As
filed with the Securities and Exchange Commission on May 20, 2024
1933
Act File No. 333-[ ]
1940
Act File No. 811-06445
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
N-2
(Check
appropriate box or boxes)
|
REGISTRATION STATEMENT |
[X] |
UNDER
THE
SECURITIES ACT OF 1933
|
Pre-Effective Amendment No. |
[ ] |
|
Post-Effective Amendment No. |
[ ] |
And
REGISTRATION
STATEMENT
UNDER
|
THE
INVESTMENT COMPANY ACT OF 1940 |
[X] |
THE
HERZFELD CARIBBEAN BASIN FUND, INC.
(Exact
Name of Registrant as Specified in Charter)
119
Washington Avenue, Suite 504
Miami
Beach, Florida 33139
(Address
of Principal Executive Offices)
(Number, Street, City, State, Zip Code)
(305)
777-1660
(Registrant’s
Telephone Number, including Area Code)
Erik
M. Herzfeld
The Herzfeld Caribbean Basin Fund, Inc.
119 Washington Avenue, Suite 504
Miami Beach, Florida 33139
(Name
and Address (Number, Street, City, State, Zip Code) of Agent for Service)
Copies
of Communications to:
Erik
M. Herzfeld
119 Washington Avenue, Suite 504
Miami Beach, Florida 33139 |
Joseph
V. Del Raso, Esq.
Troutman Pepper Hamilton Sanders LLP
3000 Two Logan Square
18th
and Arch Streets
Philadelphia, Pennsylvania 19103 |
Approximate
Date of Proposed Public Offering:
From
time to time after the effective date of this Registration Statement.
| [
] | Check
box if the only securities being registered on this Form are being offered pursuant to
dividend or interest reinvestment plans. |
| [X] | Check
box if any securities being registered on this Form will be offered on a delayed or continuous
basis in reliance on Rule 415 under the Securities Act of 1933 (“Securities Act”),
other than securities offered in connection with a dividend reinvestment plan. |
| [X] | Check
box if this Form is a registration statement pursuant to General Instruction A.2 or a
post-effective amendment thereto. |
| [
] | Check
box if this Form is a registration statement pursuant to General Instruction B or a post-effective
amendment thereto that will become effective upon filing with the Commission pursuant
to Rule 462(e) under the Securities Act. |
| [
] | Check
box if this Form is a post-effective amendment to a registration statement filed pursuant
to General Instruction B to register additional securities or additional classes of securities
pursuant to Rule 413(b) under the Securities Act. |
It
is proposed that this filing will become effective (check appropriate box):
[ ] | when declared
effective pursuant to Section 8(c), or as follows: |
If appropriate,
check the following box:
[ ] | This post-effective
amendment designates a new effective date for a previously filed post-effective amendment. |
[ ] | This Form
is filed to register additional securities for an offering pursuant to Rule 462(b) under
the Securities Act, and the Securities Act registration statement number of the earlier
effective registration statement for the same offering is: |
| [
] | This
Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities
Act, and the Securities Act registration statement number of the earlier effective registration
statement for the same offering is: |
| [
] | This
Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities
Act, and the Securities Act registration statement number of the earlier effective registration
statement for the same offering is: |
Check
each box that appropriately characterizes the Registrant:
| [X] | Registered
Closed-End Fund (closed-end company that is registered under the Investment Company Act
of 1940 (“Investment Company Act”)). |
| [
] | Business
Development Company (closed-end company that intends or has elected to be regulated as
a business development company under the Investment Company Act). |
| [
] | Interval
Fund (Registered Closed-End Fund or a Business Development Company that makes periodic
repurchase offers under Rule 23c-3 under the Investment Company Act). |
| [X] | A.2
Qualified (qualified to register securities pursuant to General Instruction A.2 of this
Form). |
| [
] | Well-Known
Seasoned Issuer (as defined by Rule 405 under the Securities Act). |
| [
] | Emerging
Growth Company (as defined by Rule 12b-2 under the Securities Exchange Act of 1934 (“Exchange
Act”). |
| [
] | If
an Emerging Growth Company, indicate by check mark if the registrant has elected not
to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 7(a)(2)(B) of Securities Act. |
| [
] | New
Registrant (registered or regulated under the Investment Company Act for less than 12
calendar months preceding this filing). |
The
Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective
on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The
information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it
is not soliciting an offer to buy these securities in any state where the offer and sale is not permitted.
Subject
to Completion, Base Prospectus dated May 20, 2024
BASE
PROSPECTUS
$109,000,000
THE
HERZFELD CARIBBEAN BASIN FUND, INC.
Common
Stock
Subscription
Rights for Common Stock
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 “1940
Act.”). Its investment adviser is HERZFELD/CUBA, a division of Thomas J. Herzfeld Advisors, Inc. (the “Adviser”).
The Fund’s investment objective is long-term capital appreciation. To achieve its objective, the Fund invests in issuers
that are likely, in the Adviser’s view, to benefit from economic, political, structural and technological developments in
the countries in the Caribbean Basin, which include, among others, Cuba, Jamaica, Trinidad and Tobago, the Bahamas, the Dominican
Republic, Barbados, Aruba, Haiti, the former Netherlands Antilles, the Commonwealth of Puerto Rico, Mexico, Honduras, Guatemala,
Belize, Costa Rica, Panama, Colombia, the United States, Guyana and Venezuela (the “Caribbean Basin Countries”). The
Fund invests at least 80% of its total assets in equity and equity-linked 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. The
Fund may invest more than 25% of its total assets in the securities of U.S.-based companies, which constituted approximately 33.55%
of the Fund’s total assets as of December 31, 2023. Total assets includes the amount of any borrowings for investment purposes.
At such time as it becomes legally permissible for U.S. entities to invest directly in Cuba, the Fund will consider such investments.
For additional information, see “Investment Objective and Policies”. Equity and equity-linked securities include,
but are not limited to, common stock, preferred stock, debt securities convertible into equity, warrants, options and futures.
An investment in the Fund is not appropriate for all investors and should not constitute a complete investment program. No assurances
can be given that the Fund’s objective will be achieved.
We
may offer, from time to time, in one or more offerings of up to $109,000,000 of our common stock, par value $0.001 per share,
or subscription rights described in this prospectus. We may sell our securities through underwriters or dealers, “at-the-market”
to or through a market maker into an existing trading market or otherwise directly to one or more purchasers or through agents
or through a combination of methods of sale. The identities of such underwriters, dealers, market makers or agents, as the case
may be, will be described in one or more supplements to this prospectus. The securities may be offered at prices and on terms
to be described in one or more supplements to this prospectus. In the event we offer common stock, the offering price per share
of our common stock exclusive of any underwriting commissions or discounts will not be less than the net asset value, or NAV,
per share of our common stock at the time we make the offering except (1) in connection with a subscription rights offering to
our existing stockholders, (2) with the consent of the majority of our common stockholders and approval of our board of directors
or (3) under such circumstances as the Securities and Exchange Commission (“SEC”) may permit.
Our
common stock is traded on the NASDAQ Capital Market under the symbol “CUBA.” On May 10, 2024, the last reported sales
price on the NASDAQ Capital Market for our common stock was $2.49 per share. We determine the NAV per share of our common stock
no less frequently than monthly. The NAV per share of our common stock as of March 31, 2023 was $3.50 (unaudited) and our total
net assets were approximately $53 million (unaudited). As of March 31, 2024, there were 15,133,299 shares of our common stock
outstanding.
Notwithstanding
our ticker symbol “CUBA,” U.S. law currently prohibits U.S. persons including the Fund from investing in Cuban securities
or investing in Cuba directly or indirectly.
Investing
in the securities may be considered speculative and involves a high degree of risk, including the risk of a total loss of investment.
Shares of closed-end investment companies frequently trade at a discount to their net asset value. See “Risk Factors and
Special Considerations” beginning on page 21 of this prospectus to read about the risks you should carefully consider before
investing in our securities.
Neither
the SEC nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Investing
in the Fund involves risks. See “Risk Factors and Special Considerations” on page 21 of this prospectus.
The
date of this prospectus is [ ], 2024
This
prospectus may not be used to consummate sales of securities by us through agents, underwriters or dealers unless accompanied
by a prospectus supplement.
Please
carefully read this prospectus and any accompanying prospectus supplement before investing in our securities and keep each for
future reference. This prospectus and any accompanying prospectus supplement will contain important information about us that
a prospective investor ought to know before investing in our securities.
We
are required to file with or submit to the U.S. Securities and Exchange Commission, or “SEC,” annual, semi-annual
and quarterly reports, proxy statements and other information about us. You may request copies of these reports and filings, including
this prospectus and accompanying prospectus supplement, free of charge, make inquiries or request other information about us by
contacting us by mail at 119 Washington Avenue, Suite 504 Miami Beach, FL 33139 or by telephone at (800) TJH-FUND (toll-free)
or (305) 777-1660. Copies of these reports and filings are also available free of charge through our website at http://www.herzfeld.com/cuba.
The SEC also maintains a website at http://www.sec.gov that contains this information. The inclusion of our
website address above and elsewhere in this prospectus and any accompanying prospectus supplement is, in each case, intended to
be an inactive textual reference only and not an active hyperlink to our website. The information contained in, or that can be
accessed through, our website is not part of this prospectus or any accompanying prospectus supplement.
As
permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s annual and semi-annual
shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the
reports will be made available on the Fund’s website, https://www.herzfeld.com/cubafinancialreports, and you will
be notified by mail each time a report is posted and provided with a website link to access the report.
No
dealer, salesperson or other person is authorized to give any information or to represent anything not contained or incorporated
by reference in this prospectus or any accompanying prospectus supplement. You must not rely on any unauthorized information or
representations not contained in this prospectus or incorporated by reference or any accompanying prospectus supplement as if
we had authorized it. We are offering to sell, and seeking offers to buy, shares of securities only in jurisdictions where offers
and sales are permitted. This prospectus and any accompanying prospectus supplement does not constitute an offer to sell or the
solicitation of an offer to buy any security other than the securities offered by this prospectus and any accompanying prospectus
supplement, nor does this prospectus or any accompanying prospectus supplement constitute an offer to sell or the solicitation
of an offer to buy securities by anyone in any jurisdiction in which such offer or solicitation would be unlawful. The information
contained in this prospectus and any accompanying prospectus supplement is accurate only as of the date of this prospectus and
any accompanying prospectus supplement, regardless of the time of delivery of this prospectus, any accompanying prospectus supplement
or any sale of securities.
TABLE
OF CONTENTS
PROSPECTUS
SUMMARY |
1 |
Information
Regarding the Fund |
1 |
The
Offering |
1 |
Information
Regarding the Adviser and Custodian, Transfer Agent, Dividend Disbursing Agent, and Registrar |
2 |
Closed-End
Fund Structure |
2 |
Investment
Focus |
2 |
Summary
Risk Factors and Special Considerations |
3 |
FEES
AND EXPENSES |
9 |
Fee
Table |
10 |
Example |
10 |
FINANCIAL
HIGHLIGHTS |
10 |
PRICE
RANGE OF COMMON STOCK |
13 |
USE
OF PROCEEDS |
14 |
INVESTMENT
OBJECTIVE AND POLICIES |
14 |
Investment
Policies - General |
14 |
Special
Leverage Considerations |
15 |
Repurchase
Agreements |
18 |
Debt
Securities |
19 |
Securities
Lending |
19 |
Portfolio
Turnover |
19 |
Investment
Restrictions |
20 |
RISK
FACTORS AND SPECIAL CONSIDERATIONS |
21 |
Risks
Related to Offerings Pursuant to this Prospectus |
21 |
Discount
From Net Asset Value |
22 |
Risks
of Investing in Caribbean Basin Countries |
22 |
Risks
Related to Equity and Equity-Linked Securities |
26 |
Risks
Relating to Our Adviser and its Affiliates |
28 |
CAUTIONARY
NOTICE REGARDING FORWARD-LOOKING STATEMENTS |
30 |
MANAGEMENT
OF THE FUND |
31 |
Board
of Directors |
31 |
Information
About Directors and Officers |
31 |
Risk
Oversight |
33 |
Committees
of the Board |
33 |
Ownership
of the Fund by Directors |
34 |
Director
Compensation |
35 |
Investment
Adviser and Portfolio Managers |
35 |
Investment
Adviser |
35 |
Portfolio
Managers |
35 |
Investment
Advisory Agreement |
36 |
Benefit
to the Adviser |
37 |
Rights
Offerings |
37 |
Expenses
of the Fund |
38 |
PORTFOLIO
TRANSACTIONS AND BROKERAGE |
38 |
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS |
39 |
REGULATION
AS A REGISTERED CLOSED-END MANAGEMENT INVESTMENT COMPANY |
39 |
General |
39 |
Code
of Ethics |
40 |
Compliance
Policies and Procedures |
41 |
Sarbanes-Oxley
Act of 2002 |
41 |
Proxy
Voting Policies and Procedures |
41 |
DESCRIPTION
OF COMMON STOCK |
41 |
Share
Repurchases and Tender Offers |
42 |
Certain
Provisions of Articles of Incorporation and Bylaws |
44 |
Subscription
Rights |
45 |
MANAGED
DISTRIBUTION POLICY |
46 |
DIVIDENDS
AND DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN |
47 |
PLAN
OF DISTRIBUTION |
50 |
TAXATION |
51 |
Federal
Taxation of the Fund and its Distributions |
52 |
DETERMINATION
OF NET ASSET VALUE |
58 |
CUSTODIAN,
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND REGISTRAR |
59 |
LEGAL
MATTERS |
60 |
EXPERTS |
60 |
AVAILABLE
INFORMATION |
60 |
DEALER
PROSPECTUS DELIVERY OBLIGATION |
60 |
INCORPORATION
BY REFERENCE |
61 |
APPENDIX
A THE HERZFELD CARIBBEAN BASIN FUND, INC |
62 |
Policy |
62 |
Procedures |
62 |
APPENDIX
B THOMAS J. HERZFELD ADVISORS, INC |
65 |
PROSPECTUS
SUMMARY
This
summary highlights some information that is described more fully elsewhere in this prospectus and is qualified in its entirety
by the more detailed information included elsewhere in the prospectus. The summary does not purport to be a complete discussion
of all matters referred to in this prospectus and any accompanying prospectus supplement and may not contain all of the information
that is important to you. To understand an offering fully you should read the entire prospectus and any accompanying prospectus
supplement carefully, including the “Risk Factors and Special Consideration,” before making a decision to invest in
our securities.
You
should carefully read the section entitled “Risk Factors and Special Considerations” in this prospectus, any accompanying
prospectus supplement, and our financial statements included in our Annual Report on Form N-CSR for the fiscal year ended June 30, 2023,
filed with the SEC on September 6, 2023, and in our Semi-Annual Report on Form N-CSRS/A for the six month period ended December 31, 2023,
filed with the SEC on March 14, 2024. References to “fiscal year” mean our applicable fiscal year which ends on June 30th
in such year.
Except
where the context requires otherwise, the terms the “Fund,” “we,” “us,” and “our”
refer to The Herzfeld Caribbean Basin Fund, Inc. and the “Adviser” refers to HERZFELD/CUBA, a division of Thomas J.
Herzfeld Advisors, Inc.
Information
Regarding the Fund
The
Herzfeld Caribbean Basin Fund, Inc. is a non-diversified, closed-end management investment company incorporated under the laws
of the State of Maryland that has registered as an investment company under the 1940 Act. The Fund has elected and intends to
continue to qualify annually to be treated as a regulated investment company under the Internal Revenue Code of 1986, as amended,
or the “Code.”
The
Fund’s investment objective is long-term capital appreciation. To achieve its objective, the Fund invests in issuers that
are likely, in the Adviser’s view, to benefit from economic, political, structural and technological developments in the
countries in the Caribbean Basin, which include, among others, Cuba, Jamaica, Trinidad and Tobago, the Bahamas, the Dominican
Republic, Barbados, Aruba, Haiti, the former Netherlands Antilles, the Commonwealth of Puerto Rico, Mexico, Honduras, Guatemala,
Belize, Costa Rica, Panama, Colombia, the United States, Guyana and Venezuela (the “Caribbean Basin Countries”). As
of December 31, 2023, the Fund’s geographic allocations were as follows:
Geographic
Allocation |
%
of Net Assets |
United
States |
33.55% |
Mexico |
20.88% |
Puerto
Rico |
14.78% |
Panama |
8.12% |
Liberia |
6.88% |
Bermuda |
6.65% |
Netherlands |
6.61% |
Bahamas |
1.07% |
Cayman
Islands |
0.83% |
Money
Market |
12.65% |
Other
assets in excess of liabilities |
-12.02% |
The
Fund invests at least 80% of its total assets in equity and equity-linked 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. The
Fund may invest more than 25% of its total assets in the securities of U.S.-based companies, which constituted approximately 33.55%
of the Fund’s total assets as of December 31, 2023. Total assets includes the amount of any borrowings for investment purposes.
At such time as it becomes legally permissible for U.S. entities to invest directly in Cuba, the Fund will consider such investments.
See “Investment Objective and Policies.” Equity and equity-linked securities include, but are not limited to, common
stock, preferred stock, debt securities convertible into equity, warrants, options and futures. An investment in the Fund is not
appropriate for all investors and should not constitute a complete investment program. No assurances can be given that the Fund’s
objective will be achieved.
The
Offering
We
may offer, from time to time, in one or more offerings, our common shares, $0.001 par value per share, or our subscription rights
to purchase our common shares (the “Offer” or the “Offering”). The securities may be offered at prices
and on terms to be set forth in one or more supplements to this prospectus (each a “prospectus supplement”). The offering
price per common share will not be less than the net asset value per common share at the time we make the offering, exclusive
of any underwriting commissions or discounts, provided that rights offerings that meet certain conditions may be offered at a
price below the then current net asset value. See “Rights Offerings.” You should read this prospectus and the applicable
prospectus supplement carefully before you invest in our securities. Our securities may be offered directly to one or more purchasers,
through agents designated from time to time by us or to or through underwriters or dealers. The prospectus supplement relating
to the offering will identify any agents, underwriters, or dealers involved in the sale of our shares or notes, and will set forth
any applicable purchase price, fee, commission or discount arrangement between us and our agents or underwriters, or among our
underwriters, or the basis upon which such amount may be calculated. The prospectus supplement relating to any offering of subscription
rights will set forth the number of common or preferred shares issuable upon the exercise of each right and the other terms of
such rights offering. We may not sell any of our shares or notes through agents, underwriters or dealers without delivery of a
prospectus supplement describing the method and terms of the particular offering.
While
the aggregate amount of securities we may issue pursuant to this registration statement is limited to $109,000,000, our board
of directors may, without any action by the stockholders, amend our Articles of Incorporation, as amended, from time to time to
increase or decrease the aggregate number of shares or the number of shares of any class or series that we have authority to issue.
Information
Regarding the Adviser and Custodian, Transfer Agent, Dividend Disbursing Agent, and Registrar
HERZFELD/CUBA,
a division of Thomas J. Herzfeld Advisors, Inc. has acted as the investment adviser to the Fund since the Fund’s registration
under the 1940 Act. The Investment Advisory Agreement with the Adviser, or the “Investment Advisory Agreement,” sets
forth the services to be provided by the Adviser. The Investment Advisory Agreement was last approved by the Fund’s Board
of Directors (the “Board of Directors” or “Board”) on August 13, 2023, and is required to be approved
annually by the Board.
The
Adviser is entitled to an advisory fee paid by the Fund at the annual rate of 1.45% of the Fund’s average weekly net assets
and payable at the end of each month. That fee may be higher than the advisory fee paid by some investment companies. The Adviser
has voluntarily agreed to waive its management fee by ten (10) basis points (from 1.45% to 1.35%) for any fiscal year over a three-year
period beginning July 1, 2019 and ending June 30, 2024 if the Fund’s average discount to NAV during the preceding fiscal
year is greater than 5%. Effective November 22, 2023, the Adviser has further agreed to voluntarily waive its advisory fee on
the Fund’s net assets in excess of $30 million by an additional ten (10) basis points. Accordingly, the Adviser’s
advisory fee after the voluntary waivers is (i) 1.35% of the Fund’s assets up to and including $30 million and (ii) 1.25%
of the Fund’s assets in excess of $30 million. See, “Share Purchases and Tender Offers” below. For the fiscal
year ended June 30, 2023, June 30, 2022, and June 30, 2021, the Adviser earned, net of the fee waiver, $435,748, $502,598 and
$496,786, respectively, for investment advisory services provided to the Fund pursuant to the Investment Advisory Agreement.
See
“Management of the Fund - Investment Adviser.”
Fifth
Third Bank N.A. acts as custodian for the Fund’s assets. For its services as custodian the Fund currently pays Fifth Third
Bank an annual fee, plus a monthly fee based on the market value of the Fund’s assets. Ultimus Fund Solutions, LLC serves
as the Fund’s transfer agent, and provides shareholder services to the Fund. Ultimus has subcontracted transfer agency services
to Equiniti Trust Company, LLC, which serves as dividend/distribution disbursing agent, dividend reinvestment plan agent and as
registrar for the Fund’s common stock. For its services as transfer agent, the Fund currently pays Ultimus a monthly fee
based primarily on the number of registered Fund shareholders.
See,
“Custodian, Transfer Agent, Dividend Disbursing Agent, And Registrar”.
Closed-End
Fund Structure
The
Fund is a non-diversified, closed-end management investment company under the 1940 Act, commonly referred to as a “closed-end
fund.” Closed-end management investment companies differ from open-end management investment companies (commonly referred
to as “mutual funds”) in that closed-end funds generally list their shares for trading on a stock exchange and do
not redeem their stock at the request of the stockholder. This means that if a stockholder wishes to sell shares of a closed-end
management investment company, he or she must trade them on the market, like any other stock, at the prevailing market price at
that time. With respect to a mutual fund, if the stockholder wishes to sell shares of the company, the mutual fund will redeem,
or buy back, the shares at NAV. Mutual funds also generally offer new shares on a continuous basis to new investors, and closed-end
management investment companies generally do not. The continuous inflows and outflows of assets in a mutual fund can make it difficult
to manage the company’s investments. By comparison, closed-end management investment companies are generally able to stay
more fully invested in securities that are consistent with their investment objectives and also have greater flexibility to make
certain types of investments and to use certain investment strategies, such as investments in illiquid securities.
When
shares of closed-end management investment companies are traded, they may trade at a discount to their NAV. This characteristic
of shares of closed-end management investment companies is a risk separate and distinct from the risk that the closed-end management
investment company’s NAV may decrease as a result of investment activities. Our conversion to an open-end mutual fund would
require an amendment to the Fund’s articles of incorporation.
Investment
Focus
The
Fund’s investment objective is to obtain long-term capital appreciation. This objective may not be changed without the prior
approval of the holders of a majority of the Fund’s outstanding voting securities. As further described below, 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, (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 a Caribbean Basin Country, which we refer to collectively as “Caribbean Basin Companies.” Current income through
receipt of interest or dividends from the Fund’s securities is incidental to the Fund’s efforts to attain its investment
objective.
The
Fund invests in Caribbean Basin Companies that are likely, in the opinion of the Adviser, to benefit from economic, political,
structural and technological developments in the Caribbean Basin Countries. Under normal market conditions, the Fund invests at
least 80% of its total assets in equity and equity-linked securities of Caribbean Basin Companies. This 80% policy may be changed
without stockholder approval upon sixty days written notice to stockholders. Total assets includes the amount of any borrowings
for investment purposes. The Fund may invest more than 25% of its total assets in the securities of U.S.-based companies, which
constituted approximately 33.55% of the Fund’s total assets as of December 31, 2023.
Investment
in Cuban securities or any investment in Cuba directly or indirectly is currently prohibited under U.S. law. At such time as it
becomes legally permissible for U.S. entities to invest directly in Cuba, the Fund will consider such investments. U.S. law currently
prohibits the Fund from investing its assets in securities of companies that benefit from free trade with Cuba, which we refer
to as “companies strategically linked to Cuba.” Companies strategically linked to Cuba may include a company that
benefits from free trade with Cuba, but does not meet the definition of Caribbean Basin Company set forth above. If permitted
to make such investments upon a lifting or easing of the U.S. trade embargo against Cuba or pursuant to regulations promulgated
by a department or agency of the U.S. Government, the Fund may invest up to 20% of its assets in equity and equity-linked securities
of non-Caribbean Basin Companies strategically linked to Cuba.
There
can be no assurances that the U.S. trade embargo against Cuba will ever be lifted or eased or, if and when such lifting or easing
of the embargo commences, that the Adviser will be able to identify direct investments in issuers domiciled in Cuba that are acceptable
for the Fund. If investment in securities issued by companies domiciled in Cuba were to be permitted under U.S. law, certain risks
and special considerations not typically associated with investing in securities of U.S. companies would be relevant to such securities.
These risks include, among others, restrictions on foreign investment and on repatriation of capital invested in Cuba, unstable
currency exchange and fluctuation, the absence of a capital market structure or market oriented economy, potential price volatility
and lesser or lack of liquidity of shares listed on a securities market (if one is established), continued political and economic
risks and other risks described in “Risk Factors and Special Considerations”.
Equity
securities of public and private companies that may be purchased by the Fund consist of common stock, convertible and non-convertible
preferred stock (whether voting or non-voting), debt with equity warrants and unattached warrants. Debt issued with a warrant
entitles the holder to purchase equity shares and differs from convertible debt because the conversion feature is in the form
of a separately traded warrant. Equity-linked securities of public and private companies that may be purchased by the Fund consist
of debt securities convertible into equity and securities such as warrants, options and futures, the prices of which are functions
of the value of the equity securities receivable upon exercise or settlement thereof.
We
may invest up to 20% of our assets in non-equity linked debt securities including foreign denominated corporate debt and sovereign
debt issued by foreign governments, their agencies or instrumentalities, or other government-related entities.
For
more information, see “Investment Objective and Policies”.
Summary
Risk Factors and Special Considerations
The
value of our assets, as well as the market price of our securities, will fluctuate. Our investments may be risky, and you may
lose all or part of your investment in us. For additional information about the risks associated with investing in the Fund’s
common stock, see “Risk Factors and Special Considerations.”
The
Fund is a non-diversified, closed-end investment company designed primarily as a long-term investment and not as a trading tool.
The Fund invests generally in a portfolio of Caribbean Basin Companies. An investment in the Fund should be considered speculative
and involves a high degree of risk. The Fund should not constitute a complete investment program. Due to the uncertainty in all
investments, there can be no assurance that the Fund will achieve its investment objective. The Fund’s shares do not represent
a deposit or obligation of, and are not guaranteed or endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any governmental agency.
Risks
that you should carefully consider before investing in our securities include, but are not limited to, the following:
Discount
From NAV |
Shares
of closed-end funds frequently trade at a market price that is less than the value of the net assets attributable to those
shares (a “discount”). The possibility that the Fund’s shares will trade at a discount from NAV is a risk
separate and distinct from the risk that the Fund’s NAV will decrease. The risk of purchasing shares of a closed-end
fund that might trade at a discount or unsustainable premium is more pronounced for investors who wish to sell their shares
in a relatively short period of time after purchasing them because, for those investors, realization of a gain or loss on
their investments is likely to be more dependent upon the existence of a premium or discount than upon portfolio performance. |
Caribbean
Basin Countries |
Investing
in the securities of non-U.S. issuers involves certain risks and considerations not typically associated with investing in
securities of U.S. issuers. These risks include currency fluctuations, political and economic risks, including nationalization
and expropriation, reduced levels of publicly available information concerning issuers and reduced levels of government regulation
of foreign securities markets. Also, investment in Caribbean Basin Countries may involve special considerations, such as limited
liquidity and small market capitalization of the Caribbean Basin securities markets, currency devaluations, high inflation
and repatriation restrictions. |
Equity
and Equity-Linked Securities Risk |
Consistent
with its objective, the Fund invests a substantial portion of its assets in equity securities of Caribbean Basin Companies.
Equity securities, such as common stock, generally represent an ownership interest in a company. An adverse event, such
as an unfavorable earnings report, may depress the value of a particular equity security held by the Fund. Also, the prices
of equity securities, particularly common stocks, are sensitive to general movements in the stock market. The Fund’s
share price can fall because of weakness in the markets in which it invests, a particular industry or specific holdings.
Markets as a whole can decline for many reasons, including adverse political or economic developments, changes in investor
psychology, or heavy institutional selling. The prospects for an industry or company may deteriorate because of a variety
of factors, including disappointing earnings or changes in the competitive environment. Investments in futures and options,
if any, are subject to additional volatility and potential losses.
The
Fund may also invest in preferred stock, convertible securities and other types of equity-linked securities. The market
value of preferred and convertible securities and other debt securities tends to fall when prevailing interest rates rise.
Preferred securities may pay fixed or adjustable rates of return. Preferred securities are subject to issuer-specific
and market risks applicable generally to equity securities. In addition, a company’s preferred securities generally
pay dividends only after the company makes required payments to holders of its bonds and other debt. For this reason,
the value of preferred securities will usually react more strongly than bonds and other debt to actual or perceived changes
in the company’s financial condition or prospects. Preferred securities of smaller companies may be more vulnerable
to adverse developments than preferred stock of larger companies. The market value of a convertible security performs
like that of a regular debt security; that is, if market interest rates rise, the value of a convertible security
usually falls. In addition, convertible securities are subject to the risk that the issuer will not be able to pay interest
or dividends when due, and their market value may change based on changes in the issuer’s credit rating or the market’s
perception of the issuer’s creditworthiness. Since it derives a portion of its value from the common stock into
which it may be converted, a convertible security is also subject to the same types of market and issuer risks that apply
to the underlying common stock. Equity-linked securities bear the risk that, in addition to market risk and other risks
of the referenced equity security, the Fund may experience a return that is different from that of the referenced equity
security. Equity-linked instruments also subject the Fund to counterparty risk, including the risk that the issuing entity
may not be able to honor its financial commitment, which could result in a loss of all or part of the Fund’s investment.
|
Cuba
Specific Issues |
Investment
in Cuban securities or any investment in Cuba directly or indirectly is currently prohibited under U.S. law. There can
be no assurances that the U.S. trade embargo against Cuba will ever be lifted or eased or, if and when such a normalization
commences, that the Adviser will be able to identify direct investments in issuers domiciled in Cuba that are acceptable
for the Fund.
|
|
However,
if investment in securities issued by companies domiciled in Cuba were to be permitted under U.S. law, certain considerations
not typically associated with investing in securities of U.S. companies should be considered, including: (1) restrictions
on foreign investment and on repatriation of capital invested in Cuba; (2) unstable currency exchange and fluctuation; (3)
the cost of converting foreign currency into U.S. Dollars; (4) potential price volatility and lesser or lack of liquidity
of shares listed on a securities market (if one is established); (5) continued political and economic risks including a new
government that if not properly stabilized may lead to the risk of nationalization or expropriation of assets and the risk
of civil war; (6) the absence of a developed legal structure governing private property; (7) the absence of a capital market
structure or market oriented economy; and (8) the difficulty of assessing the financial status of particular companies. |
|
|
“Non-diversified”
Investment Company |
As
a “non-diversified” investment company, the Fund’s investments involve greater risks than would be the case
for a similar diversified investment company because the Fund is not limited by the Investment Company Act of 1940, as amended
(the “1940 Act”), in the proportion of its assets that may be invested in the assets of a single issuer. Although
the Fund is not diversified for the purposes of the 1940 Act, it must maintain a certain degree of diversification in order
to comply with certain requirements of the Code, applicable to regulated investment companies. See “Risk Factors/Special
Considerations” and “Taxation.” |
Management
Risk |
The
Adviser’s judgment about the attractiveness, relative value or potential appreciation of a particular security or investment
strategy may prove to be incorrect. |
Managed
Distribution Policy |
Under
the Fund’s Managed Distribution Policy (see “Managed Distribution Policy”),
the Fund makes periodic distributions to stockholders at a rate that may include periodic
distributions of its net income and net capital gains (“Net Earnings”), or
from return-of-capital. For any fiscal year where total cash distributions exceeded Net
Earnings (the “Excess”), the Excess would decrease the Fund’s total
assets and, as a result, would have the likely effect of increasing the Fund’s
expense ratio. There is a risk that the total Net Earnings from the Fund’s portfolio
would not be great enough to offset the amount of cash distributions paid to stockholders.
If this were to be the case, the Fund’s assets would be depleted, and there is
no guarantee that the Fund would be able to replace the assets. In addition, in order
to make such distributions, the Fund may have to sell a portion of its investment portfolio,
including securities purchased with the proceeds of the Offering, at a time when independent
investment judgment might not dictate such action. Furthermore, such assets used to make
distributions will not be available for investment pursuant to the Fund’s investment
objective. The Fund adopted the Managed Distribution Policy in 2019, and has made quarterly
distributions beginning September 30, 2019, except for the quarterly distribution for
the quarter ended September 30, 2023, which distribution was suspended due to the Fund’s
concurrent non-transferable rights offering. The Board subsequently reinstated the quarterly
distribution in November 2023. In May 2024, the Board extended the Managed Distribution
Policy through June 30, 2025 and modified the Managed Distribution Policy such that distributions
will be made at quarterly, semi-annual or annual intervals, at the Board’s discretion. |
|
The
Fund may use the proceeds of the Offering to maintain the Managed Distribution Policy by providing funding for future distributions,
which may constitute a return of capital to stockholders and lower the tax basis in their shares which, for the taxable stockholders,
will defer any potential gains until the shares are sold. For the taxable stockholders, the portion of distribution that constitutes
ordinary income and/or capital gains is taxable to such stockholders in the year the distribution is declared. A return of
capital is non-taxable to the extent of the stockholder’s basis in the shares. The stockholders would reduce their basis
in the shares by the amount of the distribution and therefore may result in an increase in the amount of any taxable gain
on a subsequent disposition of such shares, even if such shares are sold at a loss to the stockholder’s original investment
amount. Any return of capital will be separately identified when stockholders receive their tax statements. Any return of
capital that exceeds cost basis may be treated as capital gain. Stockholders are advised to consult with their own tax advisers
with respect to the tax consequences of their investment in the Fund. Furthermore, the Fund may need to raise additional capital
in order to maintain the Managed Distribution Policy. |
|
|
Dividends
and Distributions |
The
Fund distributes annually to its stockholders substantially all of its net investment income and net short-term capital gains.
