<SEC-DOCUMENT>0001144204-07-038084.txt : 20110815
<SEC-HEADER>0001144204-07-038084.hdr.sgml : 20110815

<ACCEPTANCE-DATETIME>20070725095028

<PRIVATE-TO-PUBLIC>

ACCESSION NUMBER:		0001144204-07-038084

CONFORMED SUBMISSION TYPE:	N-2

PUBLIC DOCUMENT COUNT:		10

FILED AS OF DATE:		20070725

DATE AS OF CHANGE:		20070920


FILER:


	COMPANY DATA:	

		COMPANY CONFORMED NAME:			HERZFELD CARIBBEAN BASIN FUND INC

		CENTRAL INDEX KEY:			0000880406

		IRS NUMBER:				650396889

		STATE OF INCORPORATION:			MD

		FISCAL YEAR END:			0630



	FILING VALUES:

		FORM TYPE:		N-2

		SEC ACT:		1933 Act

		SEC FILE NUMBER:	333-144838

		FILM NUMBER:		07998185



	BUSINESS ADDRESS:	

		STREET 1:		P O BOX 161465

		CITY:			MIAMI

		STATE:			FL

		ZIP:			33116

		BUSINESS PHONE:		3052711900



	MAIL ADDRESS:	

		STREET 2:		PO BOX 161465

		CITY:			MIAMI

		STATE:			FL

		ZIP:			33116



	FORMER COMPANY:	

		FORMER CONFORMED NAME:	FIRST CUBA FUND INC

		DATE OF NAME CHANGE:	19920929




FILER:


	COMPANY DATA:	

		COMPANY CONFORMED NAME:			HERZFELD CARIBBEAN BASIN FUND INC

		CENTRAL INDEX KEY:			0000880406

		IRS NUMBER:				650396889

		STATE OF INCORPORATION:			MD

		FISCAL YEAR END:			0630



	FILING VALUES:

		FORM TYPE:		N-2

		SEC ACT:		1940 Act

		SEC FILE NUMBER:	811-06445

		FILM NUMBER:		07998186



	BUSINESS ADDRESS:	

		STREET 1:		P O BOX 161465

		CITY:			MIAMI

		STATE:			FL

		ZIP:			33116

		BUSINESS PHONE:		3052711900



	MAIL ADDRESS:	

		STREET 2:		PO BOX 161465

		CITY:			MIAMI

		STATE:			FL

		ZIP:			33116



	FORMER COMPANY:	

		FORMER CONFORMED NAME:	FIRST CUBA FUND INC

		DATE OF NAME CHANGE:	19920929



</SEC-HEADER>

<DOCUMENT>
<TYPE>N-2
<SEQUENCE>1
<FILENAME>v081245_n2.txt
<TEXT>

           As filed with the Securities and Exchange Commission on July 24, 2007
                                                Securities Act File No. 33-_____
                                       Investment Company Act File No. 811-02201

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM N-2

|X|  REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

     |_|  Pre-Effective Amendment No. ___

     |_|  Post-Effective Amendment No. ___

                                     and/or

|X|  REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

                                 Amendment No. 4

                     THE HERZFELD CARIBBEAN BASIN FUND, INC.
               (Exact Name of Registrant as Specified in Charter)

                              The Herzfeld Building
                                 P.O. Box 161465
                                 Miami, FL 33116
                    (Address of Principal Executive Offices)

       Registrant's Telephone Number, Including Area Code: (305) 271-1900

                               Thomas J. Herzfeld
                     The Herzfeld Caribbean Basin Fund, Inc.
                              The Herzfeld Building
                                 P.O. Box 161465
                                 Miami, FL 33116

                                   Copies to:

Thomas J. Herzfeld                                      Joseph V. Del Raso, Esq.
The Herzfeld Building                                   Pepper Hamilton LLP
P.O. Box 161465                                         3000 Two Logan Square
Miami, FL 33116                                         18th and Arch Streets
                                                        Philadelphia, PA  19103

Approximate date of proposed public offering: As soon as practicable after the
effective date of this Registration Statement.

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, as
amended, other than securities offered in connection with a dividend
reinvestment plan, check the following box. |_|

<PAGE>

        CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

<TABLE>
<CAPTION>
                                        Proposed Maximum     Proposed Maximum
 Title of Securities    Amount Being   Offering Price Per   Aggregate Offering       Amount of
   Being Registered      Registered        Share (1)             Price (2)       Registration Fee
---------------------   ------------   ------------------   ------------------   ----------------
<S>                     <C>                 <C>                  <C>                 <C>
Common Stock             3,375,112          $13.24               $44,686,478         1371.87
</TABLE>

(1)   Calculated pursuant to Rule 457(c) under the Securities Act of 1933 based
      upon the market price of $13.24 reported on the NASDAQ Capital Market on
      July 24, 2007. The subscription price per share will be set as a
      percentage of the average volume-weighted closing sale price at which the
      common stock trades on the NASDAQ Capital Market on the expiration date
      and the four preceding trading days.

(2)   Estimated solely for the purpose of calculating the registration fee.

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, as amended, or until this Registration Statement shall
become effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.

<PAGE>

The information in this prospectus is not complete and may be changed. A
registration statement relating to the Securities has been filed with the
Securities and Exchange Commission but is not currently effective. We may not
sell these securities until this registration statement 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, solicitation or sale
is not permitted.

                              SUBJECT TO COMPLETION

                 PRELIMINARY PROSPECTUS DATED JULY [____], 2007

                                   PROSPECTUS

                                1,687,556 Shares

                     THE HERZFELD CARIBBEAN BASIN FUND, INC.

                                  Common Stock

                        Issuable Upon Exercise of Rights
                  to Subscribe for Such Shares of Common Stock

The Herzfeld Caribbean Basin Fund, Inc. (the "Fund") is issuing non-transferable
rights to its stockholders of record on [____], 2007 (the "Record Date"),
entitling the holders of rights to subscribe for an aggregate of approximately
1,687,556 shares of the Fund's common stock (the "Offer"). Each stockholder of
record on the Record Date will receive one right for each full share of the
Fund's common stock owned on the Record Date. The rights will entitle the
holders to purchase one share of the Fund's common stock, par value $0.001 per
share ("Common Stock") for each right held, and stockholders of record on the
Record Date who fully exercise their rights will be entitled to subscribe for
additional shares of Common Stock ("Over-Subscription Shares") subject to the
limitations set forth in this prospectus. The Over-Subscription Shares will be
allocated pro rata to stockholders who over-subscribe based on the number of
rights originally issued to them. The Fund may increase the number of shares of
Common Stock subject to subscription by up to 100% of the shares, or up to an
[____] additional shares of Common Stock, for an aggregate total of [____]
shares of Common Stock.

The rights are non-transferable and, therefore, may not be purchased or sold.
The Fund's Common Stock is listed, and the shares of Common Stock issued
pursuant to this Offer will be listed on the NASDAQ Capital Market under the
symbol "CUBA."

The Offer will expire at 5:00 p.m., Eastern Time, on [____], 2007 (the
"Expiration Date"), unless extended as described herein. The Fund announced its
intention to make the Offer on July [____], 2007. The net asset value ("NAV")
per share of common stock at the close of business on July [____], 2007 and on
[____], 2007 [ex-rights date] was $[____] and $[____], respectively, and the
last reported sale price of a share of Common Stock on the NASDAQ Capital Market
on those dates was $[____] and $[____], respectively.

<PAGE>

The subscription price per share will be [__]% of the average volume-weighted
closing sale price at which the Common Stock trades on the NASDAQ Capital Market
on the Expiration Date and the four preceding trading days.

Once you subscribe for shares of Common Stock pursuant to the Offer and the Fund
receives payment or guarantee of payment, you will not be able to change your
investment decision.

The Fund is a non-diversified, closed-end management investment company
organized in the State of Maryland on March 10, 1992. 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 Netherlands Antilles, the
Commonwealth of Puerto Rico, Mexico, Honduras, Guatemala, Belize, Costa Rica,
Panama, Colombia, the United States and Venezuela. The Fund invests at least 80%
of its total assets in a broad range of securities of issuers, including
U.S.-based companies which engage in substantial trade with, and derive
substantial revenue from, operations in the Caribbean Basin Countries. 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.

Neither the Securities and Exchange Commission ("SEC") nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

            Estimated Subscription                          Estimated Proceeds
                   Price(1)          Estimated Sales Load     to the Fund(2)
            ----------------------   --------------------   ------------------
Per Share                                   None

Total                                       None

As a result of the terms of the Offer, Stockholders who do not fully exercise
their Rights, including the Over-Subscription Privilege described in the section
of this Prospectus entitled "The Offer--Over-Subscription Privilege," will, upon
the completion of the Offer, own a smaller proportional interest in the Fund
than they owned before the Offer. The Offer will result in either a dilution or
accretion of NAV for all Stockholders, whether or not they exercise some or all
of their Rights, because the Subscription Price per Share may be less than or
greater than the then-current NAV. The amount of dilution or accretion might be
significant. See "Risk Factors and Special Considerations" on page [____] of
this prospectus.

----------
      (1) Since the Subscription Price will not be determined until after
printing and distribution of this prospectus, the Subscription Price above is
estimated based on the closing price of a share of common stock of the Fund on
[_, 2007] and applying the pricing formula set forth on the cover page of this
prospectus and described below under "Subscription Price" (i.e., [_]% of the
average volume-weighted closing sales price of the Fund's shares on the NASDAQ
Capital Market on [_, 2007], and the four preceding trading days) (the
"Estimated Subscription Price"). The average weighted closing sales price of a
share the Fund's common stock on [_, 2007] was $______. See "Subscription Price"
and "Payment For Shares" below.

      (2) Proceeds to the Fund before deduction of expenses incurred by the Fund
in connection with the Offer which are estimated to be $_____. Amounts received
by check prior to the final dueH date of this Offer will be deposited in a
segregated interest-bearing account pending allocation and distribution of
Common Stock. Interest on subscription monies will be paid to the Fund
regardless of whether Common Stock is issued by the Fund.

<PAGE>

The employees of the Fund's Adviser and the Directors and officers of the Fund
may purchase Shares through the Primary Subscription and the Over-Subscription
Privilege on the same terms as other Stockholders.

This prospectus sets forth concisely certain information about the Fund that a
prospective investor should know before investing. Please read this prospectus
carefully before investing and keep it for future reference. All subscription
questions and inquiries relating to the Offer should be directed to State Street
Bank and Trust Company, P.O. Box 642, Mail Code OPS22, Boston, MA 02116 or by
calling the (617) 937-6870.

Copies of the Fund's Annual Report and Semi-Annual Report may be obtained, free
of charge, upon request by writing to The Herzfeld Caribbean Basin Fund, P.O.
Box 161465, Miami, FL 33116 or calling (800) TJH-FUND. Information about the
Fund can be also be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling the SEC at (202) 551-8090 or toll free at (800) 732-0330.
This information is also available on the EDGAR database on the SEC's internet
site at: http://www.sec.gov, and copies may be obtained, after paying a
duplicating fee, by electronic request at the following e-mail address:
publicinfo@sec.gov or by writing the Public Reference Section of the Securities
and Exchange Commission, 100 F Street, NE, Washington, D.C. 20549.

No dealer, salesperson or other person is authorized to give any information or
to represent anything not contained in this prospectus. You must not rely on any
unauthorized information or representations not contained in this prospectus as
if the fund had authorized it. The fund is offering to sell, and seeking offers
to buy, shares of common stock only in jurisdictions where offers and sales are
permitted. . This prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any security other than the shares of common
stock offered by this prospectus, nor does it constitute an offer to sell or the
solicitation of an offer to buy shares of common stock by anyone in any
jurisdiction in which such offer or solicitation would be unlawful. The
information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or any sale of
common stock.

<PAGE>

                                TABLE OF CONTENTS

PROSPECTUS SUMMARY.............................................................1
    The Offer..................................................................1
    Important Terms of the Offer...............................................1
    Important Dates for the Offer..............................................2
    Key Elements of the Offer..................................................2
    Information Regarding the Fund.............................................5
    Information Regarding the Adviser and Custodian............................5
    Risk Factors and Special Considerations....................................5
    Fee Table..................................................................7
FINANCIAL HIGHLIGHTS...........................................................8
THE FUND......................................................................10
    Share Price Data..........................................................10
THE OFFERING..................................................................11
    Terms of the Offer........................................................11
    Purpose of the Offer......................................................12
    Subscription Price........................................................14
    Over-Subscription Privilege...............................................14
    Expiration of the Offer...................................................15
    Subscription Agent........................................................15
    Method of Exercising Rights...............................................15
    Payment for Shares........................................................15
    Delivery of Stock Certificates............................................17
    Foreign Restrictions......................................................17
    Federal Income Tax Consequences Associated With the Offer.................17
    Employee Plan Considerations..............................................18
USE OF PROCEEDS...............................................................18
RISK FACTORS AND SPECIAL CONSIDERATIONS.......................................19
    Dilution of Net Asset Value and Effect of Non-Participation in the Offer..19
    Discount From Net Asset Value.............................................19
    Risks of Investing in Caribbean Basin Countries...........................20
        Geographic Concentration Risk.........................................21
        Foreign Securities Risk...............................................21
        Foreign Economy Risk..................................................21
        Currency Risk.........................................................21
        Governmental Supervision and Regulation/Accounting Standards..........22
        Certain Risks of Holding Fund Assets Outside the United States........22
        Settlement Risk.......................................................23
        Emerging Markets Risk.................................................23
INVESTMENT OBJECTIVE AND POLICIES.............................................24
    Investment Policies - General.............................................24
    Special Leverage Considerations...........................................25
        Hedging Transactions..................................................25
        Forward Foreign Currency Exchange Contracts...........................26
        Options on Foreign Currencies.........................................26
        Futures Contracts.....................................................27
        Options on Securities and Options on Indices..........................27
    Repurchase Agreements.....................................................28
    Debt Securities...........................................................29
    Securities Lending........................................................29
    Portfolio Turnover........................................................30
    Investment Restrictions...................................................30
MANAGEMENT OF THE FUND........................................................31
    Board of Directors........................................................31

<PAGE>

        Information About Directors and Officers..............................31
        Committees of the Board...............................................32
        Ownership of the Fund By Directors....................................33
    Investment Adviser and Portfolio Manager..................................34
        Investment Adviser....................................................34
        Portfolio Manager.....................................................34
    Investment Advisory Agreement.............................................35
    Benefit to the Adviser....................................................36
    Expenses of the Fund......................................................36
PORTFOLIO TRANSACTIONS AND BROKERAGE..........................................37
CODE OF ETHICS................................................................37
PROXY VOTING POLICIES AND PROCEDURES..........................................38
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS...............................38
DESCRIPTION OF COMMON STOCK...................................................38
    Share Repurchases and Tender Offers.......................................38
    Certain Provisions of Articles of Incorporation and Bylaws................40
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN.......................41
TAXATION......................................................................43
    Federal Taxation of the Fund and its Distributions........................44
    Sales of Shares...........................................................46
    Backup Withholding........................................................47
    Other Tax Considerations..................................................47
DETERMINATION OF NET ASSET VALUE..............................................47
CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND REGISTRAR...........48
LEGAL MATTERS.................................................................48
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.................................48
FINANCIAL STATEMENTS..........................................................48
APPENDIX A...................................................................A-1
APPENDIX B...................................................................B-1

<PAGE>

                               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 may not contain
all of the information that is important to you. To understand the Offer fully
you should read the entire document carefully, including the risk factors.

The Offer

The Board of Directors of the Fund (the "Board") has determined that it is in
the best interests of the Fund and its existing stockholders to increase the
assets of the Fund so that the Fund may be in a better position to take
advantage of investment opportunities that may arise. In addition, the Board
believes that increasing the size of the Fund may lower the Fund's expenses as a
proportion of average net assets because the Fund's fixed costs would be spread
over a larger asset base. There can be no assurance, however, that an increase
in the size of the Fund will lower the Fund's expense ratio. Also the Fund has
had significant gains in NAV, and has realized gains. For the calendar year
ended December 31, 2006, the Fund paid a large year-end distribution. In
addition, the recent announcement that Florida East Coast Industries, currently
the Fund's largest holding, will be acquired by Fortress Investment Group LLC
could result in significant realized gains for the current calendar year ending
December 31, 2007. Net realized gains of the Fund are required to be distributed
to stockholders in order to maintain the Fund's status as a "regulated
investment company" under Subchapter M of the Internal Revenue Code.
Accordingly, the Fund may be required to make a large distribution to
shareholders to maintain its status as a regulated investment company, thereby
reducing the net assets of the Fund. If successful, the Offer will allow the
Fund to make the required distributions without causing a reduction in the
amount of cash available for additional investment opportunities. The Board also
believes that a larger number of outstanding shares and a larger number of
beneficial owners of shares could increase the level of market interest in and
visibility of the Fund and improve the trading liquidity of the Fund's common
stock on the NASDAQ Capital Market. The Offer seeks to reward existing
stockholders by giving them the right to purchase additional shares at a price
below market without incurring any commission or other transaction charges. See
"Purpose of the Offer."

At a Board meeting held on May 16, 2007, the Board discussed at length with the
Adviser and counsel to the Fund the details of a proposed rights offering. At
that meeting, the Board approved a non-transferable rights offering, the
substantive terms of which would permit stockholders to acquire one new share of
the Fund for each Right held (i.e., a one-for-one rights offering) for a
subscription price equal to [____]% of the volume-weighted average market price
of a share of common stock on the Expiration Date and the four immediately
preceding trading days.

<PAGE>

Important Terms of the Offer

Total number of shares of Common Stock
available for primary subscription:.......  1,687,556

Number of Rights you will receive for each
outstanding share of Common Stock you own
on the Record Date:.......................  One Right for every one Share *

Number of shares of Common Stock you
may purchase with your Rights at the
Subscription Price per share..............  One share for every one Right **

Subscription Price:.......................  [__]% of the average volume-weighted
                                            sales price per share of the Fund's
                                            Common Stock on the NASDAQ Capital
                                            Market on [____], 2007 and the four
                                            preceding trading days.

Estimated Subscription Price..............  $[____]

*     The number of Rights to be issued to a stockholder on the Record Date will
      be rounded up to the nearest whole number of Rights; no fractional Rights
      will be issued.

**    Stockholders will be able to acquire additional shares of Common Stock
      pursuant to an over-subscription privilege in certain circumstances.

Important Dates for the Offer

Record Date:..............................  [____], 2007

Subscription Period:......................  [____], 2007 to [____], 2007

Expiration Date and Pricing Date:.........  [____], 2007*

Subscription Certificate and
         Payment for Shares Due**.........  [____], 2007*

Notice of Guaranteed Delivery Due**.......  [____], 2007*

Final Payment for Shares (if any) Due***..  [____], 2007*

Confirmation Mailed to Participants.......  [____], 2007*

*     Unless the Offer is extended.

**    Record Date Stockholders (defined below) exercising Rights must deliver to
      the Subscription Agent by the Expiration Date either (i) the Subscription
      Certificate together with the estimated payment or (ii) a Notice of
      Guaranteed Delivery.

***   Additional amounts may be due at settlement for additional shares
      purchased upon exercising Rights because the Estimated Subscription Price
      may be less than the actual Subscription Price. See "The Offer -- Payment
      for Shares."


                                       -2-

<PAGE>

Key Elements of the Offer

One-for-One Offering..........   The Offer will give stockholders on the Record
                                 Date ("Record Date Stockholders") the right to
                                 purchase one share of Common Stock for every
                                 one Right received. For example, if you own 100
                                 shares of common stock on the Record Date, you
                                 will receive 100 Rights entitling you to
                                 purchase 100 shares of Common Stock of the
                                 Fund. Stockholders may exercise all or some of
                                 their Rights. However, stockholders who do not
                                 exercise all of their Rights will not be able
                                 to participate in the Over-Subscription
                                 Privilege. See "Over-Subscription Privilege"
                                 below.

Non-Transferable Rights.......   The Rights issued in the Offer will be
                                 "non-transferable" and, therefore, may not be
                                 purchased or sold. Rights not exercised will
                                 expire without residual value at the Expiration
                                 Date. The Rights will not be listed for trading
                                 on the NASDAQ Capital Market or any other
                                 securities exchange. However, the shares of
                                 Common Stock to be issued pursuant to the Offer
                                 will be listed for trading on the NASDAQ
                                 Capital Market, subject to the NASDAQ Capital
                                 Market being officially notified of the
                                 issuance of those shares.

Dilution/Non-Participation
  in Offer:...................   Record Date Stockholders who do not fully
                                 exercise their Rights including the
                                 Over-Subscription Privilege described in the
                                 section of this Prospectus entitled "The
                                 Offer-Over-Subscription Privilege," will, at
                                 the completion of the Offer, own a smaller
                                 proportional interest in the Fund than if they
                                 exercised their Rights. If the Subscription
                                 Price per Share is below the then current NAV
                                 per share, stockholders will experience an
                                 immediate dilution of the aggregate NAV of
                                 their Shares if they do not participate in the
                                 Offer and will experience a reduction in the
                                 NAV per share whether or not they participate
                                 in the Offer. In contrast, Stockholders who
                                 fully exercise their rights and over-subscribe
                                 benefit from a slight accretion to the value of
                                 their shares to the extent the non-subscribing
                                 stockholders fail to fully exercise their
                                 rights.The Fund cannot state precisely the
                                 extent of this dilution (if any) if
                                 stockholders do not exercise their Rights
                                 because the Fund does not know what the NAV per
                                 share will be at the time of the Offer or what
                                 proportion of the Rights will be exercised.

                                 See "Risk Factors and Special Considerations-
                                 Dilution of Net Asset Value and Effect of
                                 Non-Participation in the Offer."

