive Vice President N/A
PO Box 161465 Treasurer of Thomas J. Herzfeld &
Miami, FL 33116 Co., Inc., a broker dealer,
Age: 47 and Thomas J. 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.
- 22 & 23 -
ADDITIONAL PORTFOLIO MANAGER
================================================================================
In November 2008, Mr. Erik M. Herzfeld was appointed as a portfolio manager of
the Fund. Prior to his appointment as a portfolio manager, Mr. Thomas J.
Herzfeld was sole portfolio manager of the Fund. Erik joined Thomas J. Herzfeld
Advisors, Inc. in February, 2007. Before Thomas J. Herzfeld Advisors, Inc., Erik
served in quantitative research and trading roles with both Lehman Brothers and
JPMorgan, where he served as a Vice President in New York and Asia. Erik is a
graduate of Johns Hopkins University with a degree in Economics and holds a
Masters Degree from the MIT Sloan School of Management.
- 24 -
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.
- 25 -
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.
- 26 -
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.
- 27 -
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 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
(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, 2008 and 2009.
Fiscal Year Audit-Related Tax All Other
Ended June 30, Audit Fees Fees(1) Fees(2) Fees(3)
2008 $39,500 $12,500 $12,000 $0
2009 $42,500 $6,000 $5,750 $0
(1) These fees related to out-of-pocket expenses incurred by the fund's auditor
in connection with the audit.
(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, 2008 and 2009 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 2008 and $0 for 2009.
(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, 2009, the registrant's audit committee was comprised of Kay W. Tatum,
Ann S. Lieff, and Michael A. Rubin.
(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 29, 2009.
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 29, 2009.
(a)(2)(i) and (ii) Mr. Thomas J. Herzfeld and Mr. Erik M. Herzfeld are also
portfolio managers for approximately 46 other accounts comprising $46 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. Thomas J. Herzfeld and Mr. Erik M. Herzfeld; the Fund has total assets of
approximately $21 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.
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. Thomas J. Herzfeld and Mr. Erik M. Herzfeld receive no direct
compensation from the Fund for their services as Portfolio Managers. Mr. Thomas
J. 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.
Portfolio managers, other than Thomas J. Herzfeld, are paid a fixed salary by
the Advisor. In addition, the Advisor retains the ability to pay bonuses based
on the overall profitability of the Advisor, however, compensation is not
directly based upon the performance of a particular client or account, including
the Fund's performance, nor the value of a particular client or account,
including the value of the Fund's assets.
(4)(a) Range of value of shares of the Fund owned by Mr. Thomas J. Herzfeld as
of June 30, 2009: $100,001-$500,000. Range of value of shares of the Fund owned
by Mr. Erik M. Herzfeld as of June 30, 2009: $100,001-$500,000.
(4)(b) Range of value of shares of the Fund owned by Mr. Thomas J. Herzfeld as
of the date of this filing: $100,001-$500,000. Range of value of shares of the
Fund owned by Mr. Erik M. 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, 2009 and
ending January 31, 2009)
----------------------------------------------------------------------------------------------------------------------
Month #2 (beginning 0 n/a n/a n/a
February 1, 2009 and
ending February 28, 2009)
----------------------------------------------------------------------------------------------------------------------
Month #3 (beginning 0 n/a n/a n/a
March 1, 2009 and
ending March 31, 2009)
----------------------------------------------------------------------------------------------------------------------
Month #4 (beginning 0 n/a n/a n/a
April 1, 2009 and
ending April 30, 2009)
----------------------------------------------------------------------------------------------------------------------
Month #5 (beginning May 0 n/a n/a n/a
1, 2009 and ending May
31, 2009)
----------------------------------------------------------------------------------------------------------------------
Month #6 (beginning 0 n/a n/a n/a
June 1, 2009 and ending
June 30, 2009)
----------------------------------------------------------------------------------------------------------------------
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 28, 2009
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 28, 2009
By: /s/ Cecilia L. Gondor
----------------------------
Cecilia L. Gondor
Secretary and Treasurer
(Principal Financial Officer)
Date: August 28, 2009
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
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(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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2. Providing cumulative voting rights. Oppose
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3. "Social issues," unless specific client guidelines Oppose
supersede, e.g., restrictions regarding South Africa.
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4. Election of directors recommended by management, except if Approve
there is a proxy fight.
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5. Election of auditors recommended by management, unless Approve
seeking to replace if there exists a dispute over policies.
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6. Date and place of annual meeting. Approve
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7. Limitation on charitable contributions or fees paid to Approve
lawyers.
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8. Ratification of directors' actions on routine matters since Approve
previous annual meeting.
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9. Confidential voting Approve
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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10. Limiting directors' liability Approve
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11. 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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12. Employee Stock Purchase Plan Approve
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13. Establish 401(k) Plan Approve
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14. Rotate annual meeting location/date Approve
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15. Establish a staggered Board Approve
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16. Eliminate director mandatory retirement policy Case-by-Case
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17. Option and stock grants to management and directors Case-by-Case
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18. Allowing indemnification of directors and/or officers after Case-by-Case
reviewing the applicablelaws and extent of protection
requested.
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EXHIBIT A
Chief Executive Officer - Thomas J. Herzfeld
Chief Financial Officer - Cecilia L. Gondor