[GRAPHIC OMITTED]
The Herzfeld
Caribbean Basin
Fund, Inc.
Semi-Annual Report
December 31, 1998
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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 ACCOUNTANTS
Kaufman, Rossin & Co.
2699 South Bayshore Drive
Miami, FL 33133
- --------------------------------------------------------------------------------
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 65% 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.
- --------------------------------------------------------------------------------
Listed: NASDAQ SmallCap Market
Symbol: CUBA
2
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LETTER TO SHAREHOLDERS
================================================================================
[PHOTO]
Thomas J. Herzfeld
Chairman and President
February 16, 1999
Dear Fellow Shareholder:
For the six months ended December 31, 1998, declining markets throughout the
Latin American and Caribbean region led to negative returns for The Herzfeld
Caribbean Basin Fund, Inc. Fortunately, many of our holdings fared much better
than the foreign markets we were invested in and our net asset value declined by
only 6.42% (unaudited, adjusted for reinvestment of year-end capital gains
distribution). Compared to other closed-end funds invested in Latin America, we
actually turned in a strong performance. For example, the Latin American
regional funds listed on the New York Stock Exchange lost approximately one
quarter of their net asset values during the same period.
I believe we are coming closer to the end of the 37 year Cuban embargo. In the
meantime, we will endeavor to continue to make investments throughout the
Caribbean region, especially in companies which we believe will benefit from
resumed trade with Cuba. So far that investment strategy has been working well
for us. Indeed, just today the Fund received the 1998 Lipper Performance
Achievement Awards for being the number one performer among closed-end Latin
American Funds for the past 1 and 5 year periods; and the number one performer
among Latin America Equity Funds for the past 2 and 5 year periods.
The only significant portfolio change since December 31, 1998, was a switch out
of three Mexican ADRs: Telefonos de Mexico, Coca Cola Femsa S.A. and Grupo
Televisa S.A., into three Mexican closed-end funds: The Mexico Fund, Inc., The
Emerging Mexico Fund, Inc. and The Mexico Equity and Income Fund, Inc. We made
the switch to take advantage of wide discounts to net asset value of the
closed-end funds and, at the same time, to keep our investment in Mexico.
3
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LETTER TO SHAREHOLDERS (continued)
================================================================================
The following tables present our largest investments and geographic allocations
as of December 31, 1998.
------------------------------------------------------------
Geographic Allocation % of Net Assets
------------------------------------------------------------
USA 49.36%
------------------------------------------------------------
Mexico 23.47%
------------------------------------------------------------
Panama 10.63%
------------------------------------------------------------
Belize 4.92%
------------------------------------------------------------
Cayman Islands 4.40%
------------------------------------------------------------
Puerto Rico 4.11%
------------------------------------------------------------
Latin American Regional 3.53%
------------------------------------------------------------
Venezuela 2.13%
------------------------------------------------------------
Dominican Republic 1.52%
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Netherlands Antilles 1.28%
------------------------------------------------------------
Colombia 1.23%
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Costa Rica 0.81%
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Virgin Islands 0.76%
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Cuba 0.00%
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Largest Portfolio Positions % of Net Assets
------------------------------------------------------------
Florida East Coast Industries Inc. 24.17%
------------------------------------------------------------
PanAmerican Beverage Inc. Cl. A 8.16%
------------------------------------------------------------
Royal Caribbean Cruises Ltd. 7.94%
------------------------------------------------------------
Telefonos de Mexico ADR 5.00%
------------------------------------------------------------
Carnival Corp. 4.93%
------------------------------------------------------------
BHI Corp. 4.92%
------------------------------------------------------------
Coca Cola Femsa S.A 4.35%
------------------------------------------------------------
Grupo Televisa S.A. GDR 4.34%
------------------------------------------------------------
Seaboard Corporation 4.33%
------------------------------------------------------------
Empresas la Moderna S.A. ADR 2.85%
------------------------------------------------------------
As always, I would like to thank the members of the Board of Directors for their
hard work and guidance. I also would like to thank my fellow shareholders for
their continued support and suggestions.
