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
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The Herzfeld Caribbean Basin Fund, Inc.
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(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
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(Name and address of agent for service)
Registrant's telephone number, including area code: 305-271-1900
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Date of fiscal year end: 06/30/04
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Date of reporting period: 06/30/04
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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
[GRAPHIC OMITTED]
THE HERZFELD
CARIBBEAN BASIN
FUND, INC.
ANNUAL REPORT
JUNE 30, 2004
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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
Investors Bank & Trust Company
200 Clarendon Street, 16th Floor
Boston, MA 02116
(617) 443-6870
CUSTODIAN
Investors Bank & Trust Company
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
Kaufman, Rossin & Co., P.A.
2699 South Bayshore Drive
Miami, FL 33133
www.kaufmanrossin.com
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The Herzfeld Caribbean Basin Fund'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
consist of 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
and Venezuela. The fund invests at least 80% of its total assets in a broad
range of securities of issuers including U.S.-based companies, which engage in
substantial trade with and derive substantial revenue from operations in the
Caribbean Basin Countries.
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Listed NASDAQ SmallCap Market
Symbol: CUBA
-2-
LETTER TO STOCKHOLDERS
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August 9, 2004
Dear Fellow Stockholders:
We are pleased to present our annual report for the period ended June 30, 2004.
On that date The Herzfeld Caribbean Basin Fund's net assets were $9,109,162 and
its net asset value per share was $5.43, compared with $6,626,004, or $3.95 per
share, at the beginning of the period. This represents a gain of 37.5% in net
asset value and an increase of 39.5% in share price from $3.49 to $4.87 per
share.
[GRAPHIC OMITTED]
Thomas J. Herzfeld
Chairman and President
PORTFOLIO COMMENTARY
Our largest position continues to be FLORIDA EAST COAST INDUSTRIES (FLA). For
the benefit of stockholders who are not familiar with the company, FLA is
headquartered in St. Augustine, Florida, and has two main businesses: the
Flagler Development Company (real estate) and the Florida East Coast Railroad.
Just today, Florida East Coast Industries released its second quarter results,
and they were quite favorable. For example, the railroad revenues increased by
11% and the operating profit was ahead 13%. During the same six month period,
the real estate company's revenues increased 6%. I continue to believe that FLA
would be favorably impacted by a lifting of the embargo with Cuba. The company's
main rail business is a freight line operating between Jacksonville and Miami.
Following the end of our fiscal year, we added one speculative investment to the
portfolio, CANCERVAX (CNVX), a U.S. company which just announced a business
venture with Cuba. The deal was done with U.S. government approval and is
related to the development of three cancer drugs developed in the Center for
Molecular Immunology in Havana. To comply with U.S. regulations, CancerVax will
pay for its investment with food and medical supplies rather than U.S. dollars.
Since the U.S. government has now permitted this type of business arrangement
with Cuba, we are reviewing the possibility of similar transactions.
-3-
LETTER TO STOCKHOLDERS (CONTINUED)
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LARGEST ALLOCATIONS
The following tables present our largest investment and geographic allocations
as of June 30, 2004.
-------------------------------- ----------------------------------------------
GEOGRAPHIC % OF NET ASSETS LARGEST PORTFOLIO POSITIONS % OF NET ASSETS
ALLOCATION
USA 55.96% Florida East Coast Industries, Inc. 22.91%
Mexico 13.09% Consolidated Water Co. 7.71%
Cayman Islands 9.27% Royal Caribbean Cruises Ltd. 7.15%
Latin American Regional 7.38% Florida Rock Industries, Inc. 6.94%
Netherlands Antilles 4.30% The Latin American Equity Fund, Inc. 5.10%
Belize 2.85% Watsco Incorporated 4.62%
Panama 2.77% Orthofix International N.V. 4.30%
Puerto Rico 2.12% Seaboard Corporation 3.83%
Virgin Islands 1.06% Carnival Corp. 3.61%
Colombia 0.51% Carlisle Holdings, Inc. 2.85%
Costa Rica 0.39% ----------------------------------------------
Venezuela 0.09%
Dominican Republic 0.05%
Cuba 0.00%
--------------------------------
PREMIUM/DISCOUNT
As the graph below depicts, the Fund has traded at both premiums and discounts
every year except the year of inception in which it traded only at a premium. As
I have stated before, we believe that closed-end funds trading at discounts to
net asset value represent good value.