The Fund determines annually whether to distribute any net realized long-term capital gains in excess of net realized short-term
capital losses. See “Dividends and Distributions: Dividend Reinvestment Plan” and “Taxation.” |
Plan
of Distribution |
We
may offer, from time to time, up to $109,000,000 of our securities, on terms to be determined at the time of each such offering
and set forth in a supplement to this prospectus. Securities may be offered at prices and on terms described in one or more
supplements to this prospectus. We may sell our securities through underwriters or dealers, “at-the-market” to
or through a market maker, into an existing trading market or otherwise directly to one or more purchasers or through agents
or through a combination of methods of sale. The supplement to this prospectus relating to an offering will identify any agents
or underwriters involved in the sale of our securities, and will set forth any applicable purchase price, fee and commission
or discount arrangement or the basis upon which such amount may be calculated. In compliance with the guidelines of the Financial
Industry Regulatory Authority, Inc., or FINRA, the compensation to the underwriters or dealers in connection with the sale
of our securities pursuant to this prospectus and the accompanying supplement to this prospectus may not exceed 8% of the
aggregate offering price of the securities as set forth on the cover page of the supplement to this prospectus. We may not
sell securities pursuant to this prospectus without delivering a prospectus supplement describing the terms of the particular
securities to be offered and the method of an offering of such securities. See “Plan of Distribution”. |
Certain
Charter Provisions |
The
Fund’s Articles of Incorporation, as amended, include provisions that could have the effect of: inhibiting the Fund’s
possible conversion to open-end status; limiting the ability of other entities or persons to acquire control of the Fund or
to change the composition of its board; and depriving stockholders of an opportunity to sell their shares at a premium over
prevailing market prices by discouraging a third party from seeking to obtain control of the Fund. See “Description
of Common Stock.” |
Market
Disruption Risk |
Certain
events have had a disruptive effect on the securities markets, such as pandemics, terrorist attacks, war and other geopolitical
events, hurricanes, droughts, floods and other disasters. The Fund cannot predict the effects of similar events in the future
on the markets or economies of Caribbean Basin Countries. |
Tender
Offers and Share Repurchases |
The
Fund may make tender offers or other offers to repurchase shares of the Fund from time to time, including in connection
with the Fund’s current Tender Offer Policy approved by the Board, under which the Fund has undertaken to commence
a tender offer by October 31st after a fiscal-year end to purchase up to 5% of then-outstanding shares at 97.5% of NAV
if the average discount to the Fund’s NAV is in excess of 10% for the fiscal year just ended. See “Tender
Offer Policy.” Subject to the Fund’s investment restriction with respect to borrowing, the Fund may incur
debt to finance repurchases and tenders. See “Investment Restrictions.” If the Fund incurs debt to finance
such repurchases and tenders, interest on any such borrowings will reduce the Fund’s net income. The acquisition
of shares by the Fund will decrease the total assets of the Fund and therefore would have the effect of increasing the
Fund’s ratio of expenses to average net assets. On August 4, 2023, the Board modified the Tender Offer Policy to
allow for the Fund to commence a tender offer within a reasonable amount of time following the conclusion of the Fund’s
non-transferable rights offering, which concluded on December 13, 2023. Such tender offer expired on March 19, 2024, pursuant
to which the Fund repurchased 10% of then-outstanding shares, or 1,681,577 shares, at 97.5% of NAV. In May 2024, the Board
extended the Tender Offer Policy through June 30, 2025.
Because
of the nature of the Fund’s investment objective and policies, if the Adviser anticipates that a share repurchase
or tender offer might have an adverse effect on the Fund’s investment performance and anticipate any material difficulty
disposing of portfolio securities in order to consummate such share repurchase or tender offer, the Board would consider
deferring or withdrawing the share repurchase or tender offer. The Fund may realize gains and losses on securities that
it may not otherwise wish to sell in the ordinary course of its portfolio management, which may adversely affect the Fund’s
performance. The portfolio turnover rate of the Fund may or may not be affected by the Fund’s repurchases of shares
pursuant to a tender offer. See “Share Repurchases and Tenders.”
|
The
risks and special considerations discussed above apply generally to the investments and strategies that the Adviser will use under
normal market conditions. The Fund and the Adviser also may use other strategies and engage in other investment practices. For
more information about the risks described above and other risks, see “Risk Factors and Special Considerations” and,
risks and special considerations discussed in any accompanying prospectus supplement. In addition, the other information included
in this prospectus and any accompanying prospectus supplement contains a discussion of factors you should carefully consider before
deciding to invest in shares of our common stock.
FEES
AND EXPENSES
The
following table is intended to assist you in understanding the costs and expenses that you will bear directly or indirectly. We
caution you that some of the percentages indicated in the table below are estimates and may vary. Except where the context suggests
otherwise, whenever this prospectus and any accompanying prospectus supplement contains a reference to fees or expenses paid by
“us” or the Fund or that “we” will pay fees or expenses, you will indirectly bear such fees or expenses
as an investor in the Fund.
Fee
Table |
|
Stockholder
Transaction Expenses: |
|
Sales
load (as a percentage of the offering price) |
--%* |
Offering
expenses borne by us |
--%* |
Dividend
reinvestment plan fees |
None |
Total
stockholder transaction expenses (as a percentage of offering price) |
|
|
Annual
Expenses (as a percentage of net assets attributable to common shares): |
Management
Fees (1) |
1.45% |
Other
expenses (estimated) (2) |
2.00% |
Acquired
Fund Fees and Expenses (3) |
0.00% |
Total
Annual Expenses (estimated) (3) |
3.45% |
| * | To
be provided by amendment. The actual amounts in connection with any offering will be
set forth in the prospectus supplement if applicable. |
| (1) | During
the fiscal year ended June 30, 2023, the Adviser voluntarily waived its management fee
by 10 basis points (from 1.45% to 1.35%) in support of the Fund’s initiative to
attempt to reduce the stock price discount to NAV. |
| (2) | “Other
Expenses” do not include expenses of the Fund incurred in connection with any Offer.
However, these expenses will be borne by the holders of the shares of common stock of
the Fund and result in a reduction in the net asset value, or “NAV”, of the
shares of common stock. |
| (3) | “Acquired
Fund Fees and Expenses” are less than 0.005%. Total Annual Expenses may not correlate
to the ratio of expenses to average net assets disclosed in the Fund’s annual and
semi-annual reports to stockholders in the financial highlights table, which reflects
operating expenses of the Fund and does not include “Acquired Fund” fees
and expenses. The Fund’s Total Annual Expenses, after the Adviser’s voluntary
waiver of 10 basis points of its management fee, is 3.35%. |
Example
The
following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods
with respect to a hypothetical investment in our common stock.
|
Cumulative
Expenses Paid for
the Period of: |
|
1
year |
3
years |
5
years |
10
years |
An
investor would pay the following expenses on a $1,000 investment, assuming a 5% annual return: |
$35 |
$106 |
$179 |
$373 |
The
example and the expenses in the tables above should not be considered a representation of past or future expenses or annual rates
of return and actual expenses or annual rates of return may be more or less than those shown. The foregoing table and example
are intended to assist investors in understanding the costs and expenses that an investor in the Fund will bear directly or indirectly.
“Other Expenses” are based on estimated amounts for the current fiscal year. See “Management of the Fund”
for additional information.
The
example assumes the reinvestment of all dividends and distributions at NAV and an expense ratio of 3.45%. The tables above and
the assumption in the example of a 5% annual return are required by SEC regulations applicable to all investment companies. In
addition, while the example assumes the reinvestment of all dividends and distributions at NAV, participants in the Dividend Reinvestment
Plan may receive shares purchased or issued at a price or value different from NAV. See “Dividends and Distributions;
Dividend Reinvestment Plan.”
FINANCIAL
HIGHLIGHTS
The
information in the table below for the fiscal years ended June 30, 2023, June 30, 2022, June 30, 2021, June 30, 2020 and June 30, 2019
is derived from the Fund’s financial statements for the fiscal year ended June 30, 2023 audited by Tait, Weller & Baker LLP
(“Tait Weller”), the Fund’s independent registered public accounting firm, whose report on such financial statements
is contained in the Fund’s June 30, 2023 Annual Report and is incorporated by reference into this prospectus. Information
shown in the table below for the six-month period ending December 31, 2023 is derived from the unaudited financial statements for the
Fund for the six-month period ended December 31, 2023 included in the Fund’s December 31, 2023 Semi-Annual Report and is incorporated
by reference into this prospectus.
The
information shown in the table below for the fiscal years ended June 30, 2018, June 30, 2017, June 30, 2016, June 30, 2015, and
June 30, 2014 is derived from the Fund’s financial statements for the fiscal year ended June 30, 2018.
The
Annual Report and Semi-Annual Report to stockholders is available without charge by calling (800) TJH-FUND.
| |
| | |
| | |
| | |
| | |
| | |
| |
| |
Six
Months
Ended
December
31, 2023* | | |
Year
Ended June 30, | |
| |
(unaudited) | | |
2023 | | |
2022 | | |
2021 | | |
2020 | | |
2019 | |
Selected Per Share
Data: | |
| | |
| | |
| | |
| | |
| | |
| |
Net asset value, beginning of period | |
$ | 4.98 | | |
$ | 4.63 | | |
$ | 7.06 | | |
$ | 4.76 | | |
$ | 7.59 | | |
$ | 8.00 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Operations: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net investment loss
1 | |
| (0.03 | ) | |
| (0.06 | ) | |
| (0.14 | ) | |
| (0.13 | ) | |
| (0.10 | ) | |
| (0.08 | ) |
Net realized and unrealized gain (loss) on investment | |
| 0.27 | | |
| 1.19 | | |
| (1.07 | ) | |
| 3.04 | | |
| (1.72 | ) | |
| (0.02 | ) |
Total from investment operations | |
| 0.24 | | |
| 1.13 | | |
| (1.21 | ) | |
| 2.91 | | |
| (1.82 | ) | |
| (0.10 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Less distributions to shareholders from: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net realized gains | |
| — | | |
| (0.10 | ) | |
| (0.23 | ) | |
| — | | |
| (0.11 | ) | |
| (0.31 | ) |
Return of capital | |
| (0.14 | ) | |
| (0.59 | ) | |
| (0.83 | ) | |
| (0.62 | ) | |
| (0.90 | ) | |
| — | |
Total distributions | |
| (0.14 | ) | |
| (0.69 | ) | |
| (1.06 | ) | |
| (0.62 | ) | |
| (1.01 | ) | |
| (0.31 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Anti-dilutive effect due to common stock repurchases | |
| — | | |
| 0.01 | | |
| 0.01 | | |
| 0.01 | | |
| — | | |
| — | |
Dilutive effect due to rights offering | |
| (1.60 | ) | |
| (0.10 | ) | |
| (0.17 | ) | |
| — | | |
| — | | |
| — | |
Net asset value, end of period | |
$ | 3.48 | | |
$ | 4.98 | | |
$ | 4.63 | | |
$ | 7.06 | | |
$ | 4.76 | | |
$ | 7.59 | |
Per share market value, end of period | |
$ | 2.78 | | |
$ | 3.95 | | |
$ | 4.01 | | |
$ | 6.27 | | |
$ | 3.70 | | |
$ | 6.26 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total investment return
based on market value per share 3 | |
| (27.28 | )%
3 | |
| 16.24 | % | |
| (22.50 | )% | |
| 91.31 | % | |
| (27.37 | )% | |
| 2.16 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Ratios and Supplemental Data: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net assets, end of period (000 omitted) | |
$ | 56,202 | | |
$ | 35,576 | | |
$ | 30,344 | | |
$ | 41,147 | | |
$ | 29,196 | | |
$ | 46,542 | |
Ratio of expenses to average net assets after waiver | |
| 3.56 | %4 | |
| 3.35 | % | |
| 3.47 | % | |
| 3.15 | %5 | |
| 3.10 | % | |
| 2.79 | % |
Ratio of expenses to average net assets before waiver | |
| 3.66 | %4 | |
| 3.45 | % | |
| 3.57 | % | |
| 3.25 | %5 | |
| 3.20 | % | |
| 2.79 | % |
Ratio of net investment loss to average net assets after waiver | |
| (1.46 | )%4 | |
| (1.30 | )% | |
| (2.17 | )% | |
| (2.14 | )%5 | |
| (1.51 | )% | |
| (1.06 | )% |
Portfolio turnover rate | |
| 2 | %3 | |
| 7 | % | |
| 9 | % | |
| 12 | % | |
| 8 | % | |
| 6 | % |
| * | Includes
adjustments in accordance with accounting principles generally accepted in the United States and, consequently, the net asset
values for financial reporting purposes and the returns based upon those net asset values may differ from the net asset values
and returns for shareholder transactions. |
| 1 | Computed
by dividing the respective period’s amounts from the Statement of Operations by the average outstanding shares for each
period presented. |
| 2 | Total
investment return is calculated assuming a purchase of common stock at the current market price on the first day and a sale at
the current market price on the last day of each period reported. Dividends and distributions, if any, are assumed for purposes
of this calculation to be reinvested at actual prices pursuant to the Fund’s Dividend Reinvestment Plan. |
| 5 | This
figure includes expenses incurred as a result of the expiration of the Fund’s shelf registration. The overall impact on
the Fund’s ratios is an increase of 0.06% |
PER SHARE OPERATING PERFORMANCE | |
Year Ended June 30 | |
(For a share of capital stock outstanding for each year) | | | 2018 | | |
2017 | | |
2016 | | |
2015 | | |
2014 | |
Net asset value, beginning of year | |
$ | 8.32 | | |
$ | 6.47 | | |
$ | 7.43 | | |
$ | 9.12 | | |
$ | 9.28 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Operations: | |
| | | |
| | | |
| | | |
| | | |
| | |
Net investment loss1 | |
| (0.11 | ) | |
| (0.14 | ) | |
| (0.07 | ) | |
| (0.11 | ) | |
| (0.07 | ) |
Net realized and unrealized gain (loss) on investment transactions | |
| (0.09 | ) | |
| 2.12 | | |
| (0.80 | ) | |
| (0.08 | ) | |
| 1.05 | |
Total from operations | |
| (0.20 | ) | |
| 1.98 | | |
| (0.87 | ) | |
| (0.19 | ) | |
| 0.98 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Distributions: | |
| | | |
| | | |
| | | |
| | | |
| | |
From net realized gains | |
| (0.12 | ) | |
| (0.13 | ) | |
| (0.16 | ) | |
| (0.64 | ) | |
| (1.14 | ) |
Total distributions | |
| (0.12 | ) | |
| (0.13 | ) | |
| (0.16 | ) | |
| (0.64 | ) | |
| (1.14 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Dilutive effect of rights offering | |
| -- | | |
| -- | | |
| -- | | |
| (0.86 | ) | |
| -- | |
Accretive effect of ATM offering | |
| -- | | |
| -- | | |
| 0.07 | | |
| -- | | |
| -- | |
Accretive effect of shares in reinvestment of distributions | |
| -- | | |
| -- | | |
| 0.00 | 2 | |
| 0.00 | 2 | |
| -- | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net asset value, end of year | |
$ | 8.00 | | |
$ | 8.32 | | |
$ | 6.47 | | |
$ | 7.43 | | |
$ | 9.12 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Per share market value, end of year | |
$ | 6.60 | | |
$ | 7.20 | | |
$ | 6.11 | | |
$ | 9.46 | | |
$ | 8.15 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total investment return (loss) based on market value per share5 | |
| (6.82 | %) | |
| 20.17 | % | |
| (33.73 | %) | |
| 25.40 | % | |
| 8.98 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | |
RATIOS AND SUPPLEMENTAL DATA | |
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| | | |
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| | |
Net assets, end of year (in 000’s) | |
$ | 49,048 | | |
$ | 51,047 | | |
$ | 39,699 | | |
$ | 41,611 | | |
$ | 33,862 | |
Ratio of expenses to average net assets | |
| 2.72 | %4 | |
| 3.36 | %3 | |
| 3.20 | % | |
| 2.97 | % | |
| 2.46 | % |
Ratio of net investment loss to average net assets | |
| (1.29 | %)4 | |
| (1.86 | %)3 | |
| (0.99 | %) | |
| (1.36 | %) | |
| (0.78 | %) |
Portfolio turnover rate | |
| 19 | % | |
| 16 | % | |
| 9 | % | |
| 14 | % | |
| 24 | % |
| 1 | Computed
by dividing the respective year’s amounts from the Statement of Operations by the
average outstanding shares for each year presented. |
| 2 | Amount
is less than $0.01. |
| 3 | This
figure includes expenses incurred as a result of the expiration of the Fund’s ATM
offering. The overall impact on the Fund’s ratios is an increase of 0.63%. |
| 4 | This
figure includes expenses incurred as a result of the expiration of the Fund’s shelf
registration. The overall impact on the Fund’s ratios is an increase of 0.22%. |
| 5 | Total
investment return is calculated assuming a purchase of common stock at the current market
price on the first day and a sale at the current market price on the last day of each
period reported. Dividends and distributions, if any, are assumed for purposes of this
calculation to be reinvested at the net asset value of the Fund on the dividend ex-date. |
PRICE
RANGE OF COMMON STOCK
As
of March 31, 2024, the Fund had 15,133,299 shares of Common Stock outstanding. The Fund’s Common Stock is publicly held
and is listed and traded on the NASDAQ Capital Market under the symbol “CUBA.” The average weekly trading volume of
the Common Stock on the NASDAQ Capital Market during the quarter ended March 31, 2024 was approximately 431,455 shares. As of
May 10, 2024, the aggregate net assets of the Fund were approximately $53 million, the NAV per share was $3.36, the share price
was $2.49, and the discount was –25.89%. Historically, the Fund’s common stock has traded at both premiums and discounts
to its NAV, most recently at discounts.
The
following table sets forth, for the periods indicated, the highest and lowest NAV and Market Price per Share, and the highest
and lowest premium/discount:
Quarter |
Price |
NAV |
Premium/(Discount) |
Ended |
High |
Low |
High |
Low |
High |
Low |
3/31/2024 |
$2.89 |
$2.56 |
$3.57 |
$3.25 |
-18.16% |
-26.29% |
12/31/2023 |
$3.40 |
$2.25 |
$5.24 |
$3.49 |
-19.66% |
-52.33% |
9/30/2023 |
$4.06 |
$3.31 |
$5.18 |
$4.50 |
-18.94% |
-27.39% |
6/30/2023 |
$3.95 |
$3.59 |
$4.97 |
$4.48 |
-15.96% |
-21.53% |
3/31/2023 |
$4.31 |
$3.60 |
$5.19 |
$4.36 |
-16.15% |
-20.57% |
12/31/2022 |
$4.36 |
$3.63 |
$5.20 |
$4.51 |
-14.92% |
-20.29% |
9/30/2022 |
$4.99 |
$3.62 |
$5.52 |
$4.48 |
-8.61% |
-20.94% |
6/30/2022 |
$5.31 |
$3.83 |
$6.05 |
$4.52 |
-7.30% |
-16.28% |
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Our
common stock has historically traded at a premium or at a discount to its NAV. We cannot predict whether our common stock will trade
at a premium or discount to NAV in the future. In recognition of the possibility that the Fund’s shares might trade at a discount
to NAV, our Board may determine that it would be in the best interest of stockholders of the Fund to take action to attempt to reduce
or eliminate a market value discount from NAV. To that end, the Board may take action from time to time either to repurchase Fund shares
in open market or private transactions or to make a tender offer for Fund shares at NAV. No assurance can be given that the Board will
decide to undertake such repurchases or tender offers, or that any such repurchases or tender offers would reduce any market discount.
The Fund may make tender offers or other offers to repurchase shares of the Fund from time to time, including in connection with the
Fund’s current Tender Offer Policy approved by the Board, under which the Fund has undertaken to commence a tender offer by October
31st after a fiscal-year end to purchase up to 5% of then-outstanding shares at 97.5% of NAV if the average discount to the Fund’s
NAV is in excess of 10% for the fiscal year just ended.
See
also, “Description of Common Stock - Share Repurchases and Tender Offers”.
USE
OF PROCEEDS
Unless
otherwise specified in a prospectus supplement, we intend to use all or substantially all of the net proceeds from a sale of our
securities, pursuant to a prospectus supplement, if any, for acquiring investments in accordance with our investment objective
and policies described in this prospectus and any accompanying prospectus supplement and for general corporate purposes. The Adviser
anticipates that such proceeds, if received, will be invested promptly as investment opportunities are identified, depending on
market conditions and the availability of appropriate securities, which we anticipate will take not more than approximately three
to six months from the closing of any offering. Pending investment, the proceeds will be invested in short-term cash-equivalent
instruments. Although the Adviser anticipates that a substantial portion of the proceeds from any offering will be invested pursuant
to the Fund’s investment objective and policies, some of the proceeds may be used to make capital gain distributions required
to maintain the Fund’s tax status as a regulated investment company. To the extent necessary, a portion of the increase
in the Fund’s assets will also be used to maintain the Fund’s Managed Distribution Policy. See “Managed Distribution
Policy” below.
INVESTMENT
OBJECTIVE AND POLICIES
Investment
Policies - General
The
Fund’s investment objective is to obtain long-term capital appreciation. This objective is fundamental and may not be changed
without the prior approval of the holders of a majority of the Fund’s outstanding voting securities. 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, (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 (collectively referred to herein as “Caribbean Basin Companies”). Current income through
receipt of interest or dividends from the Fund’s securities is incidental to the Fund’s efforts to attain its investment
objective. The Fund invests in Caribbean Basin Companies that are likely, in the opinion of the Adviser, to benefit from political,
legal and economic developments in the Caribbean Basin Countries. Under normal market conditions, the Fund invests at least 80%
of its total assets in equity and equity-linked securities of Caribbean Basin Companies, including U.S.-based companies which
engage in substantial trade with, and derive substantial revenue from, operations in the Caribbean Basin Countries. Total assets
includes the amount of any borrowings for investment purposes. The Fund may invest more than 25% of its total assets in the securities
of U.S.-based companies. U.S. law currently prohibits the Fund from investing its assets in securities of companies that benefit
from free trade with Cuba (“companies strategically linked to Cuba”). Companies strategically linked to Cuba may include
a company that benefits from free trade with Cuba, but does not meet the definition of Caribbean Basin Company set forth above.
If permitted to make such investments upon a lifting or easing of the U.S. trade embargo against Cuba or pursuant to regulations
promulgated by a department or agency of the U.S. Government, the Fund may invest up to 20% of its assets in equity and equity-linked
securities of non-Caribbean Basin Companies strategically linked to Cuba.
The
Fund’s investment objective is fundamental and may not be changed without the approval of the Fund’s outstanding voting
securities. As used in this prospectus, a majority of the Fund’s outstanding voting securities means the lesser of (i) 67%
of the shares represented at a meeting at which more than 50% of the outstanding shares are present in person or represented by
proxy or (ii) more than 50% of the outstanding shares. The Fund’s non-fundamental investment policies may be changed by
its board without stockholder approval, but the Fund will not change its investment policies without notice to its stockholders.
The Fund is designed primarily for long-term investment, and investors should not consider it a trading vehicle. An investment
in the Fund’s shares should not constitute a complete investment program. The Fund’s NAV can be expected to fluctuate,
and no assurance can be given that the Fund will continue to achieve its investment objective.
Equity
securities of public and private companies that may be purchased by the Fund consist of common stock, convertible and non-convertible
preferred stock (whether voting or non-voting), debt with equity warrants and unattached warrants. Debt issued with a warrant
entitles the holder to purchase equity shares and differs from convertible debt because the conversion feature is in the form
of a separately traded warrant. Equity-linked securities of public and private companies that may be purchased by the Fund consist
of debt securities convertible into equity and securities such as warrants, options and futures, the prices of which are functions
of the value of the equity securities receivable upon exercise or settlement thereof.
The
Fund may also invest in the shares of other registered investment companies, some of which may be Caribbean Basin Companies. By
investing in shares of investment companies, the Fund would indirectly pay a portion of the operating expenses, management expenses
and brokerage costs of such companies as well as the expense of operating the Fund. Thus, the Fund’s investors may indirectly
pay higher total operating expenses and other costs than they might pay by owning the underlying investment companies directly.
The Adviser will continue to attempt to identify investment companies that have demonstrated superior management in the past,
thus possibly offsetting these factors by producing better results and/or lower expenses than other investment companies. There
can be no assurance that this result will continue to be achieved. In addition, Section 12(d)(1)(A) of the 1940 Act imposes limits
on the amount of the investment of the Fund’s assets, and those of its affiliates, in any investment company and that provision
may adversely affect the Fund’s ability to purchase or redeem shares issued by an investment company.
The
Fund may invest in securities that lack an established secondary trading market or otherwise are considered illiquid. Liquidity
of a security relates to the ability to dispose easily of the security and the price to be obtained upon disposition of the security,
which may be less than would be obtained for a comparable more liquid security. Illiquid securities may trade at a discount from
comparable, more liquid investments. Investment of the Fund’s assets in illiquid securities may restrict the ability of
the Fund to dispose of its investments in a timely fashion and for a fair price as well as its ability to take advantage of market
opportunities. The risks associated with illiquidity will be particularly acute where the Fund’s operations require cash,
such as when the Fund redeems shares or pays a distribution, and could result in the Fund borrowing to meet short-term cash requirements
or incurring capital losses on the sale of illiquid investments.
The
Fund may invest in securities that are not registered under the Securities Act (“restricted securities”). Restricted
securities may be sold in private placement transactions between issuers and their purchasers and may be neither listed on an
exchange nor traded in other established markets. In many cases, privately placed securities may not be freely transferable under
the laws of the applicable jurisdiction or due to contractual restrictions on resale. As a result of the absence of a public trading
market, privately placed securities may be less liquid and more difficult to value than publicly traded securities. To the extent
that privately placed securities may be resold in privately negotiated transactions, the prices realized from the sales, due to
illiquidity, could be less than those originally paid by the Fund or less than their fair market value. In addition, issuers whose
securities are not publicly traded may not be subject to the disclosure and other investor protection requirements that may be
applicable if their securities were publicly traded. If any privately placed securities held by the Fund are required to be registered
under the securities laws of one or more jurisdictions before being resold, the Fund may be required to bear the expenses of registration.
Certain of the Fund’s investments in private placements may consist of direct investments and may include investments in
smaller, less seasoned issuers, which may involve greater risks. These issuers may have limited product lines, markets or financial
resources, or they may be dependent on a limited management group. In making investments in such securities, the Fund may obtain
access to material nonpublic information, which may restrict the Fund’s ability to conduct portfolio transactions in such
securities.
Temporary
Defensive Positions
The
Fund may vary its investment policy for temporary defensive purposes when, in the opinion of the Adviser, such a change is warranted
due to changes in the securities markets in which the Fund may invest or other economic or political conditions affecting such
markets. For temporary defensive purposes, the Fund may reduce its position in equity and equity-linked securities and invest
in U.S. Treasury bills and U.S. Dollar denominated bank time deposits and certificates of deposit rated high quality or better
by any nationally recognized statistical rating service or, if unrated, of equivalent investment quality as determined by the
Adviser. The banks whose obligations may be purchased by the Fund will include any member of the U.S. Federal Reserve System.
The Fund does not seek to achieve its stated investment objective when it has assumed a temporary defensive position.
Special
Leverage Considerations
Hedging
Transactions
The
Fund may employ one or more of the hedging techniques described below, primarily to protect against a decrease in the U.S. Dollar
equivalent value of its portfolio securities denominated in foreign currencies or in the payments thereon that may result from
an adverse change in foreign currency exchange rates. Conditions in the securities, futures, options and foreign currency markets
will continue to determine whether and under what circumstances the Fund will employ any of the techniques or strategies described
below. The Fund’s ability to pursue certain of these strategies may be limited by applicable regulations of the Commodity
Futures Trading Commission (“CFTC”) and the Federal tax requirements applicable to regulated investment companies.
See “Taxation.”
Pursuant
to applicable law and subject to certain restrictions, the Fund may effect hedging transactions on a variety of U.S. and foreign
exchanges. The operations of U.S. exchanges are considered to be subject to more stringent regulation and supervision than those
of certain non-U.S. exchanges.
If
any percentage limitations applicable to the transactions described below are exceeded due to market fluctuations after an initial
investment, the Fund may not enter into new transactions of the type to which the exceeded limitation applies until the total
of the Fund’s commitments with respect to such transactions falls within the applicable limitation.
Forward
Foreign Currency Exchange Contracts
The
Adviser believes that in some circumstances the purchase and sale of forward foreign currency exchange contracts (“forward
contracts”) may help offset declines in the U.S. Dollar equivalent value of the Fund’s assets denominated in foreign
currencies and in the income available for distribution to the Fund’s stockholders that would result from adverse changes
in the exchange rate between the U.S. Dollar and such foreign currencies. For example, the U.S. Dollar equivalent value of the
principal of and rate of return on, the Fund’s foreign denominated securities will decline if the exchange rate fluctuates
between the U.S. Dollar and such foreign currency whereby the U.S. Dollar increases in value. Such a decline could be partially
or completely offset by an increase in the value of a foreign currency forward contract. The Fund may purchase forward contracts
involving either the currencies in which certain of its portfolio securities are denominated or, in cross-hedging transactions,
other currencies, changes in the value of which correlate closely with the changes in the value of the currencies in which its
portfolio securities are denominated. The Fund will enter into such cross-hedging transactions (i) only with respect to currencies
whose foreign exchange rate changes historically have shown a high degree of correlation to changes in the foreign exchange rate
of the currency in which the hedged asset is denominated (a “correlated currency”) and (ii) only when the Adviser
believes that the increase in correlation risk is offset by the lower transaction costs and increased liquidity available for
financial instruments denominated in the correlated currency.
The
Fund may enter into forward contracts or maintain a net exposure on such contracts only if (i) the consummation of the contracts
would not obligate the Fund to deliver an amount of foreign currency in excess of the value of the Fund’s portfolio securities
or other assets denominated in that currency or (ii) the Fund maintains cash, U.S. Government securities or other liquid, high-grade
debt securities in a segregated account in an amount not less than the value of the Fund’s total assets committed to the
consummation of the contract.
Although
the use of forward contracts may protect the Fund against declines in the U.S. Dollar equivalent value of the Fund’s assets,
such use may reduce the possible gain from advantageous changes in the value of the U.S. Dollar against particular currencies
in which the Fund’s assets are denominated. Moreover, the use of forward contracts will not eliminate fluctuations in the
underlying U.S. Dollar equivalent value of the prices of, or rates of return on, the assets held in the Fund’s portfolio.
The
use of forward contracts subjects the Fund to certain risks. The matching of the increase in value of a forward contract and the
decline in the U.S. Dollar equivalent value of the asset that is the subject of the hedge generally is not precise. The success
of any of these techniques depends on the ability of the Adviser to predict correctly movements in foreign currency exchange rates.
If the Adviser incorrectly predicts the direction of such movements or if unanticipated changes in foreign currency exchange rates
occur, the Fund’s performance may be poorer than if it had not entered into such contracts. The cost to the Fund of engaging
in forward contracts varies with such factors as the foreign currency involved, the length of the contract period and the prevailing
market conditions, including general market expectations as to the direction of the movement of various foreign currencies against
the U.S. Dollar. Consequently, because the Fund may not always be able to enter into forward contracts at attractive prices, it
may be limited in its ability to use such contracts to hedge its assets or for other risk management purposes. In addition, there
can be no assurance that historical correlations between the movements of certain foreign currencies relative to the U.S. Dollar
will continue.
Options
on Foreign Currencies
The
Fund may purchase and write put and call options on foreign currencies to protect against a decline in the U.S. Dollar equivalent
value of its portfolio securities or payments due thereon or a rise in the U.S. Dollar equivalent cost of securities that it intends
to purchase. A foreign currency put option grants the holder the right, but not the obligation, at a future date to sell a specified
amount of a foreign currency to its counterparty at a predetermined price. A foreign currency call option grants the holder the
right, but not the obligation, to purchase at a future date a specified amount of a foreign currency at a predetermined price.
As
in the case of other types of options, the benefit to the Fund from purchases of foreign currency options will be reduced by the
amount of the premium and related transaction costs. In addition, if currency exchange rates do not move in the direction or to
the extent anticipated, the Fund could sustain losses on transactions in foreign currency options which would require it to forego
a portion or all of the benefits of advantageous changes in such rates.
Any
options on foreign currencies written by the Fund will be covered. A call option is “covered” if the Fund owns the
underlying foreign currency covered by the call or has an absolute and immediate right to acquire that foreign currency without
additional cash consideration (or for additional cash consideration held in a segregated account by its custodian) upon conversion
or exchange of other foreign currency held in its portfolio. A call option is also covered if the Fund has a call on the same
foreign currency and in the same principal amount as the call written, so long as the exercise price of the call held (i) is equal
to or less than the exercise price of the call written or (ii) is greater than the exercise price of the call written if the difference
is maintained by the Fund in cash, U.S. government securities or other liquid, high-grade debt securities in a segregated account
with its custodian. The Fund covers any put option it writes on foreign currencies by holding with its custodian, in a segregated
account, cash, U.S. government securities or other liquid, high-grade debt securities in an amount equal to the option price.
The
Fund may not purchase or write options on foreign currencies if, as a result, the Fund will have more than 20% of the value of
its total assets invested in, or at risk with respect to, such options.
Futures
Contracts
The
Fund may enter into contracts for the purchase or sale for future delivery (“futures contracts”) of foreign stock
or bond indices or other financial indices that the Adviser and the Manager determine are appropriate to hedge the risks associated
with changes in interest rates or general fluctuations in the value of the Fund’s portfolio securities.
Pursuant
to the regulations of the CFTC, and subject to certain restrictions, the Fund may purchase or sell futures contracts that are
traded on U.S. exchanges that have been designated as contract markets by the CFTC. The Fund may also generally purchase or sell
futures contracts that are subject to the rules of any foreign board of trade (“foreign futures contracts”). The Fund
may not, however, trade a foreign futures contract based on a foreign stock index unless the contract has been approved by the
CFTC for trading by U.S. persons.
The
Fund is required to make a margin deposit in cash or government securities with a broker or custodian to initiate and maintain
positions in futures contracts. Minimal initial margin requirements are established by the futures exchange and brokers may establish
margin requirements which are higher than the exchange requirements. After a futures contract position is opened, the value of
the contract is marked to market daily. If the futures contract price changes to the extent that the margin on deposit does not
satisfy margin requirements, payment of additional “variation” margin is required. Conversely, reduction in the contract
value may reduce the required margin resulting in a repayment of excess margin to the Fund. Variation margin payments are made
to and from the futures broker for as long as the contract remains open.
Notwithstanding
the foregoing, the Fund will generally only purchase or sell futures contracts (including foreign currency exchange contracts),
or options thereon, for bona fide hedging purposes, as defined in applicable CFTC regulations. If the Fund purchases or sells
such futures contracts (including foreign currency exchange contracts), or options thereon for purposes other than bona fide hedging
transactions, in accordance with CFTC regulations, the Fund will in no event purchase or sell futures contracts if immediately
thereafter the sum of the amounts of initial margin deposits and premiums on the Fund’s existing futures contracts would
exceed 5% of the fair market value of the Fund’s total assets. The Adviser reserves the right to comply with such different
standards as may be established by the CFTC with respect to the purchase or sale of futures contracts and foreign futures contracts.
Options
on Securities and Options on Indices
The
Fund may purchase or sell exchange traded or over-the-counter put and call options on its portfolio securities.