Sincerely,
/s/ Thomas J. Herzfeld
Thomas J. Herzfeld
Chairman of the Board and President
4
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SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998 (unaudited)
================================================================================
Shares or Principal Amount Description Value
- -------------------------- ----------- -----
Common stocks - 108.15% of net assets
Banking and finance - 10.32%
8,000 Bancolombia S.A. $ 37,500
3,500 Banco Ganadero S.A. 70,656
13,000 Banco Latinoamericano de Exportaciones 216,125
14,008 BHI Corp. 430,746
6,000 Doral Financial 132,750
26,000 Grupo Financiero Serfin SA ADR 16,250
Communications - 13.25%
3,000 Able Telecom Holdings* 17,250
2,400 Atlantic Tele-Network* 21,750
2,000 Cellular Communications of Puerto Rico 37,000
3,000 Corecomm, Inc.* 47,250
16,000 Grupo Radio Centro S.A. ADR 86,000
15,400 Grupo Televisa S.A. GDR 380,188
9,000 Telefonos de Mexico ADR 438,188
19,000 Tricom SA, ADR* 133,000
Conglomerates - 0.02%
200 Grupo Imsa S.A. 2,088
Construction and related - 6.42%
12,000 Bufete Industrial S.A. ADR 48,750
1,936 Ceramica Carabobo Cl. A ADR 1,715
13,000 Empresas ICA Sociedad Controladora ADR 58,500
8,000 Florida Rock Industries, Inc. 248,000
4,300 Mastec, Inc. 90,300
3,300 Puerto Rican Cement Co. 115,294
Consumer products and related manufacturing - 21.99%
800,000 Atlas Electricas S.A. 70,867
28,800 Coca Cola Femsa S.A. 381,600
10,500 Empresas La Moderna S.A. ADR 249,375
6,400 Grupo Casa Autrey S.A. ADR 43,600
42,218 Mavesa S.A. ADR 158,318
32,800 PanAmerican Beverage Inc. Cl. A 715,450
13,000 Vitro Sociedad Anonima ADR 59,313
14,850 Watsco Incorporated 248,738
See accompanying notes.
- ----------
*Non-income producing
5
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SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998 (unaudited)
================================================================================
Shares or Principal Amount Description Value
- -------------------------- ----------- -----
Investment companies - 5.69%
1,000 The Emerging Mexico Fund, Inc. $ 5,812
10,000 The Latin American Discovery Fund, Inc. 61,875
15,000 The Latin America Equity Fund, Inc. 107,812
6,100 The Latin America Investment Fund, Inc. 49,943
16,000 Latin America Smaller Companies Fund, Inc. 90,000
3,000 The Mexico Equity and Income Fund, Inc. 15,562
15,000 The Mexico Fund, Inc. 167,812
Leisure - 12.87%
9,000 Carnival Corp. 432,000
18,800 Royal Caribbean Cruises Ltd. 695,600
Medical - 1.28%
8,000 Orthofix International N.V.* 112,000
Railroad and landholdings - 24.17%
60,200 Florida East Coast Industries Inc. 2,118,287
Retail - 0.51%
20,000 Little Switzerland Inc.* 45,000
Utilities - 4.41%
12,000 Caribbean Utilities Ltd. Cl. A 136,800
35,600 Consolidated Water Co. 249,200
Other - 7.22%
33,000 Consorcio G Grupo Dina ADR 49,500
19,000 Hvide Marine, Inc. 95,000
2,414 Mantex S.A.I.C.A. 22,451
12,500 Margo Caribe, Inc.* 28,125
900 Seaboard Corporation 379,800
833 Siderurgica Venezolana Sivensa ADR 3,770
76 Siderurgica Venezolana Sivensa "B" 283
10,000 Transportacion Maritima Mexicana ADR 53,750
-----------
Total common stocks (cost $8,799,628) 9,476,943
Bonds - 0% of net assets
$165,000 Republic of Cuba - 4.5%, 1977 - in default
(cost $63,038) (Note 2)* --
Other assets less liabilities - (8.15%) of net assets (714,222)
-----------
Net assets - 100% $ 8,762,721
-----------
See accompanying notes.
- ----------
*Non-income producing
6
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 1998 (unaudited)
================================================================================
ASSETS
Investment in securities, at value (cost $8,799,628) (Note 2) $ 9,476,943
Cash and equivalents 506,080
Dividends and interest receivable 18,863
Deferred organizational costs, net of accumulated
amortization of $94,345 8,753
Other assets 50,088
-----------
TOTAL ASSETS 10,060,727
LIABILITIES
Dividends payable $ 1,189,443
Accrued investment advisor fee (Note 3) 33,781
Other payables and accrued expenses 74,782
-----------
TOTAL LIABILITIES 1,298,006
-----------
NET ASSETS (Equivalent to $5.22 per share
based on 1,677,636 shares outstanding) $ 8,762,721
===========
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
Undistributed net investment loss (267,155)
Undistributed net realized gain on investments (11,619)
Net unrealized gain on investments 677,315
-----------
TOTAL $ 8,762,721
===========
See accompanying notes.