Subscription Price............   Shares of Common Stock issued upon exercise of
                                 Rights will be sold at a price equal to [____]%
                                 of the volume-weighted average closing sales
                                 price of a share of common stock on the NASDAQ
                                 Capital Market on the Expiration Date and the
                                 four preceding trading days. The Subscription
                                 Price is discussed further under "The
                                 Offer--Subscription Price." In addition,
                                 information with respect to the quarterly high
                                 and low sale prices of the Fund's Common Stock
                                 on the NASDAQ Capital Market and the
                                 corresponding NAVs per share of Common Stock is
                                 provided under "The "Fund."


                                       -3-

<PAGE>

Over-Subscription Privilege...   Each Record Date Stockholder who fully
                                 exercises all Rights issued to him is entitled
                                 to subscribe for shares which were not
                                 otherwise subscribed for by others in the
                                 primary subscription (the "Over-Subscription
                                 Privilege"). If enough shares are available,
                                 all of these requests will be honored in full.
                                 If these requests for shares exceed the shares
                                 available, the Fund may determine after the
                                 expiration of the Offer, at the discretion of
                                 the Fund, to issue additional Common Stock up
                                 to an amount equal to 100% of the shares
                                 available pursuant to the Offer (up to an
                                 additional [____] shares of Common Stock) in
                                 order to cover these requests. Regardless of
                                 whether the Fund issues such additional shares,
                                 to the extent shares are not available to honor
                                 all requests, the available shares will be
                                 allocated pro rata among those Record Date
                                 Stockholders who over-subscribe based on the
                                 number of Rights originally issued to them by
                                 the Fund.

Exercising Rights.............   Except as described below, subscription
                                 certificates evidencing the Rights
                                 ("Subscription Certificates") will be sent to
                                 Record Date Stockholders or their nominees.
                                 There is no minimum number of Rights which must
                                 be exercised for the Offer to close. If you
                                 wish to exercise your Rights, you may do so in
                                 the following ways:

                                 1.    Complete, sign and date the Subscription
                                       Certificate. Enclose it in the envelope
                                       provided, together with payment in full
                                       and mail or deliver the envelope to the
                                       Subscription Agent at the address
                                       indicated on the Subscription Certificate
                                       calculating the total payment on the
                                       basis of the Estimated Subscription Price
                                       of [____] per share (i.e., the estimated
                                       subscription price based on the Fund's
                                       market price on [____], 2007). Your
                                       Subscription Certificate and payment must
                                       be received by the Expiration Date.
                                       Payment pursuant to this method must be
                                       in United States dollars by money order
                                       or check drawn on a bank located in the
                                       United States and must be payable to The
                                       Herzfeld Caribbean Fund, Inc.

                                 2.    Contact your broker, banker or trust
                                       company, which can arrange, on your
                                       behalf, to guarantee delivery of payment
                                       and delivery of a properly completed and
                                       executed Subscription Certificate
                                       pursuant to a notice of guaranteed
                                       delivery ("Notice of Guaranteed
                                       Delivery") by the close of business on
                                       the third Business Day after the
                                       Expiration Date. For purposes of this
                                       prospectus, a "Business Day" shall mean
                                       any day on which trading is conducted on
                                       the NASDAQ Capital Market. A fee may be
                                       charged for this service. The Notice of
                                       Guaranteed Delivery must be received by
                                       the Expiration Date. Rights holders will
                                       have no right to rescind a purchase after
                                       the Subscription Agent has received the
                                       Subscription Certificate or Notice of
                                       Guaranteed Delivery. See "The
                                       Offer--Method of Exercising Rights" and
                                       "The Offer--Payment for Shares." The
                                       Subscription Agent will deposit all
                                       checks received by it prior to the final
                                       due date into a segregated interest
                                       bearing account at [____] pending
                                       distribution of the shares from the
                                       Offer. All interest will accrue to the
                                       benefit of the Fund and investors will
                                       not earn interest on payments submitted.


                                       -4-

<PAGE>

Restrictions on Foreign
Stockholders:.................   The Fund will not mail Subscription
                                 Certificates to stockholders whose record
                                 addresses are outside the United States or who
                                 have an APO or FPO address. Stockholders whose
                                 addresses are outside the United States or who
                                 have an APO or FPO address and who wish to
                                 subscribe to the Offer either partially or in
                                 full should contact the Subscription Agent by
                                 written instruction or recorded telephone
                                 conversation no later than three Business Days
                                 prior to the Expiration Date.

Purpose of the Offer:.........   The Board of the Fund has determined that it is
                                 in the best interests of the Fund and its
                                 stockholders to increase the assets of the Fund
                                 available for investment so that the Fund will
                                 be in a better position to take full advantage
                                 of investment opportunities. The Board believes
                                 that increasing the size of the Fund will
                                 increase the liquidity of the Fund's shares of
                                 Common Stock and also may reduce the Fund's
                                 expenses as a proportion of average net assets.
                                 The Offer also may allow the Fund to make
                                 capital gain distributions required to maintain
                                 its tax status as a regulated investment
                                 company without causing a reduction in the net
                                 assets of the Fund. Any such reduction will
                                 reduce the amount of cash available for
                                 additional investment opportunities.The Board
                                 also believes that a larger number of
                                 outstanding shares and a larger number of
                                 beneficial owners of shares could increase the
                                 level of market interest in and visibility of
                                 the Fund and improve the trading liquidity of
                                 the Fund's common stock on the NASDAQ Capital
                                 Market.

                                 In addition, the Offer seeks to reward the
                                 Fund's stockholders by giving them the right
                                 to purchase additional shares of Common Stock
                                 at a price that will be below the market price
                                 without incurring any direct transaction
                                 costs. The Offer will benefit both the Fund
                                 and its stockholders by providing the Fund
                                 with the ability to make additional investments
                                 without selling current investments if
                                 otherwise not desirable. Moreover, if the
                                 Subscription Price is greater than the NAV per
                                 share of Common Stock of the Fund on the
                                 Expiration Date (less offering expenses), the
                                 Offer will increase the NAV per share. See
                                 "The Offer--Purpose of the Offer."

Use of Proceeds:..............   The net proceeds of the Offer are estimated to
                                 be approximately [____]. This figure is based
                                 on the Estimated Subscription Price per share
                                 of $[____] and assumes all shares offered are
                                 sold and that the expenses related to the Offer
                                 estimated at approximately $[____] are paid.
                                 The Adviser anticipates that it will take no
                                 longer than six months for the Fund to invest
                                 these proceeds in accordance with its
                                 investment objective and policies under current
                                 market conditions. Pending investment, the
                                 proceeds will be invested in short-term
                                 cash-equivalent instruments. See "Use of
                                 Proceeds" below.


                                       -5-

<PAGE>

Information Regarding the Fund

The Herzfeld Caribbean Basin Fund, Inc. is a non-diversified, closed-end
management investment company organized in the State of Maryland on March 10,
1992. 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
includes, among others, of Cuba, Jamaica, Trinidad and Tobago, the Bahamas, the
Dominican Republic, Barbados, Aruba, Haiti, the Netherlands Antilles, the
Commonwealth of Puerto Rico, Mexico, Honduras, Guatemala, Belize, Costa Rica,
Panama, Colombia, the United States and Venezuela. The Fund invests at least 80%
of its total assets in a broad range of securities of issuers, including
U.S.-based companies, which engage in substantial trade with, and derive
substantial revenue from, operations in the Caribbean Basin Countries. See
"Investment Objective and Policies." 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.

As of [____], 2007, the Fund had 1,687,556 shares of common stock outstanding.
The Fund's common stock trades 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 fiscal year ended June 30, 2007 was approximately
91,544 shares. As of [____], 2007, the aggregate net assets of the Fund were
approximately [____].

Information Regarding the Adviser and Custodian

The Adviser has acted as the investment adviser to the Fund since the Fund's
inception in 1993. The Fund pays the Adviser a monthly fee at the annual rate of
1.45% of the Fund's average daily net assets. See "Management of the Fund -
Investment Adviser."

State Street Bank and Trust Company acts as custodian for the Fund's assets.
State Street Bank and Trust Company also serves as the Fund's transfer agent,
dividend/distribution disbursing agent, dividend reinvestment plan agent and as
registrar for the Fund's common stock. For its services as custodian, the Fund
currently pays State Street Bank and Trust Company a monthly fee of $4,500. For
its services as transfer agent, dividend reinvestment plan agent and registrar
for the Fund's common stock, the Fund currently pays State Street Bank and Trust
Company a monthly fee of $1,458 plus related expenses.

Risk Factors and Special Considerations

Dilution/Non-Participation
in Offer:                        Stockholders who do not fully exercise their
                                 Rights including the Over-Subscription
                                 Privilege described in the section of this
                                 Prospectus entitled "The
                                 Offer-Over-Subscription Privilege," will, at
                                 the completion of the Offer, own a smaller
                                 proportional interest in the Fund than if they
                                 exercised their Rights. If the Subscription
                                 Price per Share is below the then current NAV
                                 per share, stockholders will experience an
                                 immediate dilution of the aggregate NAV of
                                 their Shares if they do not participate in the
                                 Offer and will experience a reduction in the
                                 NAV per share whether or not they participate
                                 in the Offer. The Fund cannot state precisely
                                 the extent of this dilution (if any) if
                                 stockholders do not exercise their Rights
                                 because the Fund does not know what the NAV per
                                 share will be at the time of the Offer or what
                                 proportion of the Rights will be exercised. In
                                 contrast, Stockholders who fully exercise their
                                 rights and over-subscribe benefit from a slight
                                 accretion to the value of their shares to the
                                 extent the non-subscribing stockholders fail to
                                 fully exercise their rights. "Accretion" is the
                                 dilution experienced by the non-exercising
                                 stockholders less the pro-rata share of the
                                 offering expenses. Assuming, for example, that
                                 all Rights are exercised, the Estimated
                                 Subscription Price is [____] and the Fund's NAV
                                 per share is [____], the Fund's NAV per share
                                 (after payment of estimated offering expenses)
                                 would be reduced by approximately $[____] per
                                 share. See "Risk Factors and Special
                                 Considerations- Dilution of Net Asset Value and
                                 Effect of Non-Participation in the Offer"


                                       -6-

<PAGE>

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.

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.


                                      -7-

<PAGE>

                                 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 U.S. Internal Revenue Code
                                 of 1986, as amended (the "Code"), applicable to
                                 regulated investment companies. See "Risk
                                 Factors/Special Considerations" and "Taxation."

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" and "Taxation."

Certain Charter Provisions....   The Fund's Articles of Incorporation 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."


                                      -8-

<PAGE>

Fee Table

The following Fee Table is intended to assist prospective investors in
understanding the costs and expenses that an investor in the Offer will bear
directly or indirectly.

Stockholder Transaction Expenses:

Sales Load..................................................    None
Expenses of the Offer (as a percentage of offering price)...   [____] %
Dividend Reinvestment Plan Fees.............................    None

Annual Expenses (as a percentage of net assets):

  Management Fees...........................................    1.45%
  Other Expenses (1)........................................   [____] %
  Acquired Fund Fees and Expenses (2).......................   [____] %
    Total Annual Expenses...................................   [____] %

      (1)   "Other Expenses" does not include expenses of the Fund incurred in
            connection with the Offer, estimated at $__. 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 NAV of the shares of Common
            Stock.

      (2)   Fees and expenses incurred indirectly as a result of investment in
            shares of one or more "Acquired Funds," which include (i) investment
            companies, or (ii) companies that would be an investment company
            under Section 3(a) of the 1940 Act except for exceptions under
            Sections 3(c)(1) and 3(c)(7) under the 1940 Act.

                                            Cumulative Expenses Paid for the
                                                        Period of:
                                           ----------------------------------
Example                                    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 throughout the periods

The foregoing Fee Table and Example are intended to assist investors in
understanding the costs and expenses that an investor 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 [____]%. The tables above and the assumption in the
Example of a 5% annual return are required by U.S. Securities and Exchange
Commission (the "SEC") regulations applicable to all investment companies. The
Example 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 assumed for purposes of the Example. 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."


                                      -9-

<PAGE>

                              FINANCIAL HIGHLIGHTS

The table below sets forth selected data for a share of Common Stock outstanding
for each period presented. The information for the fiscal years ended June 30,
2007 and June 30, 2006 contained in the table has been audited by
[______________], the Fund's independent registered public accounting firm. The
information for the fiscal years ending prior to June 30, 2006 was audited by
[FORMER AUDITOR], the Fund's previous independent registered public accounting
firm. Audited financial statements for the Fund for the fiscal year ended June
30, 2007, are included in the Annual Report to stockholders. The Annual Report
to stockholders is available without charge on by calling (800) TJH-FUND.


<TABLE>
<CAPTION>
                                                        Year Ended June 30,
                                            ----------------------------------------------
                                             2007       2006     2005       2004     2003
                                            -------   -------   -------   -------   ------
<S>                                         <C>       <C>       <C>       <C>       <C>
Per Share Operating Performance
(For a share of capital stock
outstanding for each time period
indicated)
Net asset value, beginning
  of year                                             $  7.33   $  5.43   $  3.95   $ 3.92
                                            -------   -------   -------   -------   ------
Operations:
  Net investment loss(1)                                (0.16)    (0.09)    (0.07)   (0.11)
  Net realized and unrealized gain
    (loss) on investment transactions (1)                1.08      1.99      1.55     0.22
                                            -------   -------   -------   -------   ------
    Total from operations                                0.92      1.90      1.48     0.11
                                            -------   -------   -------   -------   ------
Distributions:
  From net investment income                               --        --        --       --
  From net realized gains                               (0.17)       --        --    (0.08)
                                            -------   -------   -------   -------   ------
    Total distributions                                 (0.17)       --        --    (0.08)
                                            -------   -------   -------   -------   ------
Net asset value, end of year                          $  8.08   $  7.33   $  5.43   $ 3.95
                                            =======   =======   =======   =======   ======
Per share market value, end of year                   $  7.57   $  6.30   $  4.87   $ 3.49
Total investment return (loss) based
  on market value per share                             22.86%    29.36%    39.54%    2.70%

Ratios And Supplemental Data
Net assets, end of year (in 000's)                    $13,553   $12,292   $ 9,109   $6,626
Ratio of expenses to average net assets                  3.37%     3.55%     3.67%    4.46%
Ratio of net investment loss to
  average net assets                                    (1.95)%   (1.47)%   (1.39)%  (3.15)%
Portfolio turnover rate                                    40%       30%       23%      30%
Average commission rate (per share)                    0.0424    0.0481    0.0473     0.05
</TABLE>

----------
(1)   Computed by dividing the respective period's amounts from the Statement of
      Operations by the average outstanding shares for each time period
      presented.


                                      -10-

<PAGE>

<TABLE>
<CAPTION>
                                                        Year Ended June 30,
                                          -----------------------------------------------
                                            2002      2001      2000     1999       1998
                                          -------   -------   -------   -------   -------
<S>                                       <C>       <C>       <C>       <C>       <C>
Per Share Operating Performance
(For a share of capital stock
outstanding for each time period
indicated)
Net asset value, beginning
  of period                               $  5.15   $  5.02   $  6.12   $  6.43   $  6.34
                                          -------   -------   -------   -------   -------
Operations:
  Net investment loss(1)                    (0.10)    (0.07)    (0.10)    (0.11)    (0.01)
  Net realized and unrealized gain
  (loss) on investment transactions (1)     (0.98)     0.20     (1.00)     0.51      0.54
                                          -------   -------   -------   -------   -------
    Total from operations                   (1.08)     0.13     (1.10)     0.40      0.53
                                          -------   -------   -------   -------   -------
Distributions:
  From net investment income                (0.10)       --        --        --        --
  From net realized gains                   (0.05)       --        --     (0.71)    (0.44)
                                          -------   -------   -------   -------   -------
    Total distributions                     (0.15)       --        --     (0.71)    (0.44)
                                          -------   -------   -------   -------   -------
Net asset value, end of period            $  3.92   $  5.15   $  5.02   $  6.12   $  6.43
                                          =======   =======   =======   =======   =======
Per share market value, end of period     $  3.48   $  4.20   $  5.06   $  6.00   $  6.00
Total investment return (loss) based
  on market value per share                (13.45)%  (17.04)%  (15.63)%   11.83%    23.54%

Ratios And Supplemental Data
Net assets, end of period (in 000's)      $ 6,568   $ 8,643   $ 8,424   $10,272   $10,784
Ratio of expenses to average net assets      3.77%     3.11%     3.11%     3.30%     3.21%
Ratio of net investment loss to
  average net assets                        (2.45)%   (1.33)%   (1.76)%    (1.95)%   (0.14)%
Portfolio turnover rate                        18%       27%       10%       59%       40%
</TABLE>


                                      -11-

<PAGE>

                                    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 on March 10, 1992, and registered under the Investment Company Act of
1940 (the "1940 Act"). The Fund is designed for investors seeking long-term
capital appreciation. The Fund seeks to achieve its objective primarily by
investing in issuers that are likely, in the opinion of the Adviser, to benefit
from political, legal and economic developments in Cuba and the Caribbean Basin.
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". The Fund maintains its principal offices at The
Herzfeld Building, P.O. Box 161465, Miami, Florida 33116. No assurance can be
given that the Fund's investment objective will be achieved.

The Fund's investment adviser is HERZFELD/CUBA, a division of Thomas J. Herzfeld
Advisors, Inc., a Miami-based U.S. investment adviser.

As of the Record Date, the Fund had 1,687,556 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 fiscal year
ended June 30, 2007 was approximately 91,544 shares. As of [____], 2007, the
aggregate net assets of the Fund were approximately [____], the NAV per share
was [____], the share price was [____], and the premium was [____]%.
Historically, the Fund's common stock has traded at both premiums and discounts
to its NAV.

The following table sets forth, for the periods indicated, the high and low
closing sales prices for the shares on the NASDAQ Capital Market, the NAVs per
share on the date of the high and low closing sales prices, and the discount or
premium that each sales price represented as a percentage of the preceding NAV:

Share Price Data

<TABLE>
<CAPTION>
                          NAV       Premium/Discount               NAV        Premium/Discount
 Quarter      High     (on High      (on High Close     Low      (on Low       (on Low Close
   Ended     Close    Close Date)        Date)         Close    Close date)        Date)
----------   ------   -----------   ----------------   ------   -----------   ----------------
<S>          <C>         <C>              <C>          <C>         <C>            <C>

6/30/2007    $14.34      $9.66             48.45%      $10.20      $8.70           17.24%
3/31/2007    $17.40      $8.15            113.50%      $11.15      $8.08           38.00%
12/31/2006   $16.25      $8.07            101.36%      $ 7.75      $8.17           -5.14%
9/30/2006    $ 8.81      $7.61             15.77%      $ 7.05      $7.55           -6.62%
6/30/2006    $ 8.36      $8.83             -5.32%      $ 7.20      $8.07          -10.78%
3/31/2006    $ 8.25      $8.91             -7.41%      $ 7.41      $8.13           -8.86%
12/31/2005   $ 8.46      $8.02              5.49%      $ 6.35      $7.53          -15.67%
9/30/2005    $ 7.25      $7.66             -5.35%      $ 6.15      $7.37          -16.55%
6/30/2005    $ 6.39      $7.31            -12.59%      $ 5.47      $6.61          -17.25%
3/31/2005    $ 6.44      $6.91             -6.80%      $ 5.76      $6.67          -13.64%
</TABLE>


                                      -12-

<PAGE>

                                  THE OFFERING

Terms of the Offer

The Fund is issuing to its holders of common stock on the Record Date ("Record
Date Stockholders") Rights to subscribe for additional shares of the Fund's
common stock as of the close of business on [____], 2007 (the "Record Date").
Each Record Date Stockholder will receive one non-transferable Right for each
share of common stock owned on the Record Date. The Rights entitle the holder to
acquire one share of common stock at the Subscription Price for every one Right
held.

Rights may be exercised at any time during the period which commences on [____],
2007, and ends at 5:00 p.m., Eastern Time, on [____], 2007 (the "Subscription
Period"), unless extended by the Fund to a date not later than [____], at 5:00
p.m., Eastern Time. See "Expiration of the Offer" below. The right to acquire
one additional share of Common Stock for every one Right held during the
Subscription Period at the Subscription Price is herein after referred to as the
"Primary Subscription."

In addition, any Record Date Stockholder who fully exercises all Rights
initially issued to him is entitled to subscribe for shares which were not
otherwise subscribed for by others in the Primary Subscription (the
"Over-Subscription Privilege"). If enough shares are available, all of these
requests will be honored in full. If these requests for shares exceed the shares
available, the Fund may determine after the expiration of the Offer, in the
discretion of the Fund, to issue additional Common Stock up to an amount equal
to 100% of the Shares available pursuant to the Offer (up to an additional
[____] shares of Common Stock) in order to cover these requests, provided that
the Fund's per share NAV on the Expiration Date is equal to or less than the
Subscription Price. Regardless of whether the Fund issues such additional Common
Stock, to the extent shares are not available to honor all requests, the
available shares will be allocated pro rata among those Record Date Stockholders
who over-subscribe based on the number of Rights originally issued to them by
the Fund.

In the event that the Fund, in its sole discretion, issues additional Common
Shares in an amount of up to 100% of the Primary Subscription Shares (the
"Secondary Over-Subscription Shares") for purposes of determining the maximum
number of shares a Record Date Stockholder may acquire pursuant to the Offer,
broker-dealers whose shares are held of record by Cede, as nominee for The
Depository Trust Company, or by any other depository or nominee, will be deemed
to be the holders of the Rights that are issued to Cede or such other depository
or nominee on their behalf. Shares acquired pursuant to the Over-Subscription
Privilege are subject to allotment, which is more fully discussed below under
"Over-Subscription Privilege."