PREMIUM/DISCOUNT OF THE HERZFELD CARIBBEAN BASIN FUND FROM INCEPTION
[GRAPHIC OMITTED]
-4-
LETTER TO STOCKHOLDERS (CONTINUED)
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Daily net asset values and press releases on the Fund are available on the
Internet at WWW.HERZFELD.COM.
I would like to thank the members of the Board of Directors for their hard work
and guidance and also to thank my fellow stockholders for their continued
support and suggestions.
Sincerely,
/s/ Thomas J. Herzfeld
Thomas J. Herzfeld
Chairman of the Board and President
-5-
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2004
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Shares or Principal Amount Description Market Value
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Common stocks - 99.84% of net assets
Banking and finance - 3.56%
7,000 Bancolombia, S.A. $ 46,760
16,120 Banco Latinoamericano de Exportaciones, S.A. 252,762
3,600 Grupo Financiero Banorte, S.A. de C.V. Series O 12,729
8,400 Grupo Financiero Inbursa, S.A. de C.V. Series O 11,788
Communications - 10.12%
11,000 America Movil, S.A. de C.V. Series A 19,929
43,800 America Movil, S.A. de C.V. Series L 79,541
1,000 America Movil ADR Series L 36,370
11,100 America Telecom, S.A. de C.V. Series A1* 21,361
3,000 Atlantic Tele-Network, Inc. 96,300
11,100 Carso Global Telecom, S.A. de C.V. Series A1 16,261
7,000 Garmin Ltd. 259,280
725 Grupo Iusacell, S.A. de C.V. Series V* 880
16,800 Grupo Radio Centro, S.A. ADR 99,792
3,000 Grupo Televisa, S.A. GDR 135,810
12,100 Grupo Televisa, S.A. Series CPO 27,176
1,000 Telefonos de Mexico ADR Series L 33,270
11,000 Telefonos de Mexico, S.A. de C.V. Series A 18,174
39,300 Telefonos de Mexico, S.A. de C.V. Series L 65,306
18,000 Tricom, S.A. ADR* 4,500
13,900 TV Azteca, S.A. de C.V. Series CPO 7,470
Conglomerates - 3.51%
4,900 Alfa, S.A. de C.V. Series A 16,440
39,400 Carlisle Holdings, Inc.* 259,646
3,100 Corporacion Interamericana de Entretenimiento, S.A. de C.V.
Series B* 6,584
7,000 Desc, S.A. de C.V. Series B* 1,984
3,300 Grupo Carso, S.A. de C.V. Series A1 13,447
3,300 U.S. Commercial Corp., S.A. de C.V.* 1,716
2,600 Vitro, S.A. Series A 2,531
6,000 Vitro Sociedad Anonima ADR 17,640
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*Non-income producing
See accompanying notes.
