THE HERZFELD
CARIBBEAN BASIN
FUND, INC.
ANNUAL REPORT
JUNE 30, 2000
<PAGE>
================================================================================
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
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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 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
<PAGE>
LETTER TO SHAREHOLDERS
================================================================================
August 10, 2000 [PHOTO]
Thomas J. Herzfeld
Dear Fellow Shareholders: Chairman and President
For the fiscal year ended June 30, 2000, our net asset value and share price
declined 17.98% and 15.63%, respectively.
Most of the loss occurred in the period between March and June of 2000 as the
market in Mexico, the country in which we have our largest foreign investment,
moved lower. The Bolsa in Mexico, however, hit a yearly low in May, reversed
directions and rallied further after presidential elections at the beginning of
July.
Performance was also negatively affected by the sell-off in two of our larger
U.S. positions: Royal Caribbean Cruises Ltd. (RCL) and Carnival Corp. (CCL).
Cruise operators, in an effort to keep market share, over-built capacity. In an
attempt to fill berths, they were forced to discount fares, putting pressure on
profit margins. On the positive side, we are encouraged by what appears to be a
gradual but perceptible change in the U.S. government's attitude regarding Cuba.
We can make a better case now than we could last year that the restrictions on
travel are coming closer to being eased or eliminated. If travel restrictions
are changed, both RCL and CCL will be strong beneficiaries.
One of our smaller holdings, Trailer Bridge, Inc. (TRBR), is also eyeing
potential business in Cuba. The company, based in Jacksonville, Florida, is an
integrated trucking and marine freight carrier. Their vessels, which have
shallow drafts, are very suitable for operation in Cuban waters. We increased
our position in TRBR during the year.
PREMIUM/DISCOUNT
As in every year since the formation of the fund, our shares have traded at both
premiums and discounts to net asset value. The following is a chart of our
premium/discount from inception.
[BAR CHART]
3
<PAGE>
LETTER TO SHAREHOLDERS (continued)
================================================================================
LARGEST ALLOCATIONS
The following tables present our largest investments and geographic allocations
as of June 30, 2000.
GEOGRAPHIC % OF NET ASSETS
ALLOCATION
-------------------------------------------
USA 45.77%
Mexico 19.78%
Panama 9.58%
Puerto Rico 5.07%
Cayman Islands 4.51%
Belize 3.66%
Dominican Republic 3.45%
Latin America Regional 2.83%
Venezuela 1.83%
Netherlands Antilles 1.70%
Costa Rica 1.02%
Colombia 0.45%
Virgin Islands 0.36%
Cuba 0.00%
-------------------------------------------
------------------------------------------------------
LARGEST PORTFOLIO POSITIONS % OF NET ASSETS
Florida East Coast Industries Inc. 28.10%
Mexico Fund, Inc. 7.06%
PanAmerican Beverage Inc. Cl. A 5.64%
Carnival Corp. 4.05%
Banco Latinoamericano de Exportaciones 3.94%
Carlisle Holdings Inc. 3.66%
Royal Caribbean Cruises Ltd. 3.56%
Tricom SA, ADR 3.45%
The Mexico Equity and Income Fund, Inc. 3.39%
Consolidated Water Co. Ltd. 3.06%
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[MAP]
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<PAGE>
LETTER TO SHAREHOLDERS (continued)
================================================================================
Daily net asset values and press releases on the Fund are available on the
internet at www.herzfeld.com.