Officers of the Adviser have indicated to the Fund that the Affiliated Parties,
as Record Date Stockholders, have been authorized to purchase Common Stock
through the Primary Subscription and the Over-Subscription Privilege to the
extent the Common Stock becomes available to it in accordance with the Primary
Subscription and the allotment provisions of the Over-Subscription Privilege.
Such over-subscriptions by the Affiliated Parties may disproportionately
increase their already existing ownership resulting in a higher percentage
ownership of outstanding shares of the Fund. Any Common Stock acquired in the
Offer by the Affiliated Parties as "affiliates" of the Fund, as that term is
defined under the Securities Act of 1933 (the "Securities Act"), may only be
sold in accordance with Rule 144 under the Securities Act or another applicable
exemption or pursuant to an effective registration statement under the
Securities Act. In general, under Rule 144, as currently in effect, an
"affiliate" of the Fund is entitled to sell, within any three-month period, a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of common stock or the average weekly reported trading volume of the
common stock during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain restrictions on the manner of sale, to
notice requirements and to the availability of current public information about
the Fund.


                                      -13-

<PAGE>

Rights will be evidenced by certificates ("Subscription Certificates"). The
number of Rights issued to each Record Date Stockholder will be stated on the
Subscription Certificate delivered to the holder. The method by which Rights may
be exercised and shares paid for is set forth below in "Method of Exercising
Rights" and "Payment for Shares." A Rights holder will have no right to rescind
a purchase after the Subscription Agent has received payment. See "Payment for
Shares" below.

The Rights are non-transferable and, therefore may not be purchased or sold.
Rights not exercised will expire without residual value at the Expiration Date.
The Rights will not be listed for trading on the NASDAQ Capital Market or any
other securities exchange. Common Stock issued pursuant to an exercise of Rights
will be listed and available for trading on the NASDAQ Capital Market.

There is no minimum number of Rights which must be exercised in order for the
Offer to close.

Purpose of the Offer

The Board has determined that it is in the best interests of the Fund and its
existing stockholders to increase the assets of the Fund so that the Fund may be
in a better position to take advantage of investment opportunities that may
arise. Without additional capital, the Fund is limited in its ability to take
advantage of new investment opportunities. The only practical means of
increasing the Fund's assets available for investment other than through the
Offer would be through the sale of portfolio securities, which could subject the
Fund to certain adverse tax consequences under the Code.

The Offer affords the Fund a means of increasing its assets available for
investment without requiring the sale of portfolio securities at a time when it
would not be desirable to do so. The Offer will permit the Fund to take
advantage of investment opportunities as they arise, without necessarily having
to liquidate Fund holdings to raise cash. When the Adviser identifies an
investment opportunity, it wants to be able to take advantage of it quickly and
make investments, without having to sell current holdings in the process. The
Adviser believes that having the cash resources available to make new
investments without liquidating current portfolio holdings will allow the
investment adviser to more fully implement its investment strategy in pursuit of
the Fund's investment objective

In addition, the Board believes that increasing the size of the Fund may lower
the Fund's expenses as a proportion of average net assets because the Fund's
fixed costs would be spread over a larger asset base. As a fund's assets
decrease, its expense ratio (i.e., the ratio of expenses to fund assets) will
increase. This occurs because funds have certain fixed costs (e.g., fidelity
bond insurance, D&O liability insurance, legal fees, custodian fees, transfer
agent fees, accounting fees, regulatory filing fees etc.) which are not charged
in proportion to a fund's size. As a fund gets smaller, these fixed costs are
spread over fewer assets, thus resulting in a higher expense ratio. The opposite
occurs as a fund's assets increase, that is, the fixed costs are spread across a
larger asset base thus resulting in a lower expense ratio. There can be no
assurance, however, that an increase in the size of the Fund will lower the
Fund's expense ratio.


                                      -14-

<PAGE>

Also the Fund has had significant gains in NAV, and has realized gains. For the
calendar year ended December 31, 2006, the Fund paid a large year-end
distribution. In addition, the recent announcement that Florida East Coast
Industries, currently the Fund's largest holding, will be acquired by Fortress
Investment Group LLC could result in significant realized gains for the current
calendar year ending December 31, 2007. Net realized gains of the Fund are
required to be distributed to stockholders in order to maintain the Fund's
status as a "regulated investment company" under Subchapter M of the Internal
Revenue Code. Accordingly, the Fund may be required to make a large distribution
to shareholders to maintain its status as a regulated investment company,
thereby reducing the net assets of the Fund. If successful, the Offer will allow
the Fund to make the required distributions without causing a reduction in the
amount of cash available for additional investment opportunities.

The Board also believes that a larger number of outstanding shares and a larger
number of beneficial owners of shares could increase the level of market
interest in and visibility of the Fund and improve the trading liquidity of the
Fund's common stock on the NASDAQ Capital Market. If the Offer is successful,
the larger number of shares of common stock outstanding after the Offer should
help create a more efficient and active market for the Fund's shares and reduce
the effect of individual transactions on market price, all of which are believed
generally to increase liquidity.

The Offer seeks to reward existing stockholders by giving them the right to
purchase additional shares at a price below market without incurring any
commission or other transaction charges that they would normally incur when
buying shares in the market.

The Board considered, among other things, advice by the Investment Adviser,
using fixed pricing versus variable pricing for the Offer, the benefits and
drawbacks of conducting a non-transferable versus a transferable rights offering
and the effect on the Fund if the Offer is undersubscribed. The Board also
considered the extent to which the Adviser will benefit from the 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 the Offer because the proceeds of the Offer will be
invested in additional portfolio securities which will fluctuate in value. In
addition, the Board determined to proceed with the offer of rights after having
considered the dilutive effects of the offering on stockholders who are
unwilling or unable to fully exercise their rights, as well as the alternatives
of a secondary offering. The Board has voted unanimously to approve the terms of
the Offer as set forth in this Prospectus.


                                      -15-

<PAGE>

It should be further understood by investors that the Fund's Adviser will
benefit from the Offer because the Adviser's fee is based on the average net
assets of the Fund. See "Management of the Fund." It is impossible to state
precisely the amount of additional compensation the Adviser will receive as a
result of the Offer because the proceeds of the Offer will be invested in
additional portfolio securities which will fluctuate in value. However, assuming
all Rights are exercised at the Estimated Subscription Price of $____, the
annual compensation to be received by the Adviser would be increased by
approximately $[____].

The Fund may, in the future and at its discretion, choose to make additional
rights offerings from time to time for a number of shares and on terms which may
or may not be similar to the 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 Securities and Exchange
Commission 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 the Board that such
offering would result in a net benefit to existing stockholders.

Subscription Price

The Subscription Price for the shares of Common Stock issued in the Offer will
be a price equal to [____]% of the volume-weighted average closing sales price
of a share of common stock on the NASDAQ Capital Market on the Expiration Date
and the four preceding trading days. Stockholders who exercise their Rights will
have no right to rescind a purchase after receipt of their completed
Subscription Certificates for Shares by the Subscription Agent. The Fund does
not have the right to withdraw the Offer after the Rights have been distributed.

The Fund announced its intention to make the Offer on [____], 2007. The NAV per
share of common stock at the close of business on [____], 2007 [the announcement
date] and on [____], 2007 [ex-rights or Record Date] was $[____] and $[____],
respectively, and the last reported sale price of a share of Common Stock on the
NASDAQ Capital Market on those dates was $[____] and $[____], respectively.

Over-Subscription Privilege

If some Record Date Stockholders do not exercise all of the Rights initially
issued to them to purchase Common Stock of the Fund, those Record Date
Stockholders who have exercised all of the Rights initially issued to them will
be offered, by means of the Over-Subscription Privilege, the right to acquire
more than the number of shares for which the Rights issued to them are
exercisable. Record Date Stockholders who exercise all the Rights initially
issued to them will have the opportunity to indicate on the Subscription
Certificate how many shares of Common Stock they are willing to acquire pursuant
to the Over-Subscription Privilege. In addition, if the Fund's NAV per share on
the Expiration Date is equal to or less than the Subscription Price, the Fund,
in its sole discretion, can issue additional Common Shares in an amount of up to
100% of the Primary Subscription Shares (the "Secondary Over-Subscription
Shares").


                                      -16-

<PAGE>

If sufficient Primary Subscription Shares remain after the Primary Subscriptions
have been exercised, all over-subscriptions will be honored in full. If
sufficient Primary Subscription Shares are not available to honor all
subscription requests, the available Common Shares will be allocated among those
Record Date Stockholders who over-subscribe based on the number of Rights
originally issued to them by the Fund. Should the Fund determine to issue some
or all of the Secondary Over-Subscription Shares, they will be allocated only
among Record Date Stockholders that submitted over-subscription requests.
Secondary Over-Subscription Shares will be allocated pro rata among those fully
exercising Record Date Stockholders who over-subscribe based on the number of
Rights originally issued to them by the Fund. Any Secondary Over-Subscription
Shares issued by the Fund, collectively with any Primary Subscription Shares not
subscribed through the Primary Subscription, will be referred to in this
Prospectus as the "Excess Shares."

The percentage of Excess Shares each over-subscribing Record Date Stockholder
may acquire will be rounded down to result in delivery of whole Common Shares;
provided, however, that if a pro rata allocation results in any holder being
allocated a greater number of Excess Shares than the holder subscribed for
pursuant to the exercise of such holder's Over-Subscription Privilege, then such
holder will be allocated only such number of Excess Shares as such holder
subscribed for and the remaining Excess Shares will be allocated among all other
holders then entitled to receive Excess Shares whose over-subscription requests
have not been fully honored. The allocation process may be iterative in order to
assure that the total number of Excess Shares is distributed in accordance with
the method described above.

The formula to be used in allocating the Excess Shares is as follows:

       Stockholder's Record Date Position
----------------------------------------------------- X Excess Shares Remaining
 Total Record Date Position of All Over-Subscribers

The Fund will not offer or sell any shares which are not subscribed for under
the Primary Subscription or the Over-Subscription Privilege.

Expiration of the Offer

The Offer will expire at 5:00 p.m., Eastern Time, on the Expiration Date
([____], 2007), unless extended by the Fund to a date not later than [____], at
5:00 p.m., Eastern Time (the "Extended Expiration Date"). Rights will expire on
the Expiration Date (or Extended Expiration Date as the case may be) and
thereafter may not be exercised.

Subscription Agent

The Subscription Agent is Colbent Corporation, 161 Bay State Drive, Braintree,
MA 02184.

Stockholders may also contact the Fund for information about the Offer by
writing to The Herzfeld Caribbean Basin Fund, P.O. Box 161465, Miami, FL 33116
or calling (800) TJH-FUND. Stockholders may also contact their brokers or
nominees for information with respect to the Offer.


                                      -17-

<PAGE>

Method of Exercising Rights

Rights may be exercised by filling in and signing the Subscription Certificate
and mailing it in the envelope provided, or otherwise delivering the completed
and signed Subscription Certificate to the Subscription Agent, together with
payment of the Estimated Subscription Price for the Shares as described below
under "Payment for Shares." Rights holders may also exercise Rights by
contacting a broker, bank or trust company who can arrange, on behalf of the
Rights holder, to guarantee delivery of payment and of a properly completed and
executed Subscription Certificate. A fee may be charged for this service.
Completed Subscription Certificates and full payment for the Shares subscribed
for must be received by the Subscription Agent prior to 5:00 p.m., Eastern Time,
on the Expiration Date (unless payment is effected by means of a notice of
guaranteed delivery as described below under "Payment for Shares") at the office
of the Subscription Agent at the addresses set forth above.

Qualified financial institutions that hold Shares as nominee for the account of
others should notify the respective beneficial owners of such Shares as soon as
possible to ascertain such beneficial owners' intentions and to obtain
instructions with respect to the Rights. For purposes of this Prospectus,
"Qualified Financial Institution" shall mean a registered broker-dealer,
commercial bank or trust company, securities depository or participant therein,
or nominee thereof. If the beneficial owner so instructs, the nominee should
complete the Subscription Certificate and submit it to the Subscription Agent
with the proper payment. In addition, beneficial owners of Common Stock or
Rights held through such a nominee should contact the nominee and request the
nominee to effect transactions in accordance with the beneficial owners'
instructions.

Stockholders who are registered holders can choose between either option set
forth under "Payment for Shares" below.

Payment for Shares

Payment for shares shall be calculated by multiplying the Estimated Subscription
Price of $[____] per share times the sum of (i) the number of Rights held and
intended to be exercised in the Primary Subscription, plus (ii) the number of
additional shares for which a stockholder wishes to over-subscribe under the
Over-Subscription Privilege. For example, if a stockholder receives 100 Rights
and wishes to subscribe for 100 shares of Common Stock in the Primary
Subscription, and also wishes to over-subscribe for 50 additional shares
pursuant to the Over-Subscription Privilege, he, she or it would send in [____]
x 100 plus ([____]) x 50. Rights holders who wish to acquire shares in the
Primary Subscription or pursuant to the Over-Subscription Privilege may choose
between the following methods of payment:

a.    Notice of Guaranteed Delivery and Subscription Certificate (with payment)
      sent separately. If, prior to 5:00 p.m., Eastern Time, on the Expiration
      Date, the Subscription Agent shall have received a notice of guaranteed
      delivery by telegram or otherwise, from a bank or trust company or a NYSE
      member firm guaranteeing delivery of (i) payment of the Estimated
      Subscription Price of $ [____] per share for the shares subscribed for in
      the Primary Subscription and any additional shares subscribed for pursuant
      to the Over-Subscription Privilege and (ii) a properly completed and
      executed Subscription Certificate, the subscription will be accepted by
      the Subscription Agent. The Subscription Agent will not honor a notice of
      guaranteed delivery unless a properly completed and executed Subscription
      Certificate is received by the Subscription Agent prior to 5:00 p.m.,
      Eastern Time, on the third Business Day after the Expiration Date (the
      "Protection Period").


                                      -18-

<PAGE>

b.       Subscription Certificate sent with Payment. Alternatively, a
         stockholder can, together with the properly completed and executed
         Subscription Certificate, send payment for the shares acquired in the
         Primary Subscription and any additional shares subscribed for pursuant
         to the Over-Subscription Privilege, to the Subscription Agent based on
         the Estimated Subscription Price of $[____] per share. To be accepted,
         such payment, together with the Subscription Certificate, must be
         received by the Subscription Agent prior to 5:00 p.m., Eastern Time, on
         the Expiration Date.

Any excess payment will be refunded to the stockholder to the extent that
additional shares are unavailable.

A PAYMENT, PURSUANT TO THE SECOND METHOD DESCRIBED ABOVE, MUST ACCOMPANY ANY
SUBSCRIPTION CERTIFICATE FOR SUCH SUBSCRIPTION CERTIFICATE TO BE ACCEPTED.

Within ten (10) Business Days following the completion of the Protection Period
(the "Confirmation Date"), a confirmation will be sent by the Subscription Agent
to each stockholder (or, if the Fund's shares on the Record Date are held by
Cede or any other depository or nominee, to Cede or such other depository or
nominee). The confirmation will show (i) the number of shares acquired pursuant
to the Primary Subscription; (ii) the number of shares, if any, acquired
pursuant to the Over-Subscription Privilege; (iii) the Subscription Price and
total purchase price for the shares; and (iv) any additional amount payable by
such stockholder to the Fund (e.g., if the Estimated Subscription Price was less
than the Subscription Price on the Pricing Date) or any excess to be refunded by
the Fund to such stockholder (e.g., if the Estimated Subscription Price was more
than the Subscription Price on the Pricing Date). Any additional payment
required from a stockholder must be received by the Subscription Agent prior to
5:00 p.m., Eastern Time, on the tenth Business Day after the Confirmation Date,
and any excess payment to be refunded by the Fund to such stockholder will be
mailed by the Subscription Agent within ten (10) Business Days after the
Confirmation Date. All payments by a stockholder must be made in United States
Dollars by money order or by checks drawn on banks located in the Continental
United States payable to "The Herzfeld Caribbean Basin Fund, Inc."

Whichever of the above two methods is used, issuance and delivery of
certificates for the shares of Common Stock subscribed for are subject to
collection of funds and actual payment pursuant to any notice of guaranteed
delivery.

The Subscription Agent will deposit all checks received by it prior to the final
due date into a segregated interest bearing account pending distribution of the
shares from the Offer. All interest will inure to the benefit of the Fund and
investors will not earn interest on payments submitted.


                                      -19-

<PAGE>

YOU WILL HAVE NO RIGHT TO RESCIND YOUR SUBSCRIPTION AFTER THE SUBSCRIPTION AGENT
HAS RECEIVED THE SUBSCRIPTION CERTIFICATE OR NOTICE OF GUARANTEED DELIVERY.

If a holder of Rights who acquires shares pursuant to the Primary Subscription
or the Over-Subscription Privilege does not make payment of any amounts due, the
Fund reserves the right to take any or all of the following actions: (i) find
other stockholders or Rights holders to purchase such subscribed-for and
unpaid-for shares; (ii) apply any payment actually received by it toward the
purchase of the greatest whole number of shares which could be acquired by such
holder upon exercise of the Primary Subscription or the Over-Subscription
Privilege; (iii) sell all or a portion of the shares purchased by the holder in
the open market, and apply the proceeds to the amounts owed; and (iv) exercise
any and all other rights or remedies to which it may be entitled, including,
without limitation, the right to set off against payments actually received by
it with respect to such subscribed shares and to enforce the relevant guaranty
of payment.

Holders who hold shares of common stock for the account of others, such as
brokers, trustees or depositaries for securities, should notify the respective
beneficial owners of the shares as soon as possible to ascertain the beneficial
owners' intentions and to obtain instructions with respect to the Rights. If the
beneficial owners so instruct, the record holder of the Rights should complete
Subscription Certificates and submit them to the Subscription Agent with the
proper payment. In addition, beneficial owners of common stock or Rights held
through such a holder should contact the holder and request the holder to effect
transactions in accordance with the beneficial owner's instructions.

The instructions accompanying the Subscription Certificates should be read
carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO THE
FUND.

The method of delivery of Subscription Certificates and payment of the
Subscription Price to the Subscription Agent will be at the election and risk of
the Rights holders, but if sent by mail it is recommended that the Subscription
Certificates and payments be sent by registered mail, properly insured, with
return receipt requested, and that a sufficient number of days be allowed to
ensure delivery to the Subscription Agent and clearance of payment prior to 5:00
p.m., Eastern Time, on the Expiration Date. Because uncertified personal checks
may take at least five Business Days to clear, you are strongly urged to pay, or
arrange for payment, by means of a certified or cashier's check or money order.

All questions concerning the timeliness, validity, form and eligibility of any
exercise of Rights will be determined by the Fund, whose determinations will be
final and binding. The Fund in its sole discretion may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any Right.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as the Fund determines
in its sole discretion. Neither the Fund nor the Subscription Agent will be
under any duty to give notification of any defect or irregularity in connection
with the submission of Subscription Certificates or incur any liability for
failure to give such notification.


                                      -20-

<PAGE>

Delivery of Stock Certificates

Stock certificates representing shares purchased pursuant to the Primary
Subscription will be delivered to subscribers as soon as practicable after the
corresponding Rights have been validly exercised and full payment for the shares
has been received and cleared. Stock certificates representing shares purchased
pursuant to the Over-Subscription Privilege will be delivered to subscribers as
soon as practicable after the Expiration Date and after all allocations have
been effected.

Foreign Restrictions

Subscription Certificates will only be mailed to Record Date Stockholders whose
addresses are within the United States (other than an APO or FPO address).
Record Date Stockholders whose addresses are outside the United States or who
have an APO or FPO address and who wish to subscribe to the Offer either in part
or in full should contact the Subscription Agent, Colbent Corporation, by
written instruction or recorded telephone conversation no later than three
Business Days prior to the Expiration Date. The Fund will determine whether the
Offer may be made to any such stockholder.

Federal Income Tax Consequences Associated With the Offer

The following discussion describes certain United States Federal income tax
consequences of the Offer generally applicable to citizens or residents of the
United States and U.S. trusts, estates, corporations and any other person who is
generally subject to U.S. Federal income tax ("U.S. Stockholders"). This summary
is intended to be descriptive only and does not purport to be a complete
analysis or listing of all potential tax effects relevant to the ownership of
Rights or Common Stock. It assumes that each U.S. Stockholder holds Common Stock
as a capital asset. Additionally, this summary does not specifically address the
U.S. Federal income tax consequences that might be relevant to holders of Rights
or Common Stock entitled to special treatment under the U.S. Federal income tax
laws, such as individual retirement accounts and other tax deferred accounts,
financial institutions, life insurance companies and tax-exempt organizations,
and does not discuss the effect of state, local and other tax laws. Further,
this summary is based on interpretations of existing law as of the date of this
Prospectus as contained in the Code, applicable current and proposed Treasury
Regulations, judicial decisions and published administrative positions of the
Internal Revenue Service, all of which are subject to change either
prospectively or retroactively.

1.    U.S. Stockholders who receive Rights pursuant to the Offer should not
      recognize taxable income for U.S. Federal income tax purposes upon their
      receipt of the Rights. If Rights issued to a U.S. Stockholder expire
      without being exercised, no basis should be allocated to such Rights, and
      such Stockholder should not recognize any gain or loss for U.S. Federal
      income tax purposes upon such expiration.

2.    The tax basis of a U.S. Stockholder's Common Stock should remain unchanged
      and the stockholder's basis in the Rights should be zero, unless such U.S.
      Stockholder affirmatively and irrevocably elects (in a statement attached
      to such stockholder's U.S. Federal income tax return for the year in which
      the Rights are received) to allocate the basis in the Common Stock between
      such Common Stock and the Rights in proportion to their respective fair
      market values on the date of distribution.