The
Fund may write covered put and call options on portfolio securities to generate additional revenue for the Fund and, in certain
circumstances, as a partial hedge (to the extent of the premium received less transaction costs) against a decline in the value
of portfolio securities and in circumstances in which the Adviser anticipates that the price of the underlying securities will
not increase above or fall below (in the case of put options) the exercise price of the option by an amount greater than the premium
received (less transaction costs incurred) by the Fund. Although writing put and call options may generate additional revenue
for the Fund, such revenue is incidental to the Fund’s efforts to achieve its investment objective. The Fund’s strategy
limits potential capital appreciation in the portfolio securities subject to the options.
The
Fund may write only covered options. “Covered” means that, so long as the Fund is obligated as the writer of a call
option, it will own either the underlying securities or an option to purchase the same underlying securities having an expiration
date not earlier than the expiration date of the covered option and an exercise price equal to or less than the exercise price
of the covered option, or establish or maintain with its custodian for the term of the option a segregated account consisting
of cash, U.S. government securities or other liquid, high-grade debt obligations having a value equal to the fluctuating market
value of the option securities. The Fund will continue to cover any put option it writes by maintaining a segregated account with
its custodian as described above.
The
Fund may not purchase or write options on securities or options on indices if, as a result, the Fund will have more than 5% of
the value of its total assets invested in, or at risk with respect to, either such class of options.
The
Fund’s successful use of options and futures depends on the ability of the Adviser to predict the direction of the market,
and is subject to various additional risks. The investment techniques and skills required to use options and futures successfully
are different from those required to select equity and equity-linked securities for investment. The correlation between movements
in the price of the option or future and the price of the securities being hedged is imperfect and the risk from imperfect correlation
increases, with respect to stock index futures and options, as the composition of the Fund’s portfolio diverges from the
composition of the index underlying such index futures and options. In addition, the ability of the Fund to close out a futures
or options position depends on a liquid secondary market. There is no assurance that liquid secondary markets will exist for any
particular option or futures contract at any particular time. The securities the Fund is required to maintain in segregated accounts
in connection with its hedging transactions are not available for investment in accordance with the Fund’s investment objective
of long-term capital appreciation.
On
U.S. exchanges, once an option contract has been accepted for clearance, the exchange clearing organization is substituted as
both buyer and seller of the contract, thereby guaranteeing the financial integrity of the option contract. Options on securities
and on indices traded on certain non-U.S. exchanges may not be so guaranteed by a clearing organization. The absence of such a
role for a clearing organization on such a non-U.S. exchange would expose the Fund to the credit risk of its counterparty. If
its counterparty were to default on its obligations, the Fund could lose the expected benefit of the transaction.
Repurchase
Agreements
When
cash may be available to the Fund for only a few days, the Fund may invest such cash in repurchase agreements until such time
as it otherwise may be invested or used for payments of obligations of the Fund. In these transactions, the Fund purchases a security
and simultaneously commits to resell that security to the seller at an agreed-upon price and date. The resale price reflects the
purchase price plus an agreed-upon market rate of interest, which is unrelated to the coupon rate or maturity of the security
purchased. The obligation of the seller to pay the agreed-upon price is secured by the value of the underlying securities, which
is maintained at the Fund’s custodian at a value at least equal to the resale price. The Adviser monitors the adequacy of
the collateral on a daily basis to ensure that the collateral always equals or exceeds the repurchase price. Repurchase agreements
could involve certain risks in the event of default or insolvency of the other party, including possible delays or restrictions
upon the Fund’s ability to dispose of the underlying securities. The Fund could suffer a loss to the extent proceeds from
the sale of collateral were less than the value of the contract.
The
Fund may not invest its assets in repurchase agreements with a maturity of more than seven days, but the collateral securities
may have maturities of more than one year. The Fund has not adopted an investment restriction limiting the value of its total
assets not invested in accordance with its fundamental investment policy that may be invested in repurchase agreements. To minimize
the risks of such investments, however, the Fund enters into repurchase agreements only with its custodian, other member banks
of the Federal Reserve System having assets in excess of $1 billion, and recognized primary U.S. Government securities dealers
determined by the Adviser, subject to review by the board of the Fund, to be creditworthy.
Repurchase
agreements do not constitute cash, cash items, receivables or government securities for purposes of the federal tax diversification
test. Therefore, the Fund limits its investments in repurchase agreements with any one bank, dealer, broker or other entity in
order to comply with the federal tax diversification test.
Debt
Securities
The
Fund may invest up to 20% of its assets in non-equity linked debt securities including foreign denominated corporate debt and
sovereign debt issued by foreign governments, their agencies or instrumentalities, or other government-related entities. Debt
securities, such as bonds, involve credit risk. This is the risk that the issuer will not make timely payments of principal and
interest. The degree of credit risk depends on the issuer’s financial condition and on the terms of the debt securities.
Changes in an issuer’s credit rating or the market’s perception of an issuer’s creditworthiness may also affect
the value of a Fund’s investment in that issuer. All debt securities are subject to interest rate risk. This is the risk
that the value of the security may fall when interest rates rise. If interest rates move sharply in a manner not anticipated by
the Adviser, a Fund’s investments in debt securities could be adversely affected and the Fund could lose money. In general,
the market price of debt securities with longer maturities will go up or down more in response to changes in interest rates than
will the market price of shorter-term debt securities. In addition, debt securities issued in foreign currency denominations will
be subject to currency risk.
Investment
in sovereign debt can involve a high degree of risk. The governmental entity that controls the repayment of sovereign debt may
not be able or willing to repay the principal and/or interest when due in accordance with the terms of such debt. A governmental
entity’s willingness or ability to repay principal and interest due in a timely manner may be affected by, among other factors,
its cash flow situation, the extent of its foreign reserves, the availability of sufficient foreign exchange on the date a payment
is due, the relative size of the debt service burden to the economy as a whole, the governmental entity’s policy towards
the International Monetary Fund and the political constraints to which a governmental entity may be subject. Governmental entities
may also be dependent on expected disbursements from foreign governments, multilateral agencies and others abroad to reduce principal
and interest arrearages on their debt. The commitment on the part of these governments, agencies and others to make such disbursements
may be conditioned on the implementation of economic reforms and/or economic performance and the timely service of such debtor’s
obligations. Failure to implement such reforms, achieve such levels of economic performance or repay principal or interest when
due may result in the cancellation of such third parties’ commitments to lend funds to the governmental entity, which may
further impair such debtor’s ability or willingness to timely service its debts. Consequently, governmental entities may
default on their sovereign debt. Holders of sovereign debt may be requested to participate in the rescheduling of such debt and
to extend further loans to governmental entities. In the event of a default by a governmental entity, there may be few or no effective
legal remedies for collecting on such debt.
Securities
Lending
The
Fund may lend portfolio securities with a value not exceeding 33 1/3% of its total assets or the limit prescribed by applicable
law to banks, brokers and other financial institutions. In return, the Fund receives collateral in cash or securities issued or
guaranteed by the U.S. Government, which will be maintained at all times in an amount equal to at least 100% of the current market
value of the loaned securities. The Fund maintains the ability to obtain the right to vote or consent on proxy proposals involving
material events affecting securities loaned. The Fund receives the income on the loaned securities. Where the Fund receives securities
as collateral, the Fund receives a fee for its loans from the borrower and does not receive the income on the collateral. Where
the Fund receives cash collateral, it may invest such collateral and retain the amount earned, net of any amount rebated to the
borrower. As a result, the Fund’s yield may increase. Loans of securities are terminable at any time and the borrower, after
notice, is required to return borrowed securities within the standard time period for settlement of securities transactions. The
Fund is obligated to return the collateral to the borrower at the termination of the loan. The Fund could suffer a loss in the
event the Fund must return the cash collateral and there are losses on investments made with the cash collateral. In the event
the borrower defaults on any of its obligations with respect to a securities loan, the Fund could suffer a loss where there are
losses on investments made with the cash collateral or where the value of the securities collateral falls below the market value
of the borrowed securities. The Fund could also experience delays and costs in gaining access to the collateral. The Fund may
pay reasonable securities lending agent, administrative and custodial fees in connection with its loans.
Portfolio
Turnover
It
is the Fund’s policy to sell any security whenever, in the opinion of the Adviser, the appreciation possibilities of the
security have been substantially realized or the business or market prospects for the issuer of such security have deteriorated,
irrespective of the length of time that such security has been held. In addition, the Fund from time to time may engage in short-term
transactions in order to take advantage of what the Adviser believes to be market inefficiencies in the pricing of equity and
equity-linked securities. The Adviser expects that the Fund’s annual rate of portfolio turnover may exceed 100% at times
when the Fund is taking advantage of short-term trading opportunities or if a complete reallocation of the Fund’s investment
portfolio becomes advisable. A 100% annual turnover rate would occur if all of the securities in the Fund’s portfolio were
replaced once within a period of one year. The turnover rate has a direct effect on the transaction costs borne by the Fund.
Investment
Restrictions
The
Fund has adopted certain investment restrictions, some of which are fundamental (i.e., may not be changed without the prior approval
of the holders of a majority of the Fund’s outstanding voting securities) and others of which are non-fundamental (i.e.,
may be changed with the approval of a majority of the board only). For purposes of the fundamental and non-fundamental investment
restrictions listed below and other investment restrictions of the Fund described in this prospectus, all percentage limitations
apply immediately after a purchase or initial investment, and any subsequent change in any applicable percentage resulting from
market fluctuations does not require elimination of any security from the Fund’s portfolio.
Fundamental
Investment Restrictions
The
following investment restrictions of the Fund are fundamental and may not be changed without the prior approval of the holders
of a majority of the Fund’s outstanding voting securities. As used in this prospectus, a majority of the Fund’s outstanding
voting securities means the lesser of (i) 67% of the shares represented at a meeting at which more than 50% of the outstanding
shares are present in person or represented by proxy or (ii) more than 50% of the outstanding shares. The Fund may not:
| 1. | Issue
senior securities, pledge its assets or borrow money in excess of 10% of the total value
of its assets (including the amount borrowed) less its liabilities (not including its
borrowings) and other than for temporary or emergency purposes or for the clearance of
transactions, except that the Fund may borrow from a bank or other entity in a privately
arranged transaction for repurchases and/or tenders for its shares, if after such borrowing
there is asset coverage of at least 300% as defined in the 1940 Act, and may pledge its
assets to secure any permitted borrowing. For the purposes of this investment restriction,
the Fund will not purchase additional portfolio securities while borrowings exceed 5%
of the Fund’s total assets; and collateral arrangements with respect to the
writing of options or the purchase or sale of futures contracts are not deemed a pledge
of assets or the issuance of a senior security. |
| 2. | Underwrite
securities of other issuers, except insofar as the Fund may be deemed an underwriter
under the Securities Act in selling portfolio securities. |
| 3. | Purchase
or sell real estate or real estate mortgage loans, except that the Fund may purchase
and sell securities secured by real estate or interests therein. |
| 4. | Buy
or sell commodities, commodity contracts or futures contracts (other than as described
under “Investment Objective and Policies—Hedging Transactions”). |
| 5. | Make
loans, except through purchasing debt obligations, lending portfolio securities and entering
into repurchase agreements consistent with the Fund’s investment objective and
policies. |
| 6. | Invest
25% or more of the value of its total assets in a particular industry. This restriction
does not apply to securities issued or guaranteed by the U.S. government, its agencies
or instrumentalities, but will apply to foreign government obligations until such time
as the SEC permits their exclusion. |
Non-Fundamental
Investment Restrictions
The
Fund has adopted certain investment restrictions that may not be changed without the prior approval of a majority of the board.
Under its non-fundamental investment restrictions, the Fund may not:
| 1. | Purchase
any securities (other than obligations of the U.S. government, its agencies or instrumentalities
or securities of other regulated investment companies) if as a result more than 25% of
the Fund’s total assets would be invested in securities of any single issuer. |
| 2. | Purchase
more than 10% of the outstanding voting securities of any one issuer. |
| 3. | Make
short sales of securities or maintain a short position in any security. |
| 4. | Purchase
securities on margin, except such short-term credits as may be necessary or routine for
the clearance or settlement of transactions, and except that the Fund may engage in transactions
as described under “Investment Objective and Policies--Hedging Transactions”
and post margin in connection therewith consistent with its investment policies. |
| 5. | Buy,
sell or write put or call options (other than as described under “Special Leverage
Considerations - Hedging Transactions”). |
The
Fund is also subject to certain diversification requirements with respect to its qualification as a “regulated investment
company” under the Code. See “Taxation-- Federal Taxation of the Fund and its Distributions”.
As
an additional non-fundamental investment restriction, the Fund will not guarantee the obligations of third parties. The Fund may
invest in other investment companies, subject to limitations set forth in the 1940 Act.
RISK
FACTORS AND SPECIAL CONSIDERATIONS
Investing
in the Fund’s common stock provides an ownership interest in the Fund. Investing in any investment company security involves
significant risk, including the risk that a stockholder may receive little or no return on the stockholder’s investment
or that the stockholder may lose part or all of the stockholder’s investment. In addition to the other information contained
in this prospectus and the applicable prospectus supplement, you should consider carefully the following information before making
an investment in our securities. The risks below are not the only risks we face. Additional risks and uncertainties not presently
known to us or not presently deemed material by us may also impair our operations and performance. If any of the following events
occur, our business, financial condition and results of operations could be materially and adversely affected. In such case, the
net asset value and trading price, if any, of our common stock could decline, or the value of our subscription rights may decline,
and you may lose all or part of your investment. Therefore, before investing, stockholders should consider carefully the following
risks that are assumed when investing in the Fund.
Risks
Related to Offerings Pursuant to this Prospectus
A
stockholder’s interest in us will be diluted if we issue additional shares of common stock, which could reduce the overall
value of an investment in us. Our stockholders do not have preemptive rights to any shares we issue in the future. Our Articles
of Incorporation authorizes us to issue up to 100,000,000 shares of capital stock, all of which is currently designated as common
stock. Our board may elect to sell additional shares in the future or issue equity interests in private offerings. To the extent
we issue additional equity interests at or below net asset value, stockholders’ the percentage ownership interest in us
may be diluted. In addition, depending upon the terms and pricing of any additional offerings and the value of our investments,
holders of our common stock may also experience dilution in the book value and fair value of their shares.
Under
the 1940 Act, we generally are prohibited from issuing or selling our common stock at a price below net asset value per share,
which may be a disadvantage as compared with certain public companies. We may, however, sell our common stock, or warrants, options,
or rights to acquire our common stock, at a price below the current net asset value of our common stock if our board of directors
and independent directors determine that such sale is in our best interests and the best interests of our stockholders, and our
stockholders, including a majority of those stockholders that are not affiliated with us, approve such sale. In any such case,
the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our board
of directors, closely approximates the fair value of such securities (less any distributing commission or discount). If we raise
additional funds by issuing common stock or senior securities convertible into, or exchangeable for, our common stock, then the
percentage ownership of our stockholders at that time will decrease and holders of our common stock will experience dilution.
Certain
provisions of the Maryland General Corporation Law could deter takeover attempts. The Maryland Control Share Acquisition Act (“MCSAA”)
significantly restricts the voting rights of control shares of a Maryland corporation acquired in a control share acquisition.
The Maryland Control Share Acquisition Act may make it more difficult for a third party to obtain control of us and increase the
difficulty of consummating such a transaction. The Fund has not opted-in to the provisions of the Maryland Control Share Acquisition
Act, but may do so in the future upon the determination of the Board.
A
recent decision in the U.S. District Court for the District of Maryland had the effect of allowing a closed-end fund organized
in Maryland to remain opted in to the MCSAA notwithstanding a counterclaim alleging that the fund’s decision to opt in to
the MCSAA violated Section 18(i) of the 1940 Act. A recent decision by the U.S. District Court for the Southern District of New
York, however, held that certain funds that opted into the MCSAA violated Section 18(i) of the 1940 Act. That decision is incompatible
with the prior decision in Maryland federal court that allowed a registered closed-end fund organized as a Maryland corporation
to remain opted into the MCSAA, resulting in a circuit split on the issue. There is a risk that a court could follow the reasoning
of the New York federal court, as opposed to the decision of the Maryland federal court, when determining whether a closed-end
fund organized in Maryland can opt in to the MCSAA.
Discount
From Net Asset Value
Shares
of closed-end funds frequently trade at a market price that is less than the value of the net assets attributable to those shares.
The possibility that the Fund’s shares will trade at a discount from NAV is a risk separate and distinct from the risk that
the Fund’s NAV will decrease. The risk of purchasing shares of a closed-end fund that might trade at a discount or unsustainable
premium is more pronounced for investors who wish to sell their shares in a relatively short period of time after purchasing them
because, for those investors, realization of a gain or loss on their investments is likely to be more dependent upon the existence
of a premium or discount than upon portfolio performance. The Fund’s shares are not redeemable at the request of stockholders.
The Fund may repurchase its shares in the open market or in private transactions, although it has no present intention to do so.
Stockholders desiring liquidity may, subject to applicable securities laws, trade their shares in the Fund on the NASDAQ Capital
Market or other markets on which such shares may trade at the then current market value, which may differ from the then current
NAV.
The
NAV of our common stock may fluctuate significantly. The NAV and liquidity of the market for shares of our common stock may be
significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating
performance. These factors include:
| ● | changes
in the value of our portfolio of investments; |
| ● | changes
in regulatory policies or tax guidelines; |
| ● | distributions
that exceed our net investment income and net income as reported according to generally
accepted account principles in the United States; |
| ● | changes
in earnings or variations in operating results; |
| ● | changes
in accounting guidelines governing valuation of our investments; |
| ● | departure
of our Adviser or certain of their respective key personnel; and |
| ● | general
economic trends and other external factors. |
Investing
in our securities involves a high degree of risk. The investments we make in accordance with our investment objective may result
in a higher amount of risk than alternative investment options and includes volatility or loss of principal. Our investments in
portfolio companies may be highly speculative and aggressive and, therefore, an investment in our securities may not be suitable
for someone with lower risk tolerance.
Risks
of Investing in Caribbean Basin Countries
The
economies of Caribbean Basin Countries have in the past experienced considerable difficulties, including high inflation rates,
high interest rates, and high unemployment. The emergence of the economies and securities markets of the Caribbean Basin Countries
will require continued economic and fiscal discipline that has been lacking at times in the past, as well as stable political
and social conditions. International economic conditions, particularly those in the United States, as well as world prices for
oil and other commodities may also influence the development of the economies of the Caribbean Basin Countries.
The
currencies of foreign countries (including those foreign countries in the definition of the Caribbean Basin) are subject to fluctuations
relative to the U.S. Dollar and foreign countries (including those foreign countries in the definition of the Caribbean Basin)
have had to make major adjustments in their currencies from time to time. Also many Caribbean Basin Countries have experienced
substantial, and in some periods extremely high, rates of inflation for many years. For companies that keep accounting records
in the local currency, inflation accounting rules in some Caribbean Basin Countries require, for both tax and accounting purposes,
that certain assets and liabilities be restated on the company’s balance sheet in order to express items in terms of currency
of constant purchasing power. Inflation accounting may indirectly generate losses or profits for certain Caribbean Basin Companies.
Inflation and rapid fluctuations in inflation rates have had, and could, in the future, have very negative effects on the economies
and securities markets of certain Caribbean Basin Countries.
In
addition, governments of many Caribbean Basin Countries have exercised and continue to exercise substantial influence over many
aspects of the private sector. Governmental actions in the future could have a significant effect on economic conditions in Caribbean
Basin Countries, which could affect the companies in which the Fund invests and, therefore, the value of Fund shares. Investments
in foreign markets may be adversely affected by governmental actions such as the imposition of punitive taxes. In addition, the
governments of certain countries may prohibit or impose substantial restrictions on foreign investing in their capital markets
or in certain industries. Substantial limitations may exist in certain countries with respect to the Fund’s ability to repatriate
investment income, capital or the proceeds of sales of securities. The Fund could be adversely affected by delays in, or a refusal
to grant, any required governmental approval for repatriation of capital, as well as by the application to the Fund of any restrictions
on investments. Any of these actions could severely affect security prices, impair the Fund’s ability to purchase or sell
foreign securities or transfer the Fund’s assets or income back into the United States, or otherwise adversely affect the
Fund’s operations.
Certain
Caribbean Basin Countries have entered into regional trade agreements that are designed to, among other things, reduce barriers
between countries, increase competition among companies and reduce government subsidies in certain industries. No assurance can
be given that these changes will be successful in the long term, or that these changes will result in the economic stability intended.
There is a possibility that these trade arrangements will not be fully implemented, or will be partially or completely unwound.
It is also possible that a significant participant could choose to abandon a trade agreement, which could diminish its credibility
and influence. Any of these occurrences could have adverse effects on the markets of both participating and non-participating countries,
including sharp appreciation or depreciation of participants’ national currencies and a significant increase in exchange
rate volatility, a resurgence in economic protectionism, an undermining of confidence in the Caribbean Basin markets, an undermining
of Caribbean Basin economic stability, the collapse or slowdown of the drive towards economic unity, and/or reversion of the attempts
to lower government debt and inflation rates that were introduced in anticipation of such trade agreements. Such developments
could have an adverse impact on the Fund’s investments in the Caribbean Basin generally or in specific countries participating
in such trade agreements.
The
Caribbean Basin has experienced natural disasters, including hurricanes, droughts and floods, which have caused substantial damage
to parts of the Caribbean Basin and have harmed the region’s economies. The possibility exists that another natural disaster
could materially disrupt and adversely affect the economies of Caribbean Basin Countries. In addition, companies and industries
in which the Fund invests may experience substantial disruptions in operations as a result of any such natural disasters.
The
Caribbean Basin is vulnerable to environmental disasters, for instance the BP Oil spill in the Gulf of Mexico in 2010 had a widespread
economic impact on the region, as did the damage caused by Hurricane Maria in 2017. The potential and impact of such occurrences
in the future is impossible to gauge.
Other
Caribbean Basin market risks include foreign exchange controls, difficulties in pricing securities, defaults on sovereign debt,
difficulties in enforcing contracts, difficulties in enforcing favorable legal judgments in local courts and political and social
instability. Legal remedies available to investors in certain Caribbean Basin countries may be less extensive than those available
to investors in the United States or other foreign countries.
Geographic
Concentration Risk
The
Fund may invest from time to time a substantial amount of its assets in issuers located in a single country or a limited number
of countries. If the Fund concentrates its investments in this manner, it assumes the risk that economic, political and social
conditions in those countries will have a significant impact on its investment performance. The Fund’s investment performance
may also be more volatile if it concentrates its investments in certain countries, especially emerging market countries.
Foreign
Securities Risk
Securities
traded in foreign markets have often (though not always) performed differently from securities traded in the United States. However,
such investments often involve special risks not present in U.S. investments that can increase the chances that the Fund will
lose money. In particular, the Fund is subject to the risk that because there may be fewer investors on foreign exchanges and
a smaller number of securities traded each day, it may be more difficult for the Fund to buy and sell securities on those exchanges.
In addition, prices of foreign securities may go up and down more than prices of securities traded in the United States.
Foreign
Economy Risk
The
economies of certain foreign markets may not compare favorably with the economy of the United States with respect to such issues
as growth of gross national product, reinvestment of capital, resources and balance of payments position. Certain foreign economies
may rely heavily on particular industries or foreign capital and are more vulnerable to diplomatic developments, the imposition
of economic sanctions against a particular country or countries, changes in international trading patterns, trade barriers and
other protectionist or retaliatory measures. Investments in foreign markets may also be adversely affected by governmental actions
such as the imposition of capital controls, nationalization of companies or industries, expropriation of assets or the imposition
of punitive taxes. In addition, the governments of certain countries may prohibit or impose substantial restrictions on foreign
investments in their capital markets or in certain industries. Any of these actions could severely affect securities prices or
impair the Fund’s ability to purchase or sell foreign securities or transfer the Fund’s assets or income back into
the United States, or otherwise adversely affect the Fund’s operations.
Other
potential foreign market risks include foreign exchange controls, difficulties in pricing securities, defaults on foreign government
securities, difficulties in enforcing legal judgments in foreign courts and political and social instability. Legal remedies available
to investors in certain foreign countries may be less extensive than those available to investors in the United States.
Currency
Risk
Securities
and other instruments in which the Fund invests may be denominated or quoted in currencies other than the U.S. Dollar. Changes
in foreign currency exchange rates may affect the value of the Fund’s portfolio. Because the Fund’s assets are primarily
invested in securities of Caribbean Basin Companies, and because some portion of revenues and income may be received in foreign
currencies while Fund distributions will be made in dollars, the dollar equivalent of the Fund’s net assets and distributions
would be adversely affected by reductions in the value of the foreign currencies relative to the dollar. For this reason, changes
in foreign currency exchange rates can affect the value of the Fund’s portfolio. Generally, when the U.S. Dollar rises in
value against a foreign currency, a security denominated in that currency loses value because the currency is worth fewer U.S.
Dollars. Conversely, when the U.S. Dollar decreases in value against a foreign currency, a security denominated in that currency
gains value because the currency is worth more U.S. Dollars. This risk, generally known as “currency risk,” means
that a strong U.S. Dollar may reduce returns for U.S. investors while a weak U.S. Dollar may increase those returns. The Fund
is managed with the assumption that most of its stockholders hold their assets in U.S. Dollars. As a result, and because distributions
are made in U.S. Dollars, other non-U.S. investors will be adversely affected by reductions in the value of the U.S. Dollar relative
to their home currency.
Governmental
Supervision and Regulation/Accounting Standards
Foreign
issuers are generally not bound by uniform accounting, auditing, and financial reporting requirements and standards of practice
comparable to those applicable to U.S. issuers. Some of the securities held by the Fund may not be registered with the SEC nor
may the issuers be subject to the SEC’s reporting requirements. Thus, there may be less available information concerning
foreign issuers of securities held by the Fund than is available concerning U.S. issuers. Adequate public information on foreign
issuers may not be available, and it may be difficult to secure dividends and information regarding corporate actions on a timely
basis. In general, there is less overall governmental supervision and regulation of securities exchanges, brokers, and listed
companies than in the United States. OTC markets tend to be less regulated than stock exchange markets and, in certain countries,
may be totally unregulated. Regulatory enforcement may be influenced by economic or political concerns, and investors may have
difficulty enforcing their legal rights in foreign countries.
In
addition, the U.S. Government has from time to time imposed restrictions, through penalties and otherwise, on foreign investments
by U.S. investors, including current prohibitions on U.S. investment in Cuba. Investments in securities of Cuban companies, if
permitted by U.S. law, may be subject to certain political and economic risks in addition to the risks associated with investment
in the securities of issuers domiciled in other foreign countries. The risks include (i) less social, political and economic stability;
(ii) the small current size of the markets for such securities and the currently low or nonexistent volume of trading, which result
in a lack of liquidity and in greater price volatility; (iii) certain national policies which may restrict the Fund’s investment
opportunities, including restrictions on investment in issuers or industries deemed sensitive to national interests; (iv) the
absence of developed legal structures governing private or foreign investment or allowing for judicial redress for injury to private
property; (v) the absence of a capital market structure or market-oriented economy; and (vi) the possibility that recent favorable
economic developments may be slowed or reversed by unanticipated political or social events in such countries. Investments in
securities of Cuban companies, if and when the Fund is permitted to invest in such securities, will be speculative and involve
risks not usually associated with investments in securities of issuers in more developed market economies. See “Emerging
Markets Risk” below.
Some
foreign securities or nations impose restrictions on transfer within the United States or to U.S. persons. Although securities
subject to such transfer restrictions may be marketable abroad, they may be less liquid than foreign securities of the same class
that are not subject to such restrictions.
Accounting
standards in other countries are not necessarily the same as in the United States. If the accounting standards in another country
do not require as much detail as U.S. accounting standards, it may be harder for the Adviser to completely and accurately determine
a company’s financial condition. In instances where the financial statements of an issuer are not deemed to reflect accurately
the financial situation of the issuer, the Adviser will take appropriate steps to evaluate the proposed investment, which may
include on-site inspection of the issuer (including Cuba, if U.S. restrictions on travel to Cuba are lifted), interviews with
its management and consultation with accountants, bankers and other specialists.
Certain
Risks of Holding Fund Assets Outside the United States
The
Fund generally holds its foreign securities and cash in foreign banks and securities depositories. Some foreign banks and securities
depositories may be recently organized or new to the foreign custody business. In addition, there may be limited or no regulatory
oversight of their operations. Also, the laws of certain countries limit the Fund’s ability to recover its assets if a foreign
bank, depository or issuer of a security, or any of their agents, goes bankrupt. In addition, it is often more expensive for the
Fund to buy, sell and hold securities in certain foreign markets than in the United States. The increased expense of investing
in foreign markets reduces the amount the Fund can earn on its investments and typically results in a higher operating expense
ratio for the Fund than for investment companies invested only in the United States.
Settlement
Risk
Settlement
and clearance procedures in certain foreign markets differ significantly from those in the United States. Foreign settlement and
clearance procedures and trade regulations also may involve certain risks (such as delays in payment for or delivery of securities)
not typically associated with the settlement of U.S. investments. Communications between the United States and emerging market
countries may be unreliable, increasing the risk of delayed settlements or losses of security certificates in markets that still
rely on physical settlement. At times, settlements in certain foreign countries have not kept pace with the number of securities
transactions. These problems may make it difficult for the Fund to carry out transactions. If the Fund cannot settle or is delayed
in settling a purchase of securities, it may miss attractive investment opportunities and certain of its assets may be uninvested
with no return earned thereon for some period. If the Fund cannot settle or is delayed in settling a sale of securities, it may
lose money if the value of the security then declines or, if it has contracted to sell the security to another party, the Fund
could be liable for any losses incurred. Dividends or interest on, or proceeds from the sale of, foreign securities may be subject
to foreign withholding taxes.
Emerging
Markets Risk
The
risks of foreign investments are usually much greater for emerging markets. Investments in emerging markets, including many Caribbean
Basin Countries, may be considered speculative. Emerging markets are riskier than more developed markets because they tend to
develop unevenly and may never fully develop. Since these markets are often small, they may be more likely to suffer sharp and
frequent price changes or long-term price depression because of adverse publicity, investor perceptions or the actions of a few
large investors. Many emerging markets have histories of political instability and abrupt changes in policies. As a result, their
governments are more likely to take actions that are hostile or detrimental to private enterprise or foreign investment than those
of more developed countries. Certain emerging markets may also face other significant internal or external risks, including the
risk of war, and civil unrest. In addition, governments in many emerging market countries participate to a significant degree
in their economies and securities markets, which may impair investment and economic growth.
Investments
in the securities of issuers domiciled in countries with emerging capital markets involve certain additional risks that do not
generally apply to investments in securities of issuers in more developed capital markets, such as (i) low or non-existent trading
volume, resulting in a lack of liquidity and increased volatility in prices for such securities, as compared to securities of
comparable issuers in more developed capital markets; (ii) uncertain national policies and social, political and economic instability,
increasing the potential for expropriation of assets, confiscatory taxation, high rates of inflation or unfavorable diplomatic
developments; (iii) possible fluctuations in exchange rates, differing legal systems and the existence or possible imposition
of exchange controls, custodial restrictions or other foreign or U.S. governmental laws or restrictions applicable to such investments;
(iv) national policies that may limit the Fund’s investment opportunities such as restrictions on investment in issuers
or industries deemed sensitive to national interests; and (v) the lack or relatively early development of legal structures governing
private and foreign investments and private property. In addition to withholding taxes on investment income, some countries with
emerging markets may impose differential capital gains taxes on foreign investors.
Emerging
capital markets are developing in a dynamic political and economic environment brought about by events over recent years that
have reshaped political boundaries and traditional ideologies. In such a dynamic environment, there can be no assurance that any
or all of these capital markets will continue to present viable investment opportunities for the Fund. In the past, governments
of such nations have expropriated substantial amounts of private property, and most claims of the property owners have never been
fully settled. There is no assurance that such expropriations will not reoccur. In such an event, it is possible that the Fund
could lose the entire value of its investments in the affected market.
Also,
there may be less publicly available information about issuers in emerging markets than would be available about issuers in more
developed capital markets, and such issuers may not be subject to accounting, auditing and financial reporting standards and requirements
comparable to those to which U.S. companies are subject. In certain countries with emerging capital markets, reporting standards
vary widely. As a result, traditional investment measurements used in the United States, such as price/ earnings ratios, may not
be applicable. Emerging market securities may be substantially less liquid and more volatile than those of mature markets, and
company shares may be held by a limited number of persons. This may adversely affect the timing and pricing of the Fund’s
acquisition or disposal of securities. Communications between the United States and emerging market countries may be unreliable,
increasing the risk of delayed settlements or losses of security certificates.
Practices
in relation to settlement of securities transactions in emerging markets involve higher risks than those in developed markets,
in part because the Fund may need to use brokers and counterparties that are less well capitalized, and custody and registration
of assets in some countries may be unreliable. The possibility of fraud, negligence, undue influence being exerted by the issuer
or refusal to recognize ownership exists in some emerging markets, and, along with other factors, could result in ownership registration
being completely lost. The Fund would absorb any loss resulting from such registration problems and may have no successful claim
for compensation.
Risks
Related to Equity and Equity-Linked Securities
Common
Stock Risks
The
Fund may invest in common stock. Common stock is issued by a company principally to raise cash for business purposes and represents
an equity or ownership interest in the issuing company. Common stockholders are typically entitled to vote on important matters
of the issuing company, including the selection of directors, and may receive dividends on their holdings. The Fund participates
in the success or failure of any company in which it holds common stock. In the event a company is liquidated or declares bankruptcy,
the claims of bondholders, other debt holders, owners of preferred stock and general creditors take precedence over the claims
of those who own common stock.
The
prices of common stocks change in response to many factors including the historical and prospective earnings of the issuing company,
the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity.
Preferred
Stock Risks
The
Fund may invest in preferred stock. Preferred stock, unlike common stock, often offers a specified dividend rate payable from
a company’s earnings. Preferred stock also generally has a preference over common stock on the distribution of a company’s
assets in the event the company is liquidated or declares bankruptcy; however, the rights of preferred stockholders on the
distribution of a company’s assets in the event of a liquidation or bankruptcy are generally subordinate to the rights of
the company’s debt holders and general creditors. If interest rates rise, the fixed dividend on preferred stocks may be
less attractive, causing the price of preferred stocks to decline.
Some
fixed rate preferred stock may have mandatory sinking fund provisions that provide for the stock to be retired or redeemed on
a predetermined schedule, as well as call/redemption provisions prior to maturity, which can limit the benefit of any decline
in interest rates that might positively affect the price of preferred stocks. Preferred stock dividends may be “cumulative,”
requiring all or a portion of prior unpaid dividends to be paid before dividends are paid on the issuer’s common stock.
Preferred stock may be “participating,” which means that it may be entitled to a dividend exceeding the stated dividend
in certain cases.