-6-
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2004 (CONTINUED)
================================================================================
Shares or Principal Amount Description Market Value
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Construction and related - 9.15%
12,000 Bufete Industrial S.A. ADR* $ 600
10,442 Cemex, S.A. de C.V. Series CPO 60,464
1,936 Ceramica Carabobo Class A ADR* 2,382
4,000 Consorcio ARA, S.A. de C.V. Series A1* 11,512
15,600 Empresas ICA, Sociedad Controladora, S.A. de C.V.* 4,773
15,000 Florida Rock Industries, Inc. 632,550
1,665 Hylsamex S.A. CPO* 2,425
21,950 Mastec, Inc.* 119,188
Consumer products and related manufacturing - 5.77%
800,000 Atlas Electricas, S.A. 35,840
5,400 Grupo Casa Saba, S.A. ADR 68,828
15,000 Watsco Incorporated 421,050
Food, beverages and tobacco - 3.17%
10,300 Coca Cola Femsa, S.A. de C.V. ADR 228,557
5,800 Fomento Economico Mexicano, S.A. de C.V. Series UBD 26,515
7,300 Grupo Bimbo, S.A. de C.V. Series A 15,377
7,300 Grupo Modelo, S.A. de C.V. Series C 18,275
Investment companies - 7.38%
16,404 The Latin American Discovery Fund, Inc. 208,167
32,345 The Latin America Equity Fund, Inc. 464,474
Leisure - 10.76%
7,000 Carnival Corp. 329,000
15,000 Royal Caribbean Cruises Ltd. 651,150
Medical - 4.30%
9,160 Orthofix International N.V.* 391,407
Pulp and paper - 0.17%
5,700 Kimberly-Clark de Mexico, S.A. de C.V. Series A 15,515
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*Non-income producing
See accompanying notes.
-7-
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2004 (CONTINUED)
================================================================================
Shares or Principal Amount Description Market Value
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Railroad and landholdings - 22.91%
54,000 Florida East Coast Industries, Inc. $ 2,087,100
Retail - 0.81%
3,700 Controladora Comercial Mexicana, S.A. de C.V. Series UBC 4,073
1,380 Grupo Elektra, S.A. de C.V. Series CPO 8,136
20,669 Wal-Mart de Mexico, S.A. de C.V. Series V 61,274
Trucking and marine freight - 6.22%
8,000 Grupo TMM, S.A. ADR* 19,600
700 Seaboard Corporation 348,565
39,600 Trailer Bridge, Inc.* 198,396
Utilities - 9.27%
12,000 Caribbean Utilities Ltd. Class A 142,200
27,000 Consolidated Water, Inc. 702,540
Other - 2.74%
2,414 Mantex S.A.I.C.A* 4,872
39,620 Margo Caribe, Inc.* 193,147
843 Siderurgica Venezolana Sivensa ADR 762
75 Siderurgica Venezolana Sivensa Series B 68
35,000 Xcelera, Inc.* 50,750
TOTAL COMMON STOCKS (COST $6,778,698) $ 9,094,979
Bonds - 0% of net assets
165,000 Republic of Cuba - 4.5%, 1977 - in default
(cost $63,038) (Note 2)* --
OTHER ASSETS LESS LIABILITIES - 0.16% OF NET ASSETS $ 14,183
-----------
NET ASSETS - 100% $ 9,109,162
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*Non-income producing
See accompanying notes.
-8-
STATEMENT OF ASSETS AND LIABILITIES AS OF JUNE 30, 2004
================================================================================
ASSETS
Investments in securities, at market value (cost $6,841,736)
(Notes 2 and 5) $ 9,094,979
Cash 13,146
Dividends receivable 12,266
Other assets 55,749
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TOTAL ASSETS $ 9,176,140
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LIABILITIES
Accrued investment advisor fee (Note 3) $ 31,974
Other payables 35,004
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TOTAL LIABILITIES 66,978
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NET ASSETS (Equivalent to $5.43 per share
based on 1,677,636 shares outstanding) $ 9,109,162
===========
NET ASSETS CONSIST OF THE FOLLOWING:
Common stock, $.001 par value; 100,000,000
shares authorized; 1,677,636 shares issued
and outstanding $ 1,678
Additional paid-in capital 8,362,502
Accumulated net investment loss (Note 5) (1,244,987)
Accumulated net realized loss on investments (Note 5) (263,274)
Net unrealized gain on investments (Notes 4 and 5) 2,253,243
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TOTAL $ 9,109,162
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See accompanying notes.