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,
Thomas J. Herzfeld
Chairman of the Board and President
5
<PAGE>
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2000
================================================================================
Shares or Principal Amount Description Value
-------------------------- ----------- -----
COMMON STOCKS - 100.01% of net assets
Banking and finance - 5.20%
8,000 Bancolombia S.A. $ 17,000
3,500 Banco Ganadero S.A. 20,562
12,000 Banco Latinoamericano de Exportaciones 332,250
6,000 Doral Financial 68,625
Communications - 8.34%
3,000 Able Telecom Holdings* 6,187
2,400 Atlantic Tele-Network* 22,651
6,750 Corecomm, Inc.* 131,625
16,000 Grupo Radio Centro S.A. ADR 182,000
1,000 Grupo Televisa S.A. GDR 68,937
19,000 Tricom S.A. ADR 290,937
Conglomerates - 3.70%
42,024 Carlisle Holdings, Inc. 308,616
200 Grupo Imsa S.A. 2,887
Construction and related - 6.09%
12,000 Bufete Industrial S.A. ADR3,750
1,936 Ceramica Carabobo Cl. A ADR 2,867
13,000 Empresas ICA Sociedad Controladora ADR 21,937
7,000 Florida Rock Industries, Inc. 249,375
3,750 Mastec, Inc. 143,203
3,300 Puerto Rican Cement Co. 91,781
Consumer products and related manufacturing - 15.80%
800,000 Atlas Electricas S.A. 85,543
1,918 Buenos Aires Embotelladora S.A. (Note 2)* 192
6,400 Coca Cola Femsa S.A. 120,800
6,400 Grupo Casa Autrey S.A. ADR 58,400
42,218 Mavesa S.A. ADR 131,931
31,800 PanAmerican Beverage Inc. Cl. A 475,012
7,146 Pepsi Cola Puerto Rico 21,438
11,500 Savia S.A. ADR 222,812
13,000 Vitro Sociedad Anonima ADR 41,437
13,850 Watsco Incorporated 173,125
See accompanying notes.
----------------------
*Non-income producing
6
<PAGE>
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2000 (continued)
================================================================================
Shares or Principal Amount Description Value
-------------------------- ----------- -----
Investment companies - 13.28%
16,000 The Latin America Equity Fund, Inc. $ 208,000
3,000 The Latin American Discovery Fund, Inc. 30,563
27,200 The Mexico Equity and Income Fund, Inc. 285,600
40,000 The Mexico Fund, Inc. 595,000
Leisure - 7.66%
17,500 Carnival Corp. 341,250
1,500 Grand Adventure Tour & Travel 4,688
16,200 Royal Caribbean Cruises Ltd. 299,700
Medical - 1.70%
8,000 Orthofix International N.V.* 143,000
Railroad and landholdings - 28.10%
59,200 Florida East Coast Industries Inc. 2,368,000
Retail - 0.10%
20,000 Little Switzerland Inc.* 8,126
Trucking and marine freight - 3.36%
800 Seaboard Corporation 137,600
35,000 Trailer Bridge, Inc. 92,421
10,000 Transportacion Maritima Mexicana ADR 53,125
Utilities - 4.99%
12,000 Caribbean Utilities Ltd. Cl. A 121,800
35,600 Consolidated Water Co. Ltd. 258,100
2,000 Teco Energy 40,126
Other - 1.69%
3,300 Consorcio G Grupo Dina ADR 9,488
193 Hvide Marine, Inc. warrants 290
2,414 Mantex S.A.I.C.A. 16,991
14,200 Margo Caribe, Inc.* 113,600
833 Siderurgica Venezolana Sivensa ADR 1,967
75 Siderurgica Venezolana Sivensa "B" 123
------------
TOTAL COMMON STOCKS (cost $7,930,040) 8,425,438
BONDS - 0% of net assets
$ 165,000 Republic of Cuba - 4.5%, 1977 - in default
(cost $63,038) (Note 2)* --
Other assets less liabilities - (0.01%) of net assets (959)
------------
Net assets - 100% $ 8,424,479
------------
See accompanying notes.
----------------------
*Non-income producing
7
<PAGE>
Statement of Assets and Liabilities as of June 30, 2000
ASSETS
Investment in securities, at value (cost $7,930,040) (Note 2) $8,425,438
Cash 21,295
Dividends and interest receivable 10,323
Other assets 42,637
----------
TOTAL ASSETS 8,499,693
LIABILITIES
Accrued investment advisor fee (Note 3) $ 32,850
Other payables 42,364
--------
TOTAL LIABILITIES 75,214
----------
NET ASSETS (Equivalent to $5.02 per share
based on 1,677,636 shares outstanding) $8,424,479
==========
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 (484,488)
Undistributed net realized gain on investments 49,389
Net unrealized gain on investments 495,398
----------
TOTAL $8,424,479
==========
See accompanying notes.
8
<PAGE>
STATEMENT OF OPERATIONS YEAR ENDED JUNE 30, 2000
================================================================================
INVESTMENT INCOME
Dividends $ 120,025
Interest 3,187
----------
Total income 123,212
EXPENSES
Investment advisor fee (Note 3) $134,029
Custodian fees 54,150
Professional fees 27,713
Transfer agent 16,042
Insurance 16,558
Directors fees 7,400
Printing 5,349
Proxy services 3,198
Postage 6,017
Listing fees 4,000
Miscellaneous 10,323
--------
Total expenses 284,779
----------
INVESTMENT LOSS - NET (161,567)
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain on investments 42,255
Change in unrealized gain on investments (1,727,853)
----------
NET LOSS ON INVESTMENTS (1,685,598)
----------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ($1,847,165)
----------
See accompanying notes.