Convertible
Securities Risks.
The
Fund may invest in convertible securities. Convertible securities are generally bonds, debentures, notes, preferred stocks or
other securities or investments that may be converted or exchanged (by the holder or by the issuer) into shares of the underlying
common stock (or cash or securities of equivalent value) at a stated exchange ratio or predetermined price (the conversion price).
A convertible security is designed to provide current income and also the potential for capital appreciation through the conversion
feature, which enables the holder to benefit from increases in the market price of the underlying common stock. A convertible
security may be called for redemption or conversion by the issuer after a particular date and under certain circumstances (including
a specified price) established upon issue. If a convertible security held by the Fund is called for redemption or conversion,
the Fund could be required to tender it for redemption, convert it into the underlying common stock, or sell it to a third party,
which may have an adverse effect on the Fund’s ability to achieve its investment objective. Convertible securities have
general characteristics similar to both debt and equity securities.
A
convertible security generally entitles the holder to receive interest paid or accrued until the convertible security matures
or is redeemed, converted or exchanged. Before conversion, convertible securities have characteristics similar to non-convertible
debt obligations and are designed to provide for a stable stream of income with generally higher yields than common stocks. However,
there can be no assurance of current income because the issuers of the convertible securities may default on their obligations.
Convertible securities rank senior to common stock in a corporation’s capital structure and, therefore, generally entail
less risk than the corporation’s common stock. Convertible securities are subordinate in rank to any senior debt obligations
of the issuer, and, therefore, an issuer’s convertible securities entail more risk than its debt obligations. Moreover,
convertible securities are often rated below investment grade or not rated because they fall below debt obligations and just above
common stock in order of preference or priority on an issuer’s balance sheet. To the extent that the Fund invests in convertible
securities with credit ratings below investment grade, such securities may have a higher likelihood of default, although this
may be somewhat offset by the convertibility feature.
Convertible
securities generally offer lower interest or dividend yields than non-convertible debt securities of similar credit quality because
of the potential for capital appreciation. The common stock underlying convertible securities may be issued by a different entity
than the issuer of the convertible securities.
The
value of convertible securities is influenced by both the yield of non-convertible securities of comparable issuers and by the
value of the underlying common stock. The value of a convertible security viewed without regard to its conversion feature (i.e.,
strictly on the basis of its yield) is sometimes referred to as its “investment value.” The investment value of the
convertible security typically will fluctuate based on the credit quality of the issuer and will fluctuate inversely with changes
in prevailing interest rates. However, at the same time, the convertible security will be influenced by its “conversion
value,” which is the market value of the underlying common stock that would be obtained if the convertible security were
converted. Conversion value fluctuates directly with the price of the underlying common stock, and will therefore be subject to
risks relating to the activities of the issuer and general market and economic conditions. Depending upon the relationship of
the conversion price to the market value of the underlying security, a convertible security may trade more like an equity security
than a debt instrument.
The
Fund will invest in convertible securities based primarily on the characteristics of the equity security into which it converts,
and without regard to the credit rating of the convertible security (even if the credit rating is below investment grade). To
the extent that the Fund invests in convertible securities with credit ratings below investment grade, such securities may have
a higher likelihood of default, although this may be somewhat offset by the convertibility feature.
If,
because of a low price of the common stock, the conversion value is substantially below the investment value of the convertible
security, the price of the convertible security is governed principally by its investment value. Generally, if the conversion
value of a convertible security increases to a point that approximates or exceeds its investment value, the value of the security
will be principally influenced by its conversion value. A convertible security will sell at a premium over its conversion value
to the extent investors place value on the right to acquire the underlying common stock while holding an income-producing security.
Risks
of Other Equity-Linked Securities
Equity-linked
securities are instruments whose value is based upon the value of one or more underlying equity securities, a reference rate or
an index. Equity-linked securities come in many forms and may include features, among others, such as the following: (i) may be
issued by the issuer of the underlying equity security or by a company other than the one to which the instrument is linked (usually
an investment bank), (ii) may convert into equity securities, such as common stock, within a stated period from the issue date
or may be redeemed for cash or some combination of cash and the linked security at a value based upon the value of the underlying
equity security within a stated period from the issue date, (iii) may have various conversion features prior to maturity at the
option of the holder or the issuer or both, (iv) may limit the appreciation value with caps or collars of the value of the underlying
equity security, and (v) may have fixed, variable or no interest payments during the life of the security which reflect the actual
or a structured return relative to the underlying dividends of the linked equity security.
Investments
in equity-linked securities may subject the Fund to additional risks not ordinarily associated with investments in other equity
securities. Because equity-linked securities are sometimes issued by a third party other than the issuer of the linked security,
the Fund is subject to risks if the underlying equity security, reference rate or index underperforms, or if the issuer defaults
on the payment of the dividend or the common stock at maturity. In addition, the trading market for particular equity-linked securities
may be less liquid, making it difficult for the Fund to dispose of a particular security when necessary and reduced liquidity
in the secondary market for any such securities may make it more difficult to obtain market quotations for valuing the Fund’s
portfolio.
Risks
Relating to Our Adviser and its Affiliates
Conflicts
of Interest Caused by Compensation Arrangements
The
Adviser and its respective affiliates will receive substantial fees from us in return for their services. These fees could influence
the advice provided to us. Generally, the more equity we sell in public offerings and the greater the risk assumed by us with
respect to our investments, the greater the potential for growth in our assets and profits (and, correlatively, the fees payable
by us to the Adviser). These compensation arrangements could affect our Adviser’s or its affiliates’ judgment with
respect to public offerings of equity and investments made by us, which allow the Adviser to earn increased asset management fees.
Competition
for the Time and Resources of the Adviser
The
Adviser currently manages other investment entities and is not prohibited from raising money for and managing future investment
entities that make the same types of investments as those we target. As a result, the time and resources that our Adviser devotes
to us may be diverted, and during times of intense activity in other programs the Adviser may devote less time and resources to
our business than is necessary or appropriate. In addition, we may compete with any such investment entity for the same investors
and investment opportunities.
Conflicts
of Interest in Connection with the Management of our Business Affairs
Our
Adviser will experience conflicts of interest in connection with the management of our business affairs, including relating to
the allocation of investment opportunities by the Adviser and its affiliates; compensation to the Adviser; services that may be
provided by the Adviser and its affiliates to issuers in which we invest; investments by us and other clients of the Adviser,
subject to the limitations of the 1940 Act; the formation of additional investment funds by the Adviser; differing recommendations
given by the Adviser to us versus other clients; the Adviser’s use of information gained from issuers in our portfolio for
investments by other clients, subject to applicable law; and restrictions on the Adviser’s use of “inside information”
with respect to potential investments by us.
Conflicts
of Interest with the Adviser’s Management of Other Accounts
Because
our Adviser manages assets for other investment companies, pooled investment vehicles and/or other accounts (including institutional
clients, pension plans and certain high net worth individuals), certain conflicts of interest are present. For instance, an Adviser
may receive fees from certain accounts that are higher than the fees received by the Adviser from us, or receive a performance-based
fee on certain accounts. In those instances, a portfolio manager for the Adviser has an incentive to favor the higher fee and/or
performance-based fee accounts over us. In addition, a conflict of interest exists to the extent an Adviser has proprietary investments
in certain accounts, where its portfolio managers or other employees have personal investments in certain accounts, or when certain
accounts are investment options in the Adviser’s employee benefit plans. The Adviser has an incentive to favor these accounts
over us. The Adviser has policies and procedures in place to mitigate such conflicts and our board of directors monitors these
conflicts.
Risk
due to the Adviser’s Actions on Behalf of its Other Accounts and Clients
Our
Adviser manages assets for accounts other than us, including private funds (for purposes of this section, Adviser Funds). Actions
taken by an Adviser on behalf of its Adviser Funds may be adverse to us and our investments, which could harm our performance.
For example, we may invest in the same credit obligations as other Adviser Funds, although, to the extent permitted under the
1940 Act, our investments may include different obligations of the same issuer. Decisions made with respect to the securities
held by one Adviser Fund may cause (or have the potential to cause) harm to the different class of securities of the issuer held
by other Adviser Funds (including us). As a further example, an Adviser may manage accounts that engage in short sales of (or
otherwise take short positions in) securities or other instruments of the type in which we invest, which could harm our performance
for the benefit of the accounts taking short positions, if such short positions cause the market value of the securities to fall.
Risk
due to Inside Information
In
the course of it duties, the members, officers, directors, employees, principals or affiliates of our Adviser may come into possession
of material, non-public information. The possession of such information may, to our detriment, limit the ability of our Adviser
to buy or sell a security or otherwise to participate in an investment opportunity for us. In certain circumstances, employees
of our Adviser may serve as board members or in other capacities for portfolio or potential portfolio companies, which could restrict
our ability to trade in the securities of such companies. For example, if personnel of our Adviser comes into possession of material
non-public information with respect to our investments, such personnel will be restricted by our Adviser’s information-sharing
policies and procedures or by law or contract from sharing such information with our management team, even where the disclosure
of such information would be in our best interests or would otherwise influence decisions taken by the members of the management
team with respect to that investment. This conflict and these procedures and practices may limit the freedom of our Adviser to
enter into or exit from potentially profitable investments for us which could have an adverse effect on our results of operations.
Accordingly, there can be no assurance that we will be able to fully leverage the resources and industry expertise of our Adviser’s
other businesses. Additionally, there may be circumstances in which one or more individuals associated with our Adviser will be
precluded from providing services to us because of certain confidential information available to those individuals or to other
parts of the Adviser.
Risk
in Transactions with Affiliates
We
are prohibited under the 1940 Act from participating in certain transactions with certain of our affiliates without the prior
approval of a majority of the independent directors and, in some cases, the SEC. Any person that owns, directly or indirectly,
5% or more of our outstanding voting securities will be our affiliate for purposes of the 1940 Act, and we will generally be prohibited
from buying or selling any securities from or to such affiliate on a principal basis. The 1940 Act also prohibits certain “joint”
transactions with certain of our affiliates, which in certain circumstances could include investments in the same portfolio company
(whether at the same or different times to the extent the transaction is considered a joint transaction. If a person acquires
more than 25% of our voting securities, we will be prohibited from buying or selling any security from or to such person or certain
of that person’s affiliates, or entering into prohibited joint transactions with such persons, absent the prior approval
of the SEC. Similar restrictions limit our ability to transact business with our officers or directors or their affiliates. As
a result of these restrictions, we may be prohibited from buying or selling any security from or to any portfolio company that
is controlled by a fund managed by either the Adviser or its affiliates without the prior approval of the SEC, which may limit
the scope of investment opportunities that would otherwise be available to us.
We
may, however, invest alongside our Adviser’s and its affiliates’ other clients, including other entities it manages,
which we refer to as affiliates’ other clients, in certain circumstances when doing so is consistent with applicable law
and SEC staff interpretations and guidance. We may also invest alongside the other clients of our Adviser, as otherwise permissible
under regulatory guidance, applicable regulations and the Adviser’s allocation policies. However, we can offer no assurance
that investment opportunities will be allocated to us fairly or equitably in the short-term or over time.
In
situations when co-investment with affiliates’ other clients is not permitted under the 1940 Act and related rules, existing
or future staff guidance, or the terms and conditions of exemptive relief granted to us by the SEC, our Adviser will need to decide
which client or clients will proceed with the investment. Generally, we will not have an entitlement to make a co-investment in
these circumstances and, to the extent that another client elects to proceed with the investment, we will not be permitted to
participate. Moreover, except in certain circumstances, we are unable to invest in any issuer in which an affiliate’s other
client holds a controlling interest.
Risk
of Investments that Could Give Rise to a Conflict of Interest
We
do not expect to invest in, or hold securities of, companies that are controlled by affiliates’ other clients. However,
an affiliate’s other clients may invest in, and gain control over, one of our portfolio companies. If an affiliate’s
other client, or clients, gains control over one of our portfolio companies, it may create conflicts of interest and may subject
us to certain restrictions under the 1940 Act. As a result of these conflicts and restrictions our Adviser may be unable to implement
our investment strategies as effectively as they could have in the absence of such conflicts or restrictions. For example, as
a result of a conflict or restriction, our Adviser may be unable to engage in certain transactions that it would otherwise pursue.
In order to avoid these conflicts and restrictions, our Adviser may choose to exit these investments prematurely and, as a result,
we would forego any positive returns associated with such investments. In addition, to the extent that an affiliate’s other
client holds a different class of securities than we as a result of such transactions, our interests may not be aligned.
Risks
Relating to Our Adviser and its Affiliates
Operational
Risk
The
valuation of the Fund’s investments may be negatively impacted because of the operational risks arising from factors such
as processing errors and human errors, inadequate or failed internal or external processes, failures in systems and technology,
changes in personnel, and errors caused by third party service providers or trading counterparties. It is not possible to identify
all of the operational risks that may affect the Fund or to develop processes and controls that completely eliminate or mitigate
the occurrence of such failures. The Fund and its shareholders could be negatively impacted as a result.
Cybersecurity
Risk
Cybersecurity
incidents, both intentional and unintentional, may allow an unauthorized party to gain access to Fund assets, Fund or proprietary
information, cause the Fund, the Adviser and/or their service providers to suffer data breaches, data corruption or loss of operational
functionality or prevent Fund investors from purchasing, redeeming or exchanging shares or receiving distributions. The Fund and
the Adviser have limited ability to prevent or mitigate cybersecurity incidents affecting third party service providers, and such
third party service providers may have limited indemnification obligations to the Fund and the Adviser. Cybersecurity incidents
may result in financial losses to the Fund and its shareholders, and substantial costs may be incurred in an effort to prevent
or mitigate future cybersecurity incidents. Issuers of securities in which the Fund invests are also subject to cybersecurity
risks, and the value of these securities could decline if the issuers experience cybersecurity incidents.
CAUTIONARY
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus and any prospectus supplement contains forward-looking statements. Words such as “anticipates,” “expects,”
“intends,” “plans,” “predicts,” “will,” “may,” “continue,”
“believes,” “seeks,” “estimates,” “would,” “could,” “should,”
“targets,” “projects,” “continue,” “forecast,” “possible,” “potential,”
“approximate” and variations of these words and similar expressions, or the negatives of such words, are intended
to identify forward-looking statements, although not all forward-looking statements contain these identifying words. By their
nature, all forward-looking statements involve risks and uncertainties, and actual results could differ materially from those
contemplated by the forward-looking statements. Several factors that could materially affect our actual results are the performance
of the portfolio of securities we hold, the price at which our shares will trade in the public markets and other factors discussed
in our periodic filings with the SEC. The forward-looking statements contained in this prospectus and any prospectus supplement
involve risks and uncertainties, including but not limited to, statements as to potential changes to the current prohibition on
investment with Cuba that may arise from future diplomatic and legal developments with respect to the relationship between the
United States and Cuba.
Although
we believe that the assumptions on which these forward-looking statements are based are reasonable, actual results could differ
materially from those projected or assumed in such forward-looking statements. The Fund’s future financial condition and
results of operations, as well as any forward-looking statements, are subject to change and are subject to inherent risks and
uncertainties, such as those disclosed in the “Investment Objective and Policies” and “Risk Factors and Special
Considerations” sections of this prospectus.
All
forward-looking statements contained in or incorporated by reference into this prospectus or any accompanying prospectus supplement
are made as of the date of this prospectus or the accompanying prospectus supplement, as the case may be. Except for the Fund’s
ongoing obligations under the federal securities laws, it does not intend, and it undertakes no obligation, to update any forward-looking
statements. The forward-looking statements contained in this prospectus and any accompanying prospectus supplement are excluded
from the safe harbor protection provided by Section 27A of the 1933 Act.
Currently
known risk factors that could cause actual results to differ materially from our expectations include, but are not limited to,
the factors described in the “Investment Objective and Policies” and “Risk Factors and Special Considerations”
sections of this prospectus. We urge you to review carefully those sections for a more detailed discussion of the risks of an
investment in our securities.
MANAGEMENT
OF THE FUND
Board
of Directors
The
board is responsible for the overall management of the Fund, including oversight of the Adviser and other service providers. There
are five directors of the Fund. One of the directors is an “interested person” (as defined in the 1940 Act). A director
who is not an “interested persons” is referred to as an “Independent Director.” Information about both
the Fund’s directors and officers is set forth in the tables below. Unless otherwise noted, the mailing address of each
director and officer is c/o The Herzfeld Caribbean Basin Fund, Inc., 119 Washington Avenue, Suite 504, Miami Beach, FL, 33139.
Information
About Directors and Officers
Name
and Age |
Position(s)
Held with
Fund |
Term
of Office*
and Length of
Time Served |
Principal
Occupation(s) During Past 5 Years |
Number
of
Portfolios
in Complex
Overseen by
Director |
Other
Directorships
Held by
Director |
Independent
Directors |
|
|
|
|
John
A. Gelety, Esq.
Age: 55 |
Director |
Current
term
expires 2025;
2011 to present. |
Attorney
and shareholder at Greenspoon Marder, LLP, corporate practice group, 2016-present. |
1
|
None |
Cecilia
L. Gondor
Age: 61 |
Director |
Current
term expires 2024; 2014 to present. |
Managing
Member of L&M Management, a real estate management business, 2014-present. |
1
|
None |
Ann
S. Lieff
Age: 71
|
Director |
Current
term expires 2025; 1998 to present. |
President
of the Lieff Company, a management consulting firm that offers ongoing advisory services as a corporate director, 1998-present. |
1
|
None |
Kay
W. Tatum, Ph.D., CPA
Age: 72 |
Director |
Current
term expires 2024; 2007 to present. |
Associate
Professor of Accounting, University of Miami Herbert Business School, 1992-present. |
1
|
None |
Interested
Director |
|
|
|
|
|
Thomas J. Herzfeld**
Age: 79 |
Chairman,
Director and Portfolio Manager |
Current
term expires 2026; 1993 to present. |
Thomas
J. Herzfeld Advisors, Inc., serving as Chairman, 1984-present, and Portfolio Manager, 1984-present. |
2
|
|
Officers: |
|
|
|
|
|
Erik M. Herzfeld**
Age: 50 |
Portfolio
Manager and President |
2007
to present 2016 to present |
Thomas
J. Herzfeld Advisors, Inc., serving as President, 2016-present, and Portfolio Manager, 2007-present. |
N/A
|
N/A |
Thomas K. Morgan
Age: 65 |
CCO
and
Assistant
Secretary |
2018
to present |
Thomas
J. Herzfeld Advisors, Inc., serving as Chief Compliance Officer, 2018-present; TMorgan Advisers LLC, 2015-present. |
N/A
|
N/A |
Zachary
P. Richmond***
Age: 42 |
Treasurer |
2020
to present |
Vice
President, Director of Financial Administration for Ultimus Fund Solutions, LLC since February 2019; Assistant Vice President,
Associate Director of Financial Administration for Ultimus Fund Solutions, LLC December 2015-February 2019. |
N/A
|
N/A |
Alice
Tham
Age: 34 |
Secretary |
2019
to present |
Thomas
J. Herzfeld Advisors, Inc., serving as Operations Manager, 2012-present. |
N/A
|
N/A |
Ryan
M. Paylor
Age: 42 |
Portfolio
Manager |
2019
to present |
Thomas
J. Herzfeld Advisors, Inc., serving as Portfolio Manager for the Advisor’s separately management accounts 2012-present. |
N/A
|
N/A |
| * | Each
director serves a three-year term after which the director may be re-elected for additional
three-year terms. |
| ** | Thomas
J. Herzfeld is an “interested person” of the Fund (as defined in the 1940
Act) because he is a control person, director and employee of the Fund’s investment
adviser. Thomas J. Herzfeld is the father of Erik M. Herzfeld. |
| *** | Mr.
Richmond’s address is: 225 Pictoria Drive, Suite 450, Cincinnati, OH 45246. |
Thomas
J. Herzfeld is an “interested person” (as such term is defined in the 1940 Act) who currently serves as the Chairman
of the board. The board believes that Mr. Herzfeld’s service as Chairman is appropriate and benefits stockholders due to
his personal and professional stake in the quality of services provided to the Fund. The independent directors believe that they
can act independently and effectively without having an independent director serve as Chairman. John A. Gelety serves as Lead
Independent Director. In this role, Mr. Gelety serves as the primary liaison between the independent directors and the Advisor.
As currently composed, the independent directors constitute a substantial majority of the board.
The
board believes that the significance of each director’s experience, qualifications, attributes or skills is an individual
matter (meaning that experience that is important for one director may not have the same value for another) and that these factors
are best evaluated at the board level, with no single director, or particular factor, being indicative of the Board’s effectiveness.
The board determined that each of the directors is qualified to serve as such based on a review of the experience, qualifications,
attributes and skills of each director. In reaching this determination, the board has considered a variety of criteria, including,
among other things: character and integrity; ability to review critically, evaluate, question and discuss information provided,
to exercise effective business judgment in protecting stockholder interests and to interact effectively with the other directors,
the Adviser, other service providers, counsel and the independent registered accounting firm or independent accountants; and willingness
and ability to commit the time necessary to perform the duties of a director. Each director’s ability to perform his or
her duties effectively is evidenced by his or her experience or achievements in the following areas: management or board experience
in the investment management industry or companies or organizations in other fields, educational background and professional training;
and experience as a director of the Fund. In addition, the board values the diverse skill sets and experiences that each director
contributes. The board considers that its diversity as a whole is as a result of a combination of directors and the various perspectives
that each director provides as a result of his or her present experiences and his or her background. Information discussing the
specific experience, skills, attributes and qualifications of each director which led to the board’s determination that
the directors should serve in this capacity is provided below.
Thomas
J. Herzfeld has served as Chairman of the board since inception of The Herzfeld Caribbean Basin Fund, Inc. in 1993. In addition,
he is the Chairman and President of Thomas J. Herzfeld Advisors, Inc., the Fund’s investment adviser. Mr. Herzfeld entered
the securities industry in 1968, was founder of a New York Stock Exchange member firm in 1970 and was the Chairman and President
of FINRA member firm Thomas J. Herzfeld & Co., Inc., formed in 1981.
Ann
S. Lieff joined the board in 1998. Ms. Lieff is President of Lieff Company, a management consulting firm that offers ongoing advisory
services as a corporate director to several retail operations. Previously she served as Chief Executive Officer of Spec’s
Music for 18 years, from 1980-1998; Specs was one of the largest music retail chain stores in the Southeastern region of
the United States for many decades.
Kay
W. Tatum, Ph.D., CPA, joined the board in 2007. Dr. Tatum is an Associate Professor of Accounting at the University of Miami Herbert
Business School, where she has been since 1986. She also served as Chair of the Department of Accounting from 2004 to 2008.
John
A. Gelety, Esq. joined the board in 2011. Mr. Gelety is a practicing attorney who specializes in business law, with a concentration
on domestic and cross-border mergers & acquisitions, private equity and commercial transactions.
Cecilia
L. Gondor joined the board in 2014. Ms. Gondor is a Managing Member of L&M Management, a real estate management business.
Ms. Gondor served as the Secretary/Treasurer of Fund since its inception until her retirement in May 2014. She also served as
Executive Vice President of the Adviser from 1984 through the date of her retirement. Additionally, she was the Executive Vice
President of Thomas J. Herzfeld & Co., Inc., a broker-dealer, from 1984 through 2010, when the broker-dealer ceased operations.
Ms. Gondor is a freelance financial writer, including topics related to closed-end funds.
Specific
details regarding each director’s principal occupations during the past five years are included in the table above. The
summaries set forth above as to the experience, qualifications, attributes and/or skills of the directors do not constitute holding
out the board or any director as having any special expertise or experience, and do not impose any greater responsibility or liability
on any such person or on the board as a whole than would otherwise be the case.
Risk
Oversight
While
responsibility for the day-to-day operations for the Fund, including certain risk management functions addressed in policies and
procedures relating to the Fund, resides with the Adviser, the board actively performs a risk oversight function, both directly
and through its committees, as described below. The board and its audit committee (the “audit committee”) exercise
a risk oversight function through regular and ad hoc board and audit committee meetings during which the board and the audit committee
meet with representatives of the Adviser and other service providers. The board also periodically receives reports regarding the
Fund’s and the Adviser’s policies and procedures, and reviews and approves changes to the Fund’s policies and
procedures. The audit committee also meets regularly with the Fund’s independent registered public accounting firm to discuss
internal controls and financial reporting matters, among other things. The board and audit committee routinely receive reports
from the Fund’s officers and the Adviser on a variety of other risk areas relating to the Fund, including, without limitation,
investment risks, liquidity risks, valuation risks and operational risks, as well as more general business risks. In addition,
the board consults with Fund counsel both during and, to the extent required, between meetings of the board and the audit committee.
The
board also meets regularly with the Fund’s Chief Compliance Officer (“CCO”), who reports directly to the board.
The CCO has responsibility for annually testing the compliance procedures of the Fund and its service providers. The CCO regularly
discusses issues related to compliance and provides a quarterly report to the board regarding certain Fund compliance matters.
Committees
of the Board
The
board has formed an Audit Committee and a Nominating Committee.
The
board has adopted a written charter for the Audit Committee, which became effective February 5, 2004. The Audit Committee of the
board currently consists of Mr. Gelety, Ms. Gondor, Ms. Lieff and Dr. Tatum, none of whom is an “interested person”
of the Fund. Each member of the Audit Committee is considered independent under the applicable NASDAQ Capital Market listing standards.
During the fiscal year ended June 30, 2023, the Audit Committee met two times. The Audit Committee reviews the scope of the audit
by the Fund’s independent accountants, confers with the independent accountants with respect to the audit and the internal
accounting controls of the Fund and with respect to such other matters as may be important to an evaluation of the audit and the
financial statements of the Fund, and makes recommendations with respect to the selection of the independent accountants for the
Fund.
The
Nominating Committee is comprised of Mr. Gelety, Ms. Gondor, Ms. Lieff, and Dr. Tatum, each of whom is an independent director
under the 1940 Act and under NASDAQ Capital Market listing standards. During the fiscal year ended June 30, 2023, the Nominating
Committee met once. The Nominating Committee is responsible for reviewing and recommending qualified candidates in the event that
a directorship is vacated or created. The Nominating Committee will not consider nominees recommended by stockholders. The Nominating
Committee believes that candidates for director should have certain minimum qualifications, including (i) the ability to apply
good business judgment; (ii) the ability to properly exercise their duties of loyalty and care; (iii) proven leadership capabilities,
high integrity and moral character, significant business experience and a high level of responsibility within their chosen fields;
(iv) the ability to quickly grasp complex principles of business, finance, international transactions and the regulatory environment
in which investment companies must operate; and (v) the ability to read and understand basic financial statements. The Nominating
Committee retains the right to modify these minimum qualifications from time to time. In general, candidates will be preferred
who hold an established senior or executive level position in business, finance, law, education, research or government. The Nominating
Committee’s process for identifying and evaluating nominees is as follows:
In
the case of incumbent directors whose terms of office are set to expire, the Nominating Committee reviews such directors’
overall service to the Fund during their term, including the number of meetings attended, level of participation, quality of performance,
and transactions of such directors with the Fund, if any, during their term, and confirms their independence, if applicable. In
the case of new director candidates, the committee first determines whether the nominee must be independent for purposes of The
NASDAQ Capital Market and whether the candidate must be considered an independent director under the 1940 Act. In either case,
determinations are based upon the Fund’s charter and bylaws, applicable securities laws, the rules and regulations of the
SEC, and the advice of counsel, if necessary. The Committee then uses its network of contacts to compile a list of potential candidates,
but may also engage, if it deems appropriate, a professional search firm. The Committee then meets to discuss and consider such
candidates’ qualifications and recommend the nominee.
Ownership
of the Fund by Directors
Set
forth in the following table are the directors of the Fund, together with the dollar range of equity securities beneficially owned
by each director as of December 31, 2023, as well as the aggregate dollar range of equity securities in all funds overseen or
to be overseen in a family of investment companies (i.e., funds managed by the Adviser).
Name
of Director |
Dollar
Range of Equity
Securities in the Fund |
Aggregate
Dollar Range of
Equity Securities in All
Funds in
Family of Investment
Companies |
Independent Directors |
|
|
John A. Gelety |
$10,001-50,000 |
$10,001-50,000 |
Cecilia L. Gondor |
Over
$100,000 |
Over
$100,000 |
Ann S. Lieff |
$50,001-100,000 |
$50,001-100,000 |
Kay W. Tatum |
$10,001-50,000 |
$10,001-50,000 |
Interested Director |
|
|
Thomas J. Herzfeld |
Over
$100,000 |
Over
$100,000 |
None
of the independent directors, and no immediate family member of any independent director, own beneficially or of record any securities
of the Fund’s Adviser, or any person directly or indirectly controlling, controlled by, or under common control with the
Adviser.
As
of December 31, 2023, directors (5 persons) beneficially owned an aggregate of 10.52% of the Fund’s outstanding shares.
Director
Compensation
Our
board of directors held four regular meetings during the Fund’s fiscal year ended June 30, 2023.
For
the fiscal year ended June 30, 2023, the aggregate director compensation paid by the Fund was $124,000. The compensation paid
by the Fund to each of its directors serving during the fiscal year ended June 30, 2023 is set forth in the table below. Directors
are also reimbursed for related business expenses. Directors who are current employees or officers of the Fund’s investment
adviser (currently Mr. Herzfeld) are not paid compensation for their service as a director. None of the other directors serves
on the board of any other registered investment company to which the Adviser or an affiliated person of the Adviser provides investment
advisory services. Directors and officers of the Fund do not receive pension or retirement benefits from the Fund.
Name
of Person and
Position with the Fund |
Aggregate
Compensation
from the Fund |
Pension
or Retirement
Benefits Accrued As
Part of Fund Expenses |
Total
Compensation from
the Fund and Fund
Complex Paid to Directors |
Independent Directors |
|
|
|
John A. Gelety |
$32,500 |
$0 |
$32,500 |
Cecilia L. Gondor |
$29,500 |
$0 |
$29,500 |
Ann S. Lieff |
$29,500 |
$0 |
$29,500 |
Kay W. Tatum |
$32,500 |
$0 |
$32,500 |
Interested Director |
|
|
|
Thomas J. Herzfeld |
$0 |
$0 |
$0 |
Investment
Adviser and Portfolio Managers
Investment
Adviser
The
Fund is advised by HERZFELD/CUBA (the “Adviser”), a division of Thomas J. Herzfeld Advisors, Inc., whose principal
business address is 119 Washington Avenue, Suite 504 Miami Beach, FL 33139. The Adviser has been providing advisory services to
the Fund since our registration under the 1940 Act. Thomas J. Herzfeld Advisors, Inc. has provided advisory services since 1984
and is beneficially owned by Thomas J. Herzfeld, as the sole voting stockholder.
Pursuant
to an investment advisory agreement with the Fund (the “Investment Advisory Agreement”) and under the direction and
control of the board, the Adviser manages the Fund’s portfolio and makes investment decisions pursuant to the Fund’s
stated investment objective, policies and restrictions. The Adviser is authorized to transmit purchase and sale orders and select
brokers and dealers to execute portfolio transactions on behalf of the Fund. The Adviser determines the timing of portfolio transactions
and other matters related to execution.
Portfolio
Managers
Thomas
J. Herzfeld currently serves as the Chairman, Director and Portfolio Manager of the Fund. Mr. T. Herzfeld has managed the Fund
since our registration under the 1940 Act. In addition, Mr. T. Herzfeld has served as the Chairman of the Adviser since 1984.
Prior to these positions, he served as the President of the Adviser from 1984 to 2016. He also served as Chairman and President
of Thomas J. Herzfeld & Co., Inc. an affiliated broker/dealer (that ceased operations in 2010) from 1981-2010. Prior to these
positions Mr. Herzfeld was Executive Vice President and Director of a New York Stock Exchange member firm. Mr. T. Herzfeld has
authored or edited a number of books, including The Investors Guide to Closed-End Funds (McGraw Hill, 1980), Herzfeld’s
Guide to Closed End Funds (McGraw Hill, 1993) and co-authored High Return, Low Risk Investment (1st edition, G.P. Putnam’s
Sons, 1981 and 2nd edition, McGraw Hill, 1993). He is considered the first and a leading expert in the field of closed-end funds.
Mr. T. Herzfeld has been quoted in thousands of articles and written hundreds of articles on the subject of closed end funds.
He has written periodically for Barron’s and has made television appearances on Wall Street Week, The Nightly
Business Report and CNBC.
Erik
M. Herzfeld currently serves as President and Portfolio Manager of the Fund. Mr. E. Herzfeld has managed the Fund since 2008.
In addition, Mr. E. Herzfeld has served as President of the Adviser since February 2016. Mr. E. Herzfeld formerly served as Managing
Director of the Adviser since 2007. Prior to these positions he had served in quantitative research, trading and management roles
with Lehman Brothers and JPMorgan and was based in New York and Asia.
Ryan
M. Paylor currently serves as Portfolio Manager of the Fund. Mr. Paylor has managed the Fund since 2019. He joined the Adviser
in 2012 as a Senior Trader after spending eight years at J.P. Morgan Chase in New York on the FX Derivatives Operations team.
Messrs.
T. Herzfeld, E. Herzfeld, and Paylor are primarily responsible for the day-to-day management of the Fund.
As
of June 30, 2023 Mr. T. Herzfeld, Mr. E. Herzfeld, and Mr. Paylor were also portfolio managers for approximately 317 other accounts
comprising $358 million under management, 4 pooled investment vehicles comprising $319.5 million under management. The portfolio
managers also provide trading advisement models to a single client portfolio having approximately $42 million under advisement
pursuant to a model licensing agreement. However, none of these accounts or models are managed with an investment strategy similar
to the Fund’s. As of the same date, the Fund had total assets of approximately $35.6 million.
The
Fund does not believe that any material conflicts are likely to arise through the Portfolio Managers’ management of other
accounts in addition to the Fund in that there is very little overlap in the type of investments made for the Fund and other accounts,
which generally trade shares of closed-end funds. The Fund is permitted, to a limited extent, to buy shares of other closed-end
funds and occasionally other clients or Mr. T. Herzfeld may buy shares of securities also held in the portfolio of the Fund. The
Adviser and the Fund have adopted procedures overseen by the CCO intended to monitor compliance with such policies which include
conflicts which may occur regarding allocation of investment opportunities between the Fund and other accounts. The CCO of the
Fund reports directly to the board at least annually.
The
Fund’s Portfolio Managers receive no direct compensation from the Fund for their services as Portfolio Managers. Mr. T.
Herzfeld owns 100% of the voting stock of the Adviser, a Subchapter S Corporation, therefore he is taxed on its profits. Portfolio
managers, other than Mr. T. Herzfeld, are paid a fixed salary by the Adviser. In addition, the Adviser retains the ability to
pay bonuses based on the overall profitability of the Adviser, however, compensation is not directly based upon the performance
of a particular client or account, including the Fund’s performance, nor the value of a particular client or account, including
the value of the Fund’s assets.