-9-
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 2004
================================================================================
INVESTMENT INCOME
Dividends $ 188,886
Interest 134
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Total investment income 189,020
EXPENSES
Investment advisor fees (Note 3) $ 120,864
Custodian fees 54,000
Professional fees 44,333
Insurance 27,618
Transfer agent fees 17,500
Listing fees 15,000
Director fees 7,800
Printing 7,087
Postage 4,943
Miscellaneous 4,960
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Total investment expenses 304,105
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INVESTMENT LOSS - NET ($ 115,085)
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS AND FOREIGN CURRENCY
Net realized gain on investments and foreign
currency 358,431
Change in unrealized gain on investments and
foreign currency 2,239,812
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NET GAIN ON INVESTMENTS 2,598,243
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NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 2,483,158
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See accompanying notes.
-10-
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED JUNE 30, 2004 AND 2003
================================================================================
2004 2003
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS:
Net investment loss ($ 115,085) ($ 186,014)
Net realized gain (loss) on investments and
foreign currency 358,431 (964,095)
Change in unrealized gain on investments
and foreign currency 2,239,812 1,337,987
------------ -----------
Net increase in net assets resulting from
operations 2,483,158 187,878
DISTRIBUTIONS TO STOCKHOLDERS FROM:
Long-term realized gains -- (129,950)
------------ -----------
NET INCREASE IN NET ASSETS $ 2,483,158 $ 57,928
NET ASSETS:
Beginning of year $ 6,626,004 $ 6,568,076
------------ -----------
End of year $ 9,109,162 $ 6,626,004
============ ===========
See accompanying notes.
-11-
FINANCIAL HIGHLIGHTS
YEARS ENDED JUNE 30, 2000 THROUGH 2004
================================================================================
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
PER SHARE OPERATING PERFORMANCE
(FOR A SHARE OF CAPITAL STOCK OUTSTANDING FOR THE YEAR)
Net asset value, beginning of year $3.95 $3.92 $5.15 $5.02 $6.12
----- ----- ----- ----- -----
Operations:
Net investment loss(1) (0.07) (0.11) (0.10) (0.07) (0.10)
Net realized and unrealized gain (loss) on investment
transactions(1) 1.55 0.22 (0.98) 0.20 (1.00)
---- ---- ------ ---- ------
Total from operations 1.48 0.11 (1.08) 0.13 (1.10)
---- ---- ------ ---- ------
Distributions:
From net investment income -- -- (0.10) -- --
From net realized gains -- (0.08) (0.05) -- --
------ ------
Total distributions -- (0.08) (0.15) -- --
------ ------
Net asset value, end of year $5.43 $3.95 $3.92 $5.15 $5.02
----- ----- ----- ----- -----
Per share market value, end of year $4.87 $3.49 $3.48 $4.20 $5.06
----- ----- ----- ----- -----
Total investment return (loss) based on
market value per share 39.54% 2.70% (13.45%) (17.04%) (15.63%)
------ ----- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of year (in 000's) $9,109 $6,626 $6,568 $8,643 $8,424
------ ------ ------ ------ ------
Ratio of expenses to average net assets 3.67% 4.46% 3.77% 3.11% 3.11%
----- ----- ----- ----- -----
Ratio of net investment loss
to average net assets (1.39%) (3.15%) (2.45%) (1.33%) (1.76%)
------- ------- ------- ------- -------
Portfolio turnover rate 23% 3% 18% 27% 10%
--- -- --- --- ---
(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.
-12-
NOTES TO FINANCIAL STATEMENTS
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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 SmallCap Market and trades under the symbol "CUBA".
The Fund's investment policy is to invest at least 80% of its assets in
investments that are economically tied to Caribbean Basin Countries. 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. 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, 2004, the Fund had foreign investments in companies operating
principally in Mexico and the Cayman Islands representing approximately 13% and
9% of the Fund's net assets, respectively.
The Fund's custodian and transfer agent is Investors Bank & Trust Company, based
in Boston, Massachusetts.
SECURITY VALUATION
Investments in securities traded on a national securities exchange (or reported
on the NASDAQ national market or SmallCap 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.
