THE HERZFELD
CARIBBEAN BASIN
FUND, INC.
SEMI-ANNUAL REPORT
DECEMBER 31, 1999
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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.
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.
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Listed NASDAQ SmallCap Market
Symbol: CUBA
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LETTER TO SHAREHOLDERS
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February 9, 2000
[PHOTO]
Thomas J. Herzfeld
Chairman and President
Dear Fellow Shareholders:
We are pleased to present the semi-annual report for the period ending December
31, 1999. On that date our net assets were $9,849,312 ($5.87 per share) compared
with $8,762,721 ($5.22 per share) twelve months earlier. These gains represented
an increase of 12.4% in net asset value. Our share price moved ahead 22.9%, from
$4 3/8 to $5 3/8, over the same period.
PREMIUM AND DISCOUNT
Since inception in 1993, the share price of Herzfeld Caribbean has traded at
both premiums and discounts to net asset value. News events related to Cuba
appear to influence the market activity and therefore the premium/discount to
net asset value of our shares.
[GRAPHIC OMITTED]
Media coverage of Cuba has exploded recently with the case of Elian Gonzalez.
The six year old boy, who was found on Thanksgiving Day floating on an inner
tube, is now the subject of an international custody battle. The episode, even
by Miami standards, can only be described as bizarre. It is also an example of
just how much national and worldwide interest there is in Cuba.
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LETTER TO SHAREHOLDERS (CONTINUED)
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LARGEST ALLOCATIONS
The following tables present our largest investments and geographic allocations
as of December 31, 1999.
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GEOGRAPHIC ALLOCATION % OF NET ASSETS
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USA 46.48%
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Mexico 18.15%
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Panama 9.50%
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Puerto Rico 5.21%
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Belize 5.12%
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Dominican Republic 4.34%
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Cayman Islands 3.36%
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Latin American Regional 2.42%
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Venezuela 1.56%
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Netherlands Antilles 1.16%
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Colombia 0.94%
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Costa Rica 0.73%
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Virgin Islands 0.34%
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Cuba 0.00%
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LARGEST PORTFOLIO POSITIONS % OF NET ASSETS
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Florida East Coast Industries Inc. 25.52%
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The Mexico Fund, Inc. 7.06%
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Royal Caribbean Cruises Ltd. 6.91%
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PanAmerican Beverage Inc. Cl. A. 6.64%
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Carnival Corp. 5.34%
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Carlisle Holdings Inc. 5.12%
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Tricom S.A., ADR 4.34%
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The Mexico Equity and Income Fund,Inc. 3.09%
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Banco Latinoamericano de Exportaciones 2.86%
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CoreComm Limited 2.71%
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SOME INTERESTING SMALLER HOLDINGS
Most of our shareholders are familiar with the larger companies in our
portfolio, and we've discussed those in past reports. Since we are a small fund,
we have the advantage of being able to buy not only large but also small, less
liquid companies, and sometimes that can be very rewarding. For instance, we
have had a position in Margo Caribe, Inc. (MRGO) for several years, a company
based in Vega Alta, Puerto Rico. Just this morning, MRGO made a very interesting
merger announcement. They have entered into a non-binding agreement to merge
with iTract--an early stage Internet company. Herzfeld Caribbean has 14,000
shares of MRGO shares in its portfolio, with an average cost of $2.58 per share.
MRGO closed at $5 3/4 last night, and after this morning's announcement was
trading as high as $35 per share!
Grand Adventures Tour & Travel Publishing Corp. (GATT) is a company in the
interline travel business, heavily involved in the Caribbean. This niche market
caters to active and retired airline employees and their families, offering
space-available travel options with discounted fares. We have taken an initial
position in GATT at $2 7/8; today the company's shares are trading at $6.00.
4
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LETTER TO SHAREHOLDERS (CONTINUED)
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INFORMATION AVAILABLE ON THE INTERNET
Daily net asset values, press releases and annual and semi-annual reports on the
Fund are available on the internet at www.herzfeld.com.
DIRECTORS
We were saddened by the passing of one of our founding Directors, and dear
friend, Bergthor Endresen. It is ironic that Berg, who was born in Norway and
flew for the cause of freedom as an RAF pilot in World War II, did not live to
see a free Cuba, a cause to which he had become very dedicated.