The
range of value of shares of the Fund owned by Mr. T. Herzfeld as of June 30, 2023 was over $1,000,000. The range of value of shares
of the Fund owned by Mr. E. Herzfeld as of June 30, 2023 was over $500,001-$1,000,000. The range of value of shares of the Fund
owned by Mr. Paylor as of June 30, 2023 was $10,001-$500,000.
Investment
Advisory Agreement
The
Adviser is entitled to an advisory fee paid by the Fund at the annual rate of 1.45% of the Fund’s average weekly net assets
and payable at the end of each month. That fee may be higher than the advisory fee paid by some investment companies. The Adviser
has voluntarily agreed to waive its management fee by ten (10) basis points (from 1.45% to 1.35%) for any fiscal year over a three-year
period beginning July 1, 2019 and ending June 30, 2024 if the Fund’s average discount to NAV during the preceding fiscal
year is greater than 5%. Effective November 22, 2023, the Adviser has further agreed to voluntarily waive its advisory fee on
the Fund’s net assets in excess of $30 million by an additional ten (10) basis points. Accordingly, the Adviser’s
advisory fee after the voluntary waivers is (i) 1.35% of the Fund’s assets up to and including $30 million and (ii) 1.25%
of the Fund’s assets in excess of $30 million. See, “Share Purchases and Tender Offers” below. For the fiscal
year ended June 30, 2023, June 30, 2022, and June 30, 2021, the Adviser earned, net of the fee waiver, $435,748, $502,598 and
$496,786, respectively, for investment advisory services provided to the Fund pursuant to the Investment Advisory Agreement.
The
Investment Advisory Agreement was last approved by the board on August 10, 2023. A discussion regarding the basis for the board’s
approval of the Investment Advisory Agreement is provided in the Fund’s Semi-Annual Report to stockholders for the semi-annual
report period in which the approval occurred.
The
Investment Advisory Agreement provides that the Adviser bears all expenses of its employees and overhead incurred by it in connection
with its duties thereunder. Except with respect to the reimbursement for compliance services, the Adviser pays the salaries and
expenses of officers and directors of the Fund who are current employees or officers of the Adviser. The Fund bears all of its
own expenses (See “Expenses of the Fund” below).
The
services of the Adviser under the Investment Advisory Agreement are not deemed to be exclusive, and nothing in the Investment
Advisory Agreement prevents the Adviser or any affiliate thereof, from providing similar services to other investment companies
and other clients (whether or not their investment objectives and policies are similar to those of the Fund) or from engaging
in other activities. When other clients of the Adviser desire to purchase or sell a security at the same time the security is
purchased for or sold by the Fund, such purchases and sales are to the extent feasible, allocated among such clients and the Fund
in a manner believed by the Adviser to be equitable to the Fund. The allocation of securities may adversely affect the price and
quality of purchases and sales of securities by the Fund. Purchase and sale orders for the Fund may be combined with those of
other clients of the Adviser in the interest of the most favorable results for the Fund.
The
Investment Advisory Agreement was initially approved by the board on June 24, 1993. The Agreement continued in effect for a period
of two years from the effective date and thereafter it is required to be approved annually by the board. The Investment Advisory
Agreement continues in effect for successive periods of 12 months, provided that its continuance is specifically approved annually
by (i) the vote of a majority of the board who are not parties to such agreement or interested persons (as such term is defined
in the 1940 Act) of the Adviser, cast in person at a meeting called for the purpose of voting on such approval and (ii) either
(a) the vote of a majority of the outstanding voting securities of the Fund or (b) the vote of a majority of the board. The Investment
Advisory Agreement may be terminated by the Fund, without the payment of any penalty, upon vote of a majority of the board or
a majority of the outstanding voting securities of the Fund at any time upon not less than 60 days’ prior written notice
to the Adviser, or by the Adviser upon not less than 60 days’ prior written notice to the Fund. The Investment Advisory
Agreement terminates automatically in the event of its assignment (as such term is defined in the 1940 Act) by either party or
upon its termination.
The
Adviser is not liable for any act or omission, error of judgment, mistake of law or loss suffered by the Fund or its investors
in connection with the matters to which the Investment Advisory Agreement relates, except for a loss resulting from willful misfeasance,
bad faith or gross negligence in the performance of, or from reckless disregard of, its obligations and duties under the Investment
Advisory Agreement, or a loss resulting from a breach of fiduciary duty with respect to receipt of compensation for services (in
which case any award of damages shall be limited to the period and the amount set forth in Section 36(b)(3) of the 1940 Act).
The
Adviser also performs or arranges for the performance of certain administrative and accounting functions for the Fund, including
(i) providing persons satisfactory to the directors of the Fund to serve as officers and, in that capacity, manage the daily operations
of the Fund; (ii) processing the payment of expenses for the Fund; (iii) supervising the preparation of periodic reports to the
Fund’s stockholders; (iv) preparing materials for Fund board and committee meetings; (v) supervising the pricing of the
Fund’s investment portfolio and the publication of the NAV of the Fund’s shares, earnings reports and other financial
data; (vi) monitoring relationships with organizations providing services to the Fund, including the custodian, transfer agent,
administrator, fund accounting agent, auction agent and printers; (vii) supervising compliance by the Fund with record-keeping
requirements under the 1940 Act and regulations thereunder, maintaining books and records for the Fund (other than those maintained
by the Adviser, custodian, administrator, and/or transfer agent) and preparing and filing of tax reports other than the Fund’s
income tax returns; and (viii) providing executive, clerical and secretarial help needed to carry out these responsibilities.
Benefit
to the Adviser
The
Fund’s Adviser will benefit from any Offer because the Adviser’s fee is based on the average net assets of the Fund.
It is not possible to state precisely the amount of additional compensation the Adviser will receive as a result of any Offer
because the proceeds of such Offer will be invested in additional portfolio securities which will fluctuate in value.
Rights
Offerings
The
Fund may, in the future and at its discretion, choose to make rights offerings from time to time for a number of shares and on
terms which may or may not be similar to any Offer. Any such future rights offering will be made in accordance with the 1940 Act.
Under the laws of Maryland, the state in which the Fund is organized, the board is authorized to approve rights offerings without
obtaining stockholder approval. The staff of the SEC has interpreted the 1940 Act as not requiring stockholder approval of a rights
offering at a price below the then current NAV so long as certain conditions are met, including a good faith determination by
a board that such offering would result in a net benefit to existing stockholders.
Expenses
of the Fund
Except
as indicated above, the Fund pays all of its expenses, including but not limited to the following: organizational and certain
offering expenses (but not overhead or employee costs of the Adviser); advisory fees payable to the Adviser; fees and out-of-pocket
travel expenses of the Fund’s directors and officers who are not interested persons (as such term is defined in the 1940
Act) of any other party and other expenses incurred by the Fund in connection with directors’ meetings; interest expense;
charges and expenses of the Fund’s legal counsel, independent accountants and, if applicable, third party consultants; taxes
and governmental fees; brokerage and other expenses connected with the execution, recording and settlement of portfolio security
transactions; expenses of repurchasing shares; expenses of issuing any preferred shares or indebtedness; expenses connected with
negotiating, effecting purchase or sale, or registering privately issued portfolio securities; membership dues to professional
organizations; premiums allocable to fidelity bond and D&O insurance coverage; expenses of preparing stock certificates; expenses
of registering and qualifying the Fund’s shares for sale with the SEC and in various states and foreign jurisdictions; custodian,
sub-custodian, dividend paying agent, transfer agency expenses; payment for portfolio pricing services to a pricing agent; expenses
of printing and mailing share certificates, stockholder reports, notices, proxy statements and reports to governmental offices;
expenses of stockholders’ meetings and preparing and distributing proxies and reports to stockholders; any litigation expenses;
expenses relating to investor and public relations; and NASDAQ Capital Market listing fees.
PORTFOLIO
TRANSACTIONS AND BROKERAGE
In
portfolio transactions involving equity securities, the Adviser places orders on behalf of the Fund directly with brokers, which
may include brokers affiliated with the Adviser, except that the purchase of shares in rights offerings is made directly from
the issuer. The Adviser may manage other accounts and funds that invest in equity securities of Caribbean Basin Companies. Although
investment decisions for the Fund are made independently from those of other accounts or funds managed by the Adviser, investments
of the type the Fund may make may also be made by those other accounts and funds. When the Fund and one or more accounts or funds
managed by the Adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities
for each will be allocated in a manner believed by the Adviser to be equitable to each. In some cases, this procedure may affect
adversely the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund.
The
primary objective of the Adviser in placing orders for the purchase and sale of securities for the Fund’s portfolio is to
obtain best execution taking into account such factors as price, commission, size of order, difficulty of execution and skill
required of the broker or dealer. The capability and financial condition of the broker or dealer may also be criteria for the
choice of that broker or dealer. Subject to obtaining the best execution, brokers, who provide investment research services to
the Adviser, including market and statistical information and quotations for portfolio evaluation purposes, may receive orders
for transactions of the Fund. The terms “investment research” and “market and statistical information and quotations”
include advice as to the value of securities, the advisability of investing in, purchasing or selling securities, and the availability
of securities and potential buyers or sellers of securities, as well as the furnishing of analyses and reports concerning issuers,
industries, securities, economic factors and trends, and portfolio strategy. Neither the Fund nor the Adviser is obligated to
deal with any broker or group of brokers for the execution of portfolio transactions.
Research
provided to the Adviser in advising the Fund will be in addition to and not in lieu of the services required to be performed by
the Adviser itself, and the Adviser’s fees will not be reduced as a result of the receipt of supplemental information. This
information is regarded as only supplementary to the Adviser’s own research effort, since the information must be analyzed,
weighed and reviewed by the Adviser’s staff. This information may be useful to the Adviser in providing services to clients
other than the Fund, and not all such information will necessarily be used by the Adviser in connection with the Fund. Conversely,
information provided to the Adviser by brokers and dealers through whom other clients of the Adviser effect securities transactions
may prove useful to the Adviser in providing services to the Fund. The board will review at least annually the commissions allocated
by the Adviser on behalf of the Fund to determine if such allocations were reasonable in relation to the benefits inuring to the
Fund.
During
the fiscal years ended 2023, 2022, and 2021, the Fund paid $2,155.21, $2,096.12 and $3,214.59, respectively, in brokerage commissions.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Persons
or organizations beneficially owning 25% or more of the outstanding shares of the Fund could be presumed to “control”
the Fund. As a result, those persons or organizations could have the ability to take action with respect to the Fund without the
consent or approval of other stockholders. As of April 30, 2024, there were 68 record holders of the Fund’s common stock.
To the knowledge of the Fund, as of April 30, 2024, the following persons or entities owned of record or beneficially more than
5% of our outstanding voting securities.
Name
and Address |
Number
of Shares Owned |
%
Ownership |
Type
of Ownership |
Thomas
J. Herzfeld
119
Washington Avenue
Suite 504
Miami
Beach, FL 33139 |
1,456,069
|
9.62% |
Beneficial |
Matisse
Capital
15350
SW Sequoia Parkway
Suite
260
Portland,
OR 97224 |
899,494
|
5.94% |
Beneficial |
Blue
Bell Private Wealth Management, LLC
470
Norristown Road
Suite
305
Blue
Bell, PA 19422 |
823,044
|
5.44% |
Beneficial |
Our
officers and directors, as a group, owned an aggregate of 1,967,179 shares of our common stock, or 13.00% of the voting securities
of the Fund, as of April 30, 2024.
REGULATION
AS A REGISTERED CLOSED-END MANAGEMENT INVESTMENT COMPANY
General
We
are a non-diversified closed-end management investment company that has registered as an investment company under the 1940 Act.
As a registered closed-end investment company, we are subject to regulation under the 1940 Act. Under the 1940 Act, unless authorized
by vote of a majority of the outstanding voting securities, we may not:
| ● | change
our classification to an open-end management investment company; |
| ● | except
in each case in accordance with our policies with respect thereto set forth in this prospectus
(see “Investment Objective and Policies – Investment Restrictions”),
borrow money, issue senior securities, underwrite securities issued by other persons,
purchase or sell real estate or commodities or make loans to other persons; |
| ● | deviate
from any policy in respect of concentration of investments in any particular industry
or group of industries as recited in the prospectus, deviate from any investment policy
which is changeable only if authorized by stockholder vote under the 1940 Act, or deviate
from any fundamental policy recited in its registration statement in accordance with
the requirements of the 1940 Act; or |
| ● | change
the nature of our business so as to cease to be an investment company. |
A
majority of the outstanding voting securities of a company is defined under the 1940 Act as the lesser of: (a) 67% or more of
such company’s voting securities present at a meeting if more than 50% of the outstanding voting securities of such company
are present or represented by proxy, or (b) more than 50%) of the outstanding voting securities of such company.
As
with other companies regulated by the 1940 Act, a registered closed-end management investment company must adhere to certain substantive
regulatory requirements. A majority of our directors must be persons who are not interested persons, as that term is defined in
the 1940 Act. Additionally, we are required to provide and maintain a bond issued by a reputable fidelity insurance company to
protect the closed-end management investment company. Furthermore, as a registered closed-end management investment company, we
are prohibited from protecting any director or officer against any liability to us or our stockholders arising from willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office. We may
also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior
approval of our directors who are not interested persons and, in some cases, prior approval by the SEC.
As
a registered closed-end management investment company, we are generally required to meet an asset coverage ratio with respect
to our outstanding senior securities representing indebtedness, defined under the 1940 Act as the ratio of our gross assets (less
all liabilities and indebtedness not represented by senior securities) to our outstanding senior securities representing indebtedness,
of at least 300% after each issuance of senior securities representing indebtedness. In addition, we are generally required to
meet an asset coverage ratio with respect to any outstanding preferred stock, as defined under the 1940 Act as the ratio of our
gross assets (less all liabilities and indebtedness not represented by senior securities) to our outstanding senior securities
representing indebtedness, plus the aggregate involuntary liquidation preference of any outstanding preferred stock, of at least
200% immediately after each issuance of preferred stock. We are also prohibited by the 1940 Act from issuing or selling any senior
security if, immediately after such issuance, we would have outstanding more than (i) one class of senior security representing
indebtedness, exclusive of any promissory notes or other evidences of indebtedness issued in consideration of any loan, extension,
or renewal thereof, made by a bank or other person and privately arranged, and not intended to be publicly distributed, or (ii)
one class of senior security which is stock, except that in each case any such class of indebtedness or stock may be issued in
one or more series. Under the Fund’s articles of incorporation, the Fund only issues common stock and is not currently permitted
to issue preferred stock and would only be permitted to do so after the Fund’s articles of incorporation are revised or
supplemented. In addition to the 1940 Act requirements, the Fund is further limited in its ability to issue senior securities
(including preferred stock), pledge its assets or borrow money by its fundamental investment restrictions. Such investment restrictions
are more restrictive than the 1940 Act. See “Investment Objective and Policies—Investment Restrictions”.
We
are generally not able to issue and sell our common stock at a price below net asset value per share. See “Risk Factors
and Special Considerations—Risks Related to Offerings Pursuant to this Prospectus”. We may, however, sell our common
stock, or at a price below the then-current net asset value of our common stock if our board determines that such sale is in our
best interests and the best interests of our stockholders, and our stockholders approve such sale. In addition, we may generally
issue new shares of our common stock at a price below net asset value in rights offerings to existing stockholders, in payment
of dividends and in certain other limited circumstances.
As
a registered closed-end management investment company, we are generally limited in our ability to invest in any portfolio company
in which our investment adviser or any of its affiliates currently has an investment or to make any co-investments with our investment
adviser or its affiliates without an exemptive order from the SEC, subject to certain exceptions.
We
will be periodically examined by the SEC for compliance with the 1940 Act.
As
a registered closed-end management investment company, we are subject to certain risks and uncertainties. See ““Risk
Factors and Special Considerations”.
For
more information on temporary investments we may make pending investment of funds in portfolio securities consistent with our
investment objective and strategies described in this prospectus and the accompanying prospectus supplement, see “Investment
Objective and Policies—Investment Policies - General— Temporary Defensive Positions”.
For
more information about issuance of senior securities (including certain debt securities and/or preferred stock) by the Fund and
more information about our fundamental investment policies, see “Investment Objective and Policies—Investment Restrictions”.
Code
of Ethics
The
Fund and the Adviser have adopted a joint code of ethics pursuant to Rule 17j-1 under the 1940 Act. The code of ethics permits
personnel subject to the code to invest in securities, including securities that may be purchased or held by the Fund, subject
to certain conditions and restrictions.
The
code of ethics is available without charge, upon request, by contacting us by mail at 119 Washington Avenue, Suite 504 Miami Beach,
FL 33139, or by telephone at (800) TJH-FUND (toll-free) or (305) 777-1660 , or on the SEC’s website at http://www.sec.gov,
or, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov.
Compliance
Policies and Procedures
We
and our investment adviser have adopted and implemented written policies and procedures reasonably designed to detect and prevent
violation of the federal securities laws and are required to review these compliance policies and procedures annually for their
adequacy and the effectiveness of their implementation and designate a CCO to be responsible for administering the policies and
procedures. Thomas K. Morgan currently serves as our CCO.
Sarbanes-Oxley
Act of 2002
The
Sarbanes-Oxley Act of 2002 imposes a wide variety of regulatory requirements on publicly-held companies and their insiders. Many
of these requirements affect us. For example:
| ● | pursuant
to Rule 30a-2 of the 1940 Act, our chief executive officer and chief financial officer
must certify the accuracy of the financial statements contained in our periodic reports; |
| ● | pursuant
to Item 11 of Form N-CSR, our periodic reports must disclose our conclusions about the
effectiveness of our disclosure controls and procedures; and |
| ● | pursuant
to Item 11 of Form N-CSR, our periodic reports must disclose whether there were significant
changes in our internal controls over financial reporting or in other factors that could
significantly affect these controls subsequent to the date of their evaluation, including
any corrective actions with regard to significant deficiencies and material weaknesses. |
The
Sarbanes-Oxley Act requires us to review our current policies and procedures to determine whether we comply with the Sarbanes-Oxley
Act and the regulations promulgated thereunder. We will continue to monitor our compliance with all regulations that are adopted
under the Sarbanes-Oxley Act and will take actions necessary to ensure that we are in compliance therewith.
Proxy
Voting Policies and Procedures
Information
regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, are
each available without charge, upon request, by contacting us by mail at 119 Washington Avenue, Suite 504 Miami Beach, FL 33139,
or by telephone at (800) TJH-FUND (toll-free) or (305) 777-1660, or on the SEC’s website at http://www.sec.gov,
or, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov.
A
copy of the Fund’s Proxy Voting Policies and Procedures is attached as Appendix A.
DESCRIPTION
OF COMMON STOCK
The
Fund is authorized to issue up to 100,000,000 shares of capital stock, at $0.001 par value per share, all of which shares are
classified as common stock. The board is authorized, however, to classify and reclassify any unissued shares of capital stock
by setting or changing in any one or more respects the designation and number of shares of any such class or series, and the nature,
rates, amounts and times at which and the conditions under which dividends shall be payable on, and the voting, conversion, redemption
and liquidation rights of, such class or series and any other preferences, rights, restrictions and qualifications applicable
thereto.
The
Fund’s shares have no preemptive, conversion, exchange or redemption rights. Each share has equal voting, dividend, distribution
and liquidation rights. The shares outstanding are fully paid and nonassessable. Stockholders are entitled to one vote per share.
All voting rights for the election of directors are noncumulative, which means that the holders of more than 50% of the shares
can elect 100% of the directors then nominated for election if they choose to do so. In such event, the holders of the remaining
shares will not be able to elect any directors. The foregoing description and the description under “Certain Provisions
of Articles of Incorporation and Bylaws” below are subject to the provisions contained in the Fund’s Articles of Incorporation
and Bylaws.
Title
of Class |
Authorized |
Amount
of Shares Held by the Fund for its Account |
Amount
of Shares Outstanding as of March 31, 2024 |
Shares
of common stock |
100,000,000 |
0
shares |
15,133,299
Shares |
The
Fund will consider offering additional shares in the future based on, among other things, the lifting or easing of economic sanctions
against Cuba. Other offerings of the Fund’s shares, if made, will require approval of the board. Any additional offering
will be subject to the requirement of the 1940 Act that shares may not be sold at a price below the then current NAV, exclusive
of underwriting discounts and commissions, except in connection with an offering to existing stockholders or with the consent
of the holders of a majority of the Fund’s outstanding voting securities.
Share
Repurchases and Tender Offers
In
recognition of the possibility that the Fund’s shares might trade at a discount to NAV, the board may determine that it
would be in the best interest of stockholders of the Fund to take action to attempt to reduce or eliminate a market value discount
from NAV. The board may take action from time to time either to repurchase Fund shares in open market or private transactions
or to make a tender offer for Fund shares at NAV. No assurance can be given that the directors will decide to undertake such action,
or that any such repurchases or tender offers would reduce any market discount.
To
that end, the board authorized the implementation of a plan to be instituted over a three-year period (beginning July 1, 2019
and ending June 30, 2022) to address the Fund’s trading discount to its NAV per share which includes (i) implementation
of a managed distribution policy (see “Managed Distribution Policy”); (ii) a voluntary waiver by the Adviser of a
part of its management fee under certain conditions (see “Investment Advisory Agreement”); and (iii) the adoption
of a contingent tender offer policy (see “Tender Offer Policy” below). The Managed Distribution Policy has been extended
and modified as further described below.
The
Fund anticipates that the market price of its shares generally will continue to vary from NAV. The market price of the Fund’s
shares is determined by a number of factors, including the relative demand for and supply of such shares in the market, the Fund’s
investment performance, the Fund’s distributions and investor perception of the Fund’s overall attractiveness as an
investment as compared with other investment alternatives. The fact that the Fund’s shares may be the subject of share repurchases
or tender offers at NAV from time to time may reduce the spread between market price and NAV that otherwise might exist. In the
opinion of the Adviser, stockholders may be less inclined to accept a significant discount on sales of the Fund’s shares
if they have a reasonable expectation of being able to recover NAV in conjunction with a possible share repurchase or tender offer.
The
price at which shareholders may tender their shares to the Fund will generally be a percentage of the market price of the Fund’s
shares at the close of trading on the last day that shareholders can tender their shares. When a tender offer is made, notice
will be provided describing the terms of the tender offer; and the notice will contain information shareholders should consider
in deciding whether or not to participate in the tender offer (including the existence and amount of any repurchase fee that may
be charged) and detailed instructions on how to tender shares.
Subject
to the Fund’s investment restriction with respect to borrowing, the Fund may incur debt to finance repurchases and tenders.
See “Investment Restrictions.” If the Fund incurs debt to finance such repurchases and tenders, interest on any such
borrowings will reduce the Fund’s net income. In addition, although the board believes that share repurchases and tenders
generally would have a favorable effect on the market price of the Fund’s shares, the acquisition of shares by the Fund
will decrease the total assets of the Fund and therefore would have the effect of increasing the Fund’s ratio of expenses
to average net assets.
More
generally, the use of leverage (borrowing money or issuing senior securities to purchase properties or securities) will cause
the Fund to incur additional expenses and may significantly magnify losses in the event of underperformance of the assets purchased
with borrowed money. In addition, a lender may terminate or refuse to renew any credit facility. If the Fund is unable to access
additional credit, it may be forced to sell investments at inopportune times, which may further negatively impact the Fund’s
performance.
In
the event that the Fund engages in financial leveraging, the asset coverage requirements of the 1940 Act may restrict the Fund’s
ability to engage in repurchases of its shares. With respect to senior securities consisting of debt, such requirements provide
that no purchases of shares may be made by the Fund unless, at the time of the purchase, the senior securities consisting of debt
have an asset coverage of at least 300% after deducting the amount of the purchase price. With respect to senior securities consisting
of preferred stock, such requirements provide that no purchases of shares may be made by the Fund unless, at the time of the purchase,
the senior securities consisting of preferred stock have an asset coverage of at least 200% after deducting the amount of the
purchase price.
It
is the directors’ announced policy, which may be changed by the directors, that the Fund cannot accept tenders or effect
repurchases if (1) such transactions, if consummated, would (a) impair the Fund’s status as a regulated investment company
under the Code (which would make the Fund a taxable entity, causing the Fund’s income to be taxed at the Fund level in addition
to the taxation of stockholders who receive dividends from the Fund) or (b) result in a failure to comply with applicable asset
coverage requirements; (2) the amount of securities tendered would require liquidation of such a substantial portion of the Fund’s
securities that the Fund would not be able to liquidate portfolio securities in an orderly manner in light of the existing market
conditions and such liquidation would have an adverse effect on the NAV of the Fund to the detriment of non-tendering stockholders;
(3) there is any (a) in the board’s judgment, material legal action or proceeding instituted or threatened challenging such
transactions or otherwise materially adversely affecting the Fund, (b) declaration of a banking moratorium by federal or state
authorities or any suspension of payment by banks in the United States, (c) limitation affecting the Fund or the issuers of its
portfolio securities imposed by federal or state authorities on the extension of credit by lending institutions, (d) commencement
of war, armed hostilities or other international or national calamity directly or indirectly involving the United States, or (e)
in the board’s judgment, other event or condition which would have a material adverse effect on the Fund or its holders
of common stock if shares of common stock were repurchased; or (4) the board determines that effecting any such transaction would
constitute a breach of their fiduciary duty owed the Fund or its stockholders. The directors may modify these conditions in light
of experience.
Tender
Offer Policy
The
board of directors approved a self-tender offer policy (the “Self-Tender Policy”) beginning in 2020. Under the Self-Tender
Policy, the Fund has undertaken to conduct a tender offer before October 31st after a fiscal year-end (June 30th) of
5% of outstanding shares of the Fund at 97.5% of NAV if the average discount was greater than 10% for the fiscal year just ended.
The Self-Tender Policy was suspended by the Board as announced on June 5, 2020 due to the impacts of the COVID-19 pandemic on
the Fund’s share price and securities markets generally. The Fund announced the reinstatement of the Self-Tender Policy
on December 21, 2020. The average discount was greater than 10% for the fiscal year ended June 30, 2023. However, because of the
uncertainty regarding the timing of a non-transferable rights offering conducted by the Fund in the fourth calendar quarter of
2023, the Board modified the Self-Tender Policy to allow for the Fund to commence the tender offer within a reasonable time following
the conclusion of the rights offering. Such tender offer concluded on March 19, 2024. The Board has extended the Self-Tender Policy
through June 30, 2025.
Tender
offers will generally be made to all shareholders of the Fund and will not be conditioned upon any minimum number of shares being
tendered. If the number of shares properly tendered and not withdrawn prior to the termination of the offer is less than or equal
to the amount of shares offered to be repurchased, the Fund will, upon the terms and subject to the conditions of the offer, purchase
all shares so tendered. In general, if more shares are tendered than the amount of the offer and not withdrawn prior to the termination
of the offer, the Fund will purchase a number of shares equal to the amount of the offer on a pro rata basis. Costs associated
with tender offers will be charged against capital. During the period of a tender offer, the Fund’s stockholders will be
able to determine the Fund’s current NAV by use of a toll-free telephone number.
Shares
that have been accepted and purchased by the Fund pursuant to a tender offer or share repurchase will be held in the treasury
until retired by direction of the board. Treasury shares will be recorded and reported as an offset to stockholder’ equity
and, accordingly, will reduce the Fund’s total assets. If treasury shares are retired, common stock issued and outstanding
and capital in excess of par will be reduced.
Because
of the nature of the Fund’s investment objective and policies, if the Adviser anticipates that a share repurchase or tender
offer might have an adverse effect on the Fund’s investment performance and anticipate any material difficulty disposing
of portfolio securities in order to consummate such share repurchase or tender offer, the board would consider deferring the share
repurchase or tender offer. If the Fund must liquidate portfolio securities in order to effect a share repurchase or tender offer,
the Fund’s ability to achieve its investment objective may be adversely affected.
If
the Fund must liquidate portfolio securities in order to purchase shares tendered, the Fund may realize gains and losses on securities
that it may not otherwise wish to sell in the ordinary course of its portfolio management, which may adversely affect the Fund’s
yield. The portfolio turnover rate of the Fund may or may not be affected by the Fund’s repurchases of shares pursuant to
a tender offer.
The
Fund believes that these repurchase offers are generally beneficial to the Fund’s Shareholders, and generally are funded
from available cash or sales of portfolio securities. However, the repurchase of Shares by the Fund decreases the assets of the
Fund and, therefore, may have the effect of increasing the Fund’s expense ratio. In addition, portfolio transactions by
the Fund to fund repurchase offers may increase portfolio turnover of the Fund. High portfolio turnover may result in the realization
of net short-term capital gains by the Fund which, when distributed to the Fund and, ultimately, shareholders, will be taxable
as ordinary income. In addition, a higher portfolio turnover rate results in correspondingly greater brokerage commissions and
other transactional and custodial expenses that are borne by the Fund.
A
shareholder’s tender of all or a part of its Shares for cash pursuant to a tender or repurchase will be a taxable transaction
for federal income tax purposes. In certain circumstances, a shareholder will be treated as having received a dividend taxable
as ordinary income in an amount equal to the entire amount of cash received by the shareholder for its Shares pursuant to the
tender offer or repurchase offer.
In
the exercise of its business judgement, in determining whether to undertake a tender offer, the Board of will generally consider,
to the extent known at the time, the timing and procedures associated with a proposed tender offer, including when and how the
purchase price will be determined, and how the Fund will fund the tender offer. The Board may consider all other information that
it deems relevant in the exercise of its fiduciary duty.
These
tender offers may be commenced or suspended at any time or from time to time without any notice. On May 31, 2020, in light of
the effects of the COVID-19 pandemic on global economies and stock markets and the resulting volatility in stock prices, the Board
initiated a temporary suspension of the Fund’s Self-Tender Policy. The Board may in the future determine to suspend the
tender offer policy in light of prevailing economic conditions, heightened volatility in the financial markets, or other factors
that the Board determines to be relevant in the exercise of its fiduciary duty.
Certain
Provisions of Articles of Incorporation and Bylaws
The
Fund presently has provisions in its Articles of Incorporation and Bylaws (together, the “Charter Documents”) that
could have the effect of limiting (i) the ability of other entities or persons to acquire control of the Fund, (ii) the Fund’s
freedom to engage in certain transactions or (iii) the ability of the Fund’s directors or stockholders to amend the Charter
Documents or effect changes in the Fund’s management. The Charter Documents also contain provisions which would inhibit
any conversion to an open-end investment company. The provisions of the Charter Documents may be regarded as “anti-takeover”
provisions.
The
board is divided into three classes. The term of office of the first class expired on the date of the second annual meeting of
stockholders, the term of office of the second class expired on the date of the third annual meeting of stockholders and the term
of office of the third class expired on the date of the fourth annual meeting of stockholders, etc. Upon the expiration of the
term of office of each class as set forth above, the directors in such class will be elected for a term of three years to succeed
the directors whose terms of office expired. Accordingly, only those directors in one class may be changed in any one year, and
such classification may prevent replacement of a majority of the board for up to a two-year period (although under Maryland law
procedures are available for the removal of directors even if they are not then standing for re-election, and under SEC regulations,
procedures are available for including stockholder proposals in the annual proxy statement). Such system of electing directors
is intended to have the effect of maintaining the continuity of management and, thus, make it more difficult for the Fund’s
stockholders to change the majority of the directors. A director may be removed from office only by a vote of at least 75% of
the outstanding shares of the Fund entitled to vote for the election of directors.
Under
the Fund’s Articles of Incorporation, a vote of 75% (which is higher than that required under Maryland law or the 1940 Act)
of the outstanding shares of common stock of the Fund is required to authorize (i) any merger or consolidation of the Fund with
or into any other corporation; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of assets of the
Fund having an aggregate fair market value of $1,000,000 or more (other than in the regular course of its investment activities);
and (iii) any amendment to the Articles of Incorporation of the Fund which converts the Fund to an open-end investment company.
Any amendment to the Articles of Incorporation of the Fund which reduces the 75% vote required to authorize the enumerated actions
also must be approved by vote of the holders of 75% of the outstanding shares of common stock. If any of the foregoing actions
is approved by a vote of two-thirds of the directors who have served on the board for a period of at least 12 months, however,
the affirmative vote of the holders of a majority of the Fund’s outstanding common stock will be sufficient to approve such
actions.
The
provisions of the Charter Documents described above could have the effect of depriving the owners of shares of opportunities to
sell their shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of the
Fund in a tender offer or similar transaction. The overall effect of these provisions is to render more difficult the accomplishment
of a merger or the assumption of control by a principal stockholder. However, they provide the advantage of potentially requiring
persons seeking control of the Fund to negotiate with its management regarding the price to be paid and facilitating continuity
of the Fund’s management, objective and policies. The board of the Fund has considered the forgoing provisions and concluded
that they are in the best interests of the Fund and its stockholders.
Subscription
Rights
We
may issue subscription rights to holders of our common shares to purchase common shares. Subscription rights may be issued independently
or together with any other offered security and may or may not be transferable by the person purchasing or receiving the subscription
rights. In connection with a subscription rights offering to holders of our common shares, we would distribute certificates evidencing
the subscription rights and a prospectus supplement to our common stockholders as of the record date that we set for determining
the stockholders eligible to receive subscription rights in such subscription rights offering.
The
applicable prospectus supplement would describe the following terms of subscription rights in respect of which this prospectus
is being delivered:
| ● | the
period of time the offering would remain open (which will be open a minimum number of
days such that all record holders would be eligible to participate in the offering and
will not be open longer than 120 days); |
| ● | the
title of such subscription rights; |
| ● | the
exercise price for such subscription rights (or method of calculation thereof); |
| ● | the
number of such subscription rights issued in respect of each common or preferred share; |
| ● | the
number of rights required to purchase a single common or preferred share; |
| ● | the
extent to which such subscription rights are transferable and the market on which they
may be traded if they are transferable; |
| ● | if
applicable, a discussion of the material U.S. federal income tax considerations applicable
to the issuance or exercise of such subscription rights; |
| ● | the
date on which the right to exercise such subscription rights will commence, and the date
on which such right will expire (subject to any extension); |
| ● | the
extent to which such subscription rights include an over-subscription privilege with
respect to unsubscribed securities and the terms of such over-subscription privilege; |
| ● | any
termination right we may have in connection with such subscription rights offering; and |
| ● | any
other terms of such subscription rights, including exercise, settlement and other procedures
and limitations relating to the transfer and exercise of such subscription rights. |
Each
subscription right would entitle the holder of the subscription right to purchase for cash such number of shares at such exercise
price as in each case is set forth in, or be determinable as set forth in the prospectus supplement relating to the subscription
rights offered thereby. Subscription rights would be exercisable at any time up to the close of business on the expiration date
for such subscription rights set forth in the prospectus supplement. After the close time on the expiration date, all unexercised
subscription rights would become void.