3.    A U.S. Stockholder who exercises Rights should not recognize any gain or
      loss for U.S. Federal income tax purposes upon the exercise. The tax basis
      of the newly acquired Common Stock should equal the Subscription Price
      paid for the Common Stock (plus the basis, if any, allocated to the Rights
      in the manner described in the immediately preceding paragraph). The
      holding period for Common Stock acquired upon the exercise of Rights
      should begin on the date of exercise of the Rights.

4.    Each U.S. Stockholder is urged to consult his or her own tax adviser with
      respect to the specific Federal, state and local tax consequences to such
      U.S. Stockholder of receiving Rights in this offer.

Employee Plan Considerations

Stockholders that are employee benefit plans subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") (including corporate savings
and 401(k) plans), Keogh or H.R. 10 plans of self-employed individuals and
Individual Retirement Accounts ("IRAs") (collectively, "Plans") should be aware
of the complexity of the rules and regulations governing Plans and the penalties
for noncompliance, and Plans should consult with their counsel regarding the
consequences of their exercise of Rights under ERISA and the Internal Revenue
Code of 1986, as amended (the "Code").


                                      -21-

<PAGE>

                                 USE OF PROCEEDS

The net proceeds of the Offer, assuming the Offer is fully subscribed, are
estimated to be approximately $____million, based on an Estimated Subscription
Price of $[____]per share, and after deducting expenses related to the Offer
estimated at approximately $[____]. The foregoing estimate of the net proceeds
of the Offer is based on the closing price of the Fund's shares on [____], 2007.
Accordingly, the assumptions and projections contained in this prospectus are
subject to change significantly depending on changes in market conditions for
the Fund's shares and performance of the Fund's portfolio. The Fund will invest
the net proceeds of the Offer in accordance with its investment objective and
policies. The Adviser anticipates that the proceeds will be invested promptly as
investment opportunities are identified, depending on market conditions and the
availability of appropriate securities, and it is anticipated to take not more
than approximately six months. Pending investment, the proceeds will be invested
in short-term cash-equivalent instruments.

                     RISK FACTORS AND SPECIAL CONSIDERATIONS

Investing in the Fund's common stock provides an equity ownership interest in
the Fund. Investing in any investment company security involves 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. Therefore, before investing, Stockholders should consider carefully
the following risks that are assumed when investing in the Fund through the
Offer.

Dilution of Net Asset Value and Effect of Non-Participation in the Offer

If a Stockholder does not exercise all of his Rights, the Stockholder will
likely own a smaller proportional interest in the Fund when the Offer is over
(i.e., proportional dilution). In addition, whether or not a Stockholder
exercises his Rights, because the Subscription Price (and net proceeds to the
Fund) may be below the Fund's NAV per share on the Expiration Date the per share
net asset value of a Stockholder's shares may be diluted (reduced) immediately
as a result of the Offer (i.e., economic dilution).

In other words, a Stockholder may experience economic dilution in addition to
proportional dilution because:

      o     The Subscription Price per share is [____]% of the average
            volume-weighted closing sales price of a share of common stock on
            the NASDAQ Capital Market on the Pricing Date and the four
            immediately preceding trading days (which may be lower than the
            NAV);

      o     All Stockholders will indirectly bear the expenses of the Offer; and


                                      -22-

<PAGE>

      o     the number of shares outstanding after the Offer will have increased
            proportionately more than the increase in the size of the Fund's net
            assets

The Fund cannot state precisely the amount of any dilution/accretion because it
is not known at this time (i) what the average volume-weighted closing sale
price of a share on the NASDAQ Capital Market will be on the Pricing Date and
the four immediately preceding trading days, or (ii) what proportion of the
Rights will be exercised.

The impact of the Offer on NAV per share is shown by the following example,
assuming a Subscription Price of $[____], full primary and over-subscription
privilege exercise and $[____] in expenses related to the Offer.

            Net Asset Value ("NAV")          $[____]
            Subscription Price               $[____]
            [Increase/Reduction] in NAV ($)  $[____]
            [Increase/Reduction] in NAV (%)   [____]%

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 (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. 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.

Risks of Investing in Caribbean Basin Countries

The economies of Caribbean Basin Countries have in the past experienced
considerable difficulties, including high inflation rates and high interest
rates. 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 some Caribbean Basin Countries have experienced steady
devaluations relative to the U.S. Dollar and certain Caribbean Basin Countries
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.


                                      -23-

<PAGE>

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.


                                      -24-

<PAGE>

Other Caribbean Basin market risks include foreign exchange controls,
difficulties in pricing securities, defaults on sovereign debt, 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.


                                      -25-

<PAGE>

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 U.S. Securities and Exchange Commission 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.


                                      -26-

<PAGE>

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.


                                      -27-

<PAGE>

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.


                                      -28-

<PAGE>

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.

                        INVESTMENT OBJECTIVE AND POLICIES

Investment Policies - General

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. 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. 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 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.


                                      -29-

<PAGE>

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 of 1933, as amended ("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.


                                      -30-

<PAGE>

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-General".

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.


                                      -31-

<PAGE>

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.


                                      -32-

<PAGE>

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.


                                      -33-

<PAGE>

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.

In accordance with CFTC regulations, the Fund may not 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.


                                      -34-

<PAGE>

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 are 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.


                                      -35-

<PAGE>

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.


                                      -36-
<PAGE>

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 finder's, 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 that may not be changed
without the prior approval of a majority of the Board. For purposes of the
non-fundamental 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. Under its 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.


                                      -37-

<PAGE>

      2.    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 Securities and Exchange Commission permits
            their exclusion.

      3.    Purchase more than 10% of the outstanding voting securities of any
            one issuer.

      4.    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.

      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.    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.

      7.    Make short sales of securities or maintain a short position in any
            security.

      8.    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.

      9.    Underwrite securities of other issuers, except insofar as the Fund
            may be deemed an underwriter under the Securities Act of 1933 in
            selling portfolio securities.

      10.   Buy or sell commodities, commodity contracts or futures contracts
            (other than as described under "Investment Objective and
            Policies--Hedging Transactions").


                                      -38-

<PAGE>

      11.   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 under the
Internal Revenue Code of 1986, as amended, with respect to its qualification as
a "regulated investment company" under the Code. See "Taxation--U.S. Taxation
General".

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.

                             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 three
directors of the Fund. One of the directors is an "interested person" (as
defined in the 1940 Act). Information about both the Fund's directors and
officers is set forth in the tables below.

Information About Directors and Officers

<TABLE>
<CAPTION>
                                                                                      Number of
                                                                                    Portfolios in
                                                                   Principal             Fund            Other
                                Position(s)     Length of        Occupation(s)         Complex       Directorships
                                 Held With   Term Served, and  During the PastFive   Overseen by         Held by
Name, Address, Age                  Fund      Term of Office         Years             Director         Director
------------------------------  -----------  ----------------  -------------------  -------------  -------------------
<S>                             <C>          <C>               <C>                       <C>       <C>
Disinterested Directors
Ann S. Lieff                    Director     Director since    President of the          1         Hastings
c/o The Herzfeld Caribbean                   1998.  Three      Lieff Company, a                    Entertainment,
Basin Fund, Inc.                             year term of      management                          Inc; and
P.O. Box 161465                              office.           consulting firm                     Birks &
Miami, Florida 33116                                           that offers ongoing                 Mayors, Inc.
Age:  55                                                       advisory services
                                                               as a corporate
                                                               director to
                                                               several leading
                                                               regional and
                                                               national
                                                               retail operations,
                                                               1998 to present;
                                                               former CEO Spec's
                                                               Music, 1980-1998, a
                                                               retailer of
                                                               recorded music.

Michael A. Rubin                Director     Director since    Partner of Michael        1         Margo Caribe,
c/o The Herzfeld Caribbean                   2002. Three       A. Rubin, P.A.,                     Inc.
Basin Fund, Inc.                             year term of      attorney at law;
P.O. Box 161465                              office.           Broker, Oaks
Miami, Florida 33116                                           Management & Real
Age: 65                                                        Estate Corp., a
                                                               real estate
                                                               brokerage
                                                               corporation

Interested Directors and
Officers

Thomas J. Herzfeld  *           President,   Director of Fund  Chairman and              1**       None
P.O. Box 161465                 Chairman of  since 1993.       President of
Miami, Florida 33116            the Board,   Three year term   Thomas J. Herzfeld
Age: 62                         and          of office.        & Co., Inc., and
                                Director
                                                               Thomas J. Herzfeld
                                                               Advisors, Inc.

Cecilia Gondor *                Secretary,   Officer since     Executive Vice           N/A        None
P.O. Box 161465                 Treasurer    1993.             President of
Miami, Florida 33116            and Chief                      Thomas J. Herzfeld
Age: 45                         Compliance                     & Co., Inc., and
                                Officer                        Thomas J. Herzfeld
                                                               Advisors, Inc.
</TABLE>

*     Each of Mr. Herzfeld and Ms. Gondor is an "interested person" of the Fund
      because each is an officer of the Fund's Adviser.


                                      -39-

<PAGE>

**    Mr. Herzfeld also serves as a director of The Cuba Fund, Inc., a
      registered closed-end investment company which has not yet commenced
      operations.

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 each Ms. Lieff and Mr. Rubin, 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, 2007 the Audit Committee met twice. The Audit Committee reviews the
scope of the audit by the Fund's independent accountants, confers with the
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 accountants for the Fund.

The Nominating Committee is comprised of Ms. Lieff and Mr. Rubin, 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, 2007 the Audit
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; (iii) the ability to quickly grasp complex
principles of business, finance, international transactions and the regulatory
environment in which investment companies must operate; and (iv) the ability to
read and understand basic financial statements. The 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 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 a disinterested 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.


                                      -40-

<PAGE>

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
June 30, 2007, 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).

<TABLE>
<CAPTION>

                                                     Aggregate Dollar Range of
                                                   Equity Securities in All Funds
                          Dollar Range of Equity      in Family of Investment
Name of Director          Securities in the Fund              Companies
-----------------------   ----------------------   ------------------------------
<S>                          <C>                         <C>

Disinterested Directors

Ann S. Lieff...........      $10,001- $50,000            $10,001- $50,000

Michael A. Rubin.......      $10,001- $50,000            $10,001- $50,000

Interested Directors

Thomas J. Herzfeld.....       Over $100,000               Over $100,000
</TABLE>

None of the disinterested directors, and no immediate family member of any
disinterested 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 June 30, 2007, directors and executive officers (5 persons) beneficially
owned an aggregate of less than 1% of the Fund's outstanding shares on that
date.


                                      -41-

<PAGE>

                              DIRECTOR COMPENSATION

The Fund pays the disinterested directors of the Fund $1,000 per year in
addition to $400 for each meeting of the board, plus reimbursement for expenses.
Such fees totaled $7,800 for the fiscal year ended June 30, 2007. The aggregate
compensation paid by the Fund to each of its directors serving during the fiscal
year ended June 30, 2007 is set forth in the compensation table below. Mr.
Herzfeld serves on the Fund's Board. Mr. Herzfeld does not receive direct
compensation for his services on either board. None of the other directors
serves on the board of any other registered investment company to which the
Fund's investment adviser or an affiliated person of the Fund's investment
adviser provides investment advisory services. Directors and executive officers
of the Fund do not receive pension or retirement benefits from the Fund.

                                             Pension or
                                             Retirement      Total Compensation
                            Aggregate     Benefits Accrued    from the Fund and
Name of Person and        Compensation    As Part of Fund    Fund Complex Paid
Position with the Fund    from the Fund       Expenses          to Directors
-----------------------   -------------   ----------------   -------------------
Disinterested Directors

  Ann S. Lieff.........       $2,600             $0                $2,600

  Michael A. Rubin.....       $2,600             $0                $2,600

  Albert L. Weintraub*.       $2,600             $0                $2,600

Interested Directors

Thomas J. Herzfeld.....       $    0             $0                $    0

*     Mr. Weintraub resigned his position as a director of the Fund on July 23,
      2007.

Investment Adviser and Portfolio Manager

Investment Adviser

The Fund is advised by HERZFELD/CUBA (the "Adviser"), a division of Thomas J.
Herzfeld Advisors, Inc., whose principal business address is The Herzfeld
Building, P.O. Box 161465, Miami, Florida 33116. The Adviser has been providing
advisory services to the Fund since September 1993. Thomas J. Herzfeld Advisors,
Inc. has provided advisory services since 1984 and is beneficially owned by
Thomas J. Herzfeld.

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.


                                      -42-

<PAGE>

Portfolio Manager

Thomas J. Herzfeld is primarily responsible for the day-to-day management of the
Fund. Mr. Herzfeld currently serves as the Chairman, President and Director of
the Fund. In addition, Mr. Herzfeld also serves as the Chairman and President of
Thomas J. Herzfeld & Co., Inc. and Thomas J. Herzfeld Advisors, Inc. since 1981
and 1984, respectively. Prior to these positions he was Executive Vice President
and Director of a New York Stock Exchange member firm. Mr. 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. 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.

Other Accounts Managed. Thomas J. Herzfeld is primarily responsible for the
day-to-day management of the Fund's portfolio. As of June 30, 2007, Mr. Herzfeld
was primarily responsible for the day-to-day management of the following other
accounts in addition to the Fund:



                                                             Total Assets
Type of Account                   Number of Accounts         (in millions)
-------------------------------   ------------------   ------------------------
Registered Investment Companies            0                     $   0
Pooled Investment Vehicles                 0                     $   0
Other Accounts                            44                     $54.1

The advisory fee for these accounts is based on assets under management for
these accounts and is not based on the performance of the accounts.

Material conflicts of interest that may arise in connection with Mr. Herzfeld's
management of the Fund's investments and investments in other accounts include
conflicts between the investment strategy of the Fund and the investment
strategy of the other accounts managed by Mr. Herzfeld, and conflicts associated
with the allocation of investment opportunities between the Fund and other
accounts managed by Mr. Herzfeld. The Adviser has adopted policies and
procedures to address conflicts of interest to ensure compliance with securities
regulations and to ensure fair and equitable treatment of the Fund and other
accounts should any conflict arise.

Compensation. Mr. Herzfeld receives a quarterly fixed salary from the Adviser's
affiliated broker/dealer firm, Thomas J. Herzfeld & Co., Inc. Mr. Herzfeld is
the sole beneficial owner of the Adviser and the affiliated broker/dealer. Mr.
Herzfeld may also receive bonuses from the broker/dealer firm and/or the
Adviser, as determined by the terms of his contract with the firm. Mr. Herzfeld
does not receive compensation as portfolio manager from the Adviser. In addition
Mr. Herzfeld's compensation is not based on the value of assets held by the
Fund.

Ownership of Securities. As of the June 30, 2007, Mr. Herzfeld beneficially
owned between $100,000 and $500,000 of equity securities of the Fund.



                                      -43-

<PAGE>

Investment Advisory Agreement

The Investment Advisory Agreement sets forth the services to be provided by the
Adviser as described above. The Fund pays the Adviser an advisory fee at the
annual rate of 1.45% of the Fund's average monthly net assets and payable at the
end of each quarter. That fee is higher than the advisory fee paid by most
investment companies. For the fiscal years ended June 30, 2007, 2006 and 2005,
the Adviser received $208,505, $196,852 and $153,114, 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 [____],
2007. 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 periods ended December 31.

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. The Fund reimburses approximately $13,000 per year for compliance
services performed by the Chief Compliance Officer. The Adviser pays the
salaries and expenses of such of the Fund's officers and employees and any fees
and expenses of such of the Fund's directors as are interested persons (as such
term is defined in the 1940 Act) 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 prevent
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.


                                      -44-

<PAGE>

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 net 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 of 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 and 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, 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
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 the 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 the Offer because the proceeds of the Offer will be invested in
additional portfolio securities which will fluctuate in value. However, assuming
all Rights are exercised and that the Fund receives the maximum proceeds of the
Offer, the annual compensation to be received by the Adviser would be increased
by approximately $[____].

The Fund may, in the future and at its discretion, choose to make additional
rights offerings from time to time for a number of shares and on terms which may
or may not be similar to the 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 Securities and Exchange
Commission 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.


                                      -45-

<PAGE>

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 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 and
independent accountants; 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
Securities and Exchange Commission 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,
including affiliates of the Adviser, who provide investment research services to
the Adviser, including market and statistical information and quotations for
portfolio evaluation purposes, may receive orders for transaction 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, and there is no intention to place
portfolio transactions with particular brokers or groups thereof.


                                      -46-

<PAGE>

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.

Brokerage commissions paid by the Fund for the fiscal years ended June 30, 2007,
2006 and 2005 were: $13,518, $17,171, $12,867, respectively, of which $12,076,
$15,800 and $12,671, respectively , was paid to the Adviser, in connection with
portfolio transactions. The percentage of the Fund's aggregate brokerage
commissions paid to the affiliated broker for the one-year period ending June
30, 2007 was 89%. The percentage of the Fund's aggregate dollar amount of
transactions involving the payment of commissions effected through the
affiliated broker for this period was 91%.

                                 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, following certain black-out periods specified in the code, and
subject to certain other conditions and restrictions.

The code of ethics can be reviewed and copied at the SEC's Public Reference Room
in Washington, D.C. Information on the operation of the Public Reference Room
may be obtained by calling the SEC at (202) 551-8090 or toll free at
(800) 732-0330 and this code of ethics is available on the EDGAR database on the
SEC's internet site at: http://www.sec.gov. Copies of this code of ethics may be
obtained, after paying a duplicating fee, by electronic request at the following
e-mail address: publicinfo@sec.gov or by writing the SEC's Public Reference
Section, Washington, D.C. 20549-0102.

                      PROXY VOTING POLICIES AND PROCEDURES

The Fund's and the Adviser's proxy voting policies and procedures are attached
hereto as Appendices A and B, respectively. Information regarding how the Fund
voted proxies relating to portfolio securities during the most recent 12-month
period ended June 30 is available without charge, upon request, by calling
800-TJH-FUND (800-854-3863); and on the SEC's website at http:/www.sec.gov.


                                      -47-

<PAGE>

                 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. To the knowledge
of the Fund, as of June 30, 2007, no persons were known to own, either
beneficially or of record, 5% or more of the outstanding shares of the Fund.

                           DESCRIPTION OF COMMON STOCK

The Fund is authorized to issue up to 100,000,000 shares of capital stock, at
$.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" are subject to the
provisions contained in the Fund's Articles of Incorporation and Bylaws.

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. 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 directors will decide to undertake such repurchases or tender offers, or
that any such repurchases or tender offers would reduce any market discount. The
Board does not currently intend to undertake repurchase or tenders offers.


                                      -48-

<PAGE>

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.

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.

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.

Any tender offer made by the Fund for its shares will be at a price equal to at
least 90% of the NAV of the shares as of the close of business on the date the
offer ends. Each offer will be made and stockholders notified in accordance'
with the requirements of the Securities Exchange Act of 1934 and the 1940 Act,
either by publication or mailing or both. Each offering document will contain
such information as is prescribed by such laws and the rules and regulations
promulgated thereunder, including information stockholders should consider in
deciding whether or not to tender their shares and detailed instructions on how
to tender shares. When a tender offer is authorized to be made by the Board, a
stockholder wishing to accept the offer will be required to tender all (but not
less than all) of the shares owned by such stockholder (or attributed to the
stockholder for Federal income tax purposes under Section 318 of the Code). The
Fund will purchase all shares tendered by a holder of shares at any time during
the period of the tender offer in accordance with the terms of the offer unless
it determines to accept none of the shares tendered in the tender offer (based
upon one of the conditions set forth above). Each person tendering shares will
pay to the Fund a reasonable service charge currently anticipated to be $25.00,
subject to change, to help defray the costs associated with affecting the tender
offer. It is the position of the staff of the SEC that such service charge may
not be deducted from the proceeds of the purchase. The Fund's transfer agent
will receive the fee as an offset to these costs. The Fund expects that the cost
to the Fund of affecting a tender offer will exceed the aggregate amount of all
service charges received from those who tender their shares. Such excess costs
associated with the tender offer 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.


                                      -49-

<PAGE>

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. Such gains may be realized on
securities held for less than three months. Because of the limitation of 30% on
the portion of the Fund's gross income that may be derived from the sale or
disposition of stocks and securities held less than three months (in order to
retain the Fund's tax status as a regulated investment company under the Code),
such gains would reduce the ability of the Fund to sell other securities held
for less than three months that the Fund may 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.

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.


                                      -50-

<PAGE>

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 Securities and Exchange Commission 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.


                                      -51-

<PAGE>

             DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN

Dividends and Distributions. The Fund currently intends to distribute to
stockholders, 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 Internal
Revenue 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"). The terms and conditions of the Plan are as
follows:

1.    State Street Bank and Trust (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 Securities and
      Exchange Commission may require the Agent to limit the Agent's market
      purchases or temporarily cease making market purchases for Participants.


                                      -52-

<PAGE>

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.


                                      -53-

<PAGE>

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.


                                      -54-

<PAGE>

10.   Each registered Participant may terminate his or her account under the
      Plan by notifying the Agent in writing at State Street Bank and Trust,
      P.O. Box 642, Mail Code: OPS22, Boston, MA 02117, or by calling the Agent
      at (617) 937-6870. 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 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 Securities and Exchange Commission 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.

                                    TAXATION

The following summary reflects the existing provisions of the Internal Revenue
Code (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 discussion does not deal with the federal income tax
consequences applicable to all categories of investors, some of whom may be
subject to special rules.

IN VIEW OF THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, 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.