7
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STATEMENT OF OPERATIONS SIX MONTHS ENDED DECEMBER 31, 1998 (unaudited)
================================================================================
INVESTMENT INCOME
Dividends $ 54,301
Interest 6,151
---------
Total income 60,452
EXPENSES
Investment advisor fee (Note 3) $ 85,138
Insurance 8,634
Custodian fees 27,910
Professional fees 18,834
Amortization 8,753
Transfer agent 8,750
Directors fees 3,923
Printing 3,350
Postage 5,223
Proxy services 1,260
Listing fees 2,012
Miscellaneous 9,248
---------
Total expenses 183,035
---------
INVESTMENT LOSS - NET (122,583)
REALIZED AND UNREALIZED LOSS
ON INVESTMENTS
Net realized loss on investments (70,751)
Change in unrealized gain on investments (638,997)
---------
NET LOSS ON INVESTMENTS (709,748)
---------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS $(832,331)
=========
See accompanying notes.
8
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<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
============================================================================================
Six Months
Ended
12/31/98 Year Ended
(unaudited) 6/30/98
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
<S> <C> <C>
Investment (loss) - net ($ 122,583) ($ 16,324)
Net realized gain (loss) on investments (70,751) 1,902,656
Change in unrealized gain on investments (638,997) (992,602)
------------ ------------
Net increase (decrease) in net assets from operations (832,331) 893,730
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment income - net -- --
Realized gians - short-term -- --
Realized gains - mid-term (93,948) (8,484)
Realized gains - long-term (1,095,497) (728,837)
------------ ------------
Total distributions (1,189,445) (737,321)
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ($ 2,021,776) $ 156,409
NET ASSETS:
Beginning of Year $ 10,784,497 $ 10,628,088
------------ ------------
End of Year $ 8,762,721 $ 10,784,497
============ ============
</TABLE>
See accompanying notes.
9
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FINANCIAL HIGHLIGHTS
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<TABLE>
<CAPTION>
Six Months Ended Year Ended June 30
12/31/98 ----------------------------------------------------------------
(unaudited) 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 6.43 $ 6.34 $ 5.32 $ 4.82 $ 4.98 $ 5.001
Operations:
Net investment income (loss) (0.08) (0.01) (0.04) (0.03) 0.02 --
Net realized and unrealized
gain (loss) on investments (0.42) 0.54 1.14 0.53 (0.13) (0.02)
-------- -------- -------- -------- -------- --------
Total from (to) operations (0.50) 0.53 1.10 0.50 (0.11) (0.02)
-------- -------- -------- -------- -------- --------
Distributions:
From net investment income and
short-term realized gains -- -- -- -- (0.05) --
From net long-term realized gains (0.71) (0.44) (0.08) -- -- --
-------- -------- -------- -------- -------- --------
Total distributions (0.71) (0.44) (0.08) -- (0.05) --
-------- -------- -------- -------- -------- --------
Net asset value, end of period 5.22 $ 6.43 $ 6.34 $ 5.32 $ 4.82 $ 4.98
-------- -------- -------- -------- -------- --------
Per share market value, end of period $ 4.38 $ 6.00 $ 5.25 $ 5.38 $ 5.25 $ 6.25
-------- -------- -------- -------- -------- --------
Total investment return (loss) based on
market value per share (29.83%)3 23.54% (0.90%) 2.48% (15.17%) 40.38%2
-------- -------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $ 8,763 $ 10,784 $ 10,628 $ 8,927 $ 8,085 $ 8,349
-------- -------- -------- -------- -------- --------
Ratio of expenses to average net assets 3.91%3 3.21% 3.01% 3.32% 3.51% 2.80%3
-------- -------- -------- -------- -------- --------
Ratio of investment income (loss) -
net to average net assets (2.62%)3 (0.14%) (0.78%) (0.62%) 0.36% 0.18%3
-------- -------- -------- -------- -------- --------
Portfolio turnover rate 30% 40% 23% 26% 6% 64%
-------- -------- -------- -------- -------- --------
</TABLE>
- ----------
1 Represents sales proceeds per share
2 Total investment return is annualized based on a December 31, 1993 starting
date and a purchase at the initial offering price of $5.20 per share
3 This ratio has been annualized; however, the percentage shown is not
necessarily indicative of results for a full year.
See accompanying notes.
10
<PAGE>
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 investment activities in January, 1994.
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.
The Fund's custodian and transfer agent is Investors Bank & Trust Company.