Upon
expiration of the rights offering and the receipt of payment and the subscription rights certificate properly completed and duly
executed at the corporate trust office of the subscription rights agent or any other office indicated in the prospectus supplement
we would issue, as soon as practicable, the shares purchased as a result of such exercise. To the extent permissible under applicable
law, we may determine to offer any unsubscribed offered securities directly to persons other than stockholders, to or through
agents, underwriters or dealers or through a combination of such methods, as set forth in the applicable prospectus supplement.
MANAGED
DISTRIBUTION POLICY
Effective
August 6, 2019, the Fund initiated a fixed, quarterly distribution to stockholders (the “Managed Distribution Policy”).
The primary purpose of the Managed Distribution Policy is to provide stockholders with a constant, but not guaranteed, fixed minimum
rate of distribution each quarter (currently set at 15% of the Fund’s NAV as determined on December 19, 2023, payable in
quarterly installments). The Fund’s Board authorized an extension of the Managed Distribution Policy for fiscal year 2023
pursuant to which the Fund will provide stockholders with a constant, but not guaranteed, fixed minimum rate of distribution each
quarter set at 15% of the Fund’s NAV determined on December 19, 2023. In May 2024, the Board extended the Managed Distribution
Policy through June 30, 2025 and modified the Managed Distribution Policy such that distributions will be made at quarterly, semi-annual
or annual intervals, at the Board’s discretion.
Under
the Managed Distribution Policy, the Fund will distribute all available investment income to its stockholders, consistent with
its investment objective and as required by the Internal Revenue Code of 1986, as amended (the “Code”). The amount
distributed per share is subject to change at the discretion of the Board. If sufficient investment income is not available, the
Fund will distribute long-term capital gains and/or return capital to its stockholders in order to maintain its managed distribution
level. Each distribution to shareholders is expected to be at the fixed amount established by the Board. However, the Fund may
make additional distributions from time to time, including additional capital gain distributions at the end of the taxable year,
if required to meet requirements imposed by the Code and/or the Investment Company Act of 1940, as amended (the “1940 Act”).The
Fund is currently not relying on any exemptive relief from Section 19(b) of the 1940 Act. The Fund expects that distributions
under the Managed Distribution Policy will exceed investment income and capital gain and thus expects that such distributions
will likely include return of capital for the foreseeable future.
The
terms of the Managed Distribution Policy will be reviewed and approved at least annually by the Fund’s Board and can be
modified at the Board’s discretion. Although it has no current intention to do so, the Board may terminate this Managed
Distribution Policy at any time, and such termination may have an adverse effect on the market price for the Fund’s shares.
The Fund determines annually whether to distribute any net realized long term capital gains in excess of net realized short-term
capital losses, including capital loss carryovers, if any.
To
the extent that the Fund’s taxable income in any calendar year exceeds the aggregate amount distributed pursuant to the
Managed Distribution Policy, an additional distribution may be made to avoid the payment of a 4% U.S. federal excise tax, and
to the extent that the aggregate amount distributed in any calendar year exceeds the Fund’s taxable income, the amount of
that excess may constitute a return-of-capital for tax purposes. Dividends and distributions to stockholders are recorded by the
Fund on the ex-dividend date. The Fund is currently not relying on any exemptive relief from Section 19(b) of the 1940 Act. The
Fund expects that distributions under the Managed Distribution Policy will exceed investment income and capital gain and thus
expects that such distributions will likely include return of capital for the foreseeable future.
Although
return of capital distributions may not be taxable, such distributions may reduce a stockholder’s cost basis in his or her
shares, and therefore may result in an increase in the amount of any taxable gain on a subsequent disposition of such shares,
even if such shares are sold at a loss to the stockholder’s original investment amount. The Fund plans to maintain the Managed
Distribution Policy even if a return-of-capital distribution would exceed an investor’s tax basis and therefore be a taxable
distribution. A return-of-capital distribution may make record-keeping by certain stockholders more difficult.
The
Fund discloses the characterization of its distributions in notices to stockholders and press releases to the public. Notwithstanding
these communications, it is possible that the Managed Distribution Policy may create potential confusion in the marketplace as
to whether the Fund’s distributions are comprised of income or return of capital and how such characterization may influence
the market price of the Fund’s shares.
The
Managed Distribution Policy has historically resulted in the payment of approximately the same amount per share to the Fund’s
stockholders each quarter. These distributions are not to be tied to the Fund’s investment income and capital gains and
do not represent yield or investment return on the Fund’s portfolio. Section 19(a) of the 1940 Act and Rule 19a-1 thereunder
require the Fund to provide a written statement accompanying any such payment that adequately discloses its source or sources,
other than net investment income. Thus, if the source of some or all of the dividend or other distribution were the original capital
contribution of the Stockholder, and the payment amounted to a return of capital, the Fund would be required to provide written
disclosure to that effect. Nevertheless, persons who periodically receive the payment of a dividend or other distribution may
be under the impression that they are receiving net profits when they are not. Stockholders should read any written disclosure
provided pursuant to Section 19(a) and Rule 19a-1 carefully, and should not assume that the source of any distribution from the
Fund is net profit. A return of capital distribution does not reflect positive investment performance. Stockholders should not
draw any conclusions about the Fund’s investment performance from the amount of its managed distributions or from the terms
of the Managed Distribution Policy. When the Fund issues a written disclosure pursuant to Section 19(a) and Rule 19a-1, the Fund
will refer to such a notice as a “Rule 19a-1 Notice Accompanying Distribution Payment”. In addition, the Fund will
refer to the return of capital distributions as “Return of Capital” which will be presented under the “Source
of payment” heading in such notice.
No
conclusions should be drawn about the Fund’s investment performance from the amount of the Fund’s distributions or
from the terms of the Fund’s Managed Distribution Policy. The amount distributed per share is subject to change at the discretion
of the Fund’s Board of Directors. The Managed Distribution Policy will be subject to ongoing review by the Board of Directors
to determine whether the Managed Distribution Policy should be continued, modified or terminated. The Board of Directors may amend
the terms of the Managed Distribution Policy or suspend or terminate the Managed Distribution Policy at any time without prior
notice to the Fund’s stockholders if it deems such actions to be in the best interest of the Fund or its stockholders. The
amendment or termination of the Managed Distribution Policy could have an adverse effect on the market price of the Fund’s
shares. A return of capital occurs when some or all of the money that stockholders invested in the Fund is paid back to them.
A return of capital does not reflect the Fund’s investment performance and should not be confused with “yield”
or “income.” Any such returns of capital will decrease the Fund’s total assets and, therefore, could have the
effect of increasing the Fund’s expense ratio. In addition, in order to make the level of distributions called for under
its Plan, the Fund may have to sell portfolio securities at a less than opportune time.
DIVIDENDS
AND DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN
Dividends
and Distributions
The
Fund currently intends to distribute to stockholders, in conformity with its Managed Distribution Policy, and at least annually
at such time so as to avoid imposition of excise taxes, substantially all of its investment company taxable income (i.e. net investment
income and any net short-term capital gains less expenses). Net investment income for this purpose is income other than realized
net capital gain (i.e. the extent of net long-term capital gains over net short-term capital losses).
The
Fund’s current policy is to comply with the provisions of the 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.
Dividend
Reinvestment Plan
Registered
stockholders of shares of common stock of the Fund will automatically be enrolled (“Participants”) in the Fund’s
Dividend Reinvestment Plan (the “Plan”) and advised as follows:
1. | Equiniti
Trust Company, LLC (the “Agent”) will act as agent for each Participant.
The Agent will open an account for each registered stockholder as a Participant under
the Plan in the same name in which such Participant’s shares of common stock are
registered. |
2. | CASH
OPTION. Pursuant to the Fund’s Plan, unless a holder of common stock otherwise
elects, all dividend and capital gains distributions (“Distributions”) will
be automatically reinvested by the Agent in additional common stock of the Fund. Stockholders
who elect not to participate in the Plan will receive all distributions in cash paid
by check mailed directly to the stockholder of record (or, if the shares are held in
street or other nominee name then to such nominee) by the Agent, as dividend paying agent.
Stockholders and Participants may elect not to participate in the Plan and to receive
all distributions of dividends and capital gains in cash by sending written instructions
to the Agent, as dividend paying agent, at the address set forth below. |
3. | MARKET
PREMIUM ISSUANCES. If on the payment date for a Distribution, the NAV per share of common
stock is equal to or less than the market price per common stock plus estimated brokerage
commissions, the Agent shall receive newly issued common stock (“Additional Common
Stock”) from the Fund for each Participant’s account. The number of Additional
Common Stock to be credited shall be determined by dividing the dollar amount of the
Distribution by the greater of (i) the NAV per share of common stock on the payment date,
or (ii) 95% of the market price per share of common stock on the payment date. |
4. | MARKET
DISCOUNT PURCHASES. If the NAV per share of common stock exceeds the market price plus
estimated brokerage commissions on the payment date for a Distribution, the Agent (or
a broker-dealer selected by the Agent) shall endeavor to apply the amount of such Distribution
on each Participant’s common stock to purchase common stock on the open market.
In the event of a market discount on the payment date, the Agent will have 30 days after
the dividend payment date (the “last purchase date”) to invest the dividend
amount in shares acquired in open-market purchases. The weighted average price (including
brokerage commissions) of all common stock purchased by the Agent as Agent shall be the
price per common stock allocable to each Participant. If, before the Agent has completed
its purchases, the market price plus estimated brokerage commissions exceeds the NAV
of the common stock as of the payment date, the purchase price paid by Agent may exceed
the NAV of the common stock, resulting in the acquisition of fewer common stock than
if such Distribution had been paid in common stock issued by the Fund. Because of the
foregoing difficulty with respect to open-market purchases, the Plan provides that if
the Plan Agent is unable to invest the full dividend amount in open-market purchases
during the purchase period or if the market discount shifts to a market premium during
the purchase period, the Plan Agent may cease making open-market purchases and may invest
the uninvested portion of the dividend amount in newly issued common stock at the NAV
per share of common stock at the close of business on the last purchase date. Participants
should note that they will not be able to instruct the Agent to purchase common stock
at a specific time or at a specific price. Open-market purchases may be made on any securities
exchange where common stock are traded, in the over-the-counter market or in negotiated
transactions, and may be on such terms as to price, delivery and otherwise as the Agent
shall determine. Each Participant’s uninvested funds held by the Agent will not
bear interest. The Agent shall have no liability in connection with any inability to
purchase common stock within the time provided, or with the timing of any purchases effected.
The Agent shall have no responsibility for the value of common stock acquired. The Agent
may commingle Participants’ funds to be used for open-market purchases of the Fund’s
shares and the price per share allocable to each Participant in connection with such
purchases shall be the average price (including brokerage commissions and other related
costs) of all Fund shares purchased by Agent. The rules and regulations of the SEC may
require the Agent to limit the Agent’s market purchases or temporarily cease making
market purchases for Participants. |
5. | The
market price of common stock on a particular date shall be the last sales price on the
securities exchange where the common stock are listed on that date (currently the NASDAQ
Capital Market)(the “Exchange”), or, if there is no sale on the Exchange
on that date, then the average between the closing bid and asked quotations on the Exchange
on such date will be used. The NAV per share of common stock on, a particular date shall
be the amount calculated on that date (or if not calculated on such date, the amount
most recently calculated) by or on behalf of the Fund. |
6. | Whenever
the Agent receives or purchases shares or fractional interests for a Participant’s
account, the Agent will send such Participant a notification of the transaction as soon
as practicable. The Agent will hold such shares and fractional interests as such Participant’s
agent and may hold them in the Agent’s name or the name of the Agent’s nominee.
The Agent will not send a Participant stock certificates for shares unless a Participants
so requests in writing or unless a Participant’s account is terminated as stated
below. The Agent will vote any shares so held for a Participant in accordance with any
proxy returned to the Fund by such Participant in respect of the shares of which such
Participant is the record holder. |
7. | There
is presently no service charge for the Agent serving as Participants’ agent and
maintaining Participants’ accounts. The Agent may, however, charge Participants
for extra services performed at their request. The Plan may be amended in the future
to impose a service charge. In acting as Participants’ agent under the Plan, the
Agent shall be liable only for acts, omissions, losses, damages or expenses caused by
the Agent’s willful misconduct or gross negligence. In addition, the Agent shall
not be liable for any taxes, assessments or governmental charges which may be levied
or assessed on any basis whatsoever in connection with the administration of the Plan. |
8. | The
Agent may hold each Participant’s common stock acquired pursuant to the Plan together
with the common stock of other stockholders of the Fund acquired pursuant to the Plan
in non-certificated form in the Agent’s name or that of the Agent’s nominee.
Each Participant will be sent a confirmation by the Agent of each acquisition made for
his or her account as soon as practicable, but in no event later than 60 days, after
the date thereof. Upon a Participant’s request, the Agent will deliver to the Participant,
without charge, a certificate or certificates for the full common stock. Although each
Participant may from time to time have an undivided fractional interest in a common share
of the Fund, no certificates for a fractional share will be issued. Similarly, Participants
may request to sell a portion of the common stock held by the Agent in their Plan accounts
by calling the Agent, writing to the Agent, or completing and returning the transaction
form attached to each Plan statement. The Agent will sell such common stock through a
broker-dealer selected by the Agent within 5 business days of receipt of the request.
The sale price will equal the weighted average price of all common stock sold through
the Plan on the day of the sale, less brokerage commissions. Participants should note
that the Agent is unable to accept instructions to sell on a specific date or at a specific
price. Any share dividends or split shares distributed by the Fund on common stock held
by the Agent for Participants will be credited to their accounts. In the event that the
Fund makes available to its stockholders rights to purchase additional common stock,
the common stock held for each Participant under the Plan will be added to other common
stock held by the Participant in calculating the number of rights to be issued to each
Participant. |
| |
| If
a Participant holds more than one common stock Certificate registered in similar but not identical names or if more than one address
is shown for a Participant on the Fund’s records, all of such Participant’s shares of common stock must be put
into the same name and address if all of them are to be covered by one account. Additional shares subsequently acquired by a
Participant otherwise than through the Plan will be covered by the Plan. |
9. | The
reinvestment of Distributions does not relieve Participants of any federal, state or
local taxes which may be payable (or required to be withheld on Distributions.) Participants
will receive tax information annually for their personal records and to help them prepare
their federal income tax return. For further information as to tax consequences of participation
in the Plan, Participants should consult with their own tax advisors. |
10. | Each
registered Participant may terminate his or her account under the Plan by calling the
Agent at (877) 283-0317. Such termination will be effective with respect to a particular
Distribution if the Participant’s notice is received by the Agent prior to such
Distribution record date. The Plan may be terminated by the Agent or the Fund upon notice
in writing mailed to each Participant at least 60 days prior to the effective date of
the termination. Upon any termination, the Agent will cause a certificate or certificates
to be issued for the full shares held for each Participant under the Plan and cash adjustment
for any fraction of a common share at the then current market value of the common shares
to be delivered to him. If preferred, a Participant may request the sale of all of the
common shares held by the Agent in his or her Plan account in order to terminate participation
in the Plan. If any Participant elects in advance of such termination to have Agent sell
part or all of his or her shares, Agent is authorized to deduct from the proceeds the
brokerage commissions incurred for the transaction. If a Participant has terminated his
or her participation in the Plan but continues to have common shares registered in his
or her name, he or she may re-enroll in the Plan at any time by notifying the Agent in
writing at the address above. |
11. | These
terms and conditions may be amended by the Agent or the Fund at any time but, except
when necessary or appropriate to comply with applicable law or the rules or policies
of the SEC or any other regulatory authority, only by mailing to each Participant appropriate
written notice at least 30 days prior to the effective date thereof. The amendment shall
be deemed to be accepted by each Participant unless, prior to the effective date thereof,
the Agent receives notice of the termination of the Participant’s account under
the Plan. Any such amendment may include an appointment by the Agent of a successor Agent,
subject to the prior written approval of the successor Agent by the Fund. |
| |
12. | These
terms and conditions shall be governed by the laws of the State of Maryland. |
Dividend
Reinvestment Plan terms are as of December 19, 2019.
The
Board of Directors of the Fund has suspended the dividend reinvestment plan for the March 31, 2024 quarterly distribution, in
connection with the Fund’s cash or stock distribution as previously announced to stockholders in the Fund’s press
release dated February 12, 2024. The dividend reinvestment plan was previously suspended for the quarterly distributions paid
on September 30, 2021, December 31, 2021, March 31, 2022, June 30, 2022, September 30, 2022, December 31, 2022, March 31, 2023,
June 30, 2023, and December 31, 2023 in connection with stock or cash distributions made on such dates. The Board of Directors
may suspend the dividend reinvestment plan in connection with future cash or stock distributions, and any such suspension will
be announced to shareholders via press release. In a stock or cash distribution, distributions will be paid in cash or shares
of our common stock at the election of stockholders. The total amount of cash distributed to all stockholders will be limited
to 20% of the total distribution to be paid, excluding any cash paid for fractional shares. The remainder of the distribution
(approximately 80%) will be paid in the form of shares of our common stock. The exact distribution of cash and stock to any given
stockholder will be dependent upon his/her election as well as elections of other stockholders, subject to the pro-rata limitation.
PLAN
OF DISTRIBUTION
We
may offer, from time to time, in one or more offerings or series, up to $109,000,000 of our common stock, par value $0.001 per
share, or subscription rights in one or more underwritten public offerings, at-the-market offerings, negotiated transactions,
block trades, best efforts or a combination of these methods. Any underwriter or agent involved in the offer and sale of the securities
will be named in the applicable prospectus supplement. A prospectus supplement or supplements will also describe the terms of
the offering of the securities, including: the purchase price of the securities or how the price will be determined and the proceeds,
if any, we will receive from the sale; any over-allotment options under which underwriters may purchase additional securities
from us; any agency fees or underwriting discounts and other items constituting agents’ or underwriters’ compensation;
the public offering price and the date by which investors must pay for the securities; the amount of the sales load, if any, as
a percentage of the public offering price; any discounts or concessions allowed or re-allowed or paid to dealers; and any securities
exchange or market on which the securities may be listed. Only underwriters named in the prospectus supplement will be underwriters
of the securities offered by the prospectus supplement.
The
distribution of the securities may be effected from time to time in one or more transactions at a fixed price or prices, which
may be changed, at prevailing market prices at the time of sale, at prices related to such prevailing market prices, or at negotiated
prices; provided, however, in the event we offer common stock, the offering price per share of our common stock exclusive of any
underwriting commissions or discounts will not be less than the NAV per share of our common stock at the time we make the offering
except (1) in connection with a subscription rights offering to our existing stockholders, (2) with the consent of the majority
of our common stockholders and approval of our board of directors, or the board, or (3) under such circumstances as the SEC may
permit. The price at which securities may be distributed may represent a discount from prevailing market prices.
In
connection with the sale of the securities, underwriters or agents may receive compensation from us or from purchasers of the
securities, for whom they may act as agents, in the form of discounts, concessions or commissions. Our common stockholders will
indirectly bear such fees and expenses as well as any other fees and expenses incurred by us in connection with any sale of securities.
Underwriters may sell the securities to or through dealers and such dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters and/or commissions from the purchasers for whom they may act as agents. Underwriters,
dealers and agents that participate in the distribution of the securities may be deemed to be underwriters under the Securities
Act, and any discounts and commissions they receive from us and any profit realized by them on the resale of the securities may
be deemed to be underwriting discounts and commissions under the Securities Act. Any such underwriter or agent will be identified
and any such compensation received from us will be described in the applicable prospectus supplement. The maximum aggregate commission
or discount to be received by any member of FINRA or independent broker-dealer will not be greater than 8% of the gross proceeds
of the sale of securities offered pursuant to this prospectus and any applicable prospectus supplement. We may also reimburse
the underwriter or agent for certain fees and legal expenses incurred by it.
Any
underwriter may engage in over-allotment, stabilizing transactions, short-covering transactions and penalty bids in accordance
with Regulation M under the Exchange Act. Over-allotment involves sales in excess of the offering size, which create a short position.
Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified
maximum price. Syndicate-covering or other short-covering transactions involve purchases of the securities, either through exercise
of the over-allotment option or in the open market after the distribution is completed, to cover short positions. Penalty bids
permit the underwriters to reclaim a selling concession from a dealer when the securities originally sold by the dealer are purchased
in a stabilizing or covering transaction to cover short positions. Those activities may cause the price of the securities to be
higher than it would otherwise be. If commenced, the underwriters may discontinue any of the activities at any time.
We
may sell securities directly or through agents we designate from time to time. We will name any agent involved in the offering
and sale of securities and we will describe any commissions we will pay the agent in the prospectus supplement. Unless the prospectus
supplement states otherwise, our agent will act on a best-efforts basis for the period of its appointment.
Unless
otherwise specified in the applicable prospectus supplement, each issuance of common stock will be listed on the NASDAQ Capital
Market.
Under
agreements that we may enter, underwriters, dealers and agents who participate in the distribution of shares of our securities
may be entitled to indemnification by us against certain liabilities, including liabilities under the Securities Act, or contribution
with respect to payments that the agents or underwriters may make with respect to these liabilities. A prospectus supplement or
supplements will also describe the terms of such indemnification provisions. Underwriters, dealers and agents may engage in transactions
with, or perform services for, us in the ordinary course of business.
If
so indicated in the applicable prospectus supplement, we will authorize underwriters or other persons acting as our agents to
solicit offers by certain institutions to purchase our securities from us pursuant to contracts providing for payment and delivery
on a future date. Institutions with which such contracts may be made include commercial and savings banks, insurance companies,
pension funds, investment companies, educational and charitable institutions and others, but in all cases such institutions must
be approved by us. The obligations of any purchaser under any such contract will be subject to the condition that the purchase
of our securities shall not at the time of delivery be prohibited under the laws of the jurisdiction to which such purchaser is
subject. The underwriters and such other agents will not have any responsibility in respect of the validity or performance of
such contracts. Such contracts will be subject only to those conditions set forth in the prospectus supplement, and the prospectus
supplement will set forth the commission payable for solicitation of such contracts.
We
may enter into derivative transactions with third parties, or sell securities not covered by this prospectus to third parties
in privately negotiated transactions. If the applicable prospectus supplement indicates, in connection with those derivatives,
the third parties may sell securities covered by this prospectus and the applicable prospectus supplement, including in short
sale transactions. If so, the third party may use securities pledged by us or borrowed from us or others to settle those sales
or to close out any related open borrowings of stock, and may use securities received from us in settlement of those derivatives
to close out any related open borrowings of stock. The third parties in such sale transactions will be underwriters and, if not
identified in this prospectus, will be identified in the applicable prospectus supplement.
In
order to comply with the securities laws of certain states, if applicable, our securities offered hereby will be sold in such
jurisdictions only through registered or licensed brokers or dealers.
TAXATION
The
following summary reflects the existing provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”)
and other relevant federal income tax authorities as of the date of this prospectus and is subject to any subsequent changes therein.
The federal income tax consequences described below are merely statements of general tax principles. The following discussion
summarizes certain material U.S. federal income tax considerations affecting the Fund and its U.S. stockholders. This discussion
is for general information only and does not purport to consider all aspects of U.S. federal income taxation that might be relevant
to owners of common stock or subscription rights. Therefore, the summary discussion that follows may not be considered to be individual
tax advice and may not be relied upon by any owner of common stock or subscription rights. The summary is based upon current provisions
of the Code, applicable U.S. Treasury Regulations promulgated thereunder (the “Regulations”), and administrative and
judicial interpretations thereof, all of which are subject to change, which change could be retroactive, and may affect the conclusions
expressed herein. The summary applies only to U.S. stockholders in whose hands subscription rights and common stock are capital
assets within the meaning of Section 1221 of the Code, and may not apply to certain types of owners of common stock or subscription
rights in the Fund, including, but not limited to insurance companies, tax-exempt organizations, U.S. stockholders holding the
Fund’s shares through tax-advantaged accounts (such as an individual retirement account (an “IRA”), a 401(k)
plan account, or other qualified retirement account), financial institutions, pass-through entities, broker-dealers, non-U.S.
stockholders, U.S. stockholders holding subscription rights or common stock as part of a hedge, straddle or conversion transaction,
and U.S. stockholders who are subject to the alternative minimum tax. Persons who may be subject to tax in more than one country
should consult the provisions of any applicable tax treaty to determine the potential tax consequences to them.
A
“U.S. stockholder” is for U.S. federal income tax purposes generally: (i) a citizen or individual resident of the
United States; (ii) a corporation or other entity treated as a corporation, created or organized in or under the laws of the United
States or any political subdivision thereof; (iii) a trust if a court within the United States is asked to exercise primary supervision
over the administration of the trust and one or more United States persons have the authority to control all substantive decisions
of the trust (or a trust which has made a valid election to be treated as a U.S. trust); or (iv) an estate, the income of which
is subject to U.S. federal income taxation regardless of its source. A “non-U.S. stockholder” generally is any person
or entity that is not a U.S. stockholder.
If
a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds shares of the Fund’s
common stock, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities
of the partnership. A prospective stockholder that is a partner of a partnership holding shares of the Fund’s common stock
should consult his, her or its tax advisers with respect to the purchase, ownership and disposition of shares of the Fund’s
common stock.
The
Fund has not requested and will not request an advance ruling from the Internal Revenue Service (the “IRS”) as to
the federal income tax matters described below. The IRS could adopt positions contrary to those discussed below and such positions
could be sustained. In addition, the following discussion applicable to U.S. stockholders of the Fund addresses only some of the
federal income tax considerations generally affecting investments in the Fund.
IN
VIEW OF THE INDIVIDUAL NATURE OF TAX CONSEQUENCES TO A STOCKHOLDER, EACH STOCKHOLDER IS ADVISED TO CONSULT THE STOCKHOLDER’S
OWN TAX ADVISER WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF BEING A STOCKHOLDER OF THE FUND, INCLUDING THE EFFECT AND APPLICABILITY
OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES THEREIN.
Federal
Taxation of the Fund and its Distributions
The
Fund has elected and intends to continue to qualify annually to be treated as a regulated investment company under the Code. To
qualify as a regulated investment company, the Fund must, among other things: (a) derive at least 90% of its gross income for
each taxable year from (i) dividends, interest, payments with respect to securities loans and gains from the sale or other disposition
of stock, securities or foreign currencies, or other income (including but not limited to gains from options, futures and forward
contracts) derived with respect to its business of investing in such stock, securities or currencies, and (ii) net income from
certain qualified publicly traded partnerships (together with (i), the “Qualifying Income Requirement”); and (b) diversify
its holdings so that, at the close of each quarter of the taxable year: (i) at least 50% of the value of its assets is comprised
of cash, cash items (including receivables), U.S. government securities, securities of other regulated investment companies and
other securities, with those other securities limited, in respect of any one issuer, to an amount that does not exceed 5% of the
value of its total assets and that does not represent more than 10% of the outstanding voting securities of such issuer; and (ii)
not more than 25% of the value of its assets is invested in the securities (other than U.S. government securities or securities
of other regulated investment companies) of any one issuer or the securities (other than the securities of other regulated investment
companies) of two or more issuers controlled by it and engaged in the same, similar or related trades or businesses, or one or
more “qualified publicly traded partnerships” (together with (i), the “Diversification Requirement”).
The
Treasury Department is authorized to promulgate regulations under which gains from foreign currencies (and options, futures, and
forward contracts on foreign currency) would constitute qualifying income for purposes of the Qualifying Income Requirement only
if such gains are directly related to the principal business of the Fund in investing in stock or securities or options and futures
with respect to stock or securities. To date, no such regulations have been issued.
As
a regulated investment company, the Fund (but not its stockholders) generally will not be subject to U.S. federal income tax on
the portion of its income and capital gains that it distributes to its stockholders in any taxable year for which it distributes,
in compliance with the Code’s timing and other requirements the sum of (i) at least 90% of its investment company taxable
income (which includes dividends, taxable interest, taxable original issue discount income, market discount income, income from
securities lending, net short-term capital gain in excess of net long-term capital loss, certain net realized foreign currency
exchange gains, and any other taxable income other than “net capital gain” as defined below and is reduced by deductible
expenses all determined without regard to any deduction for dividends paid); and (ii) 90% of its tax-exempt interest, if any,
net of certain expenses allocable thereto (“net tax-exempt interest”). The Fund may retain for investment all or a
portion of its “net capital gain” (i.e., the excess of its net long-term capital gain over its net short-term capital
loss). If the Fund retains any investment company taxable income or net capital gain, it will be subject to tax at regular corporate
rates on the amount retained. The Fund currently intends to distribute to its stockholders, at least annually, substantially all
of its investment company taxable income, as computed for U.S. federal income tax purposes. If the Fund retains any net capital
gain, it may designate the retained amount as undistributed net capital gain in a notice to its stockholders, who will be (i)
required to include in income for federal income tax purposes, as long-term capital gain, their shares of such undistributed amount;
and (ii) entitled to credit their proportionate shares of tax paid by the Fund against their federal income tax liabilities, if
any, and to claim refunds to the extent the credit exceeds such liabilities. For federal income tax purposes, the tax basis of
the shares owned by a stockholder of the Fund will be increased by the amount of undistributed net capital gain included in the
stockholder’s gross income and decreased by the federal income tax paid by the Fund on that amount of capital gain.
In
general, for purposes of the Qualifying Income Requirement described above, income derived from a partnership will be treated
as qualifying income only to the extent such income is attributable to items of income of the partnership which would be qualifying
income if realized directly by the regulated investment company. However, all of the net income of a regulated investment company
derived from an interest in a qualified publicly traded partnership (defined as a partnership (x) the interests in which are traded
on an established securities market or are readily tradable on a secondary market or the substantial equivalent thereof, and (y)
that derives less than 90% of its income from the qualifying income described in clause (i) of the Qualifying Income Requirement
described above) will be treated as qualifying income. In general, such entities will be treated as partnerships for federal income
tax purposes if they meet the passive income requirement under Section 7704(c)(2) of the Code. In addition, although in general
the passive loss rules of the Code do not apply to regulated investment companies, such rules do apply to a regulated investment
company with respect to items attributable to an interest in a qualified publicly traded partnership. For purposes of the Diversification
Requirement described above, the term “outstanding voting securities of such issuer” will include the equity securities
of a qualified publicly traded partnership. The transferee of a partnership interest generally is required to withhold 10% of
the amount realized on the sale or exchange of a partnership interest, unless the transferor certifies it is not a foreign person
or meets other certification requirements. Special rules apply to transfers of interests in publicly traded partnerships.
If
the Fund fails to satisfy the Qualifying Income Requirement or the Diversification Requirement in any taxable year, it may be
eligible for relief provisions if the failures are due to reasonable cause and not willful neglect and if a penalty tax is paid
with respect to each failure to satisfy the applicable requirements. Additionally, relief is provided for certain de minimis failures
to satisfy the Diversification Requirements where the Fund corrects the failure within a specified period of time. If the applicable
relief provisions are not available or cannot be met, the Fund will fail to qualify as a regulated investment company and will
be subject to tax in the same manner as an ordinary corporation subject to tax at a flat rate of 21% and all distributions from
earnings and profits (as determined under U.S. federal income tax principles) to its stockholders will be taxable as ordinary
dividend income eligible for the dividends-received deduction for corporate stockholders and taxable at the long-term capital
gains tax rate taxable on a graduated basis with a maximum tax rate of 20% for non-corporate U.S. stockholders. In addition, certain
U.S. stockholders will be subject to a 3.8% tax with respect to their net investment income, which includes capital gains and
dividends.
If
the Fund fails to distribute by December 31 of each calendar year an amount equal to the sum of (1) at least 98% of its taxable
ordinary income (excluding capital gains and losses) for such year, (2) at least 98.2% of the excess of its capital gains over
its capital losses (as adjusted for certain ordinary losses) for the twelve month period ending on October 31 of such year), and
(3) all taxable ordinary income and the excess of capital gains over capital losses for the prior year that were not distributed
during such year and on which it did not pay federal income tax, the Fund will be subject to a nondeductible 4% excise tax (the
“Excise Tax”) on the undistributed amounts. A distribution will be treated as paid on December 31 of the calendar
year if it is declared by the Fund in October, November, or December of that year to stockholders of record on a date in such
month and paid by it during January of the following year. Such distributions will be taxable to stockholders (other than those
not subject to federal income tax) in the calendar year in which the distributions are declared, rather than the calendar year
in which the distributions are received. The Fund intends to actually distribute or be deemed to have distributed substantially
all of its net income and gain, if any, by the end of each calendar year in compliance with these requirements so that it will
generally not be required to pay the Excise Tax. The Fund may, in certain circumstances, be required to liquidate its investments
in order to make sufficient distributions to avoid Excise Tax liability at a time when an investment adviser might not otherwise
have chosen to do so. Liquidation of investments in such circumstances may affect the ability of the Fund to satisfy the requirements
for qualification as a regulated investment company. Moreover, if the Fund utilizes leverage through borrowings, it may be restricted
by loan covenants with respect to the declaration and payment of dividends in certain circumstances. Limits on the Fund’s
payment of dividends may prevent the Fund from distributing at least 90% of its net income and may therefore jeopardize the Fund’s
qualification for taxation as a regulated investment company and/or may subject the Fund to the nondeductible 4% federal excise
tax. The Fund will endeavor to avoid restrictions on its ability to make dividend payments. However, no assurances can be given
that the Fund will not be subject to the Excise Tax and, in fact, in certain instances if warranted, the Fund may choose to pay
the Excise Tax as opposed to making an additional distribution.
For
losses arising from tax years beginning before December 22, 2010, the Fund is permitted to carry forward a net capital loss from
any year to offset its capital gains, if any, realized during the eight years following the year of the loss and such capital
loss carryforward is treated as a short-term capital loss in the year to which it is carried. For capital losses realized with
respect to tax years of the Fund beginning after December 22, 2010, such Fund may carry capital losses forward indefinitely. For
capital losses realized in taxable years beginning after December 22, 2010, the excess of the Fund’s net short-term capital
losses over its net long-term capital gain is treated as short-term capital losses arising on the first day of the Fund’s
next taxable year and the excess of the Fund’s net long-term capital losses over its net short-term capital gain is treated
as long-term capital losses arising on the first day of the Fund’s net taxable year. If future capital gains are offset
by carried forward capital losses, such future capital gains are not subject to Fund-level federal income taxation, regardless
of whether they are distributed to stockholders. The Fund cannot carry back or carry forward any net operating losses.
Gain
or loss on the sales of securities by the Fund will generally be long-term capital gain or loss if the securities have been held
by the Fund for more than one year. Gain or loss on the sale of securities held for one year or less will be short-term capital
gain or loss.