We are pleased to welcome Albert Weintraub to our Board. In addition to being a
practicing attorney in Miami specializing in administrative, municipal and
regulatory law, Albert is Chairman and Chief Executive of the Miami-based
telecommunications company iTelsa Inc. and is Chairman of the Florida-based
software company, e-Lysium Transaction Systems Inc. Albert was one of the
founders of Microtel, Inc., a company which was developed into MCI Worldcom. He
served on the board of MCI WorldCom for two years and subsequently has
undertaken a number of projects for that company, such as the opening of Cuba's
international telecommunications market. His business experience in the
Caribbean, as well as his extensive background in the telecommunications
industry, makes Albert a valuable addition to the Board.
I would like to take this time to thank the members of the Board of Directors
for their hard work and guidance and also 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
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SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1999 (UNAUDITED)
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Shares or Principal Amount Description Value
- -------------------------- ----------- -----
COMMON STOCKS - 99.30% OF NET ASSETS
Banking and finance - 4.55%
8,000 Bancolombia S.A. $ 37,000
3,500 Banco Ganadero S.A. 55,563
12,000 Banco Latinoamericano de Exportaciones 282,000
6,000 Doral Financial Corp. 73,875
26,000 Grupo Financiero Serfin SA ADR* 26
Communications - 9.57%
3,000 Able Telecom Holdings* 24,000
2,400 Atlantic Tele-Network 22,050
4,500 CoreComm Limited 267,188
16,000 Grupo Radio Centro S.A. ADR 134,000
1,000 Grupo Televisa S.A. GDR* 68,250
19,000 Tricom S.A. ADR* 427,500
Conglomerates - 5.15%
42,024 Carlisle Holdings, Inc.* 504,288
200 Grupo Imsa S.A. 3,425
Construction and related - 6.06%
12,000 Bufete Industrial S.A. ADR* 7,500
1,936 Ceramica Carabobo Cl. A ADR* 2,835
13,000 Empresas ICA Sociedad Controladora ADR 42,250
7,000 Florida Rock Industries, Inc. 241,063
4,300 Mastec, Inc.* 191,350
3,300 Puerto Rican Cement Co. 112,200
Consumer products and related manufacturing - 15.30%
800,000 Atlas Electricas S.A. 71,924
1,918 Buenos Aires Embotelladora S.A. (Note 2)* --
5,000 Coca Cola Femsa S.A. 87,813
6,400 Grupo Casa Autrey S.A. ADR 52,800
42,218 Mavesa S.A. ADR 129,293
31,800 PanAmerican Beverage Inc. Cl. A 653,888
7,146 PepsiAmericas* 26,798
11,500 Savia S.A. ADR* 253,000
13,000 Vitro Sociedad Anonima ADR 71,500
13,850 Watsco Incorporated 160,141
See accompanying notes.
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*Non-income producing
6
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SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1999 (UNAUDITED)
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Shares or Principal Amount Description Value
- -------------------------- ----------- -----
Investment companies - 12.56%
10,000 The Latin America Equity Fund, Inc. $ 126,250
6,100 The Latin America Investment Fund, Inc. 79,681
3,000 The Latin American Discovery Fund, Inc. 32,250
34,050 The Mexico Equity and Income Fund, Inc. 304,322
40,000 The Mexico Fund, Inc. 695,000
Leisure - 12.30%
11,000 Carnival Corp. 525,938
1,500 Grand Adventure Tour & Travel Publishing Corp.* 5,063
13,800 Royal Caribbean Cruises Ltd. 680,513
Medical - 1.16%
8,000 Orthofix International N.V.* 114,500
Railroad and landholdings - 25.52%
60,200 Florida East Coast Industries Inc. 2,513,350
Retail - 0.11%
20,000 Little Switzerland Inc.* 11,250
Trucking and marine freight - 2.50%
800 Seaboard Corporation 155,400
35,000 Trailer Bridge, Inc.* 43,750
10,000 Transportacion Maritima Mexicana ADR* 46,875
Utilities - 3.73%
12,000 Caribbean Utilities Ltd. Cl. A 108,000
35,600 Consolidated Water, Inc. 222,500
2,000 Teco Energy 37,125
Other - 0.76%
33,000 Consorcio G Grupo Dina ADR* 20,625
24,000 Hvide Marine, Inc. (Note 2)* --
2,414 Mantex S.A.I.C.A.* 19,535
14,200 Margo Caribe, Inc.* 32,838
833 Siderurgica Venezolana Sivensa ADR 1,798
75 Siderurgica Venezolana Sivensa "B" 183
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Total common stocks (cost $7,903,453) 9,780,261
Bonds - 0% of net assets
$ 165,000 Republic of Cuba - 4.5%, 1977 - in default
(cost $63,038) (Note 2)* --
Other assets less liabilities - 0.70% of net assets 69,051
----------
Net assets - 100% $9,849,312
----------
See accompanying notes.