                                      -55-

<PAGE>

Federal Taxation of the Fund and its Distributions

The Fund has elected to be treated and intends to qualify annually as a
regulated investment company under the U.S. Internal Revenue Code of 1986, as
amended (the "Code"). To qualify as a regulated investment company, the Fund
must, among other things, (A) derive in each taxable year at least 90% of its
gross income from dividends, interest, payments with respect to securities
loans, net income from certain publicly traded partnerships and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in stocks, securities
or currencies; (B) diversify its holdings so that, at the end of each quarter of
the taxable year, (i) at least 50% of the market value of the Fund's assets is
represented by cash, U.S. Government securities, securities of other regulated
investment companies and investments in other securities which, with respect to
any one issuer do not represent more than 5% of the value of the Fund's total
assets nor more than 10% of the outstanding voting securities of such issuer and
(ii) not more than 25% of the value of its total assets is invested in (a) the
securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies); (b) two or more controlled
issuers in the same or similar trade or business or (c) certain publicly traded
partnerships; and (C) distribute at least 90% of its investment company taxable
income (which includes, among other items for this purpose, dividends, interest
and net short-term capital gains in excess of net long-term capital losses) each
taxable year.

As a regulated investment company, the Fund generally will not be subject to
U.S. federal income tax on its investment company taxable income and net capital
gains (net long-term capital gains in excess of the sum of net short-term
capital losses and capital loss carryovers from prior years, if any) that it
distributes to Stockholders. 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. To the extent
the Fund retains its net capital gains for investment, it will be subject under
current tax rates to a federal income tax at a maximum effective rate of 35% on
the amount retained. See "Dividend and Distributions" above.

Amounts not distributed on a timely basis in accordance with a calendar-year
distribution requirement are subject to a nondeductible 4% federal excise tax
payable by the Fund. To avoid the tax, the Fund must distribute, or be deemed to
have distributed, during each calendar-year at least an amount equal to the sum
of (1) 98% of its ordinary income (not taking into account any capital gains or
losses) for the calendar year, (2) 98% of its capital gains in excess of its
capital losses (adjusted for certain ordinary losses) for the twelve-month
period ending on October 31 of the calendar year, and (3) all ordinary income
and capital gains for previous years that were not distributed or taxed during
such years. To prevent application of the non-deductible excise tax, the Fund
currently intends to make its distributions in accordance with the calendar-year
distribution requirement. Compliance with the calendar year distribution
requirement may limit the extent to which the Fund will be able to retain its
net capital gains for investment.

A distribution will be treated as paid on December 31 of a 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 a month and paid by the Fund during
January of the following calendar year. Such distributions will be taxable to
Stockholders in the calendar year in which the distributions are declared,
rather than the calendar year in which the distributions are received.


                                      -56-

<PAGE>

If in any taxable year the Fund fails to qualify as a regulated investment
company under the Code, the Fund will be taxed in the same manner as an ordinary
corporation and distributions to its Stockholders will not be deductible by the
Fund in computing its taxable income. In addition, in the event of a failure to
qualify, the Fund's distributions, to the extent derived from the Fund's current
or accumulated earnings and profits, will constitute dividends (eligible for the
corporate dividends-received deduction in the case of corporate stockholders and
eligible for treatment as qualified dividend income in the case of individual
stockholders) which are taxable to Stockholders as ordinary income, even though
those distributions might otherwise (at least in part) have been treated in the
Stockholders' hands as long-term capital gains. If the Fund fails to qualify as
a regulated investment company in any year, it will be required to pay out its
earnings and profits accumulated in that year in order to qualify again as a
regulated investment company and may in certain circumstances be required to pay
tax on unrealized gains.

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.

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, (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 90% annual gross 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.


                                      -57-

<PAGE>

Because the Fund may invest in foreign securities, its income from such
securities may be subject to non-U.S. taxes. Tax conventions may reduce or
eliminate such taxes. If the Fund invests more than 50% of its total assets in
non-U.S. securities as of year-end, the Fund may elect to have its foreign tax
deduction or credit for foreign taxes paid with respect to qualifying taxes to
be taken by its shareholders instead of on its own tax return. If the Fund so
elects, each shareholder would be required to include in gross income, even
though not actually received, his pro rata share of the foreign taxes paid by
the Fund, but would be treated as having paid his pro rata share of such foreign
taxes and would therefore be allowed to either deduct such amount in computing
taxable income or use such amount (subject to various Code limitations) as a
foreign tax credit against federal income tax (but not both). For purposes of
the foreign tax credit limitation rules of the Code, each shareholder would
treat as foreign source income his pro rata share of such foreign taxes plus the
portion of dividends received from the Fund representing income derived from
foreign sources. Each shareholder should consult his own tax adviser regarding
the potential application of foreign tax credits.

The Fund may invest in securities of non-U.S. corporations that could be
classified as "passive foreign investment companies" as defined for U.S. federal
income tax purposes. A passive foreign investment company is, very generally, a
non-U.S. corporation if (i) 75% or more of the gross income of such corporation
for the taxable year is passive income (ii) the average percentage of assets
held by such corporation during the taxable year that produce passive income or
that are held for the production of passive income at least 50%. For U.S.
federal income tax purposes, the Fund's investment in a passive foreign
investment company may, among other things, cause the Fund to recognize taxable
income without a corresponding receipt of cash, to incur an interest charge on
taxable income that is deemed to have been deferred and/or to recognize ordinary
income that would have otherwise been treated as capital gains. The Fund will
monitor any investments in passive foreign investment companies in order to
comply with the U.S. federal income tax rules applicable to regulated investment
companies.

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. Similarly, gains or losses on foreign currency forward contracts
and the disposition of debt securities denominated in a foreign currency, to the
extent attributable to fluctuations in exchange rates between the acquisition
and disposition dates, are also treated as ordinary income or loss.

Dividends paid out of the Fund's investment company taxable income (which
includes any net short-term capital gains) will be taxable to a U.S. Stockholder
as ordinary income. Distributions of net capital gains (net long-term capital
gains in excess of the sum of net short-term capital losses and any capital loss
carryovers from prior years), if any, designated by the Fund as capital gain
dividends, are taxable as long-term capital gains, regardless of how long the
Stockholder has held the Fund's Shares.


                                      -58-

<PAGE>

Ordinarily, dividends paid by the Fund will not qualify for the deduction for
dividends received by corporations because the Fund's income will not consist of
dividends paid by U.S. corporations. A portion of the Fund's dividends may
qualify for the 15% rate on "qualified dividend income" applicable to individual
shareholders to the extent that the Fund's income is derived from qualified
dividends and to the extent that both the Fund and the individual Stockholder
satisfy, among other requirements, a more than 60 day holding period
requirement. There can be no assurance as to what portion of the Fund's
distributions will qualify for favorable treatment as qualified dividend income.
These special rates that apply to ordinary income dividends paid to individuals
are set to expire for taxable years beginning in 2011.

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 35% 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 shareholders, 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 65% of the amount of undistributed capital gain included in such
shareholder's gross income.

Investment company taxable 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 company taxable investment income.

See "The Offering - Federal Income Tax Consequences Associated With the Offer"
above for a discussion regarding certain United States Federal income tax
consequences of the Offer generally applicable to citizens or residents of the
United States and U.S. trusts, estates, corporations and any other person who is
generally subject to U.S. Federal income tax ("U.S. Stockholders").


                                      -59-

<PAGE>

Sales of Shares

Upon the sale or other disposition of Shares of the Fund, a Stockholder
generally will realize a taxable gain or loss in an amount equal to the
difference between the proceeds of the sale or other dispositions and the
Stockholder's adjusted tax basis in the Shares. Such gain or loss will be a
capital gain or loss if the Shares are capital assets in the Stockholder's hands
and generally will be long-term or short-term depending upon the Stockholder's
holding period for the Shares. Any loss realized on a sale or exchange will be
disallowed to the extent the Shares disposed of are replaced (including
replacement through the Dividend Reinvestment Plan) within a period of 61 days,
beginning 30 days before and ending 30 days after the Shares are disposed of. 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 Fund
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 or treated as having received by the Stockholder with respect
to such shares.

Backup Withholding

The Fund may be required to withhold for U.S. federal income taxes 28% of all
taxable distributions payable to Stockholders who fail to provide the Fund with
their certified U.S. taxpayer identification number (or certificate regarding
foreign status) or to Stockholders otherwise subject to U.S. backup withholding.
Similarly, proceeds from the sale or other disposition of Shares of the Fund in
the United States may be subject to backup withholding if the Stockholder fails
to provide a certified U.S. taxpayer identification number (or certificate
regarding foreign status) and make other certifications in connection with the
transaction, or if the Stockholder is otherwise subject to U.S. backup
withholding. Corporate Stockholders and other Stockholders specified in the Code
are exempt from such backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be refunded or credited against the Stockholder's
U.S. federal income tax liability, provided that the required information is
furnished to the Internal Revenue Service.


                                      -60-

<PAGE>

Other Tax Considerations

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. Stockholders are advised to consult
their own tax advisers with respect to the particular tax consequences to them
of an investment in the Fund.

                        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
www.herzfeld.com.

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)  the value of any security which is traded on a stock exchange
            (except as specified in (iii) below) will be determined by taking
            the latest available sales price on the primary exchange on which
            the security is traded or, if no such price is available, by taking
            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;


                                      -61-

<PAGE>

      (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.

In valuing securities or property for which no price quotation is available, the
Board considers various factors, including the fundamental analytical data
relating to the investment, the nature and duration of any restriction on
disposition of the investment, and the forces that influence the market in which
such investment is purchased and sold.

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

State Street Bank and Trust Company acts as custodian for the Fund's assets. The
principal address of the Custodian is 200 Clarendon Street, P.O. Box 9130, Mail
Code DPG-112, Boston, Massachusetts 02117. 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, maintain 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.

State Street Bank and Trust Company also serves as the Fund's transfer agent,
dividend/distribution disbursing agent, dividend reinvestment plan agent and as
registrar for the Fund's common stock.


                                      -62-

<PAGE>

                                 LEGAL MATTERS

Pepper Hamilton LLP, 3000 Two Logan Square, 18th and Arch Streets, Philadelphia,
PA 19103 serves as counsel to the Fund.

                  INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The independent registered accounting firm of the Fund is [_______] located at
500 Ygnacio Valley Road, Suite 200, Walnut Creek, CA 94596.

                              FINANCIAL STATEMENTS

The financial statements of the Fund as of June 30, 2007 (which have been
incorporated into this Prospectus and the registration statement, of which this
Prospectus forms a part, by reference to the Fund's 2007 Annual Report to
Stockholders), and the financial highlights for each of the five years in the
period ended June 30, 2007, included in this Prospectus, have been so
incorporated and included in reliance on the reports of [____], independent
accountants, for the one year periods ended June 30, 2007 and 2006, and of
[FORMER AUDITOR], independent accountants for the one year periods ended June
30, 2005, 2004, and 2003, given on the authority of said firms as experts in
auditing and accounting. The address of [FORMER AUDITOR] is 2699 S. Bayshore
Drive, Miami, FL 33133.

                               FURTHER INFORMATION

Further information concerning these securities and the Fund may be found in the
Registration Statement on file with the Commission, of which this Prospectus and
the SAI incorporated by reference herein constitute a part. Financial statements
of the Fund for the fiscal year ended June 30, 2007 are included in the Fund's
annual reports to stockholders for such years, copies of which are on file with
and may be inspected at the Commission as indicated below.

The Fund is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the 1940 Act, and in
accordance therewith, is required to file periodic reports, proxy statements and
other information with the Commission relating to its business, financial
condition and other matters. Such information is available for inspection at the
public reference facilities of the Commission at Room 1024, 100 F Street, NE,
Washington, DC 20549. Copies of such information are obtainable by mail, upon
payment of the Commission's customary charges, by writing to the Commission's
principal office at 100 F Street, NE, Washington, DC 20549 at prescribed rates.
The Commission maintains a web site (http://www.sec.gov) that contains periodic
reports, proxy statements and other information regarding registrants that file
documents electronically with the Commission. Such reports and other information
concerning the Fund may also be inspected at the offices of the NASDAQ Capital
Market.


                                      -63-

<PAGE>

                                   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

      It is the policy of the Board of Directors of the Fund (the "Board") to
delegate the responsibility for voting proxies relating to portfolio securities
held by the Fund to the Fund's investment adviser (the "Adviser") as a part of
the Adviser's general management of the Fund, subject to the Board's continuing
oversight.(1) The voting of proxies is an integral part of the investment
management services that the Adviser provides pursuant to the advisory contract.

      The Adviser may, but is not required to, delegate the responsibility for
voting proxies relating to portfolio securities held by the Fund to a
sub-adviser ("Sub-Adviser") retained to provide investment advisory services, if
applicable. If such responsibility is delegated to a Sub-Adviser, then the
Sub-Adviser shall assume the fiduciary duty and reporting responsibilities of
the Adviser under these policy guidelines.

Fiduciary Duty

      The right to vote a proxy with respect to portfolio securities held by the
Fund is an asset of the Fund. The Adviser, to which authority to vote on behalf
of the Fund is delegated, acts as a fiduciary of the Fund and must vote proxies
in a manner consistent with the best interest of the Fund and its shareholders.

Procedures

      The following are the procedures adopted by the Board for the
administration of this policy:

      A. Review of Adviser Proxy Voting Procedures. The Adviser with authority
to vote proxies on behalf of the Fund shall present to the Board its policies,
procedures and other guidelines for voting proxies at least annually, and must
notify the Board promptly of material changes to any of these documents.

      B. Voting Record Reporting. No less than annually, the Adviser shall
report to the Board a record of each proxy voted with respect to portfolio
securities of the Fund during the year. With respect to those proxies that the
Adviser has identified as involving a conflict of interest(2), the Adviser shall
submit a separate report indicating the nature of the conflict of interest and
how that conflict was resolved with respect to the voting of the proxy.

Revocation

      The delegation by the Board of the authority to vote proxies relating to
portfolio securities of the Fund is entirely voluntary and may be revoked by the
Board, in whole or in part, at any time.

----------
      (1) This policy is adopted for the purpose of the disclosure requirements
adopted by the Securities and Exchange Commission, Release Nos. 33-8188,
34-47304, IC-25922.

      (2) As it is used in this document, the term "conflict of interest" refers
to a situation in which the Adviser or Sub-Adviser or affiliated persons of the
Adviser or Sub-Adviser have a financial interest in a matter presented by a
proxy other than the obligation it incurs as investment adviser to the Fund
which compromises the Adviser's or Sub-Adviser's independence of judgment and
action with respect to the voting of the proxy.


                                      A-1
<PAGE>

Annual Filing

      The Fund shall file an annual report of each proxy voted with respect to
its portfolio securities during the twelve-month period ended June 30 on Form
N-PX not later than August 31 of each year.

Disclosures

      The Fund shall include in its annual report to stockholders:

      A description of this policy and of the policies and procedures used by
the Adviser to determine how to vote proxies relating to portfolio
securities(3); and

      A statement disclosing that information regarding how the Fund voted
proxies relating to portfolio securities during the most recent 12-month period
ended June 30 is available without charge, upon request, by calling the Fund's
toll-free telephone number and on the SEC website.(4)

      The Fund shall also include in its annual and semi-annual reports to
stockholders:

      A statement disclosing that a description of the policies and procedures
used by or on behalf of the Fund to determine how to vote proxies relating to
portfolio securities of the Funds is available without charge, upon request, by
calling the Fund's toll-free telephone number and on the SEC website.(5)

      A statement disclosing that information regarding how the Fund voted
proxies relating to portfolio securities during the most recent 12-month period
ended June 30 is available without charge, upon request, by calling the Fund's
toll-free telephone number and on the SEC website.(6)

Review of Policy.

      At least annually, the Board shall review this Policy to determine its
sufficiency and shall make and approve any changes that it deems necessary from
time to time.

----------
      (3) This disclosure shall be included in the annual report next filed by
the Fund, on Form N-CSR on or after July 1, 2003.

      (4) Id.

      (5) This disclosure shall be included in the report next filed by the Fund
on or after July 1, 2003.

      (6) Id..


                                      A-2
<PAGE>

                                   APPENDIX B

                        THOMAS J. HERZFELD ADVISORS, INC.

                                  PROXY VOTING

                             POLICIES AND PROCEDURES

II. 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 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.

III. 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.

IV. PROCEDURES

Cecilia Gondor, Executive Vice President of the Adviser, is 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 some
proposals require special consideration, which may dictate that the Adviser
makes an exception to the Guidelines.

Cecilia Gondor is 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-1
<PAGE>

      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
will 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 will abstain from voting a client's proxies. The
Adviser does not vote proxies received for securities which are no longer held
by the client's account. 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.

V. 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)(7); (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.

VI. 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.

----------
      (7) Because the Adviser primarily invests its clients' assets in
securities of foreign issuers, the Adviser generally has not been receiving
proxy statements from such issuers because the laws of the countries in which
these issuers are domiciled respecting delivery of proxy statements to
shareholders are different than those of the U.S.


                                      B-2
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
<S>                                                                                <C>
(1)   Issues regarding the issuer's Board entrenchment and anti-takeover           Oppose
      measures such as the following:

      b.    Proposals to limit the ability of shareholders to call special
            meetings;

      c.    Proposals to require super majority votes;

      d.    Proposals requesting excessive increases in authorized common or
            preferred shares where management provides no explanation for the
            use or need for these additional shares;

      e.    Proposals regarding "poison pill" provisions; and

      f.    Permitting "green mail".

--------------------------------------------------------------------------------------------------
(1)   Providing cumulative voting rights.                                          Oppose

--------------------------------------------------------------------------------------------------
(2)   "Social issues," unless specific client guidelines supersede, e.g.,          Oppose
      restrictions regarding South Africa.

--------------------------------------------------------------------------------------------------
(3)   Election of directors recommended by management, except if there is a        Approve
      proxy fight.

--------------------------------------------------------------------------------------------------
(4)   Election of auditors recommended by management, unless seeking to replace    Approve
      if there exists a dispute over policies.

--------------------------------------------------------------------------------------------------
(5)   Date and place of annual meeting.                                            Approve

--------------------------------------------------------------------------------------------------
(6)   Limitation on charitable contributions or fees paid to lawyers.              Approve

--------------------------------------------------------------------------------------------------
(7)   Ratification of directors' actions on routine matters since previous         Approve
      annual meeting.

--------------------------------------------------------------------------------------------------
(8)   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.

--------------------------------------------------------------------------------------------------
(9)   Limiting directors' liability                                                Approve

--------------------------------------------------------------------------------------------------
(10)  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.

--------------------------------------------------------------------------------------------------
</TABLE>


                                      B-3
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                                <C>
--------------------------------------------------------------------------------------------------
(11)  Employee Stock Purchase Plan                                                 Approve

--------------------------------------------------------------------------------------------------
(12)  Establish 401(k) Plan                                                        Approve

--------------------------------------------------------------------------------------------------
(13)  Rotate annual meeting location/date                                          Approve

--------------------------------------------------------------------------------------------------
(14)  Establish a staggered Board                                                  Approve

--------------------------------------------------------------------------------------------------
(15)  Eliminate director mandatory retirement policy                               Case-by-Case

--------------------------------------------------------------------------------------------------
(16)  Option and stock grants to management and directors                          Case-by-Case

--------------------------------------------------------------------------------------------------
(17)  Allowing indemnification of directors and/or officers after reviewing the    Case-by-Case
      applicable laws and extent of protection requested.

--------------------------------------------------------------------------------------------------
</TABLE>


                                      B-4
<PAGE>
                           PART C - OTHER INFORMATION

ITEM 25.  FINANCIAL STATEMENTS AND EXHIBITS

(1)   Financial Statements:

      (a)   Schedule of Investments as of June 30, 2007 to be filed by
            amendment.

      (b)   Statement of Assets and Liabilities as of June 30, 2007 to be filed
            by amendment.

      (c)   Statement of Operations Year Ended June 30, 2007 to be filed by
            amendment.

      (d)   Statements of Changes in Net Assets for the Years Ended June 30,
            2007 and 2006 to be filed by amendment.

      (e)   Financial Highlights Years Ended June 30, 2003 through 2007 to be
            filed by amendment.

      (f)   Notes to Financial Statements to be filed by amendment.

      (g)   Report of Independent Registered Public Accounting Firm to be filed
            by amendment.

(2)   Exhibits

      (a)   (1)   Articles of Incorporation filed with the State of Maryland
                  dated March 10, 1992.

            (2)   Articles of Amendment to Articles of Incorporation as filed
                  with the State of Maryland on July 23, 1993.

      (b)         By Laws.

      (c)         Not applicable.

      (d)   (1)   Form of Specimen Certificate of Common Stock.

            (2)   Articles Sixth, Eighth, Ninth and Tenth of the Registrant's
                  Articles of Incorporation filed hereto as exhibit (a)(1).

            (3)   Articles II and III of the Registrant's By Laws filed hereto
                  as exhibit (a)(3).

      (e)         Dividend Reinvestment Plan is incorporated by reference to
                  Exhibit 99.2 to Form 8-K/A filed with the Securities and
                  Exchange Commission ("SEC") on November 22, 2006 (File No.
                  811-06445).

      (f)         Not applicable.

      (g)         Investment Advisory Agreement between HERZFELD/CUBA, a
                  division of Thomas J. Herzfeld Advisors, Inc. and the
                  Registrant dated September 10, 1993.

      (h)         Not applicable.

      (i)         Not applicable.

      (j)         Custodian Agreement between Investors Bank & Trust Company and
                  the Registrant dated March 28, 2003.

      (k)         Subscription Agent Agreement between Colbent Corporation and
                  the Registrant.

