Herzfeld Caribbean Basin CUBA Fund annual report with commentary on Cuba business

Letter to Stockholders from Thomas J. Herzfeld Chairman, President and Portfolio Manager of the Herzfeld Caribbean Basin Fund dated July 31, 2013.

Dear Fellow Stockholders:

We are pleased to present our Annual Report for the period ended June 30, 2013. On that date, the net asset value of The Herzfeld Caribbean Basin Fund, Inc. (CUBA) was $9.28 per share, up 20.56% for the fiscal year then ended, adjusted for the year-end distribution of $0.196 per share. The Fund’s share price gained 25.31% for the 12-month period, adjusted for the distribution.

The Herzfeld Caribbean Basin Fund seeks long-term capital appreciation through investment in companies which the Advisor believes are poised to benefit from economic, political, structural and technological developments in countries of the Caribbean Basin. U.S. relations with Cuba are particularly influential to the region and, therefore, we keep a close eye on any developments.

Cuban Relations

Although media attention has been sparse, there has been an undercurrent of activity surrounding Cuba. For instance, effective January 2013, Cuban President Raúl Castro made a historic change to the country’s travel laws. Under the new policy, Cubans are eligible to apply for passports to travel abroad; previously, they had to acquire a formal letter of invitation and also obtain an exit visa. We have also noticed substantive diplomatic outreach for the first time in years.

Talks on immigration and the resumption of direct postal services between the U.S. and Cuba have been initiated. In June, the U.S. State Department granted special authorization for Cuban diplomats to visit Miami to hold meetings with migrants.

Representatives of travel agencies and advocacy groups seeking to normalize U.S. relations with Cuba were in attendance. The State Department has not granted this type of permission to Cuban diplomats since 1998.

Cuban Minister of Economy and Planning, Marino Murillo, announced a 2014 economic plan to deregulate state-owned companies and attract more foreign investment. The plan would give companies more autonomy, allowing state-owned companies to keep 50% of profits, after taxes, for investment and wage increases. This is in contrast to the current system in which all company investment must first be approved by, and all profits go to, the state. The goal is to improve business efficiency and pay down the debt that has depressed Cuba’s economy.

We continue to monitor developments in and related to Cuba with a view towards participating as an investor in the future rebuilding of that country, when permitted.

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