-13-
NOTES TO FINANCIAL STATEMENTS
================================================================================
INCOME RECOGNITION
Security transactions are recorded on the trade date. Gains and losses on
securities sold are determined on the basis of identified cost. Dividend income
is recognized on the ex-dividend date, and interest income is recognized on an
accrual basis. 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.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
INCOME TAXES
The Fund's policy is to continue to comply with the provisions of the Internal
Revenue Code that are applicable to regulated investment companies and to
distribute all its taxable income to its stockholders. Under these provisions,
the Fund is not subject to federal income tax on its taxable income and no
federal tax provision is required.
The Fund has adopted a June 30 year-end for federal income tax purposes.
DISTRIBUTIONS TO STOCKHOLDERS
Distributions to stockholders are recorded on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations which may differ from accounting principles generally accepted in
the United States of America. For the year ended June 30, 2004, no distributions
were declared or paid to stockholders.
-14-
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 2. NON-MARKETABLE SECURITY OWNED
Investments in securities include $165,000 principal, 4.5%, 1977 Republic of
Cuba bonds purchased for $63,038. The bonds are 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. As of June 30,
2004, the position was valued at $0 by the Board of Directors, which
approximates the bonds' fair value.
NOTE 3. TRANSACTIONS WITH AFFILIATES
HERZFELD / CUBA (the "Advisor"), a division of Thomas J. Herzfeld Advisors,
Inc., is the Fund's investment advisor and charges a monthly fee at the annual
rate of 1.45% of the Fund's average daily net assets. Total fees for the year
ended June 30, 2004 amounted to $120,864 of which $31,974 is payable at year
end.
During the year ended June 30, 2004, the Fund paid $6,012 of brokerage
commissions to Thomas J. Herzfeld & Co., Inc., an affiliate of the Advisor.
NOTE 4. INVESTMENT TRANSACTIONS
During the year ended June 30, 2004, purchases and sales of investment
securities were $2,032,151 and $1,826,148, respectively.
At June 30, 2004, the Fund's investment portfolio had gross unrealized gains of
$3,423,176 and gross unrealized losses of $1,169,933, resulting in a net
unrealized gain of $2,253,243 for both financial statement and income tax
purposes.
NOTE 5. INCOME TAX INFORMATION
The cost of securities owned for financial statement purposes equals the cost
basis for income tax purposes.
The income tax basis of distributive earnings as of June 30, 2004 include
$1,244,987 of accumulated net investment loss, $263,274 of accumulated net
realized loss on investments and $2,253,243 of net unrealized gain on
investments.
For the year ended June 30, 2004, the Fund utilized a capital loss carryover of
$358,431, of a total cost loss carryover available of $964,095. The remaining
capital loss carryover of $605,664 expires in the tax year ended June 30, 2008.
-15-
DIRECTORS AND OFFICERS OF THE FUND
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NAME POSITION(S) TERM OF OFFICE AND
ADDRESS HELD LENTH OF TIME SERVED
AGE WITH FUND
--------------------------------------------------------------------------------
Officers
THOMAS J. HERZFELD President, three years;
PO Box 161465 Chairman, 1993 to present
Miami, FL 33116 Director
Age: 59
CECILIA L. GONDOR Secretary, three years;
PO Box 161465 Treasurer, 1993 to present
Maimi, FL 33116 Director
Age: 42
Independent Directors
ANN S. LIEFF Director three years;
c/o The Herzfeld Caribbean 1998 to present
Basin Fund, Inc.
PO Box 161465
Miami, FL 33116
Age: 52
MICHAEL A. RUBIN Director three years;
c/o The Herzfeld Caribbean 2002 to present
Basin Fund, Inc.
PO Box 161465
Miami, FL 33116
Age: 62
ALBERT L. WEINTRAUB Director three years;
c/o The Herzfeld Caribbean 1999 to present
Basin Fund, Inc.
PO Box 161465
Miami, FL 33116
Age: 74
-16-
================================================================================
PRINCIPAL OCCUPATION(S) NUMBER OF PORTFOLIOS PUBLIC
DURING PAST 5 YEARS IN COMPLEX OVERSEEN DIRECTORSHIPS
BY DIRECTOR
--------------------------------------------------------------------------------
Chairman and President of 2 The Cuba Fund, Inc.