      (l)         Opinion and Consent of Pepper Hamilton LLP to be filed by
                  amendment.

      (m)         Not applicable.

      (n)         Consent of Independent Registered Public Accounting Firm to be
                  filed by amendment.

<PAGE>

      (o)         Not applicable.

      (p)         Not applicable.

      (r)         Joint Code of Ethics of the Registrant and Thomas J. Herzfeld
                  Advisors, Inc.

ITEM 26. MARKETING ARRANGEMENTS

None.

ITEM 27. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated expenses to be incurred in
connection with the Offer described in this Registration Statement.

                                                                       Estimated
      Description of Expense                                           Expense*
      ----------------------                                           --------
      Securities and Exchange Commission registration fees...............$[____]
      NASDAQ listing fees for additional shares..........................$[____]
      Printing (other than stock certificates) ..........................$[____]
      Engraving and printing of stock certificates.......................$[____]
      Accounting fees and expenses.......................................$[____]
      Legal fees and expenses............................................$[____]
      Subscription agent's fees and expenses.............................$[____]
      Miscellaneous......................................................$[____]
           Total.........................................................$[____]

      *    To be provided by amendment.

ITEM 28. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

None

ITEM 29. NUMBER OF HOLDERS OF SECURITIES

                                                            Number Of
                                                          Record Holders
                                                              As Of
                      Title Of Class                      June 30, 2007*
        -------------------------------------------    ---------------------
        Common Stock, $0.001 par value                        [____]

        *   To be provided by amendment.

ITEM 30. INDEMNIFICATION

The General Corporation Law of the State of Maryland, Article VII Registrant's
By-laws filed as exhibit (b) hereto, and Section 5 of the Investment Advisory
Agreement filed as exhibit (g) hereto provide for indemnification. 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.
<PAGE>

Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "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 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 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 February 12, 2007 with the Securities
and Exchange Commission by Thomas J. Herzfeld Advisors, Inc. (File No. 801-
20866) pursuant to the Investment Advisers Act of 1940, as amended.

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., P.O. Box 161465, Miami, FL 33116; and

      State Street Bank and Trust Company, P.O. Box 642, Mail Code OPS22,
      Boston, MA 02116.

ITEM 33  MANAGEMENT SERVICES

Not applicable.

ITEM 34. UNDERTAKINGS

(1)   Registrant undertakes to suspend the offering of its shares until it
      amends its prospectus if: (a) subsequent to the effective date of this
      Registration Statement, the net asset value per share declines more than
      10% from its net asset value per share as of the effective date of this
      Registration Statement; or (b) the net asset value increases to an amount
      greater than its net proceeds as stated in the Prospectus.
<PAGE>

(2)   Not applicable.

(3)   Not applicable.

(4)   Not applicable.

(5)   Registrant undertakes that: (a) for purposes of determining any liability
      under the Securities Act of 1933, as amended, 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 pursuant to Rule 497(h) under the Securities Act shall be
      deemed to be part of this Registration Statement as of the time it was
      declared effective; and (b) that for the purpose of determining any
      liability under the Securities Act of 1933, as amended, 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.

(6)   Not applicable.
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Miami, and state of Florida, on the 23rd day of
July 2007.

                                             HERZFELD CARIBBEAN BASIN FUND, INC.

                                         By: /s/ Thomas J. Herzfeld
                                             -----------------------------------
                                             Thomas J. Herzfeld
                                             President and Chairman of the
                                             Board of Directors

Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.

      Name                                 Title                     Date

/s/Ann S. Lieff                           Director               July 23, 2007
-----------------------
Ann S. Lieff


/s/Michael A. Rubin                       Director               July 23, 2007
-----------------------
Michael A. Rubin

                                   Director and President
/s/Thomas J. Herzfeld          (Principal Executive Officer)     July 23, 2007
-----------------------
Thomas J. Herzfeld

                                  Secretary and Treasurer
/s/Cecilia Gondor              (Principal Financial Officer)     July 23, 2007
-----------------------
Cecilia Gondor

<PAGE>

                                  EXHIBIT INDEX

Exhibit No.          Description of Exhibit
-----------          ----------------------

(a)(1)               Articles of Incorporation

(a)(2)               Articles of Amendment to Articles of Incorporation

(b)                  By Laws

(d)                  Form of Specimen Certificate of Common Stock

(g)                  Investment Advisory Agreement

(j)                  Custodian Agreement

(k)                  Subscription Agent Agreement

(r)                  Joint Code of Ethics of Registrant and Adviser
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(A)(1)
<SEQUENCE>2
<FILENAME>articlesofincorporation.txt
<TEXT>
                            ARTICLES OF INCORPORATION

                                       OF

                            THE FIRST CUBA FUND, INC.

FIRST: The undersigned, being of legal age, in order to form a corporation under
and pursuant to the laws of the State of Maryland, does hereby set forth as
follows:

SECOND: The name of the corporation is THE FIRST CUBA FUND, INC. (the
"Corporation").

THIRD: Corporate Purposes.

            The purposes for which the Corporation is formed are to operate as
      and carry on the business of a closed-end management investment company
      under the Investment Company Act of 1940 and generally to exercise and
      enjoy all of the powers, rights and privileges granted to, or conferred
      upon, corporations by the General Laws of the State of Maryland now or
      hereafter in force.

FOURTH: Address and Resident Agent. The post office address of the principal
office of the Corporation in the State of Maryland is c/o United Corporate
Services, Inc. 20 South: Charles Street, Suite 1200, Baltimore, Maryland 21201.
The name and address of the resident agent of the Corporation in the State of
Maryland is United Corporate Services, Inc. 20 South Charles Street, Suite 1200,
Baltimore, Maryland 21201, said agent is a corporation of the State of Maryland.

FIFTH: Capital Stock. The total number of shares of stock which the Corporation
shall have authority to issue is one hundred million (100,000,000) shares, all
of the one class called Common Stock of one cent ($0.001) par value each, having
an aggregate par value of $100,000.

SIXTH: Board of Directors. The number of Directors of the Corporation shall be
nine, which number shall be increased or decreased from time to time in the
manner provided in the By-Laws of the Corporation, provided that the number of
Directors shall not be less than three after the commencement of business
operation. The name of the Director who shall act until the first annual meeting
or until his successors are duly chosen and qualify is: Thomas J. Herzfeld.
Except as provided in the By-Laws, the election of Directors may be conducted in
any way approved at the meeting (whether of stockholders or Directors) at which
the election is held, provided that such election shall be by ballot whenever
requested by any person entitled to vote. The By-Laws may provide for the
division of the Directors of the Corporation into classes and specify the term
of office for each class. At any meeting of stockholders duly called and at
which a quorum is present, the stockholders may, by the affirmative vote of the
holders of 75% of the votes entitled to be cast for the election of directors,
remove any director or directors from office, with or without cause.

<PAGE>

SEVENTH: Management of the Affairs of the Corporation.

            (a) All corporate powers and authority of the corporation (except as
      at the time otherwise provided by statute, by these Articles of
      Incorporation or by the By-Laws) shall be vested in and exercised by the
      Board of Directors.

            (b) The Board of Directors shall have the power to make, alter or
      repeal the By-Laws of the Corporation except to the extent that the
      By-Laws otherwise provide.

            (c) The Board of Directors shall have the power from time to time to
      authorize payment of compensation to the Directors for services to the
      Corporation, as provided in the By-Laws, including fees for attendance at
      meetings of the Board of Directors and of committees.

            (d) The Board of Directors shall have the power from time to time to
      determine whether and to what extent, and at what times and places and
      under what conditions and regulations, the accounts and books of the
      Corporation (other that the stock ledger) shall be open to the inspection
      of stockholders; and no stockholder shall have any right to inspect any
      account, book or document of the Corporation except at such time as is
      conferred by statute or the By-Laws.

EIGHTH: Special Vote of Stockholders.

            (a) Except as otherwise provided in this Article Eighth, the vote of
      the holders of at least 75% of the voting power of the then outstanding
      shares of Voting Stock (as hereinafter defined), in addition, to any vote
      of the Directors of the Corporation as may be required by law or by the
      By-Laws, shall be necessary to effect any of the following actions:

                  (i) any amendment to these Articles to make the Corporation's
      Common Stock a "redeemable security" (as such term is defined in the
      Investment Company Act of 1940) unless the Continuing Directors (as
      hereinafter defined) of the Corporation, by a vote of at least 75% of such
      Directors, approve such amendment;

                  (ii) any Business Combination (as hereinafter defined) unless
      either the condition in clause (A) below is satisfied or the conditions in
      clauses (B), (C), (D), (E) and (F) below are satisfied:

                        (A) The Business Combination shall have been approved by
      a vote of at least 75% of the Continuing Directors.

                        (B) The aggregate amount of cash and the Fair Market
      Value (as herinafter defined), as of the date of the consummation of the
      Business Combination, of consideration other than cash to be received per
      share by holders of any class of outstanding Voting Stock in such Business
      Combination shall be at least equal to the higher of the following:

<PAGE>

                              (x) the highest per share price (including any
      brokerage commissions, transfer taxes, and soliciting dealers' fees) paid
      by an Interested Party ( as hereinafter defined) for any shares of such
      Common Stock acquired by it (aa) within the two-year period immediately
      prior to the first public announcement of the proposal of the Business
      Combination (the "Announcement Date"), or (bb) in the Threshold
      Transaction (as hereinafter defined), whichever is higher; and

                              (y) the net asset value per share of such Common
      Stock on the Announcement Date or on the date of the Threshold
      Transaction, whichever is higher.

                        (C) The consideration to be received by holders of the
      particular class of outstanding Voting Stock shall be in cash or in the
      same form as the Interested Party has previously paid for shares of any
      class of Voting Stock. If the Interested Party has paid for shares of any
      class of Voting Stock with varying forms of consideration, the form of
      consideration for such class of Voting Stock previously acquired by it.

                        (D) After the occurrence of the Threshold Transaction,
      and prior to the consummation of such Business Combination, such
      Interested Party shall not have become the beneficial owner of any
      additional shares of Voting Stock except by virtue of the Threshold
      Transaction.

                        (E) After occurrence of the Threshold Transaction, such
      Interested Party shall not have received the benefit, directly or
      indirectly (except proportionately as a shareholder of the Corporation),
      of any loans, advances, guarantees, pledges or other financial assistance
      or any tax credits or other tax advantages provided by the Corporation,
      whether in anticipation of or in connection with such Business Combination
      or otherwise.

                        (F) A proxy or information statement describing the
      proposed Business Combination and complying with the requirements of the
      Securities Exchange Act of 1934 and the Investment Company Act of 1940 and
      the rules and regulations thereunder (or any subsequent provisions
      replacing such Acts, rules or regulations) shall be prepared and mailed by
      the Interested Party, at such Interested Party's expense, to the
      shareholders of the Corporation at least 30 days prior to the consummation
      of such Business Combination (whether or not such proxy or information
      statement is required to be mailed pursuant to such acts or subsequent
      provisions).

            (b) For the purposes of this Article Eighth:

                  (i) "Business Combination" shall mean any of the transactions
            described or referred to in any one or more of the following
            subparagraphs:

                        (A) any merger or consolidation of the Corporation with
            or into any other person;

<PAGE>

                        (B) any sale, lease, exchange, mortgage, pledge,
            transfer or other disposition (in one transaction or a series of
            transactions) to or with any other person of any assets of the
            Corporation having an aggregate Fair Market Value of $1,000,000 or
            more except for portfolio transactions of the Corporation effected
            in the ordinary course of the Corporation's business:

                        (C) the issuance or transfer by the Corporation (in one
            transaction or a series of transactions) of any securities of the
            Corporation to any other person in exchange for cash, securities or
            other property (or a combination thereof) having an aggregate Fair
            Market Value of $1,000,000 or more excluding (x) sales of any
            securities of the Corporation in connection with a public offering
            thereof, (y) issuances of any securities of the Corporation pursuant
            to a dividend reinvestment plan adopted by the Corporation and (z)
            issuances of any securities of the Corporation upon the exercise of
            any stock subscription rights distributed by the Corporation;

                  (ii) "Continuing Director" means any member of the Board of
            Directors of the Corporation who is not an Interested Party or an
            Affiliate of an Interested Party and has been a member of the Board
            of Directors for a period of at least 12 months, or is a successor
            of a Continuing Director who is unaffiliated with an Interested
            Party and is recommended to succeed a Continuing Director by a
            majority of the Continuing Directors then on the Board of Directors.

                  (iii) "Interested Party" shall mean any person, other than an
            investment company advised by the Corporation's initial investment
            manager or any of its Affiliates, which enters, or proposes to
            enter, into a Business Combination with the Corporation.

                  (iv) "Person" shall mean an individual, a corporation, a trust
            or a partnership.

                  (v) "Voting Stock" shall mean capital stock of the Corporation
            entitled to vote generally in the election of directors.

                  (vi) A person shall be a "beneficial owner" of any Voting
            Stock:

                        (A) which such person or any of its Affiliates or
            Associates (as hereinafter defined) beneficially owns, directly or
            indirectly; or

                        (B) which such person or any of its Affiliates or
            Associates has the right to acquire (whether such right is
            exercisable immediately or only after the passage of time), pursuant
            to any agreement, arrangement or understanding or upon the exercise
            of conversion rights, exchange rights, warrants or options, or

<PAGE>

                        (C) which is beneficially owned, directly or indirectly,
            by any other person with which such person or any of its Affiliates
            or Associates has any agreement, arrangement or understanding for
            the purpose of acquiring, holding, voting or disposing of any shares
            of Voting Stock.

                  (vii) "Affiliate" and "Associate" shall have the respective
            meanings ascribed to such terms in Rule 12b-2 of the General Rules
            and Regulations under the Securities Exchange Act of 1934.

                  (viii) "Fair Market Value" means:

                        (A) in the case of stock, the highest closing sale price
            during the 30-day period immediately preceding the relevant date of
            a share of such stock on the New York Stock Exchange, on the
            principal United States securities exchange registered under the
            Securities Exchange Act of 1934 on which such stock is listed, or,
            if such stock is not listed on any such exchange, the highest
            closing bid quotation with respect to a share of such stock during
            the 30-day period preceding the relevant date on the National
            Association of Securities Dealers, Inc. Automated Quotation Systems
            (NASDAQ) or any system then in use, or if no such quotations are
            available, the fair market value on the relevant date of a share of
            such stock as determined by 75% of the Continuing Directors in good
            faith, and

                        (B) in the case of property other than cash or stock,
            the fair market value of such property on the relevant date as
            determined by 75% of the Continuing Directors in good faith.

                  (ix) "Threshold Transaction" means the transaction by or as a
            result of which an Interested Party first becomes the beneficial
            owner of Voting Stock.

                  (x) In the event of any Business Combination in which the
            Corporation survives, the phrase "consideration other than cash to
            be received" has used in subparagraph (a) (iii) (B) above shall
            include the shares of Common Stock and/or the shares of any other
            class of outstanding Voting Stock retained by the holders of such
            shares.

                  (xi) Continuing Directors of the Corporation, acting by a vote
            of 75%, shall have the power and duty to determine, on the basis of
            information known to them after reasonable inquiry, all facts
            necessary to determine (a) the number of shares of Voting Stock
            beneficially owned by any person, (b) whether a person is an
            Affiliate or Associate of another, (c) whether the requirements of
            subparagraph (a) (iii) above have been met with respect to any
            Business Combination have, (d) whether the assets which are the
            subject of any Business Combination have, or the consideration to be
            received for the issuance or transfer of securities by the
            Corporation in any Business Combination has, an aggregate Fair
            Market Value of $1,000,000 or more.

<PAGE>

NINTH: Pre-Emotive Rights. No holder of the Capital Stock of the Corporation or
of any other class of stock or securities which may hereafter by created shall
be entitled as such, as a matter of right, to subscribe for or purchase any part
of any new or additional issue of stock of any class, or of rights or options to
purchase any stock, or of a securities convertible into, or carrying rights or
options to purchase, stock of any class, whether now or hereafter authorized or
whether issued for money, for a consideration other than money or by way of a
dividend or otherwise, and all such rights are hereby waived by each holder of
Capital Stock and of any other class of stock which may hereafter be created.

TENTH: Reservation of Right to Amend. From time to time any of the provisions of
the Articles of Incorporation, with the exception of Articles Third, Sixth,
Eighth, Ninth, and this Article Tenth, may be amended, altered or repealed
(including any amendment which changes the terms of any of the outstanding stock
by classification, reclassification or otherwise) upon the vote of the holders
of a majority of the voting power of the then outstanding shares of Voting Stock
of the Corporation at the time outstanding and entitled to vote, and other
provisions which might under the statutes of the State of Maryland at the time
in force be lawfully contained in articles of incorporation may be added or
inserted upon the vote of the holders of a majority of the shares of Common
Stock of the Corporation at the time outstanding and entitled to vote; and all
rights at any time conferred upon the stockholders of the Corporation by these
Articles of Incorporation are granted subject to the provisions of this Article
Tenth. The provisions of Articles Third, Sixth, Eighth, Ninth and this Article
Tenth may be amended, altered, or repealed only upon the vote of the holders of
75% of the voting power of the then outstanding shares of Voting Stock of the
Corporation.

ELEVENTH: Duration. The duration of the corporation shall be perpetual.

      IN WITNESS WHEREOF, I have signed these Articles of Incorporation and
acknowledge the same be my act on the 6th day March, 1992.


                                        /s/ Ray A. Barr
                                        ----------------------------------------
                                        Ray A. Barr, Incorporator

<PAGE>

STATE OF NEW YORK    )
                     )ss
COUNTY OF NEW YORK   )

            Be it remembered that on this sixth day of March, 1992, personally
      came before me, a Notary Public in and for the County and State aforesaid,
      Ray A. Barr party to said documents to be their act and deed and that the
      facts therein stated are true.

            Given under my hand and seal of office the day and year aforesaid.


                                        /s/ Grizel Muniz
                                        ----------------------------------------
                                        Grizel Muniz - Notary Public

                                                     GRIZEL MUNIZ
                                           Notary Public State of New York
                                                   No. 01MU4930325
                                             Qualified in Suttolk County
                                        Certificate Filed in New York County
                                           Commission Expires July 25, 1992

<PAGE>

STATE OF MARYLAND

WILLIAM DONALD SCHAEFER                   Department of Assessments and Taxation
Governor                                                        CHARTER DIVISION

LLOYD W. JONES            [SEAL]                                        Room 809
Director                                                 301 West Preston Street
                                                       Baltimore, Maryland 21201
PAUL B. ANDERSON
Administrator

--------------------------------------------------------------------------------

DOCUMENT CODE 02   BUSINESS CODE 03   COUNTY 74

# ______________   ___ P.A. _____ Religious ____ Close __X__ Stock ____ Nonstock

Merging                                 Surviving
(Transferor) ________________________   (Transferee) ___________________________

_____________________________________   ________________________________________

_____________________________________   ________________________________________

_____________________________________   ________________________________________

<TABLE>
<CAPTION>
CODE    AMOUNT   FEE REMITTED                             Name Change
----    ------   ------------                             -----------
<S>       <C>    <C>                                      <C>
10         50    Expedited Fee                            (New Name) ____________________________
20         20    Organ. & Capitalization
61         20    Rec. Fee (Arts. of Inc.)                 _______________________________________
62      ______   Rec. Fee (Amendment)
63      ______   Rec. Fee (Merger or                      _______________________________________
                 Consolidation)
64      ______   Rec. Fee (Transfer)                      ______ Change of Name
65      ______   Rec. Fee (Dissolution)                   ______ Change of Principal Office
66      ______   Rec. Fee (Revival)                       ______ Change of Resident Agent
52      ______   Foreign Qualification                    ______ Change of Resident Agent
50      ______   Cert. of Qual. or Reg.                          Address
51      ______   Foreign Name Registration                ______ Resgination of Resident Agent
13         13    1 Certified Copy 7 p                     ______ Designation of Resident Agent
56      ______   Penalty                                         and Resident Agent's Address
54      ______   For. Supplemental Cert.                  ______ Other Change ___________________
53      ______   Foreign Resolution                              ________________________________
73      ______   Certificate of Conveyance
                 ________________________________
                 ________________________________
76      ______   Certificate of Merger/Transfer
                 ________________________________
                 ________________________________         Code 154
75      ______   Special Fee
80      ______   For. Limited Partnership                 ATTENTION: Mark Skubia
83      ______   Cert. Limited Partnership
84      ______   Amendment to Limited Partnership         _______________________________________
85      ______   Termination of Limited Partnership
21      ______   Recordation Tax
22      ______   State Transfer Tax                       MAIL TO ADDRESS: ______________________
23      ______   Local Transfer Tax
31      ______   ______ Corp. Good Standing               _______________________________________
NA      ______   Foreign Corp. Registration
87      ______   ______ Limited Part. Good Standing       _______________________________________
71      ______   Financial
600     ______   _________________________ Personal       _______________________________________
                 Property Reports and _____________
                 late filing penalties                    _______________________________________
70      ______   Change of P.O., R.A. or R.A.A.
91      ______   Amend/Cancellation, For. Limited Part.   _______________________________________
_____   ______   Other ________________________________
        ______   Other ________________________________

TOTAL
FEES      103
</TABLE>

                 |X| Check   |_| Cash   NOTE:

1 Documents on 2 checks


APPROVED BY: /s/ JS
             ------------------------

<PAGE>

                            ARTICLES OF INCORPORATION
                                       OF
                            THE FIRST CUBA FUND, INC.

APPROVED AND RECEIVED FOR RECORD BY THE STATE DEPARTMENT OF ASSESSMENTS AND
TAXATION OF MARYLAND MARCH 10, 1992 AT 3:15 O'CLOCK P.M. AS IN CONFORMITY WITH
LAW AND ORDERED RECORDED.