Security Valuation
- ------------------
Investments in securities traded on a national securities exchange (or reported
on the NASDAQ national market) are stated at the last reported sales price on
the day of valuation; 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, except for short positions and call options written, for
which the last quoted asked price is used. Short-term notes are stated at
amortized cost, which is equivalent to value. Restricted securities and other
securities for which quotations are not readily available are valued at fair
value as determined by the Board of Directors.
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 securities purchased are amortized over
the life of the respective securities.
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 Preparation of Finanical Statements
- -------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principales requires management to make estimates and assumptions
that affect the reported amounts of assets and liabiilties and disclosure of
contingent assets andliabilities at the date of the financial statemetns and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
11
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NOTES TO FINANCIAL STATEMENTS (continued)
================================================================================
Income Taxes
- ------------
The Fund qualifies as a "regulated investment company," and as such (and by
complying with the applicable provisions of the Internal Revenue Code of 1986,
as amended), is not subject to federal income tax on taxable income (including
realized capital gains) that is distributed to shareholders.
The Fund has adopted a June 30 year-end for federal income tax purposes.
Distributions to Shareholders
- -----------------------------
Distributions to shareholders are recorded on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
Deferred Organizational and Offering Costs
- ------------------------------------------
Deferred organizational costs are amortized on a straight-line basis over a
sixty-month period beginning May 1, 1994. Direct costs relating to the public
offering of the Fund's shares (see Note 5) totaling $96,484 were borne by the
Fund's advisor (see Note 3). The Fund reimbursed its advisor for $24,000 of such
costs (which it charged to additional paid-in capital), and $72,484 was waived.
NOTE 2. NON-MARKETABLE SECURITES OWNED
Investments in securities includes the following securities for which readily
ascertainable market values were not available:
$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 December 31, 1998 the position was valued at -0-
by the Board of Directors, which believes approximates the bonds' fair value.
NOTE 3. TRANSACTIONS WITH AFFILIATES
HERZFELD / CUBA, a division of Thomas J. Herzfeld Advisors, Inc. (the Advisor),
is the Fund's investment advisor and charges a monthly fee at the annual rate of
1.45% of the Fund's average monthly net assets.
During the six months ended December 31, 1998, the Fund paid $17,444 of
brokerage commissions to Thomas J. Herzfeld & Co., Inc.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
================================================================================
NOTE 4. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, other than government securities,
were $4,082,178 and $2,555,936, respectively. Purchases and sales of government
securities were $0 and $975,740, respectively.
At December 31, 1998, the Fund's investment portfolio had gross unrealized gains
of $2,060,906 and gross unrealized losses of $1,383,591, resulting in a net
unrealized gain of $677,315.
NOTE 5. READINESS FOR THE YEAR 2000
The Fund is actively assessing how the Year 2000 computer issue may affect its
operations and financial condition. The Fund's investment advisor has
represented to the Fund that its internal computers will function properly in
the year 2000. The Fund's custodian and transfer agent, Investors Bank and Trust
Company, has reported that it has completed compliance testing of its flagship
applications, significantly completed compliance testing on all other
applications, and started integration testing of critical applications. In
addition, Investors Bank has indicated that it is developing Y2K contingency
plans for its mission critical services and products. Based on the information
received, management of the Fund does not anticipate that the transition to the
21st Century will have any material impact on the Fund's operations; however,
management of the Fund will continue to monitor the situation. In addition,
however, no assurance can be given that the Fund's service providers have
anticipated every step necessary to avoid any adverse effect on the Fund
attributable to the Year 2000 problem.
RESULTS OF NOVEMBER 4, 1998 SHAREHOLDER MEETING
================================================================================
An annual meeting of shareholders of the fund was held on November 4, 1998. At
the meeting, each of the nominees for Director was elected as follows:
Votes for Votes withheld
Kenneth A.B. Trippe 1,350,300 45,073
Ann S. Lieff 1,334,199 61,174
A proposal to ratify the selection of Kaufman, Rossin & Co. as independent
accountants for the fund was approved as follows: 1,365,760 votes for and 7,497
votes against with 22,116 abstentions.
13
<PAGE>
OFFICERS AND DIRECTORS
================================================================================
THOMAS J. HERZFELD
Chairman of the Board, President
and Portfolio Manager
CECILIA L. GONDOR-MORALES
Secretary, Treasurer and Director
BERGTHOR F. ENDRESEN
Director
ANN S. LIEFF
Director
KENNETH A.B. TRIPPE
Director
14
<PAGE>
THE HERZFELD CARIBBEAN BASIN FUND, INC.
The Herzfeld Building
P.O. Box 161465
Miami, FL 33116