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*Non-income producing
7
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1999 (UNAUDITED)
================================================================================
ASSETS
Investment in securities, at value
(cost $7,966,491) (Note 2) $ 9,780,261
Cash 105,511
Dividends and interest receivable 9,987
Other assets 44,331
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TOTAL ASSETS 9,940,090
LIABILITIES
Accrued investment advisor fee (Note 3) $ 38,288
Other payables 52,490
-----------
TOTAL LIABILITIES 90,778
-----------
NET ASSETS (Equivalent to $5.87 per share
based on 1,677,636 shares outstanding) $ 9,849,312
===========
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 (428,359)
Undistributed net realized gain on investments 99,721
Net unrealized gain on investments 1,813,770
-----------
TOTAL $ 9,849,312
===========
See accompanying notes.
8
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STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED)
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INVESTMENT INCOME
Dividends $ 48,138
EXPENSES
Investment advisor fee (Note 3) $ 71,363
Custodian fees 27,223
Professional fees 18,432
Transfer agent 8,823
Insurance 8,333
Directors fees 4,247
Printing 3,781
Proxy services 1,544
Postage 3,025
Listing fees 2,017
Transaction fees 3,277
Miscellaneous 1,512
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Total expenses 153,577
---------
INVESTMENT LOSS - NET (105,439)
REALIZED AND UNREALIZED GAIN/LOSS
ON INVESTMENTS
Net realized gain on investments 92,588
Change in unrealized gain on investments (409,481)
---------
NET LOSS ON INVESTMENTS (316,893)
---------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ($422,332)
=========
See accompanying notes.
9
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<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
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Six Months
Ended
12/31/99
(unaudited) 1999
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
<S> <C> <C>
Investment loss - net ($ 105,439) ($ 178,349)
Net realized gain (loss) on investments 92,588 (51,999)
Change in unrealized gain (loss) on investments (409,481) 906,939
------------ ------------
Net increase in net assets from operations (422,332) 676,591
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Realized gains - short-term -- (94,673)
Realized gains - long-term -- (1,094,771)
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Total distributions -- (1,189,444)
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TOTAL INCREASE (DECREASE) IN NET ASSETS ($ 422,332) ($ 512,853)
NET ASSETS:
Beginning of year $ 10,271,644 $ 10,784,497
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End of year $ 9,849,312 $ 10,271,644
============ ============
</TABLE>
See accompanying notes.