Thomas J. Herzfeld & Co., Inc., (in registration)
a broker dealer, and Thomas J.
Herzfeld Advisors, Inc.
Executive Vice President of 2 The Cuba Fund, Inc.
Thomas J. Herzfeld & Co., Inc., (in registration)
a broker dealer, and Thomas J.
Herzfeld Advisors, Inc.
President of the Lieff Company, a 1 Hastings
management consulting firm that Entertainment, Inc.;
offers business solutions, Claire's Stores, Inc.;
strategies and CEO mentoring to Mayors Jewelers, Inc.
corporations and women/family-
owned businesses, 1998-present;
former CEO Spec's Music 1980-1998,
a retailer of recorded music.
Partner of Michael A. Rubin P.A., 1 Margo Caribe, Inc.
attorney at law; Broker, Oaks
Management & Real Estate Corp.,
a real estate corporation
Senior Partner of Weintraub, 1 None
Weintraub; of counsel Orshan
et al, attornies; Chairman of
E-Lysium Transaction Systems, Inc.,
an application service provider of
transaction processing, billing
and payment systems
-17-
INDEPENDENT AUDITORS' REPORT
================================================================================
KAUFMAN ROSSIN & CO.
PROFESSTIONAL ASSOCIATION
CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
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. as of
June 30, 2004, and the related statement of operations for the year then ended,
the statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the five 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.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). 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 include confirmation of securities owned as of June
30, 2004, 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, 2004, and 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
five years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Kaufman, Rossin & Co.
Miami, Florida
July 15, 2004
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PRIVACY POLICY
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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.
PROXY VOTING POLICIES AND PROCEDURES
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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.
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THE HERZFELD CARIBBEAN BASIN FUND, INC.
The Herzfeld Building
P.O. Box 161465
Miami, FL 33116
ITEM 2. CODE OF ETHICS
(a) The registrant, as of the end of the period covered by this report, has
adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions, regardless
of whether these individuals are employed by the registrant or a third
party.
(c) There have been no amendments, during the period covered by this report,
to a provision of the code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or
a third party, and that relates to any element of the code of ethics
description.
(d) The registrant has not granted any waivers, including an implicit waiver,
from a provision of the code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or
a third party, that relates to one or more of the items set forth in
paragraph (b) of this item's instructions.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the registrant's board of
directors has determined that Albert L. Weintraub is as an audit committee
financial expert qualified to serve on its audit committee and that he is
"independent," as 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, 2003 and 2004.
Fiscal Year Audit-Related
Ended June 30, Audit Fees Fees (1) Tax Fees (2) All Other Fees
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2003 $15,500 $0 $3,500 $4,512
2004 $20,500 $0 $3,500 $4,682
(1) These fees related to services consisting of accounting consultations,
agreed upon procedure reports, attestation reports, comfort letters and review
of statutory and regulatory filings not included in Audit Fees.
(2) These fees related to services consisting of the review or preparation of
U.S. federal, state, local and excise tax returns.
(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, 2003 and
2004 were pre-approved by the Audit Committee.
(f) Not applicable.
(g) The aggregate non-audit fees billed 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
$4,512 for 2003 and $4,682 for 2004.
(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.
The registrant's audit committee is comprised of Albert L. Weintraub, Ann
S. Lieff, and Michael A. Rubin.
(b) Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not yet 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. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
(a) Not applicable.
ITEM 9. 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 10. 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 11. EXHIBITS.
(a)(1) Code of ethics is filed herewith as Exhibit 99.Code Eth.
(a)(2) Certifications pursuant to Rule 30a-2(a) 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
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Thomas J. Herzfeld
President and Chairman
Date: August 31, 2004
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
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Thomas J. Herzfeld
President and Chairman
Date: August 31, 2004
By: /s/ Cecilia L. Gondor
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Cecilia L. Gondor
Secretary and Treasurer
(Principal Financial Officer)
Date: August 31, 2004
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.(1) 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
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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.
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
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(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.
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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(5) http://www.sec.gov.
(6) Id.