The
Fund’s investment in so-called “Section 1256 contracts,” such as regulated futures contracts, certain foreign
currency contracts, options on most stock indices and any listed non-equity options, are subject to special tax rules. Any such
Section 1256 contracts held by the Fund at the end of its taxable year are required to be marked to their market value, and any
unrealized gain or loss on those positions will be included in the Fund’s income as if each position had been sold for its
fair market value at the end of the taxable year. The resulting gain or loss will be combined with any gain or loss realized by
the Fund from positions in Section 1256 contracts closed during the taxable year. Provided such positions are held as capital
assets and are not part of a “hedging transaction” nor part of a “straddle,” 60% of the resulting net
gain or loss will be treated as long-term capital gain or loss, and 40% of such net gain or loss will be treated as short-term
capital gain or loss, regardless of the period of time the positions were actually held by the Fund.
Certain
of the Fund’s investment practices are subject to special and complex U.S. federal income tax provisions that may, among
other things, (i) disallow, suspend or otherwise limit the allowance of certain losses or deductions, including the dividends
received deduction, (ii) convert lower taxed long-term capital gains and qualified dividend income into higher taxed short-term
capital gains or ordinary income, (iii) convert ordinary loss or a deduction into capital loss (the deductibility of which is
more limited), (iv) cause the Fund to recognize income or gain without a corresponding receipt of cash making it difficult to
satisfy the investment income distribution requirements, (v) adversely affect the time as to when a purchase or sale of stock
or securities is deemed to occur, (vi) adversely alter the characterization of certain complex financial transactions and (vii)
produce income that will not qualify as good income for purposes of the Qualifying Income Requirement described above. The Fund
monitors its transactions and may make certain tax elections and may be required to borrow money or dispose of securities to mitigate
the effect of these rules and prevent disqualification of the Fund as a regulated investment company.
Income
received by the Fund from sources within foreign countries may be subject to foreign withholding and other taxes. Tax conventions
between certain countries and the United States may reduce or eliminate such taxes. If more than 50% of the Fund’s total
assets at the close of any taxable year consist of stock or securities of foreign corporations and it meets the distribution requirements
described above, the Fund may file an election (the “pass-through election”) with the IRS pursuant to which stockholders
of it would be required to (i) include in gross income (in addition to taxable dividends actually received) their pro rata shares
of foreign income taxes paid by it even though not actually received by such stockholders; and (ii) treat such respective
pro rata portions as foreign income taxes paid by them. The Fund will furnish its stockholders with a written statement providing
the amount of foreign taxes paid by it that will “pass-through” for the year, if any. Generally, a credit for foreign
taxes is subject to the limitation that it may not exceed the stockholder’s U.S. tax attributable to his or her total foreign
source taxable income. For this purpose, if the pass-through election is made, the source of the Fund’s income will flow
through to stockholders. The limitation on the foreign tax credit is applied separately to foreign source passive income, and
to certain other types of income. Stockholders may be unable to claim a credit for the full amount of their proportionate share
of the foreign taxes paid by the Fund. Various limitations, including a minimum holding period requirement, apply to limit the
credit and deduction for foreign taxes for purposes of regular federal tax and alternative minimum tax. In addition, a stockholder
of the Fund may not be able to use foreign tax credits passed through by the Fund if the Fund’s shares are loaned pursuant
to a securities lending agreement.
The
Fund may invest in a non-U.S. corporation, which could be treated as a passive foreign investment company (a “PFIC”)
or become a PFIC under the Code. A PFIC is generally defined as a foreign corporation that meets either of the following tests:
(1) at least 75% of its gross income for its taxable year is income from passive sources (such as interest, dividends, certain
rents and royalties, or capital gains); or (2) an average of at least 50% of its assets produce, or are held for the production
of, such passive income. If the Fund acquires any equity interest in a PFIC, the Fund could be subject to federal income tax and
interest charges on “excess distributions” received with respect to such PFIC stock or on any gain from the sale of
such PFIC stock (collectively “PFIC income”), plus interest thereon even if the Fund distributes the PFIC income as
a taxable dividend to its stockholders. The balance of the PFIC income will be included in the Fund’s investment company
taxable income and, accordingly, will not be taxable to it to the extent it distributes that income to its stockholders. The Fund’s
distributions of PFIC income, if any, will be taxable as ordinary income even though, absent the application of the PFIC rules,
some portion of the distributions may have been classified as capital gain.
The
Fund will not be permitted to pass through to its stockholders any credit or deduction for taxes and interest charges incurred
with respect to a PFIC. Payment of this tax would therefore reduce the Fund’s economic return from its investment in PFIC
shares. To the extent the Fund invests in a PFIC, it may elect to treat the PFIC as a “qualified electing fund” (“QEF”),
then instead of the tax and interest obligation described above on excess distributions, the Fund would be required to include
in income each taxable year its pro rata share of the QEF’s annual ordinary earnings and net capital gain. As a result of
a QEF election, the Fund would likely have to distribute to its stockholders an amount equal to the QEF’s annual ordinary
earnings and net capital gain to satisfy the Code’s minimum distribution requirement described herein and avoid imposition
of the Excise Tax even if the QEF did not distribute those earnings and gain to the Fund. In most instances it will be very difficult,
if not impossible, to make this election because of certain requirements in making the election. The Fund may elect to “mark-to-market”
its stock in any PFIC. “Marking-to-market,” in this context, means including in ordinary income each taxable year
the excess, if any, of the fair market value of the PFIC stock over the Fund’s adjusted basis therein as of the end of that
year. Pursuant to the election, the Fund also may deduct (as an ordinary, not capital, loss) the excess, if any, of its adjusted
basis in the PFIC stock over the fair market value thereof as of the taxable year-end, but only to the extent of any net mark-to-market
gains with respect to that stock it included in income for prior taxable years under the election. The Fund’s adjusted basis
in its PFIC stock subject to the election would be adjusted to reflect the amounts of income included and deductions taken thereunder.
In either case, the Fund may be required to recognize taxable income or gain without the concurrent receipt of cash.
Gains
or losses attributable to fluctuations in exchange rates between the time the Fund accrues income or receivables or expenses or
other liabilities denominated in a foreign currency and the time the Fund actually collects such income or receivables or pays
such liabilities are generally treated as ordinary income or loss. Foreign currency gains and losses realized by the Fund in connection
with certain transactions involving foreign currency-denominated debt instruments, certain options, futures contracts, forward
contracts, and similar instruments relating to foreign currency, foreign currencies, and foreign currency-denominated payables
and receivables are subject to Section 988 of the IRC, which causes such gains and losses to be treated as ordinary income or
loss and may affect the amount and timing of recognition of the Fund’s income. In some cases elections may be available
that would alter this treatment, but such elections could be detrimental to the Fund by creating current recognition of income
without the concurrent recognition of cash. If a foreign currency loss treated as an ordinary loss under Section 988 were to exceed
the Fund’s investment company taxable income (computed without regard to such loss) for a taxable year the resulting loss
would not be deductible by it or its shareholders in future years. The foreign currency income or loss will also increase or decrease
the Fund’s investment company income distributable to its shareholders.
Distributions
paid out of the Fund’s current and accumulated earnings and profits (as determined at the end of the year), whether reinvested
in additional shares or paid in cash, are generally taxable and must be reported by each stockholder who is required to file a
federal income tax return. Distributions in excess of the Fund’s current and accumulated earnings and profits, as computed
for federal income tax purposes, will first be treated as a return of capital up to the amount of a stockholder’s tax basis
in his or her Fund shares and then as capital gain.
For
federal income tax purposes, distributions of investment company taxable income are generally taxable as ordinary income, and
distributions of gains from the sale of investments that the Fund owned for one year or less will be taxable as ordinary income.
Distributions designated by the Fund as “capital gain dividends” (distributions from the excess of net long-term capital
gain over short-term capital losses) will be taxable to stockholders as long-term capital gain regardless of the length of time
they have held their shares of the Fund. Such dividends do not qualify as dividends for purposes of the dividends received deduction
described below.
Non-corporate
stockholders of the Fund may be eligible for the long-term capital gain tax rate applicable to distributions of “qualified
dividend income” received by such non-corporate stockholders. The Fund’s distribution will be treated as qualified
dividend income and therefore eligible for the long-term capital gains tax rate to the extent that it receives dividend income
from taxable domestic corporations and certain qualified foreign corporations, provided that certain holding periods and other
requirements are met. For example, if the Fund’s shares are loaned pursuant to a securities lending arrangement, dividends
paid while the shares are held by the borrower may not be qualified dividend income and may not qualify for the dividends received
deduction. Currently, the maximum long-term capital gain tax rate for individual U.S. stockholders is 20%. Corporate stockholders
of the Fund will be subject to tax on distributions of qualified dividend income at a flat rate of 21%. Generally, corporate stockholders
will not be eligible for the dividends received deduction because the Fund’s income will not consist of qualified dividend
income.
Under
current law, a 3.8% Medicare contribution tax on net investment income including interest (excluding, tax-exempt interest), dividends,
and capital gains of U.S. individuals with income exceeding $200,000 ($250,000 if married and filing jointly) and of estates and
trusts.
The
Fund will furnish a statement to stockholders providing the federal income tax status of its dividends and distributions including
the portion of such dividends, if any, that qualifies as long-term capital gain.
Different
tax treatment, including penalties on certain excess contributions and deferrals, certain pre-retirement and post-retirement distributions,
and certain prohibited transactions, is accorded to accounts maintained as qualified retirement plans. Stockholders are urged
and advised to consult their own tax advisers for more information.
The
Fund may retain for investment its net capital gain. However, if the Fund retains any net capital gain or any investment company
taxable income, it will be subject to a tax of 21% of such amount. If the Fund retains any net capital gain, it expects to designate
the retained amount as undistributed capital gains in a notice to its stockholders, each of whom, if subject to U.S. federal income
tax on long-term capital gains, (i) will be required to include in income for U.S. federal income tax purposes its share of such
undistributed long-term capital gain, (ii) will be entitled to credit its proportionate share of the tax paid by the Fund against
their U.S. federal income tax liability, if any, and to claim refunds to the extent that the credit exceeds such liability and
(iii) will increase its tax basis in its common shares for the Fund by an amount equal to 79% of the amount of undistributed capital
gain included in such stockholder’s gross income.
The
Fund’s income will be increased or decreased by the amount of foreign currency gains or losses realized by the Fund in connection
with the disposition of foreign currency-denominated debt securities as well as changes in foreign exchange rates between the
time the Fund accrues a receivable (typically, dividends, interest and payments for securities sold) or payable (typically, expenses
and payments for securities purchased) and the time such receivable or payable is satisfied. The Fund cannot predict the impact
of such transactions on its investment company taxable income distributable to stockholders.
Upon
the disposition of shares of the Fund (whether by redemption, sale or exchange), a stockholder may realize a capital gain or loss.
Such capital gain or loss will be long-term or short-term depending upon the stockholder’s holding period for the shares.
The capital gain will be long-term if the shares were held for more than 12 months and short-term if held for 12 months or less.
Currently, for individual U.S. stockholders, the maximum long-term capital gain tax rate is 20% and the maximum short-term capital
gain tax rate is 37%. In addition, certain U.S. stockholders will be subject to a 3.8% tax with respect to their net investment
income, which includes capital gains and dividends from selling, exchanging, or holding shares of the Fund. Corporate U.S. stockholders
are taxed at a flat rate of 21% on long-term and short-term capital gains.
If
a stockholder sells or exchanges shares of the Fund within 90 days of having acquired such shares and if, before January 31 of
the calendar year following the calendar year of the sale or exchange, as a result of having initially acquired those shares,
the stockholder subsequently pays a reduced sales charge on a new purchase of shares of the Fund, the sales charge previously
incurred in acquiring the Fund’s shares generally shall not be taken into account (to the extent the previous sales charges
do not exceed the reduction in sales charges on the new purchase) for the purpose of determining the amount of gain or loss on
the disposition, but generally will be treated as having been incurred in the new purchase. Any loss realized on a disposition
will be disallowed under the “wash sale” rules to the extent that the shares disposed of by the stockholder are replaced
by the stockholder within a period of 61 days beginning 30 days before and ending 30 days after the date of disposition. In such
a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Any loss realized by a stockholder on
a disposition of shares held by the stockholder for six months or less will be treated as a long-term capital loss to the extent
of any distributions of capital gain dividends received by the stockholder and disallowed to the extent of any distributions of
tax-exempt interest dividends received by the stockholder with respect to such shares. Capital losses are generally deductible
only against capital gains except that individuals may deduct up to $3,000 of capital losses against ordinary income.
The
Fund generally is required to withhold, and remit to the U.S. Treasury, subject to certain exemptions, an amount equal to 24%
of all distributions and redemption proceeds paid or credited to a stockholder of the Fund if (i) the stockholder fails to furnish
the Fund with the correct taxpayer identification number (“TIN”) certified under penalties of perjury, (ii) the stockholder
fails to provide a certified statement that the stockholder is not subject to backup withholding, or (iii) the IRS or a broker
has notified the Fund that the number furnished by the stockholder is incorrect or that the stockholder is subject to backup withholding
as a result of failure to report interest or dividend income. If the backup withholding provisions are applicable, any such distributions
or proceeds, whether taken in cash or reinvested in shares, will be reduced by the amounts required to be withheld. Backup withholding
is not an additional tax. Any amounts withheld may be credited against a stockholder’s U.S. federal income tax liability.
A
tax-exempt stockholder could realize unrelated business taxable income (“UBTI”) by virtue of its investment in the
Fund as a result of the Fund’s investments and if shares in the Fund constitute debt financed property in the hands of the
tax-exempt stockholder within the meaning of Section 514(b) of the Code. In addition, special tax consequences apply to charitable
remainder trusts (CRTs) that invest in regulated investment companies that invest directly or indirectly in certain real estate
mortgage investments. Tax-exempt stockholders are urged and advised to consult their own tax advisers as to the tax consequences
of an investment in the Fund.
State
and local laws often differ from federal income tax laws with respect to the treatment of specific items of income, gain, loss,
deduction and credit.
Distributions
made to non-U.S. stockholders attributable to net investment income generally are subject to U.S. federal income tax withholding
at a 30% rate (or such lower rate provided under an applicable income tax treaty). Notwithstanding the foregoing, if a distribution
described above is effectively connected with the conduct of a trade or business carried on by a non-U.S. stockholder within the
United States (or, if an income tax treaty applies, is attributable to a permanent establishment in the United States), federal
income tax withholding and exemptions attributable to foreign persons will not apply. Instead, the distribution will be subject
to withholding at the highest applicable U.S. tax rate (currently 37% in the case of individuals and 21% in the case of corporations)
and the non-U.S. stockholder will be subject to federal income tax reporting requirements generally applicable to U.S. persons
described above.
Under
U.S. federal tax law, a non-U.S. stockholder is not, in general, subject to federal income tax or withholding tax on capital gains
(and is not allowed a deduction for losses) realized on the sale of shares of the Fund and on long-term capital gains dividends,
provided that the Fund obtains a properly completed and signed certificate of foreign status, unless (i) such gains or distributions
are effectively connected with the conduct of a trade or business carried on by the non-U.S. stockholder within the United States
(or, if an income tax treaty applies, are attributable to a permanent establishment in the United States of the non-U.S. stockholder);
(ii) in the case of an individual non-U.S. stockholder, the stockholder is present in the United States for a period or periods
aggregating 183 days or more during the year of the sale and certain other conditions are met; or (iii) the shares of the Fund
constitute U.S. real property interests (USRPIs), as described below.
Under
current law, if the Fund is considered to be a “United States Real Property Holding Corporation” (as defined in the
IRC and Treasury Regulations), then distributions attributable to certain underlying real estate investment trust (“REIT”)
investments and redemption proceeds paid to a non-U.S. stockholder that owns at least 5% of the Fund, generally, will (i) cause
the non-U.S. stockholder to treat such gain or distribution as income effectively connected with a trade or business in the United
States, (ii) subject such gain or distribution to withholding tax and (iii) cause the non-U.S. stockholder to be required to file
a federal income tax return. In addition, in any year when at least 50% of the Fund’s assets are USRPIs (as defined in the
IRC and Treasury Regulations), distributions of the Fund that are attributable to gains from the sale or exchange of stock in
USRPIs may be subject to U.S. withholding tax (regardless of such stockholder’s percentage interest in the Fund) and may
require the non-U.S. stockholder to file a U.S. federal income tax return in order to receive a refund (if any) of the withheld
amount.
Subject
to the additional rules described herein, federal income tax withholding will apply to distributions attributable to dividends
and other investment income distributed by the Fund. The federal income tax withholding rate may be reduced (and, in some cases,
eliminated) under an applicable tax treaty between the United States and the non-U.S. stockholder’s country of residence
or incorporation. In order to qualify for treaty benefits, a non-U.S. stockholder must comply with applicable certification requirements
relating to its foreign status (generally by providing a Fund with a properly completed Form W-8BEN).
Pursuant
to the Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax generally is imposed on payments of interest
and dividends to (i) foreign financial institutions including non-U.S. investment funds and (ii) certain other foreign entities,
unless the foreign financial institution or foreign entity provides the withholding agent with documentation sufficient to show
that it is compliant with FATCA (generally by providing the Fund with a properly completed Form W-8BEN or Form W-8BEN-E, as applicable).
If the payment is subject to the 30% withholding tax under FATCA, a non-U.S. stockholder will not be subject to the 30% withholding
tax described above on the same income. After December 31, 2018, FATCA withholding would have applied to certain capital gain
distributions, return of capital distributions, and the proceeds arising from the sale of Fund shares; however, based on
proposed regulations issued by the IRS, which can be relied on currently, such withholding is no longer required unless final
regulations provide otherwise (which is not expected). Stockholders are urged and advised to consult their own tax advisors regarding
the application of this new reporting and withholding regime to their own tax situation.
All
non-U.S. stockholders are urged and advised to consult their own tax advisers as to the tax consequences of an investment in the
Fund.
A
stockholder that owns directly or indirectly more than 50% by vote or value of the Fund, is urged and advised to consult its own
tax adviser regarding its filing obligations with respect to IRS Form FinCEN114, Report of Foreign Bank and Financial Accounts.
Also,
subject to exceptions, certain individuals and certain domestic entities must report annually their interests in “specified
foreign financial assets” above a certain threshold on IRS Form 8938, which is filed with their U.S. federal income tax
returns.
Stockholders
may be subject to substantial penalties for failure to comply with these reporting requirements. Stockholders are urged and advised
to consult their own tax advisers to determine whether these reporting requirements are applicable to them.
Under
Treasury regulations, if a stockholder recognizes a loss of $2 million or more for an individual stockholder or $10 million or
more for a corporate stockholder, the stockholder must file with the IRS a disclosure statement on IRS Form 8886. The fact that
a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer’s treatment
of the loss is proper. Stockholders are urged and advised to consult their own tax advisers to determine the applicability of
these regulations in light of their individual circumstances.
The
Fund will inform stockholders of the source and tax status of all distributions promptly after the close of each calendar year.
Distributions
from the Fund and sales or other dispositions of shares of the Fund may be subject to additional state, local and foreign taxes
depending on each stockholder’s particular situation. An investor should also be aware that the benefits of any reduced
tax rate applicable to long-term capital gains and qualified dividend income may be impacted by the application of the alternative
minimum tax to individual stockholders.
Stockholders
are urged and advised to consult their own tax advisers as to the federal, state, local, foreign and other tax laws affecting
investments in the Fund and to possible effects of the changes in any such federal, state, local, foreign, or other tax laws.
DETERMINATION
OF NET ASSET VALUE
The
Fund’s NAV per share will be calculated by the Adviser (i) no less frequently than monthly, (ii) on the last business day
of each month and (iii) at any other times determined by the board. NAV per share is calculated by dividing the value of the Fund’s
net assets (the value of its assets less its liabilities) by the total number of shares of common stock outstanding.
An
unaudited NAV per share is posted daily on the Fund’s website at http://www.herzfeld.com/cuba. In calculating
the NAV per share at any time:
| (i) | the
value of any cash on hand or on deposit, bills and demand notes and accounts receivable,
prepaid expenses, cash dividends and interest declared or accrued and not yet received,
will be its face amount, unless the Adviser has determined that its value is less, in
which case its value will be deemed to be such amount as the Adviser determines to be
reasonable; |
| (ii) | investments
in securities traded on a national securities exchange (or reported on the NASDAQ National
Market or Capital 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; |
| (iii) | the
value of any security traded in the unregulated market will be determined, by taking
the last quoted bid price; |
| (iv) | investments
(if any) in securities of the U.S. government, its agencies and instrumentalities having
a maturity of 60 days or less are valued at amortized cost; |
| (v) | the
value of a forward contract is calculated by reference to the price quoted at the date
of valuation of the contract by the customary banking sources of the Fund; |
| (vi) | the
value of commodity futures or option contracts entered into by the Fund are the margin
deposit plus or minus the difference between the value of the contract on the date NAV
is calculated and the value on the date the contract originated, value being that established
on a recognized commodity or options exchange, or by reference to other customary sources,
with a gain or loss being recognized; |
| (vii) | the
value of any security or property for which no price quotation is available as provided
above is the fair value determined in such manner as the board, acting in good faith,
deems appropriate, although the actual calculation may be done by others; and |
| (viii) | the
liabilities of the Fund are deemed to include, without limitation, all bills and accounts
payable, all other contractual obligations for the payment of money, including the amount
of distributions declared and unpaid, all accrued and unpaid management fees, advisory
fees and other expenses, all reserves for taxes or contingencies and all other liabilities
of the Fund determined in accordance with generally accepted accounting principles. |
The
Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not
readily available. Under these procedures, the Adviser convenes on a regular and ad hoc basis to review such securities and considers
a number of factors, including valuation methodologies and significant unobservable valuation inputs, when arriving at a fair
value. The Adviser may employ a market-based approach which may use related or comparable assets or liabilities, recent transactions,
market multiples, book values and other relevant information for the investment to determine the fair value of the investment.
An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted
to calculate fair value. Discounts may be applied due to the nature or duration of any restrictions on the disposition of investments.
Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that
would have been used had an active market existed. The Adviser employs various methods for calibrating these valuation approaches
including a regular view of valuation methodologies, key inputs and assumptions, transactional back-testing or disposition analysis
and reviews of any related market activity.
Any
assets or liabilities initially expressed in terms of foreign currencies are translated into dollars at a quoted exchange rate
or at such other appropriate rate as may be determined by the Adviser.
CUSTODIAN,
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND REGISTRAR
Fifth
Third Bank acts as custodian for the Fund’s assets. The principal address of the custodian is 38 Fountain Square Plaza,
Cincinnati, OH 45263. The custodian employs sub-custodians in each of the jurisdictions in which the Fund invests. The custodian’s
services include, in addition to the custody of all cash and securities owned by the Fund, the maintenance of a custody account
in the custodian’s Fund department, the segregation of all certificated securities owned by the Fund, the appointment of
authorized agents as sub-custodians, disbursement of funds from the custody account of the Fund, releasing and delivering securities
from the custody account of the Fund, maintaining records with respect to such custody account, delivering to the Fund a daily
and monthly statement with respect to such custody account, and causing proxies to be executed. The custodian’s fee is paid
by the Fund. For the fiscal years ended June 30, 2023, 2022 and 2021, the Fund paid custodian fees of $5,746, $7,912 and $25,357,
respectively.
Under
a Master Services Agreement between Ultimus Fund Solutions, LLC (“Ultimus”) and the Fund, Ultimus serves as the Fund’s
administrator, fund accounting agent, and transfer agent. Ultimus is located at 225 Pictoria Drive, Suite 450, Cincinnati, OH
45246. Administrative services include generally managing the administrative affairs of the Fund, and supervising the preparation
of reports to stockholders, reports to and filings with the SEC and materials for meetings of the board. Fund accounting services
include calculating the net asset value per share and maintaining the financial books and records of the Fund. As transfer agent,
Ultimus provides shareholder services to the Fund. The Master Services Agreement permits Ultimus to subcontract for the provision
of services it has contracted for under the Master Services Agreement, and Ultimus has subcontracted transfer agency services
to Equiniti Trust Company, LLC (“EQ”). EQ is located at 6201 15th Avenue Brooklyn, New York, NY 11219.
EQ provides transfer agency services, including serving as the Fund’s dividend/distribution disbursing agent, dividend reinvestment
plan agent, and as registrar for the Fund’s common stock. For the fiscal years ended June 30, 2023, 2022, and 2021, the
Fund paid transfer agency fees of $28,800, $28,800 and $31,600, respectively.
LEGAL
MATTERS
Troutman
Pepper Hamilton Sanders LLP, 3000 Two Logan Square, 18th and Arch Streets, Philadelphia, PA 19103 serves as counsel
to the Fund.
EXPERTS
The
independent registered accounting firm of the Fund is Tait, Weller & Baker LLP (“Tait Weller”), located at 50
South 16th St., Suite 2900, Philadelphia, PA 19102. As the independent registered public accounting firm of the Fund, Tait Weller
is an expert in accounting and auditing and audited the Fund’s financial statements included in the Fund’s Annual
Report to Stockholders for the fiscal year ended June 30, 2023 (the “Annual Report”).
AVAILABLE
INFORMATION
We
have filed with the SEC a registration statement on Form N-2 together with related exhibits under the Securities Act. The registration
statement contains information about us and the securities being offered by this prospectus and any accompanying prospectus supplement.
We are also required to file with or submit to the SEC annual, semi-annual and quarterly reports, proxy statements and other information
about us. You may request copies of these reports and filings, including this prospectus and any accompanying prospectus supplement
free of charge, make inquiries or request other information about us by contacting us by mail at 119 Washington Avenue, Suite
504 Miami Beach, FL 33139, or by telephone at (800) TJH-FUND (toll-free) or (305) 777-1660. Copies of these reports and filings
are also available free of charge through our website at http://www.herzfeld.com/cuba and http://www.herzfeld.com/cubafinancialreports.
The inclusion of our website address in this prospectus and any prospectus supplement is, in each case, intended to be an
inactive textual reference only and not an active hyperlink to our website. The information contained in, or that can be accessed
through, our website is not part of this prospectus or any accompanying prospectus supplement. Information contained on our website
is not incorporated by reference into this prospectus or any accompanying prospectus supplement.
The
SEC maintains an Internet site that contains reports, proxy and information statements and other information filed electronically
by us with the SEC which are available on the SEC’s website at http://www.sec.gov. Copies of these reports,
proxy and information statements and other information may also be obtained, upon paying a duplicating fee, by electronic request
at the following e-mail address: publicinfo@sec.gov.
DEALER
PROSPECTUS DELIVERY OBLIGATION
Until
[ ], all dealers that effect transactions in these securities, whether or not participating in this offering, may be required
to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions
INCORPORATION
BY REFERENCE
This
prospectus is part of a registration statement that the Fund has filed with the SEC. The Fund is permitted to “incorporate
by reference” the information that it files with the SEC, which means that the Fund can disclose important information to
you by referring you to those documents. The information incorporated by reference is an important part of this prospectus, and
later information that the Fund files with the SEC will automatically update and supersede this information.
The
documents listed below, and any reports and other documents subsequently filed with the SEC pursuant to Rule 30(b)(2) under the
1940 Act and Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the offering, are incorporated
by reference into this prospectus and deemed to be part of this prospectus from the date of the filing of such reports and documents:
| ● | the
Fund’s Semi-Annual Report on Form N-CSRS/A for the six month period ended
December 31, 2023, filed with the SEC on March 14, 2024; |
| ● | the
Fund’s Annual Report on Form N-CSR for the fiscal year ended June 30, 2023,
filed with the SEC on September 6, 2023 (the “2023 Annual Report”); and |
| ● | the
description of our common shares contained in our Registration Statement on Form
N-2 (File No. 333-144838) filed with the SEC on July 25, 2007, including any amendment
or report filed for the purpose of updating such description prior to the termination
of the offering registered hereby. |
To
obtain copies of these filings, see “Available Information” above.
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
Thomas
J. Herzfeld Advisors, Inc. (the “Adviser”) acts as discretionary investment adviser for various clients, including
The Herzfeld Caribbean Basin Fund, Inc. an investment company registered under the Investment Company Act of 1940, as amended,
and clients governed by the Employee Retirement Income Security Act of 1974 (“ERISA”).
Selected
clients, including The Herzfeld Caribbean Basin Fund, Inc. have elected to have the Adviser vote proxies or act on the other shareholder
actions on their behalf, while other clients vote proxies themselves.
When
voting proxies or acting on corporate actions for clients, the Adviser’s utmost concern is that all decisions be made in
the best interest of its clients (for ERISA accounts, plan beneficiaries and participants, in accordance with the letter and spirit
of ERISA). The Adviser will act in a manner deemed prudent and diligent and which is intended to enhance the economic value of
the assets of its clients’ accounts.
Purpose
The
purpose of these Policies and Procedures is to memorialize the procedures and policies adopted by the Adviser to enable it to
comply with its responsibilities and the requirements of Rule 206(4)-6 under the Investment Advisers Act of 1940, as amended (“Advisers
Act”). These Policies and Procedures also reflect the fiduciary standards and responsibilities set forth by the Department
of Labor for ERISA accounts.
Procedures
The
Portfolio Managers of the Adviser are ultimately responsible for ensuring that all proxies received by the Adviser are voted in
a timely manner and voted consistently across all portfolios. Although many proxy proposals can be voted in accordance with the
Adviser’s established guidelines (see Section V. below) (the “Guidelines”), the Adviser recognizes that certain
circumstances may require special consideration, which may dictate that the Adviser makes an exception to the provisions of these
Procedures. When an exception is made to these Procedures, the Portfolio Managers shall provide to the Chief Compliance Officer
of the Adviser (“CCO”) a written statement detailing the circumstances and rationale for an exception from these Policies
and Procedures.
The
Portfolio Managers are also responsible for ensuring that all corporate actions received by the Adviser are addressed in a timely
manner and consistent action is taken across all portfolios.
A. Conflicts of Interest. Where a proxy proposal raises a material conflict of interest between the Adviser’s interests and
that of one or more its clients, the Adviser shall resolve such conflict in the manner described below.
1.
Vote in Accordance with the Guidelines. To the extent that the Adviser has little or no discretion to deviate from the Guidelines
with respect to the proposal in question, the Adviser shall vote in accordance with such pre-determined voting policy.
2.
Obtain Consent of Clients. To the extent that the Adviser has discretion to deviate from the Guidelines with respect to the proposal
in question, the Adviser shall disclose the conflict to the relevant clients and obtain their consent to the proposed vote prior
to voting the securities. The disclosure to the clients will include sufficient detail regarding the matter to be voted on and
the nature of our conflict that the clients would be able to make an informed decision regarding the vote. When a client does
not respond to such a conflict disclosure request or denies the request, the Adviser will abstain from voting the securities held
by that client’s account.
B. Limitations. In certain circumstances, in accordance with a client’s investment advisory contract (or other written directive)
or where the Adviser has determined that it is in the client’s best interest, the Adviser will not vote proxies received.
The following are some circumstances where the Adviser may limit its role in voting proxies received on client securities:
1.
Client Maintains Proxy Voting Authority: Where a client has not specifically delegated the authority to vote proxies to the Adviser
or that it has delegated the right to vote proxies to a third party, the Adviser will not vote the securities and will direct
the relevant custodian to send the proxy material directly to the client. If any proxy material is received by the Adviser, it
will promptly be forwarded to the client.
2. Terminated Account: Once a client account has been terminated with the Adviser in accordance with its investment advisory agreement,
the Adviser will not vote any proxies received after the termination. However, the client may specify in writing that proxies
should be directed to the client for action.
3.
Limited Value: If the Adviser concludes that the client’s economic interest or the value of the portfolio holding is indeterminable
or insignificant, the Adviser may abstain from voting a client’s proxies. The Adviser generally does not vote proxies received
for securities which are not held in the client’s account at the time the proxies are received; although it may vote
such proxies if determined to be in the best interest of the client. In addition, the Adviser generally does not vote securities
where the economic value of the securities in the client’s account is less than $500.
4.
Securities Lending Programs: When securities are out on loan, they are transferred into the borrower’s name and are voted
by the borrower, in its discretion. However, where the Adviser determines that a proxy vote (or shareholder action) is materially
important to the client’s account, the Adviser may recall the security.
5. Unjustifiable Costs: In certain circumstances, after doing a cost-benefit analysis, the Adviser may abstain from voting where
the cost of voting a client’s proxy would exceed any anticipated benefits of the proxy proposal.
IV. RECORD
KEEPING
In
accordance with Rule 204-2 under the Advisers Act, the Adviser will maintain for the time periods set forth in the Rule (i) these
proxy voting procedures and policies, and amendments thereto; (ii) all proxy statements received regarding client securities (provided
however, that the Adviser may rely on the proxy statement filed on EDGAR as its records); (iii) a record of votes cast on behalf
of clients; (iv) records of client requests for proxy voting information; (v) any documents prepared by the adviser that were
material to making a decision how to vote or that memorialized the basis for the decision; and (vi) records relating to requests
made to clients regarding conflicts of interest in voting the proxy.
The
Adviser will describe in its Part II of Form ADV (or other brochure fulfilling the requirement of Rule 204-3) its proxy voting
policies and procedures and advising clients how they may obtain information on how the Adviser voted their securities. Clients
may obtain information on how their securities were voted or a copy of our Policies and Procedures by written request addressed
to the Adviser.
V. GUIDELINES
Each
proxy issue will be considered individually. The following guidelines are a partial list to be used in voting proposals contained
in the proxy statements, but will not be used as rigid rules.
1. Issues regarding the issuer’s Board entrenchment
and anti-takeover measures such as the following: |
Oppose |
|
a.
Proposals to limit the ability of shareholders to call special meetings; |
|
|
b.
Proposals to require super majority votes; |
|
|
c.
Proposals requesting excessive increases in authorized common or preferred shares where management provides no explanation
for the use or need for these additional shares; |
|
|
d.
Proposals regarding “poison pill” provisions; and |
|
|
e.
Permitting “green mail”. |
|
2.
Providing cumulative voting rights. |
Oppose |
3.
“Social issues,” unless specific client guidelines supersede, e.g., restrictions regarding South Africa. |
Oppose |
4.
Election of directors recommended by management, except if there is a proxy fight. |
Approve |
5.
Election of auditors recommended by management, unless seeking to replace if there exists a dispute over policies. |
Approve. |
6.
Date and place of annual meeting. |
Approve |
7.
Limitation on charitable contributions or fees paid to lawyers. |
Approve |
8.
Ratification of directors’ actions on routine matters since previous annual meeting. |
Approve |
9.
Confidential voting |
Approve |
|
Confidential
voting is most often proposed by shareholders as a means of eliminating undue management pressure on shareholders regarding
their vote on proxy issues. The Adviser will generally approve these proposals as shareholders can later divulge their votes
to management on a selective basis if a legitimate reason arises |
|
10.
Limiting directors’ liability |
Approve |
11.
Eliminate preemptive right |
Approve |
|
Preemptive
rights give current shareholders the opportunity to maintain their current percentage ownership through any subsequent equity
offerings. These provisions are no longer common in the U.S., and can restrict management’s ability to raise new capital. |
|
|
The
Adviser approves the elimination of preemptive rights, but will oppose the elimination of limited preemptive rights, e.g.,
on proposed issues representing more than an acceptable level of total dilution. |
|
12.