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<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
==================================================================================================================================
Six Months Ended Year Ended June 30
12/31/99 -----------------------------------------------------------------
(unaudited) 1999 1998 1997 1996 1995
--------- --------- --------- --------- --------- ---------
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 6.12 $ 6.43 $ 6.34 $ 5.32 $ 4.82 $ 4.98
Operations:
Net investment income (loss) (0.06) (0.11) (0.01) (0.04) (0.03) 0.02
Net realized and unrealized gain
(loss) on investments (0.19) 0.51 0.54 1.14 0.53 (0.13)
--------- --------- --------- --------- --------- ---------
Total from (to) operations (0.25) 0.40 0.53 1.10 0.50 (0.11)
--------- --------- --------- --------- --------- ---------
Distributions:
From net investment income -- -- -- -- -- (0.02)
From net realized gains -- (0.71) (0.44) (0.08) -- (0.03)
--------- --------- --------- --------- --------- ---------
Total distributions -- (0.71) (0.44) (0.08) -- (0.05)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 5.87 $ 6.12 $ 6.43 $ 6.34 $ 5.32 $ 4.82
--------- --------- --------- --------- --------- ---------
Per share market value, end of period $ 5.38 $ 6.00 $ 6.00 $ 5.25 $ 5.38 $ 5.25
--------- --------- --------- --------- --------- ---------
Total investment return (loss) based on
market value per share (20.83%)1 11.83% 23.54% (0.90%) 2.48% (15.17%)
--------- --------- --------- --------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $ 9,849 $ 10,272 $ 10,784 $ 10,628 $ 8,927 $ 8,085
--------- --------- --------- --------- --------- ---------
Ratio of expenses to average net assets 3.34%1 3.30% 3.21% 3.01% 3.32% 3.51%
--------- --------- --------- --------- --------- ---------
Ratio of investment income (loss) -
net to average net assets (2.29%)1 (1.95%) (0.14%) (0.78%) (0.62%) 0.36%
--------- --------- --------- --------- --------- ---------
Portfolio turnover rate 1% 59% 40% 23% 26% 6%
--------- --------- --------- --------- --------- ---------
</TABLE>
- ----------------------------
1 This ratio has been annualized; however, the percentage shown is not
necessarily indicative of results for a full year.
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<PAGE>
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 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, based
in Boston, Massachusetts.
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. 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 the Preparation of Financial Statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
12
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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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.
NOTE 2. NON-MARKETABLE SECURITIES OWNED
Investment 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, 1999, the position was valued at -0-
by the Board of Directors, which believes this approximates the bonds' fair
value.
1,918 shares of Buenos Aires Embotelladora S.A., an Argentine bottling company,
which were issued (at no cost) as part of a settlement for a class action suit
against Pepsi Cola Puerto Rico. Buenos Aires Embotelladora S.A. shares were
delisted from the New York Stock Exchange in May, 1997. As of December 31, 1999,
the position was valued at -0- by the Board of Directors, which believes this
approximates the stock's fair value.
24,000 shares of Hvide Marine, Inc., a U.S. company which provides marine
support and transportation services, purchased for $315,144. As part of the
company's Plan of Reorganization and Chapter 11 bankruptcy, shareholders of the
common stock received one warrant for every 124 shares previously owned. The
Fund received 193 warrants with a term of four years, exercisable at $38.49 per
share. As of December 31, 1999, prior to the announcement that shareholders
would receive warrants, the position was valued at -0- by the Board of
Directors, which believes this approximates the stock's fair value.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
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 monthly net assets.
During the six months ended December 31, 1999, the Fund paid $1,345 of brokerage
commissions to Thomas J. Herzfeld & Co., Inc., an affiliate of the Advisor.
NOTE 4. INVESTMENT TRANSACTIONS
During the six months ended December 31, 1999, purchases and sales of investment
securities, other than government securities, were $237,016 and $134,383,
respectively.
At December 31, 1999, the Fund's investment portfolio had gross unrealized gains
of $3,079,637 and gross unrealized losses of $1,265,867, resulting in a net
unrealized gain of $1,813,770.
RESULTS OF NOVEMBER 16, 1999 SHAREHOLDER MEETING
================================================================================
An annual meeting of shareholders of the fund was held on November 16, 1999. At
the meeting each of the nominees for Director was elected as follows:
Votes for Votes withheld
Thomas J. Herzfeld 1,313,875 19,882
Cecilia Gondor-Morales 1,311,429 22,328
A proposal to ratify the selection of Kaufman, Rossin & Co. as independent
accountants for the fund was approved as follows: 1,299,565 votes for and 12,901
votes against with 21,291 abstentions.
14
<PAGE>
OFFICERS AND DIRECTORS
================================================================================
THOMAS J. HERZFELD
Chairman of the Board, President
and Portfolio Manager
CECILIA L. GONDOR-MORALES
Secretary, Treasurer and Director
ANN S. LIEFF
Director
KENNETH A.B. TRIPPE
Director
ALBERT L. WEINTRAUB
Director
15