                                   ----------

    ORGANIZATION AND      RECORDING    SPECIAL
CAPITALIZATION FEE PAID    FEE PAID   FEE PAID

$20.00                      $20.00      $____

                                   ----------
                                    D3389186

TO THE CLERK OF THE COURT OF BALTIMORE CITY

      IT IS HEREBY CERTIFIED, THAT THE WITHIN INSTRUMENT, TOGETHER WITH ALL
INDORSEMENTS THEREON, HAS BEEN RECEIVED, APPROVED AND RECORDED BY THE STATE
DEPARTMENT OF ASSESSMENTS AND TAXATION OF MARYLAND.

RECEIVED FOR RECORD      RETURN TO:
 CIRCUIT COURT FOR       UNITED CORPORATE SERVICES
   BALTIMORE CITY        MARK S.
                         9 EAST 40TH STREET, 6TH FLOOR
92 AUG 12 AM 9:26        NEW YORK NY 10016

SAUNDRA E. BANKS, CLERK

                                                                     177C3051280
                                                                         A382995

SEAL     RECORDED IN THE RECORDS OF THE
         STATE DEPARTMENT OF ASSESSMENTS
         AND TAXATION OF MARYLAND IN LIBER, FOLIO
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(A)(2)
<SEQUENCE>3
<FILENAME>articlesofamendment.txt
<TEXT>
================================================================================

                                                                          232602

                                STATE OF MARYLAND

                                  DEPARTMENT OF
                            ASSESSMENTS AND TAXATION
                301 West Preston Street Baltimore, Maryland 21201

                                                             DATE: JULY 23, 1993

      THIS IS TO ADVISE YOU THAT THE ARTICLES OF AMENDMENT WITH A NAME CHANGE
FOR THE FIRST CUBA FUND, INC. CHANGING TO THE HERZFELD CARIBBEAN BASIN FUND,
INC. WERE RECEIVED AND APPROVED FOR RECORD ON JULY 23, 1993 AT 10:14 AM.

FEE PAID: 78.00


                                                              PAULA CARY MCLEAN
SEAL                                                          CHARTER SPECIALIST


================================================================================

<PAGE>

                            THE FIRST CUBA FUND, INC.

                              ARTICLES OF AMENDMENT
                                       TO
                            ARTICLES OF INCORPORATION

      The First Cuba Fund, Inc., a Maryland corporation having its principal
Maryland office in Baltimore, Maryland (the "Corporation"), hereby certifies, in
accordance with Section 2-603 of the Maryland General Corporation Law, to the
State Department of Assessments and Taxation of Maryland that:

      FIRST: The Articles of Incorporation are hereby amended by striking out
Article SECOND and inserting in lieu thereof the following:

      SECOND: The name of the corporation is The Herzfeld Caribbean Basin Fund,
Inc. (the "Corporation").

      SECOND: The Board of Directors of the Corporation on June 24, 1993 by
unanimous vote, approved changing the name of the Corporation to "The Herzfeld
Caribbean Basin Fund, Inc." and adopted a resolution approving the amendment to
the Articles of Incorporation herein made; at the time of such approval, no
shares of stock entitled to be voted on the matter were either outstanding or
subscribed for.

      THIRD: The Articles of Amendment shall be effective on the date such
Articles are accepted for filing by the Department of Assessments and Taxation.

      IN WITNESS WHEREOF, The First Cuba Fund, Inc. has caused these Articles of
Amendment to be signed in its name on it and on its behalf this 20th day of
July, 1993.

                                        THE FIRST CUBA FUND, INC.


                                        By: /s/ Thomas J. Herzfeld
                                            ------------------------------------
                                            Thomas J. Herzfeld
                                            President

ATTEST:


/s/ Cecilia Gondor-Morales
-------------------------------------
Cecilia Gondor-Morales
Secretary

                                STATE OF MARYLAND

I hereby certify that this is a true and complete copy of the 3 page document on
file in this office. DATED: 7-23-93.

                  STATE DEPARTMENT OF ASSESSMENTS AND TAXATION


BY:
    ---------------------------------

This stamp replaces our previous certification system.          Effective: 10/84

<PAGE>

      THE UNDERSIGNED, President of THE FIRST CUBA FUND, INC., who executed on
behalf of the said Corporation the foregoing Articles of Amendment, of which
this instrument is made a part, hereby acknowledges, in the name of and on
behalf of said Corporation, said Articles of Amendment to be the corporate act
of said Corporation and further certifies that, to the best of his knowledge,
information and belief, the matters and facts set forth therein with respect to
the approval thereof are true in all material respects, under the penalties of
perjury.


                                        /s/ Thomas J. Herzfeld
                                        ------------------------------------
                                        Thomas J. Herzfeld
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(B)
<SEQUENCE>4
<FILENAME>bylaws.txt
<TEXT>

                     THE HERZFELD CARIBBEAN BASIN FUND, INC.

                                     BY-LAWS

                                    ARTICLE I

                                     OFFICES

      Section 1. The principal office of the Corporation shall be in the City of
Baltimore, State of Maryland. The Corporation shall also have offices at such
other places as the Board of Directors may from time to time determine or the
business of the Corporation may require.

                                   ARTICLE II

                       STOCKHOLDERS AND STOCK CERTIFICATES

      Section 1. Every stockholder of record shall be entitled to a stock
certificate representing the shares owned by him. Stock certificates shall be in
such form as may be required by law and as the Board of Directors shall
prescribe. Every stock certificate shall be signed by the Chairman or the
President or a Vice President and by the Treasurer or an Assistant Treasurer, or
the Secretary or an Assistant Secretary, and sealed with the corporate seal,
which may be a facsimile, either engraved or printed. Stock certificates may
bear the facsimile signatures of the officers authorized to sign such
certificates.

      Section 2. Shares of the capital stock of the Corporation shall be
transferable only on the books of the Corporation by the person in whose name
such shares are registered, or by his duly authorized attorney or
representative. In all cases of transfer by

<PAGE>

an attorney-in-fact, the original power of attorney, or an official copy thereof
duly certified, shall be deposited and remain with the Corporation or its duly
authorized transfer agent. In case of transfers by executors, administrators,
guardians or other legal representatives, duly authenticated evidence of their
authority shall be produced, and may be required to be deposited and remain with
the Corporation or its duly authorized transfer agent. No transfer shall be made
unless and until the certificate issued to the transferor, if any, shall be
delivered to the Corporation or its duly authorized transfer agent, properly
endorsed.

      Section 3. Any person desiring a certificate for shares of the capital
stock of the Corporation to be issued in lieu of one lost or destroyed shall
make an affidavit or affirmation setting forth the loss or destruction of such
stock certificate, and shall advertise such loss or destruction in such manner
as the Board of Directors may require, and shall, if the Board of Directors
shall so require, give the Corporation a bond or indemnity, in such form and
with such security as may be satisfactory to the Board, indemnifying the
Corporation against any loss that may result upon the issuance of a new stock
certificate. Upon receipt of such affidavit and proof of publication of the
advertisement of such loss or destruction, and the bond, if any, required by the
Board of Directors, a new stock certificate may be issued of the same tenor and
for the number of shares as the one alleged to have been lost or destroyed.

      Section 4. The Corporation shall be entitled to treat the holder of record
of any share or shares of its capital stock as the owner thereof and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
the Corporation shall have express or other notice thereof.


                                       -2-

<PAGE>

                                   ARTICLE III

                            MEETINGS OF STOCKHOLDERS

      Section 1. The Corporation is not required to hold an Annual Meeting in
any year in which the Corporation is not required to convene a meeting under the
Investment Company Act of 1940. In the absence of any specific resolution,
Annual Meetings, if held, shall be held at the Corporation's principal office,
or at such other place within or without the State of Maryland as the Board of
Directors may from time to time prescribe. Meetings of stockholders for any
other purpose may be held at such place and time as shall be fixed by resolution
of the Board of Directors and stated in the Notice of the Meeting, or in a duly
executed Waiver of Notice thereof.

      Section 2. Special meetings of the stockholders may be called at any time
by the Chairman, President or a majority of the members of the Board of
Directors and shall be called by the Secretary upon the written request of the
holders of at least fifty percent of the shares of the capital stock of the
Corporation issued and outstanding and entitled to vote at such meeting. Upon
receipt of a written request from such holders entitled to call a special
meeting, which shall state the purpose of the meeting and the matter proposed to
be acted on at it, the Secretary shall issue notice of such meeting. The cost of
preparing and mailing the notice of a special meeting of stockholders shall be
borne by the Corporation. Special meetings of the stockholders shall be held at
the principal office of the Corporation, or at such other place within or
without the State of Maryland as the Board of Directors may from time to time
direct, or at such place within or without the State of Maryland as shall be
specified in the notice of such meeting.


                                       -3-

<PAGE>

      Section 3. Notice of the time and place of the annual or any special
meeting of the stockholders shall be given to each stockholder entitled to
notice of such meeting not less than ten days nor more than ninety days prior to
the date of such meeting. In the case of special meetings of the stockholders,
the notice shall specify the object or objects of such meeting, and no business
shall be transacted at such meeting other than that mentioned in the notice.

      Section 4. The Board of Directors may close the stock transfer books of
the Corporation for a period not exceeding twenty days preceding the date of any
meeting of stockholders, or the date for payment of any dividend, or the date
for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, or for a period of not exceeding
twenty days in connection with the obtaining of the consent of stockholders for
any purpose; provided, however, that in lieu of closing the stock transfer books
as aforesaid, the Board of Directors may fix in advance a date, not exceeding
ninety days preceding the date of any meeting of stockholders, or the date for
payment of any dividend, or the date for the allotment of rights, or the date
when any change or conversion or exchange of capital stock shall go into effect,
or a date in connection with obtaining such consent, as a record date for the
determination of the stockholders entitled to notice of, and to vote at any such
meeting and any adjournment thereof, or entitled to receive payment of any such
dividend, or to any such allotment of rights, or to exercise the rights in
respect of any such change, conversion or exchange of capital stock or to give
such consent, and in such case such stockholders and only such stockholders as
shall be stockholders of record on the date so fixed shall be entitled to such
notice of, and to vote at, such meeting and any adjournment thereof, or to
receive payment of such dividend or to receive such allotment of rights or to
exercise such rights, or to give such


                                       -4-

<PAGE>

consent, as the case may be, notwithstanding any transfer of any stock on the
books of the Corporation after any such record date fixed as aforesaid.

      Section 5. At all meetings of the stockholders a quorum shall consist of
the holders of a majority of the outstanding shares of the capital stock of the
Corporation entitled to vote at such meeting. In the absence of a quorum no
business shall be transacted except that the stockholders present in person or
by proxy and entitled to vote at such meeting shall have power to adjourn the
meeting from time to time to a date not more than one hundred twenty days after
the original record date without further notice other than announcement at the
meeting. At any such adjourned meeting at which a quorum shall be present any
business may be transacted which might have been transacted at the meeting on
the date specified in the original notice. If a quorum is present at any
meeting, a majority of votes cast is sufficient to approve any matter properly
before the meeting, except as otherwise required in the Investment Company Act
of 1940, and also except a plurality of all votes cast at a meeting at which a
quorum is present shall be sufficient for the election of a director. The
holders of a majority of the shares of capital stock of the Corporation issued
and outstanding and entitled to vote at the meeting who shall be present in
person or by proxy at such meeting shall have power to adjourn the meeting to
any specific time or times, and no notice of any such adjourned meeting need be
given to stockholders absent or otherwise.

      Section 6. At all meetings of the stockholders the following order of
business shall be substantially observed, as far as it is consistent with the
purpose of the meeting:

      Election of Directors;

      Ratification of Selection of Independent Auditors; and


                                       -5-

<PAGE>

      New business.

      Section 7. At any meeting of the stockholders of the Corporation every
stockholder having the right to vote shall be entitled, in person or by proxy
appointed by an instrument in writing subscribed by such stockholder or by his
duly authorized attorney-in-fact and bearing a date not more than eleven months
prior to said meeting unless such instrument provides for a longer period, to
one vote for each share of stock having voting power registered in his name on
the books of the Corporation.

      Section 8. For any proposals to be properly brought before an annual or
special meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation, and the proposal must
involve a fundamental change in the structure of the Corporation. To the fullest
extent permissible under applicable law, the Chairman shall have the authority
to decide whether a stockholder proposal involves a fundamental change in
corporate structure. To be timely, any such notice must be delivered to or
mailed and received at the principal executive offices of the Corporation at
least 60 days, and no more than 90 days, prior to the date of the meeting. Any
such notice by a stockholder shall set forth as to each matter the stockholder
proposes to bring before the annual or special meeting (i) a brief description
of the business desired to be brought before the annual or special meeting and
the reasons for conducting such business at the annual or special meeting, (ii)
the name and address, as they appear on the Corporation's books, of the
stockholders proposing such business, (iii) the number of shares of the capital
stock of the Corporation which are beneficially owned by the stockholder, and
(iv) any material interest of the stockholder in such business. Notwithstanding
anything in the By-Laws to the contrary, no business shall be conducted at any


                                       -6-

<PAGE>

annual or special meeting except in accordance with the procedures set forth in
this Section 8. The Chairman of the annual or special meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section 8, and if he should so determine, he shall so declare to the meeting
that any such business not properly brought before the meeting shall not be
considered or transacted.

                                   ARTICLE IV

                                    DIRECTORS

      Section 1. The Board of Directors shall consist of not less than two nor
more than twelve members; provided that if there are fewer than three
stockholders, then the number of Directors may be the same number as the number
of stockholders, but not less than one. The Board of Directors may by a vote of
the entire board increase or decrease the number of directors without a vote of
the stockholders; provided that any such decrease shall not affect the tenure of
office of any director. Directors need not hold any shares of the capital stock
of the Corporation.

      Section 2. The directors shall be classified with respect to the year of
expiration of their respective terms of office into three (3) classes, each
class consisting of not fewer than one (1) nor more than three (3) directors.
Directors of each class shall hold office for a term of three (3) years, with
the term of one class expiring each year. Upon the adoption of this provision,
the classes and the initial expiration years of their respective terms shall be
as follows and shall carry forward at three-year intervals thereafter:

            Expiration Year
            ---------------
Class I           1997
Class II          1998
Class III         1999


                                       -7-

<PAGE>

At any meeting of stockholders at which any class of directors is to be elected,
the stockholders may determine by resolution the actual number of directors of
that class to be elected, subject to the limits provided above. If no such
resolution is passed, the number of directors to be elected shall be the same as
the number serving within that class. The directors shall be elected by the
stockholders of the Corporation at an annual meeting or at a special meeting
called for such purpose, and shall hold office until their successors shall be
duly elected and shall qualify.

      Section 3. The Board of Directors shall have the control and management of
the business of the Corporation, and in addition to the powers and authority by
these By-Laws expressly conferred upon them, may exercise, subject to the
provisions of the laws of the State of Maryland and of the Articles of
Incorporation of the Corporation, all such powers of the Corporation and do all
such acts and things as are not required by law or by the Articles of
Incorporation to be exercised or done by the stockholders.

      Section 4. The Board of Directors shall have power to fill vacancies
occurring on the Board, whether by death, resignation or otherwise. A vacancy on
the Board of Directors resulting from any cause except an increase in the number
of directors may be filled by a vote of the majority of the remaining members of
the Board, though less than a quorum. A vacancy on the Board of Directors
resulting from an increase in the number of directors may be filled by a
majority of the Board of Directors then in office. A director elected by the
Board of Directors to fill a vacancy shall serve until the next annual meeting,
whenever held, or special meeting called for that purpose, and until his
successor is elected and qualifies.

      Section 5. The Board of Directors shall have power to appoint, and at its
discretion to remove or suspend, any officers, managers, superintendents,
subordinates,

                                       -8-

<PAGE>

assistants, clerks, agents and employees, permanently or temporarily, as the
Board may think fit, and to determine their duties and to fix, and from time to
time to change, their salaries or emoluments, and to require security in such
instances and in such amounts as it may deem proper.

      Section 6. In case of the absence of an officer of the Corporation, or for
any other reason which may seem sufficient to the Board of Directors, the Board
may delegate his or her powers and duties for the time being to any other
officer of the Corporation or to any director.

      Section 7. The Board of Directors may, by resolution or resolutions passed
by a majority of the whole Board, designate one or more committees, each
committee to consist of two or more of the directors of the Corporation which,
to the extent provided in such resolution or resolutions and by applicable law,
shall have and may exercise the powers of the Board of Directors in the
management of the business and affairs of the Corporation. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the Board of Directors. Any such committee shall keep
regular minutes of its proceedings, and shall report the same to the Board when
required.

      Section 8. The Board of Directors may hold their meetings and keep the
books of the Corporation outside of the State of Maryland, at such place or
places as it may from time to time determine.

      Section 9. The Board of Directors shall have power to fix, and from time
to time to change the compensation, if any, of the directors of the Corporation.


                                       -9-

<PAGE>

                                    ARTICLE V

                               DIRECTORS MEETINGS

      Section 1. The first regular meeting of the Board of Directors shall be
held each year within seven business days following the annual meeting of
stockholders at which the Directors are elected. Regular meetings of the Board
of Directors shall also be held without notice at such times and places as may
be from time to time prescribed by the Board.

      Section 2. Special meetings of the Board of Directors may be called at any
time by the Chairman, and shall be called by the Chairman upon the written
request of a majority of the members of the Board of Directors. Unless notice is
waived by all the members of the Board of Directors, notice of any special
meeting shall be given to each director at least twenty-four hours prior to the
date of such meeting, and such notice shall provide the time and place of such
special meeting.

      Section 3. One-third of the entire Board of Directors shall constitute a
quorum for the transaction of business at any meeting; except that if the number
of directors on the Board is less than six, two members shall constitute a
quorum for the transaction of business at any meeting. The act of a majority of
the directors present at any meeting where there is a quorum shall be the act of
the Board of Directors except as may be otherwise required by Maryland law or
the Investment Company Act of 1940.

      Section 4. The order of business at meetings of the Board of Directors
shall be prescribed from time to time by the Board.


                                      -10-

<PAGE>

                                   ARTICLE VI

                               OFFICERS AND AGENTS

      Section 1. At the first meeting of the Board of Directors after the
election of Directors in each year, the Board shall elect a Chairman, a
President and Chief Executive Officer, one or more Vice Presidents, a Secretary
and a Treasurer and may elect or appoint one or more Assistant Secretaries, one
or more Assistant Treasurers, and such other officers and agents as the Board
may deem necessary and as the business of the Corporation may require.

      Section 2. The Chairman of the Board shall be elected from the membership
of the Board of Directors, but other officers need not be members of the Board
of Directors. Any two or more offices may be held by the same person except the
offices of President and Vice President. All officers of the Corporation shall
serve for one year and until their successors shall have been duly elected and
shall have qualified; provided, however, that any officer may be removed at any
time, either with or without cause, by action by the Board of Directors.

                                   ARTICLE VII

                    INDEMNIFICATION OF OFFICERS AND DIRECTORS

      Section 1. The Corporation shall indemnify each officer and director made
party to a proceeding, by reason of service in such capacity, to the fullest
extent, and in the manner provided, under Section 2-418 of the Maryland General
Corporation Law: (i) unless it is proved that the person seeking indemnification
did not meet the standard of conduct set forth in subsection (b)(1) of such
section; and (ii) provided, that the Corporation shall not indemnify any officer
or director for any liability to the Corporation or its security holders arising
from the


                                      -11-

<PAGE>

wilful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such person's office.

      Section 2. The provisions of clause (i) of Section 1 of this Article VII
notwithstanding, the Corporation shall indemnify each officer and director
against 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.

      Section 3. The Corporation, in the manner and to the extent provided by
applicable law, shall advance to each officer and director who is made party to
a proceeding by reason of service in such capacity the reasonable expenses
incurred by such person in connection therewith.

                                  ARTICLE VIII

                               DUTIES OF OFFICERS

                              CHAIRMAN OF THE BOARD

      Section 1. The Chairman of the Board shall preside at all meetings of the
stockholders and the Board of Directors and shall be a member ex officio of all
standing committees. He shall have those duties and responsibilities as shall be
assigned to him by the Board of Directors. In the absence, resignation,
disability or death of the President, the Chairman shall exercise all the powers
and perform all the duties of the President until his return, or until such
disability shall be removed or until a new President shall have been elected.

                                    PRESIDENT

      Section 2. The President shall be the Chief Executive Officer and head of
the Corporation, and in the recess of the Board of Directors shall have the
general control and


                                      -12-

<PAGE>

management of its business and affairs, subject, however, to the regulations of
the Board of Directors.

      The President shall, in the absence of the Chairman, preside at all
meetings of the stockholders and the Board of Directors. In the event of the
absence, resignation, disability or death of the Chairman, the President shall
exercise all powers and perform all duties of the Chairman until his return, or
until such disability shall have been removed or until a new Chairman shall have
been elected.

                                 VICE PRESIDENTS

      Section 3. The Executive Vice President, and the Vice Presidents, shall
have those duties and responsibilities as shall be assigned to them by the
Chairman or the President. In the event of the absence, resignation, disability
or death of the chairman and President, the Executive Vice President shall
exercise all the powers and perform all the duties of the President until his
return, or until such disability shall be removed or until a new President shall
have been elected.

                     THE SECRETARY AND ASSISTANT SECRETARIES

      Section 4. The Secretary shall attend all meetings of the stockholders and
shall record all the proceedings thereof in a book to be kept for that purpose,
and he shall be the custodian of the corporate seal of the Corporation. In the
absence of the Secretary, an Assistant Secretary or any other person appointed
or elected by the Board of Directors, as is elsewhere in these By-Laws provided,
may exercise the rights and perform the duties of the Secretary.