Employee Stock Purchase Plan |
Approve |
13.
Establish 401(k) Plan |
Approve |
14.
Rotate annual meeting location/date |
Approve |
15.
Establish a staggered Board |
Approve |
16.
Eliminate director mandatory retirement policy |
Case-by-Case |
17.
Option and stock grants to management and directors |
Case-by-Case |
18.
Allowing indemnification of directors and/or officers after reviewing the applicable laws and extent of protection requested. |
Case-by-Case |
APPENDIX
B
THOMAS J. HERZFELD ADVISORS, INC.
PROXY
VOTING
POLICIES AND PROCEDURES
Rule
206(4)-6 under the Investment Advisers Act of 1940 helps to ensure that SEC-registered advisers act in the best interest of their
clients when exercising proxy voting authority. The rule obligates advisers to provide Clients with information on how their securities
were voted.
Advisers
that have explicit or implicit voting authority must comply with rule 206(4)-6. Therefore, even when the advisory contract is
silent, the rule applies if the adviser’s voting authority is implied by an overall delegation of discretionary authority.
The rule does not apply, however, to advisers that provide Clients with advice about voting proxies but do not have authority
to vote them.
In
addition, the Firm’s Proxy Voting Policy is subject to annual review by the independent members of the Board of Directors
of the CUBA Fund, as set forth in proxy voting policies and procedures adopted by such Board (the “CUBA Fund Proxy Policies”).
The approval of the independent members of the Board of Directors of the CUBA Fund shall be required if any changes to the Adviser’s
Proxy Voting Policy are proposed. In implementing this Proxy Voting Policy, the CCO shall insure that all policies and procedures
set forth herein are consistent with the CUBA Fund Proxy Policies.
The
SEC adopted new rule 206(4)-6 and amended rule 204-2 to regulate proxy voting by investment advisers with authority to vote their
Clients’ proxies. Under the Investment Advisers Act, an adviser is a fiduciary that owes each of its Clients the duties
of care and loyalty with respect to all services undertaken on the Client’s behalf, which may or may not include proxy voting.
To satisfy its duty of loyalty, the adviser must cast proxy votes in a way that will advance the best interest of its Client.
The adviser must not put its own interests ahead of the Client’s.
Under
rule 206(4)-6, it is a fraudulent, deceptive, or manipulative act, practice or course of business for investment advisers to exercise
voting authority over Client proxies before they:
| ● | Adopt
and implement written policies and procedures that are reasonably designed to ensure
that the adviser votes proxies in the Client’s best interest; |
| ● | Disclose
to Clients how they may obtain information regarding how their proxies were voted; and |
| ● | Describe
proxy voting policies and procedures and furnish a copy of the policies and procedures
to the Client when requested to do so. |
The
Firm believes that each proxy proposal must be individually reviewed to determine whether the proposal is in the best interests
of its Clients. Absent specific Client instructions, and subject to the limitations described below, the Firm has adopted the
following proxy voting procedures designed to ensure that proxies are properly identified and voted, and that any conflicts of
interest are addressed appropriately:
| ● | Upon
receipt of a corporate proxy by the Firm, the special or annual report and the proxy
are submitted to the EC Proxy Voting Services (“the Proxy Manager”). The
Proxy Manager will then vote the proxy in accordance with this policy. |
| ● | The
Proxy Manager shall be responsible for reviewing the special or annual report, proxy
proposals, and proxy proposal summaries. The reviewer shall take into consideration what
vote is in the best interests of Clients and the provisions of the Firm’s Voting
Guidelines in Section 2 below. The Proxy Manager will then vote the proxies. |
| ● | The
Proxy Manager shall be responsible for maintaining copies of each annual report, proposal,
proposal summary, actual vote, and any other information required to be maintained for
a proxy vote under Rule 204-2 of the Advisers Act (see discussion in Section 3 below).
With respect to proxy votes on topics deemed, in the opinion of the Proxy Manager, to
be controversial or particularly sensitive, the Proxy Manager will provide a written
explanation for the proxy vote which will be maintained with the record of the actual
vote in the Firm’s files. |
| ● | The
Firm will not neglect its proxy voting responsibilities, but may abstain from voting
if it deems that abstaining is in its Clients’ best interests, as described below
under the Limitations on Proxy Voting section. The Proxy Manager will document instances
in which the Firm does not vote a Client’s proxy. |
| ● | Proxies
received after a Client terminates its advisory relationship with the Firm will not be
voted. The Proxy Manager will promptly return such proxies to the sender, along with
a statement indicating that the Firm’s advisory relationship with the Client has
terminated, and that future proxies should not be sent to the Firm. |
| ● | To
the extent that a conflict of interest is identified in conjunction with a specific proxy
vote, the voting process will be modified as described below under Conflicts of Interest. |
When
completing the steps above, the Proxy Manager will consider whether the Firm is subject to any material conflicts of interest
in connection with each proxy vote. In addition, Employees, including Portfolio Managers involved in determining proxy votes,
must notify the CCO if they are aware of any material conflict of interest associated with a proxy vote. It is impossible to anticipate
all material conflicts of interest that could arise in connection with proxy voting.
If
the CCO determines that a material conflict of interest exists, the following procedures shall be followed:
| ● | The
Firm shall disclose the existence and nature of the conflict to the Client(s) owning
the Client securities, and seek directions on how to vote the proxies; |
| ● | The
Firm shall abstain from voting, particularly if there are conflicting Client interests
(for example, where Client accounts hold different Client securities in a competitive
merger situation); or |
| ● | The
Firm shall follow the recommendations of an independent proxy voting service in voting
the proxies. |
The
Firm keeps certain records required by applicable law in connection with its proxy voting activities for Clients and shall provide
proxy-voting information to Clients upon their written or oral request. A copy of the Firm’s proxy-voting policy is available
to Clients upon request.
| C. | Limitations
on Proxy Voting |
Notwithstanding
the procedures listed above, in certain circumstances where the Firm has determined that it is in the Client’s best interest,
the Firm will not vote proxies received. In other situations, the Client will decide unilaterally to retain proxy voting authority.
The following are some, but not all, circumstances where the Firm will limit its role in voting proxies:
Client
Maintains Proxy Voting Authority. Where the Client has instructed the Firm in writing, the Firm will not vote the securities
and will direct the relevant custodian to send the proxy material directly to the Client. If any proxy material is received by
the Firm, it will promptly be forwarded to the Client or a specified third party.
Client
Provides Proxy Voting Instructions. Where the Client has provided written instructions to the Firm directing the Firm how to vote
proxies in specific situations.
Terminated
Account. Once a Client account has been terminated in accordance with the investment advisory agreement, the Firm may refrain
from voting any proxies received after the termination and will return the proxy materials to the sender or to an address provided
by the Client for forwarding any proxies received.
Securities
No Longer Held. The Firm may refrain from voting proxies received for securities which are no longer held by the Client’s
account.
Securities
Lending Programs. When securities are out on loan, they are transferred into the borrower’s name and are voted by the
borrower, in its discretion.
Non-Discretionary
Accounts. If the Firm accepts a Client with non-discretionary authority, it may also yield the authority to vote proxies.
Limited
Value. The Firm may abstain from voting a Client proxy based upon a conclusion that the effect on a Client’s economic
interests or the value of the portfolio holding is indeterminable or insignificant.
Costs
exceed benefits. The Firm may abstain from voting a Client proxy if the Firm believes that the costs of voting the proxy exceed
the expected benefit to the Client of voting the proxy.
Non-US
Issuers. The Firm will vote non-US issuer proxies on a best efforts basis. Some non-US proxies may involve a number of features
that restrict or prevent the Firm’s ability to vote in a timely manner, or otherwise make voting impractical. For example,
some proxies may not appear on any platform because some issuers do not reimburse custodians for the distribution of proxies.
The Firm will use its best efforts to vote all proxies but cannot guarantee the votes will be processed due to obstacles such
as share blocking, re-registration, required powers of attorney, and sub-custodial arrangements. The Firm may also be limited
in obtaining proxy records but will maintain evidence reflecting best efforts to vote such proxies.
While
the Firm’s policy is to review each proxy proposal on its individual merits, the Firm has adopted guidelines for certain
types of matters to assist the Proxy Manager in the review and voting of proxies. These guidelines are set forth below:
1.
Corporate Governance Election of Directors and Similar Matters
In
an uncontested election, the Firm will generally vote in favor of management’s proposed directors. In a contested election,
the Firm will evaluate proposed directors on a case-by-case basis. With respect to proposals regarding the structure of a company’s
Board of Directors, the Firm will review any contested proposal on its merits.
Notwithstanding
the foregoing, the Firm expects to support proposals to:
| 1. | Limit
directors’ liability and broaden directors’ indemnification rights |
| 2. | Generally
vote against proposals to adopt or continue the use of a classified Board structure;
and |
| 3. | Add
special interest directors to the board of directors (e.g., efforts to expand the board
of directors to control the outcome of a particular matter. |
Audit
Committee Approvals
The
Firm generally supports proposals that help ensure that a company’s auditors are independent and capable of delivering a
fair and accurate opinion of a company’s finances. The Firm will generally vote to ratify management’s recommendation
and selection of auditors.
Shareholder
Rights
The
Firm shall consider all proposals that will have a material effect on shareholder rights on a case by case basis. Notwithstanding
the foregoing, the Firm expects to generally support proposals to:
| 1. | Adopt
confidential voting and independent tabulation of voting results; and |
| 2. | Require
shareholder approval of poison pills; |
And
expects to generally vote against proposals to:
| 1. | Adopt
super-majority voting requirements; and |
| 2. | Restrict
the rights of shareholders to call special meetings, amend the bylaws or act by written
consent. |
Anti-Takeover
Measures, Corporate Restructurings and Similar Matters
The
Firm shall review any proposal to adopt an anti-takeover measure, to undergo a corporate restructuring (e.g., change of entity
form or state of incorporation, mergers or acquisitions) or to take similar action by reviewing the potential short and long-term
effects of the proposal on the company. These effects may include, without limitation, the economic and financial impact the proposal
may have on the company, and the market impact that the proposal may have on the company’s stock.
Notwithstanding
the foregoing, Adviser expects to generally support proposals to:
| 1. | Prohibit
the payment of greenmail (i.e., the purchase by the company of its own shares to prevent
a hostile takeover); |
| 2. | Adopt
fair price requirements (i.e., requirements that all shareholders be paid the same price
in a tender offer or takeover context), unless the Proxy Manager deems them sufficiently
limited in scope; and |
| 3. | Require
shareholder approval of “poison pills.” |
And
expects to generally vote against proposals to:
| 1. | Adopt
classified boards of directors; |
| 2. | Reincorporate
a company where the primary purpose appears to the Proxy Manager to be the creation of
takeover defenses; and |
| 3. | Require
a company to consider the non-financial effects of mergers or acquisitions. |
Capital
Structure Proposals
The
Firm will seek to evaluate capital structure proposals on their own merits on a case-by-case basis. Notwithstanding the foregoing,
the Firm expects to generally support proposals to eliminate preemptive rights.
2. Compensation
General
The
Firm generally supports proposals that encourage the disclosure of a company’s compensation policies. In addition, the Firm
generally supports proposals that fairly compensate executives, particularly those proposals that link executive compensation
to performance. The Firm shall consider any contested proposal related to a company’s compensation policies on a case-by-case
basis.
Notwithstanding
the foregoing, the Firm expects to generally support proposals to:
| 1. | Require
shareholders’ approval of golden parachutes; and |
| 2. | Adopt
golden parachutes that do not exceed 1 to 3 times the base compensation of the applicable
executives |
And
expects to generally vote against proposals to:
| 1. | Adopt
measures that appear to the Proxy Manager to arbitrarily limit executive or employee
benefits. |
Stock
Option Plans and Share Issuances
The
Firm evaluates proposed stock option plans and share issuances on a case-by-case basis. In reviewing proposals regarding stock
option plans and issuances, the Firm shall consider, without limitation, the potential dilutive effect on shareholders and the
potential short and long-term economic effects on the company. The Firm believes that stock option plans do not necessarily align
the interest of executives and outside directors with those of shareholders and that well thought out cash compensation plans
can achieve these objectives without diluting shareholders ownership. Therefore, the Firm generally will vote against stock option
plans. However, these proposals will be reviewed on a case-by-case basis to determine that shareholders’ interests are being
represented. The Firm is in favor of management, directors and employees owning stock, but prefer that the shares are purchased
in the open market.
Notwithstanding
the foregoing, the Firm expects to generally vote against proposals to establish or continue stock option plans
and share issuances that are not in the best interest of the shareholders.
3. Corporate
Responsibility and Social Issues
The
Firm generally believes that ordinary business matters (including, without limitation, positions on corporate responsibility and
social issues) are primarily the responsibility of a company’s management that should be addressed solely by the company’s
management. These types of proposals, often initiated by shareholders, may request that the company disclose or amend certain
business practices.
Notwithstanding
the foregoing, the Firm will generally vote in favor of proposals involving corporate responsibility and social
issues to the extent called for by the United Nations Principles on Responsible Investment. The Firm also will generally vote
in favor of corporate responsibility and social issue proposals that the Firm believes will have substantial positive economic
or other effects on a company or the company’s stock.
E.
Class Actions
Securities
issuers are, on occasion, the subject of class action lawsuits where the class of potentially injured parties is defined to be
purchasers of the issuer’s securities during a specific period of time. These cases may result in an award of damages or
settlement proceeds to the class members who file claims with the settlement administrator. At the time of the settlement, notice
of the settlement together with a claim form and release is generally sent to the custodian of the securities who in turn may
forward these notices to the separately managed account Clients. The Firm does not provide any legal advice to Clients in connection
with class action litigation. The Firm will instead provide such accounts with reasonable assistance by providing account-level
information upon request.
F.
Books and Records
Rule
204-2, requires that the following proxy voting records be kept in to comply with Rule 206(4)-6 and the amendments to Rule 204-2.
The CCO shall be responsible for maintaining these records relating to proxy voting.
| 1. | The
Proxy Manager will ensure that the following information is retained and available to
be promptly produced in connection with each proxy vote: |
| ● | The
security’s ticker symbol or CUSIP, as applicable; |
| ● | The
shareholder meeting date; |
| ● | The
number of shares that the Firm voted; |
| ● | A
brief identification of the matter voted on; |
| ● | Whether
the matter was proposed by the Issuer or a security-holder; |
| ● | Whether
the Firm cast a vote; |
| ● | How
the Firm cast its vote (for the proposal, against the proposal, or abstain); |
| ● | Whether
the Firm cast its vote with or against management; |
| ● | Any
documentation created by the Firm that was material in making the proxy voting decision
or that memorializes the basis for that decision, to the extent applicable; and |
| ● | Any
communication with Clients on how the Firm voted proxies on behalf of the Client. |
The
Firm may satisfy certain of the above requirements by relying on a third party to retain a copy of the proxy statement on the
Firm’s behalf, so long as the Firm has obtained an undertaking from the third party to provide a copy of the proxy statement
promptly upon request. The Firm may also satisfy certain of the above requirements by relying on proxy statements available from
the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system.
The
Proxy Manager will periodically reconcile the proxy voting records from the custodians with its proxy voting records and follow
up on any discrepancies to ensure that accurate records are maintained.
G. Disclosures
to Clients and Investors
The
Firm includes a description of its policies and procedures regarding proxy voting and class actions in Part 2 of Form ADV, along
with a statement that Clients and Investors can contact the Firm to obtain a copy of these policies and procedures and information
about how the Firm voted with respect to the Client’s securities.
Any
request for information about proxy voting or class actions should be promptly forwarded to the Proxy Manager, who will respond
to any such requests.
As
a matter of policy, the Firm does not disclose how it expects to vote on upcoming proxies.
Each
proxy issue will be considered individually. The Firm will maintain guidelines to be considered when voting proposals. These guidelines
will be maintained by the Firm’s CCO, The guidelines will be used to provide guidance to the CCO when voting proxies, but
are not to be applied as rigid rules.
PART
C - OTHER INFORMATION
ITEM
25. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial
Statements:
Included
in Part A:
Financial
highlights for the fiscal year ended June 30, 2023, the fiscal period ended June 30, 2022, the fiscal years ended July 31,
2021, July 31, 2020, July 31, 2019, July 31, 2018, July 31, 2017, July 31, 2016, July 31, 2015, July 31, 2014, and July 31,
2013.
Incorporated
into Part B by reference to Registrant’s most recent Certified
Shareholder Report on Form N-CSR, filed September 6, 2023 (File No. 811-06445)
Schedule
of Investments as of June 30, 2023
Statement
of Assets and Liabilities as of June 30, 2023
Statement
of Operations for the fiscal period ended June 30, 2023
Notes
to Financial Statements
(2)
Exhibits
Unless
otherwise indicated, all references are to exhibits to the applicable filing by the Registrant under Investment Company Act File
No. 811-06445 with the Securities and Exchange Commission (the “Commission”).
| (l) | Opinion
of Troutman Pepper Hamilton Sanders LLP.** |
| (n) | Consent
of Tait, Weller & Baker LLP.** |
| (1) | Incorporated
by reference to the Registrant’s Registration Statement on Form N-2 filed with
the SEC on July 25, 2007 (Securities Act File No. 333-144838 and Investment Company Act
File No. 811-06445). |
| (2) | Incorporated
by reference to Exhibit 99.2 to Form 8-K/A filed with the SEC on November 22, 2006 (Investment
Company Act File No. 811-06445). |
| (3) | Incorporated
by reference to the Registrant’s Registration Statement on Form N-2 filed with
the SEC on April 15, 2021 (Securities Act File No. 333-255265 and Investment Company
Act File No. 811-06445). |
| ** | To
be filed by amendment. |
ITEM
26. MARKETING ARRANGEMENTS
The
information contained under the heading “Plan of Distribution” in this Registration Statement is incorporated herein
by reference.
ITEM
27. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC registration fees | |
| $ |
– | |
FINRA filing
fees | |
| $ |
* | |
NASDAQ Capital Market
Listing of Additional Shares fee | |
| $ |
* | |
Printing (other than
stock certificates) | |
| $ |
* | |
Accounting fees and
expenses | |
| $ |
* | |
Legal fees and expenses | |
| $ |
* | |
Sales agent’s
expenses | |
| $ |
* | |
Miscellaneous | |
| $ |
* | |
Total | |
| $ |
* | |
| * | Fees
depend on number of issuances and amount of securities sold and cannot be estimated at
this time. |
ITEM
28. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM
29. NUMBER OF HOLDERS OF SECURITIES
Title
of Class |
Number
of
Record Holders
as of
March 31, 2024 |
Common Stock, $0.001 par value |
68 |
ITEM
30. INDEMNIFICATION
It
is the Registrant’s policy to indemnify its directors and officers to the maximum extent permitted by Section 2-418 of the
General Corporation Law of the State of Maryland as set forth in Article VII of the Registrant’s By-Laws filed as exhibit
2(b) of Item 25 hereto, subject to the limitations of the Investment Company Act of 1940, as amended. The Registrant’s indemnification
obligations with respect to each officer and director as set forth in Article VII of the Registrant’s By-Laws further provide
for the payment of, and advancement of, any reasonable expenses incurred in connection with the successful defense of any proceeding
to which each such officer or director is a party by reason of service in such capacity. The Registrant’s indemnification
obligations with respect to the Adviser are set forth in Section 5 of the Investment Advisory Agreement filed as exhibit 2(g)
of Item 25 hereto. The Registrant has purchased insurance insuring its directors and officers against certain liabilities incurred
in their capacities as such, and insuring the Registrant against any payments which it is obligated to make to such persons under
the foregoing indemnification provisions.
Insofar
as indemnification for liabilities arising under the Securities Act, may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant
of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
ITEM
31. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
Registrant
is fulfilling the requirement of this Item 31 to provide a list of the officers and directors of its investment adviser, together
with information as to any other business, profession, vocation or employment of a substantial nature engaged in by those entities
or those of its officers and directors during the past two years, by incorporating herein by reference the information contained
in the current Form ADV filed on June 30, 2020 with the SEC by Thomas J. Herzfeld Advisors, Inc. (Investment Advisers Act File
No. 801-20866) pursuant to the Investment Advisers Act of 1940, as amended, and in the section entitled “Management of the
Fund” in Part A of this Registration Statement.
ITEM
32. LOCATION OF ACCOUNTS AND RECORDS
All
such books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940 and Rules 31a-1
through 31a-3 thereunder are maintained at the following locations: Thomas J. Herzfeld Advisors, Inc., 119 Washington Avenue,
Suite
504 Miami Beach, FL 33139; Iron Mountain, 13700 NW 2nd Street Sunrise, FL 33325; Ultimus Fund Solutions, LLC, 225 Pictoria
Dr, Suite 450, Cincinnati, OH 45246; Fifth Third Bank, Fifth Third Center, 38 Fountain Square Plaza, Cincinnati, OH 45263; and
Equiniti Trust Company, LLC, 6201 15th Avenue Brooklyn, New York, NY 11219.
ITEM
33 MANAGEMENT SERVICES
Not
applicable.
ITEM
34. UNDERTAKINGS
The
Registrant hereby undertakes:
| 3. | (a)
to file, during any period in which offers or sales are being made, a post-effective
amendment to this Registration Statement: |
| (1) | to
include any prospectus required by Section 10(a)(3) of the Securities Act; |
| (2) | to
reflect in the prospectus any facts or events after the effective date of the registration
statement (or the most recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the total dollar value
of securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20% change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the effective
registration statement; |
| (3) | to
include any material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such information in
the Registration Statement. |
Provided,
however, that paragraphs a(1), a(2), and a(3) of this section do not apply to the extent the information required
to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission
by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference into the
registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration
statement.
| (b) | that,
for the purpose of determining any liability under the Securities Act, each post-effective
amendment shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof; |
| (c) | to
remove from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the offering; and |
| (d) | that,
for the purpose of determining liability under the Securities Act to any purchaser: |
| (1) | if
the Registrant is subject to Rule 430B: |
| (A) | Each
prospectus filed by the Registrant pursuant to Rule 424(b)(3) shall be deemed to be part
of the registration statement as of the date the filed prospectus was deemed part of
and included in the registration statement; and |
| (B) | Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part
of a registration statement in reliance on Rule 430B relating to an offering made
pursuant to Rule 415(a)(1)(i), (x), or (xi) under the Securities Act for the purpose
of providing the information required by Section 10 (a) of the Securities Act shall
be deemed to be part of and included in the registration statement as of the earlier
of the date such form of prospectus
is first used after effectiveness or the date of the first contract of sale of securities
in the offering described in the prospectus. As provided in Rule 430B, for liability
purposes of the issuer and any person that is at that date an underwriter, such
date shall be deemed to be a new effective date of the registration statement relating
to the securities in the registration statement to which that prospectus relates, and
the offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a time of
contract of sale prior to such effective date, supersede or modify any statement
that was made in the registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such effective date; or |
| (2) | if
the Registrant is subject to Rule 430C: each prospectus filed pursuant to Rule 424(b)
under the Securities Act as part of a registration statement relating to an offering,
other than registration statements relying on Rule 430B or other than prospectuses
filed in reliance on Rule, shall be deemed to be part of and included in the registration
statement as of the date it is first used after effectiveness. Provided, however, that
no statement made in a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed incorporated
by reference into the registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to such first
use, supersede or modify any statement that was made in the registration statement
or prospectus that was part of the registration statement or made in any such document
immediately prior to such date of first use. |
| (e) | that
for the purpose of determining liability of the
Registrant under the Securities Act to any purchaser in the initial distribution
of securities, the: |
Undersigned
Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement,
regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will
be considered to offer or sell such securities to the purchaser:
| (1) | any
preliminary prospectus or prospectus of the undersigned Registrant relating to the offering
required to be filed pursuant to Rule 424 under the Securities Act; |
| (2) | free
writing prospectus relating to the offering prepared by or on behalf of the undersigned
Registrant or used or referred to by the undersigned Registrant; |
| (3) | the
portion of any other free writing prospectus or advertisement pursuant to Rule 482 under
the Securities Act relating to the offering containing material information about the
undersigned Registrant or its securities provided by or on behalf of the undersigned
Registrant; and |
| (4) | any
other communication that is an offer in the offering made by the undersigned Registrant
to the purchaser. |
| (4) | that:
(a) for the purpose of determining any liability under the Securities Act, the information
omitted from the form of prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the Registrant under Rule
424(b)(1) under the Securities Act shall be deemed to be part of this registration statement
as of the time it was declared effective; and (b) for the purpose of determining any
liability under the Securities Act, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof. |
| (5) | The
undersigned Registrant hereby undertakes that, for purposes of determining any liability
under the Securities Act, each filing of the Registrant’s annual report pursuant
to Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by reference
into the registration statement shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof. |
| (6) | Insofar
as indemnification for liabilities arising under the Securities Act may be permitted
to directors, officers and controlling persons of the Registrant, pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in the opinion of the SEC
such indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or paid by
a director, officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue. |
| (7) | to
send by first class mail or other means designed to ensure equally prompt delivery, within
two business days of receipt of a written or oral request, any prospectus or Statement
of Additional Information. |
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant
has duly caused this Registration Statement on Form N-2 to be signed on its behalf by the undersigned, thereunto duly authorized,
in the city of Miami Beach, and State of Florida, on the 20th day of May, 2024.
|
THE HERZFELD CARIBBEAN BASIN FUND,
INC. |
|
|
|
|
|
|
By: |
/s/ Erik
M. Herzfeld |
|
|
|
Erik M. Herzfeld |
|
|
|
President |
|
Pursuant
to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
Name
|
|
Title
|
|
Date
|
/s/ Ann S. Lieff* |
|
Director |
|
May 20, 2024 |
Ann S. Lieff |
|
|
|
|
|
|
|
|
|
/s/ Kay W. Tatum* |
|
Director |
|
May 20, 2024 |
Kay W. Tatum |
|
|
|
|
|
|
|
|
|
/s/ John A. Gelety* |
|
Director |
|
May 20, 2024 |
John A. Gelety |
|
|
|
|
|
|
|
|
|
/s/ Cecilia L. Gondor* |
|
Director |
|
May 20, 2024 |
Cecilia L. Gondor |
|
|
|
|
|
|
|
|
|
/s/ Thomas J. Herzfeld* |
|
Chairman and Director |
|
May 20, 2024 |
Thomas J. Herzfeld |
|
|
|
|
|
|
|
|
|
/s/ Erik M. Herzfeld |
|
President (Principal Executive Officer) |
|
May 20, 2024 |
Erik M. Herzfeld |
|
|
|
|
|
|
|
|
|
/s/ Zachary P. Richmond |
|
Treasurer (Principal Financial Officer) |
|
May 20, 2024 |
Zachary P. Richmond |
|
|
|
|
* By: |
/s/
Erik M. Herzfeld |
|
|
|
|
Erik M. Herzfeld |
|
|
|
|
Attorney-In-Fact pursuant to power of attorney. |
|
|
|
EXHIBIT
INDEX
Exhibit (s)
Calculation of Filing Fee Tables
Form N-2
(Form Type)
The Herzfeld Caribbean Basin Fund, Inc.
(Exact Name of Registrant as Specified in its Charter)
Table 1: Newly Registered and Carry Forward Securities
|
Security Type |
Security Class Title |
Fee Calculations or Carry Forward Rule |
Amount Registered |
Proposed Maximum Offering Price Per Unit |
Maximum Aggregate Offering Price(1) |
Fee Rate |
Amount of Registration Fee |
Carry Forward Form
Type |
Carry Forward File Number |
Carry Forward Initial Effective Date |
Filing Fee Previously Paid in Connection with Unsold Securities to be Carried Forward |
Newly Registered Securities |
Fees to be Paid |
Equity |
Common Stock |
457(o) |
|
|
$109,000,000 |
$147.60 |
$16,088.40 |
|
|
|
|
Fees to be Paid |
Other |
Rights to Purchase Shares of Common Stock(2) |
— |
|
|
— |
|
|
|
|
|
|
Fees Previously Paid |
|
|
|
|
|
|
|
|
|
|
|
|
Newly Registered Securities |
Carry Forward Securities |
|
|
|
|
|
|
|
|
|
|
|
|
Total Offering Amounts |
$109,000,000 |
|
$16,088.40 |
|
|
|
|
Total Fees Previously Paid |
|
|
— |
|
|
|
|
Total Fee Offsets(3)(4)(5) |
|
|
$16,088.40 |
|
|
|
|
Net Fee Due |
|
|
— |
|
|
|
|
(1) Estimated pursuant to Rule 457(o) under the Securities Act of 1933,
as amended (the “Securities Act”), solely for the purpose of determining the registration fee.
(2) No separate consideration will be received by the Registrant. Any shares
issued pursuant to an offering of rights to purchase shares of common stock, including any shares issued pursuant to an over-subscription
privilege or a secondary over-subscription privilege, will be shares registered under this Registration Statement.
(3) Pursuant to Rule 457(p) under the Securities Act, the entire filing
fee of $16,088.40 required in connection with this Registration Statement on Form N-2 is being offset against the filing fees associated
with the unsold securities registered under (i) the prior shelf registration statement on Form N-2 (the “Prior Shelf Registration
Statement”), and (ii) the prior rights offering registration statement on Form N-2 (the “Prior Rights Offering Registration
Statement”).
(4) The Registrant initially filed the Prior Shelf Registration Statement
(File No. 333-255265) on April 15, 2021. The unsold aggregate offering amount from the Prior Shelf Registration Statement was $88,000,000.
In accordance with the notes to Instruction 3.C.i. to Form N-2, this statement confirms that the offering of unsold common stock and subscription
rights for common stock previously registered under the Prior Shelf Registration Statement has terminated.
(5) The Registrant initially filed the Prior Rights Offering Registration
Statement (File No. 333-274174) on August 23, 2023. The unsold aggregate offering amount from the Prior Rights Offering Registration Statement
was $47,815,753. In accordance with the notes to Instruction 3.C.i. to Form N-2, this statement confirms that the offering of unsold common
stock previously registered under the Prior Rights Offering Registration Statement has terminated.
Table 2: Fee Offset Claims and Sources
|
Registrant or Filer Name |
Form or Filing Type |
File Number |
Initial Filing Date |
Filing Date |
Fee Offset Claimed |
Security Type Associated with Fee Offset Claimed |
Security Title Associated with Fee Offset Claimed |
Unsold Securities Associated with Fee Offset Claimed |
Unsold Aggregate Offering Amount Associated with |
Fee Paid with Fee Offset Source |
Rules 457(b) and 0-11(a)(2) |
Rule 457(p) |
Fee Offset Claims |
The Herzfeld Caribbean Basin Fund, Inc. |
Form N-2 |
333-255265 |
April 15, 2021 |
|
$10,819.10 |
Equity |
Common Stock |
$88,000,000 |
$88,000,000 |
|
Fee Offset Sources |
The Herzfeld Caribbean Basin Fund, Inc. |
Form N-2 |
333-255265 |
|
April 15, 2021 |
|
|
|
|
|
— |
|
The Herzfeld Caribbean Basin Fund, Inc. |
Form N-2 |
333-224685 |
|
May 4, 2018 |
|
|
|
|
|
— |
|
The Herzfeld Caribbean Basin Fund, Inc. |
Form N-2 |
333-202213 |
|
May 21, 2015 |
|
|
|
|
|
$11,620 |
Fee Offset Claims |
The Herzfeld Caribbean Basin Fund, Inc. |
Form N-2 |
333-274174 |
August 23, 2023 |
|
$5,269.30 |
Equity |
Common Stock |
$47,815,753 |
$47,815,753 |
|
Fee Offset Sources |
The Herzfeld Caribbean Basin Fund, Inc. |
Form N-2 |
333-274174 |
|
August 23, 2023 |
|
|
|
|
|
$9,077.81 |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose name appears
below hereby nominates, constitutes and appoints Erik M. Herzfeld as his or her true and lawful attorney-in-fact and agent, with full
power to act alone, with full powers of substitution and resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to make, execute and sign a Registration Statement on Form N-2 under the Securities Act of 1933, as amended (the “Securities
Act”) and the Investment Company Act of 1940, as amended, of The Herzfeld Caribbean Basin Fund, Inc. and any and all pre-effective
or post-effective amendments thereto (including any and all amendments and any related registration statements thereto filed pursuant
to Rule 462 under the Securities Act and otherwise), and file the same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent with full power to act alone, full power and
authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all
intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
the 20th day of May, 2024.
/s/ John A. Gelety |
|
John A. Gelety
Director |
|
/s/ Cecilia Gondor |
|
Cecilia Gondor
Director |
|
/s/ Ann S. Lieff |
|
Ann S. Lieff
Director |
|
/s/ Kay W. Tatum |
|
Kay W. Tatum
Director |
|
|
|
/s/ Thomas J. Herzfeld
|
|
Thomas J. Herzfeld
Director |
|
THE HERZFELD CARIBBEAN BASIN FUND, INC.
(the “Fund”)
SECRETARY’S CERTIFICATE
I, Alice Tham, solely in my capacity as Secretary
of the Fund, hereby certify on behalf of the Fund, pursuant to Rule 483(b) under the Securities Act of 1933, that the following resolution
was unanimously approved at the meeting of the Board of Directors of the Fund held on February 8, 2024:
RESOLVED: |
That any of the corporate officers of the Fund (the “Authorized Officers”) be, and each of them hereby is, authorized and empowered on behalf of the Fund and in its name, with full power and authority to delegate such authority to one or more attorneys-in-fact or agents acting for such Authorized Officer pursuant to a power of attorney, to prepare, or cause to be prepared, the Registration Statement with exhibits, including one or more prospectuses to be used in connection with the Registration Statement, for the registration of the offering of the Registered Securities under the Securities Act and the 1940 Act, with full power and authority to prepare, or cause to be prepared, any amendments to such Registration Statement (including post-effective amendments) and any supplements to the prospectus or prospectuses contained therein, and any exhibits and amendments to any exhibits thereto, and to prepare, execute, and file, or cause to be filed, all certificates, letters, applications and any other documents connected therewith, which may be required to be filed with the Commission with respect to the registration and offering, issuance and sale from time to time of the Registered Securities, with respect to the preparation and filing of a 462(b) Registration Statement in connection with any offerings of securities, and to take any and all action that counsel for the Fund shall advise or that any of such Authorized Officers taking such action shall determine to be necessary, advisable or appropriate, such determination to be evidenced conclusively by the taking of such action. |
IN WITNESS WHEREOF, I have hereunto set my hand and
seal of the Fund as of this 20th day of May, 2024.
|
By: |
/s/ Alice Tham |
|
|
Name: |
Alice Tham |
|
|
|
Secretary |
|
Herzfeld Caribbean Basin (NASDAQ:CUBA)
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