9
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED JUNE 30, 2000 and 1999
================================================================================
2000 1999
---- ----
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Investment loss - net ($ 161,567) ($ 178,349)
Net realized gain (loss) on investments 42,255 (51,999)
Change in unrealized gain (loss) on investments (1,727,853) 906,939
------------ ------------
Net increase (decrease) in net assets from
operations (1,847,165) 676,591
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Realized gains - short-term -- (94,673)
Realized gains - long-term -- (1,094,771)
------------ ------------
Total distributions -- (1,189,444)
------------ ------------
TOTAL DECREASE IN NET ASSETS ($ 1,847,165) ($ 512,853)
NET ASSETS:
Beginning of year $ 10,271,644 $ 10,784,497
------------ ------------
End of year $ 8,424,479 $ 10,271,644
============ ============
See accompanying notes.
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<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
YEARS ENDED JUNE 30, 1996 through 2000
=====================================================================================================
Year Ended June 30
------------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 6.12 $ 6.43 $ 6.34 $ 5.32 $ 4.82
Operations:
Net investment loss (0.10) (0.11) (0.01) (0.04) (0.03)
Net realized and unrealized gain (loss)
on investments (1.00) 0.51 0.54 1.14 0.53
-------- -------- -------- -------- --------
Total from (to) operations (1.10) 0.40 0.53 1.10 0.50
-------- -------- -------- -------- --------
Distributions:
From net realized gains -- (0.71) (0.44) (0.08) --
-------- -------- -------- -------- --------
Total distributions -- (0.71) (0.44) (0.08) --
-------- -------- -------- -------- --------
Net asset value, end of period $ 5.02 $ 6.12 $ 6.43 $ 6.34 $ 5.32
-------- -------- -------- -------- --------
Per share market value, end of period $ 5.06 $ 6.00 $ 6.00 $ 5.25 $ 5.38
-------- -------- -------- -------- --------
Total investment return (loss) based on
market value per share (15.63%) 11.83% 23.54% (0.90%) 2.48%
-------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $ 8,424 $ 10,272 $ 10,784 $ 10,628 $ 8,927
-------- -------- -------- -------- --------
Ratio of expenses to average net assets 3.11% 3.30% 3.21% 3.01% 3.32%
-------- -------- -------- -------- --------
Ratio of investment loss -
net to average net assets (1.76%) (1.95%) (0.14%) (0.78%) (0.62%)
-------- -------- -------- -------- --------
Portfolio turnover rate 10% 59% 40% 23% 26%
-------- -------- -------- -------- --------
</TABLE>
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<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 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
<PAGE>
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.
NOTE 2. NON-MARKETABLE SECURITES 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 June 30, 2000 the position was valued at -0- by
the Board of Directors, which believes 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 June 30, 2000, the
position was valued at $0.10 per share by the Board of Directors, which believes
approximates 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 monthly net assets.
During the year ended June 30, 2000, the Fund paid $8,128 of brokerage
commissions to Thomas J. Herzfeld & Co., Inc., an affiliate of the Advisor.
NOTE 4. INVESTMENT TRANSACTIONS
During the fiscal year ended June 30, 2000, purchases and sales of investment
securities were $1,032,424 and $943,036, respectively.
At June 30, 2000, the Fund's investment portfolio had gross unrealized gains of
$2,124,738 and gross unrealized losses of $1,629,340, resulting in a net
unrealized gain of $495,398.
13
<PAGE>
INDEPENDENT AUDITORS' REPORT
================================================================================
To the Board of Directors and Shareholders
The Herzfeld Caribbean Basin Fund, Inc.
We have audited the accompanying statement of assets and liabilities of The
Herzfeld Caribbean Basin Fund, Inc., including the schedule of investments, as
of June 30, 2000, 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 the 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 generally accepted auditing
standards. 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. Our procedures included confirmation of securities owned as of June
30, 2000, 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 the 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, 2000, the results of its
operations for the year then ended, the changes in its 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 generally accepted
accounting principles.
Kaufman, Rossin & Co.
Miami, Florida
August 9, 2000
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