      Section 5. The Assistant Secretary, or, if there be more than one
Assistant Secretary, then the Assistant Secretaries in the order of their
seniority, shall, in the absence or


                                      -13-

<PAGE>

disability of the Secretary, perform the duties and exercise the powers of the
Secretary. Any Assistant Secretary elected by the Board shall also perform such
other duties and exercise such other powers as the Board of Directors shall from
time to time prescribe.

                     THE TREASURER AND ASSISTANT TREASURERS

      Section 6. The Treasurer shall keep full and correct accounts of the
receipts and expenditures of the Corporation in books belonging to the
Corporation, and shall deposit all monies and valuable effects in the name and
to the credit of the Corporation and in such depositories as may be designated
by the Board of Directors, and shall, if the Board shall so direct, give bond
with sufficient security and in such amount as may be required by the Board of
Directors for the faithful performance of his duties.

      He shall disburse funds of the Corporation as may be ordered by the Board
of Directors, taking proper vouchers for such disbursements, and shall render to
the President and Board of Directors at the regular meetings of the Board, or
whenever they may require it, an account of all his transactions on behalf of
the Corporation and of the financial condition of the Corporation, and shall
present each year before the annual meeting of the stockholders a full financial
report of the preceding fiscal year.

      Section 7. The Assistant Treasurer, or, if there be more than one
Assistant Treasurer, then the Assistant Treasurers in the order of their
seniority, shall, in the absence or disability of the Treasurer, perform the
duties and exercise the powers of the Treasurer. Any Assistant Treasurer elected
by the Board shall also perform such duties and exercise such powers as the
Board of Directors shall from time to time prescribe.


                                      -14-

<PAGE>

                                   ARTICLE IX

                           CHECKS, DRAFTS, NOTES, ETC.

      Section 1. All checks shall bear the signature of such person or persons
as the Board of Directors may from time to time direct.

      Section 2. All notes and other similar obligations and acceptances of
drafts by the Corporation shall be signed by such person or persons as the Board
of Directors may from time to time direct.

      Section 3. Any officer of the Corporation or any other employee, as the
Board of Directors may from time to time direct, shall have full power to
endorse for deposit all checks and all negotiable paper drawn payable to his or
their order or to the order of the Corporation.

                                    ARTICLE X

                                 CORPORATE SEAL

      Section 1. The corporate seal of the Corporation shall have inscribed
thereon the name of the Corporation, the year of its organization, and the words
"Corporate Seal, Maryland." Such seal may be used by causing it or a facsimile
thereof to be impressed or affixed or otherwise reproduced.

                                   ARTICLE XI

                                    DIVIDENDS

      Section 1. Dividends upon the shares of the capital stock of the
Corporation may, subject to the provisions of the Articles of Incorporation of
the Corporation, if any, be declared by the Board of Directors at any regular or
special meeting, pursuant to law. Dividends may be paid in cash, in property, or
in shares of the capital stock of the Corporation.


                                      -15-

<PAGE>

      Section 2. Before payment of any dividend there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
Board of Directors may, from time to time, in its absolute discretion, think
proper as a reserve fund to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for such other
purpose as the Board of Directors shall deem to be for the best interests of the
Corporation, and the Board of Directors may abolish any such reserve in the
manner in which it was created.

                                   ARTICLE XII

                                   FISCAL YEAR

      Section 1. The fiscal year of the Corporation shall end on the last day in
June of each year.

                                  ARTICLE XIII

                                     NOTICES

      Section 1. Whenever under the provisions of these By-Laws notice is
required to be given to any director or stockholder, such notice is deemed given
when it is personally delivered, left at the residence or usual place of
business of the director or stockholder, or mailed to such director or
stockholder at such address as shall appear on the books of the Corporation and
such notice, if mailed, shall be deemed to be given at the time it shall be so
deposited in the United States mail postage prepaid. In the case of directors,
such notice may also be given orally by telephone or by telegraph or cable.


                                      -16-

<PAGE>

      Section 2. Any notice required to be given under these By-Laws may be
waived in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein.

                                  ARTICLE XIV

                                   AMENDMENTS

      Section 1. These By-Laws may be amended, altered or repealed by the
affirmative vote of the holders of a majority of the shares of capital stock of
the Corporation issued and outstanding and entitled to vote thereon, or by a
majority of the Board of Directors, as the case may be.


                                      -17-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(D)
<SEQUENCE>5
<FILENAME>certificatespecimen.txt
<TEXT>

<TABLE>
<CAPTION>
                                                    SPECIMEN SHARE CERTIFICATE

----------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>                                                    <C>
               NUMBER                                                                                        SHARES

HCB                                                       [THE HERZFELD
                                                          CARIBBEAN BASIN
                                                         FUND, INC. LOGO]

            COMMON STOCK                                                                                  COMMON STOCK

This Certificate Is Transferable In   Incorporated Under the Laws of the State of Maryland             CUSIP 42804T 10 6
 The City of Boston, Massachusetts                                                           (See Reverse for Certain Definitions)

THIS CERTIFIES THAT






Is the owner of

                      Fully Paid and Nonassessable Shares of Common Stock of the Par Value of $.001 Each of

                                              THE HERZFELD CARIBBEAN BASIN FUND, INC.

    transferable on the books of the Corporation by the holder hereof, in person or by duly authorized attorney, upon surrender
        of this Certificate properly endorsed. This Certificate is not valid until countersigned by the Transfer Agent and
                                                   registered by the Registrar.

            Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.

Dated:

    /s/ Cecilia Gondor-Morales                                                                      /s/ Thomas J. Herzfeld
    --------------------------                                                                      ------------------------
           Secretary                                        [SEAL]                                          President
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

                     THE HERZFELD CARIBBEAN BASIN FUND, INC.

      The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

      TEN COM - as tenants in common   UNIF GIFT MIN ACT - _____ Custodian _____
                                                           (Cust)        (Minor)

      TEN ENT - as tenants by the
                entireties                                  Under Uniform Gifts
                                                            to Minors Act

      JT TEN - as joint tenants with
               right of survivorship and not as         ________________________
               tenants in common                                 (State)

     Additional abbreviations may also be used though not in the above list.

For Value received                         hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
    IDENTIFYING NUMBER OF ASSIGNEE

---------------------------------------

________________________________________________________________________________
        (NAME AND ADDRESS OF TRANSFEREE SHOULD BE PRINTED OR TYPEWRITTEN)

________________________________________________________________________________

_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate and do hereby
irrevocably constitute and appoint

_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.

Dated
      -----------------------------------         ------------------------------
                                                             SIGNATURE

SIGNATURES GUARANTEED

By
   --------------------------------------
   THE SIGNATURE(S) SHOULD BE GUARANTEED
   BY AN ELIGIBLE GUARANTOR INSTITUTION,
   (Banks, Stockbrokers, Savings and Loan
   Associations and Credit Unions) WITH
   MEMBERSHIP IN AN APPROVED SIGNATURE
   GUARANTEE MEDALLION PROGRAM PURSUANT
   TO S.E.C. RULE 17AD-15.

NOTICE THE SIGNATURE OF THE ASSIGNMENT MUST CORRESPOND WITH NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTCULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(G)
<SEQUENCE>6
<FILENAME>investmentadvisoryagreement.txt
<TEXT>
                          INVESTMENT ADVISORY AGREEMENT

                               September 10, 1993

HERZFELD/CUBA
The Herzfeld Building
P.O. Box 161465
Miami, FL 33116

Dear Sirs:

The Herzfeld Caribbean Basin Fund, Inc. (the "Fund"), a corporation organized
under the laws of the State of Maryland, confirms its investment advisory
agreement with HERZFELD/CUBA, a division of Thomas J. Herzfeld Advisors, Inc.
(the "Adviser"), as follows:

1.    Investment Description; Appointment

The Fund desires to employ its capital by investing and reinvesting In
investments of the kind and in accordance with the limitations specified in its
Articles of Incorporation, as amended from time to time (the "Articles of
Incorporation"), and in its Registration Statement on Form N-2 under the
Investment Company Act of 1940 (the "1940 Act") as from time to time in effect
(the "Registration Statement") and in such manner and to such extent as may from
time to time be approved by the Fund's Board of Directors. Copies of the
Articles of Incorporation and the registration Statement have been submitted to
the Adviser. The Fund desires to employ and hereby appoints the Adviser to act
as its investment adviser. The Adviser accepts the appointment and agrees to
furnish the services set forth below for the compensation set forth below.

2.    Services as Investment Adviser

Subject to the supervision and direction of the Fund's Board of Directors, the
Adviser will (a) act in strict conformity with the Articles of Incorporation,
the 1940 Act and the Investment Advisers Act of 1940 ("Advisers Act") and all
applicable rules and regulations, as the same may from time to time be amended,
(b) place purchase and sale orders in accordance with the Fund's investment
objective, policies and restrictions as stated in the Registration Statement and
select brokers and dealers to execute portfolio transactions on behalf of the

<PAGE>

Fund. In addition, the Adviser will furnish the Fund with whatever statistical
information the Fund may reasonably request with respect to the securities that
the Fund may hold or contemplate purchasing.

3.    Brokerage

In executing transactions for the Fund and selecting brokers and dealers, the
Adviser will use its best efforts to seek the best overall terms available. In
assessing the best overall terms available for any transaction on behalf of the
Fund, the Adviser will consider all factors it deems relevant including, but not
limited to, the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer and the reasonableness of any commission for the specific transaction and
on a continuing basis The Adviser may use an affiliated broker or brokers to
execute transactions on an agency basis on exchanges and for over-the-counter
purchases and sales and receive stated commissions therefrom in accordance with
Section 11(a) of the Securities Exchange Act of 1934 and Rule 11a2-a(T)
thereunder and subject to any other applicable laws and regulations. The Adviser
may transact over-the-counter purchases and sales with principal market makers
directly in those cases in which better prices and executions may be obtained.
Subject to obtaining best price and execution, the Adviser may direct orders for
transactions by the Fund to brokers who provide supplemental research, market
and statistical information to the Adviser or its affiliates. For purposes of
this paragraph, "research, market and statistical information" includes advice
as to the value of securities, the advisability of investing in, purchasing or
selling securities, and the availability of securities or purchasers or sellers
of securities, furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts and other materials and data that provide lawful and appropriate
assistance to the Adviser in the performance of its investment decision-making
responsibilities. Such information may be used by the Adviser and its affiliates
in providing services to clients other than the Fund.

4. Information Provided to the Fund

The adviser will keep the Fund informed of developments materially affecting the
Fund, and will, furnish the Fund from time to time with whatever information the
Adviser believes is appropriate for this purpose or the Fund reasonably
requests.

5.    Liability of the Adviser.

The Adviser may rely on information reasonably believed by it to be accurate and
reliable. Except as may otherwise be provided by the 1940 Act, neither the
Adviser nor its stockholders, officers, directors,

<PAGE>

employees or agents shall be subject to, and the Fund shall indemnify and hold
such persons harmless from and against, any liability for and any damages,
expenses or losses incurred in connection with any act or omission in the course
of, connected with or arising out of any services to be rendered hereunder,
except by reason of willful misfeasance, bad faith or gross negligence in the
performance of the Adviser's duties or by reason of reckless disregard of the
Adviser's obligations and duties under this Agreement.

6.    Compensation

In consideration of the services rendered pursuant to this Agreement, the Fund
will pay the Adviser on the first business day of each month a fee for the
previous month at the annual rate of 1.45% of the Fund's average weekly net
assets. The fee for the period from the date of the Fund's initial registration
statement is declared effective shall be prorated according to the proportion
that such periods bears to the full monthly payment period. Upon any termination
of this Agreement before the end of a month, the fee for such part of that month
shall be prorated according to the proportion that such period bears to the full
monthly period and shall be payable upon the date of termination of this
Agreement. For the purpose of determining fees payable to the Adviser, the value
of the Fund's net assets shall be computed at the times and in the manner
specified in the Registration Statement.

7.    Expenses

The Adviser will bear all expenses in connection with the performance of its
services under this Agreement. The Fund will bear certain other expenses to be
incurred in its operation, including: expenses for legal and independent
accountants' services, costs of printing proxies, stock certificates,
shareholder reports, charges of the custodian, any sub-custodian and transfer
and dividend paying agent, Securities and Exchange Commission fees, and fees and
expenses of unaffiliated directors, accounting and pricing costs, membership
fees in trade associations, fidelity bond coverage for the Fund's officers and
employees, directors' and officers' errors and omissions insurance coverage,
interest, brokerage costs, taxes, stock exchange listing fees and expenses,
expenses of qualifying the Fund's shares for sale in various states, litigation
and other extraordinary or non-recurring expenses, and other expenses properly
payable by the Fund.

8.    Services to Other Companies or Accounts

The Fund understands that the Adviser may act in the future as investment
adviser to other investment companies or portfolios, and the Fund has no
objection to the Adviser so acting, provided that whenever the Fund and one or
more other portfolios or investment companies advised by the adviser have
available funds for investment,

<PAGE>

investments suitable and appropriate for each will be allocated in a manner
believed to be equitable to each entity. The Fund recognizes that in some cases
this procedure may adversely affect the size of the position obtainable for the
Fund. Nothing contained herein shall be deemed to limit or restrict the right of
the Adviser or any affiliate of the Adviser to engage in and devote time and
attention to other businesses or to render services of whatever kind of nature.

9.    Name of the Fund

The Fund may use the word "Herzfeld" in its name only as long as the Adviser is
the investment adviser of the Fund. The Fund hereby acknowledges that the
Adviser may at any time permit others to use the word "Herzfeld".

10.   Term of Agreement

This Agreement shall continue until September 10, 1995 and thereafter shall
continue automatically for successive annual periods, provided such continuance
is specifically approved at least annually by (i) the Fund's Board of Directors
or (ii) a vote of a "majority" (as defined in the 1940 Act) of the Fund's
outstanding voting securities, provided that in either event the continuance is
also approved by a majority of the Board of Directors who are not "interested
persons" (as defined in the 1940 Act) of any party to the Agreement, by vote
cast in person at a meeting called for the purpose of voting on such approval.
This Agreement is terminable, without penalty, on 60 days' written notice, by
the Fund's Board of Directors, by vote of holders of a majority of the Fund's
shares, or by the Adviser. This Agreement will also terminate automatically in
the event of its assignment (as defined in the 1940 Act and the rules
thereunder).

11.   Miscellaneous

(a) This Agreement shall be construed in accordance with the laws of the State
of Florida, provided that nothing herein shall be construed as being
inconsistent with the 1940 Act, the Advisers Act and any rules, regulations and
orders of the SEC.

(b) The captions in this Agreement are included for the convenience only and in
no way define or delimit any of the provisions hereof or otherwise affect their
construction or effect.

(c) If any provision of the Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise the remainder of this Agreement shall not
be effected hereby and, to this extent, the provisions of this Agreement shall
be deemed to be severable.

<PAGE>

(d) Nothing herein shall be construed as constituting the Adviser an agent of
the Fund.

If the foregoing is in accordance with your understanding, kindly indicate your
acceptance of this Agreement by signing and returning the enclosed copy.

                                        Very truly yours,

                                        THE HERZFELD CARIBBEAN BASIN FUND, INC.


                                        By: /s/ Thomas J. Herzfeld
                                            ------------------------------------
                                            Thomas J. Herzfeld
                                            Chairman

Accepted:

HERZFELD/CUBA, a division of
  Thomas J. Herzfeld Advisors, Inc.


By: /s/ Thomas J. Herzfeld
    ---------------------------------
    Thomas J. Herzfeld
    President
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(J)
<SEQUENCE>7
<FILENAME>custodianagreement_autosaved.txt
<TEXT>
INVESTORS
--------------------------------------------------------------------------------
BANK & TRUST

Cecilia Gondor
Herzfeld Advisors
10491 SW 97th Avenue
Miami, FL 33176

      Re:   The Custodian Contract (as amended, the "Custodian Contract")
            between Investors Bank & Trust Company ("CuIstodian) and The
            Herzfeld Caribbean Basin Fund, Inc. (the Client")

Dear Cecilia:

      As you know, Rule 17f-4 under the Investment Company Act of 1940 ("Rule
17f-4") has been amended, and such amendments will become effective on March 28,
2003. In order for you to be in compliance with amended Rule 17f-4, we agree to
the terms and conditions below effective March 28, 2003.

      In addition to any other duties of the Custodian set forth in the
Custodian Contract, the Custodian agrees that, in connection with placing and
maintaining financial assets, corresponding to the Trust's security
entitlements, with a securities depository or intermediary custodian:

      1.    The Custodian will, at a minimum, exercise due care in accordance
            with reasonable commercial standards in discharging its duty as a
            securities intermediary to obtain and thereafter maintain such
            financial assets;

      2.    The Custodian shall provide, promptly upon request by the Client,
            such reports as are generally made available to its clients
            concerning the internal accounting controls and financial strength
            of the Custodian; and

      3.    The Custodian shall use its best efforts to require any intermediary
            custodian at a minimum to exercise due care in accordance with
            reasonable commercial standards in discharging its duty as a
            securities intermediary to obtain and thereafter maintain financial
            assets corresponding to the security entitlements of its entitlement
            holders.

      Except as set forth in the preceding paragraphs, the terms and provisions
of the Custodian Contract shall remain in full force and effect. Please note
that this letter shall be governed by and construed in accordance with the laws
of the same jurisdiction named in the Custodian Contract, if any. Terms not
defined herein have the meanings set forth in Rule l7f-4.

                                        Very truly yours,

                                        INVESTORS BANK & TRUST COMPANY

                                        By: /s/ Andrew M. Nesvet
                                            -----------------------------------
                                            Name: Andrew M. Nesvet
                                            Title: Managing Director

     200 Clarendon Street, Boston, Massachusetts 02116-5021. (617) 937-6700.
                                  www.ibtco.com

<PAGE>

                               CUSTODIAN AGREEMENT

                                     Between

                     THE HERZFELD CARIBBEAN BASIN FUND, INC.

                                       and

                         INVESTORS BANK & TRUST COMPANY

<PAGE>

                               TABLE OF CONTENTS

                                                                            Page
                                                                            ----
1.    Bank Appointed Custodian 1

2.    Definitions                                                              1

            2.1  Authorized Person                                             1
            2.2   Security                                                     1
            2.3  Portfolio Security                                            1
            2.4  Officers' Certificate                                         1
            2.5  Book-Entry System                                             2
            2.6  Depository                                                    2
            2.7  Proper Instructions                                           2
            2.8  Foreign Securities                                            2
            2.9  Eligible Foreign Custodian                                    2

3.    Separate Accounts                                                        2

4.    Certification as to Authorized Persons                                   2

5.    Custody of Cash                                                          3

            5.1  Purchase of Securities                                        3
            5.2  Distributions and Expenses of Fund                            3
            5.3  Payment in Respect of Securities                              3
            5.4  Repayment of Loans                                            3
            5.5  Repayment of Cash                                             3
            5.6  Foreign Exchange Transactions                                 3
            5.7  Other Authorized Payments                                     4
            5.8  Termination                                                   4

6.    Securities                                                               4

            6.1  Segregation and Registration                                  4
            6.2  Voting and Proxies                                            4
            6.3  Book-Entry System                                             5
            6.4  Use of a Depository                                           6
            6.5  Use of a Book-Entry System for Commercial Paper               7
            6.6  Use of Immobilization Programs                                8
            6.7  Eurodollar CDs                                                8

<PAGE>

                                                                            Page
                                                                            ----
            6.8  Options and Future Transactions
                     (a) Puts and Calls Traded on Securities Exchanges,
                        NASDAQ or Over-the-Counter                             8
                     (b) Puts, Calls and Futures Traded on Commodities
                        Exchanges                                              9
            6.9  Segregated Account                                            9
            6.10 Interest Bearing Call or Time Deposits                       11
            6.11 Transfer of Securities                                       11

7.    Merger, Dissolution, etc. of Fund                                       13

8.    Actions of Bank Without Prior Authorization                             13

9.    Collection, Defaults                                                    14

10.   Maintenance of Records; Accounting Services                             14

11.   Fund Evaluation                                                         14

12.   Concerning the Bank                                                     15

            12.1 Performance of Duties; Standard of Care                      15
            12.2 Agents and Subcustodians                                     16
            12.3 Insurance                                                    16
            12.4 Fees and Expenses of Bank                                    17
            12.5 Advances by Bank                                             17

13.   Termination                                                             17

14.   Notices                                                                 18

15.   Amendments                                                              18

16.   Parties                                                                 19

17.   Governing Law                                                           19

18.   Use of Name                                                             19

<PAGE>

                               CUSTODIAN AGREEMENT

      AGREEMENT made as of this 30th day of December, 1993 between THE HERZFELD
CARIBBEAN BASIN FUND, INC. a Maryland corporation (the "Fund") and INVESTORS
BANK & TRUST COMPANY (the "Bank").

      The Fund, a closed-end management investment company, desires to place and
maintain all of its portfolio securities and cash in the custody of the Bank.
The Bank has at least the minimum qualifications required by Section 17(f)(l) of
the Investment Company Act of 1940 (the "Act") to act as custodian of the
portfolio securities and cash of the Fund, and has indicated its willingness to
so act, subject to the terms and conditions this Agreement.

      NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:

      1. Bank Appointed Custodian. The Fund hereby appoints the Bank as
custodian of its portfolio securities and cash delivered to the Bank as
hereinafter described and the Bank agrees to act as such upon the terms and
conditions hereinafter set forth.

      2. Definitions. Whenever used herein, the terms listed below will have the
following meaning:

            2.1. Authorized Person. Authorized Person will mean any of the
persons duly authorized to give Proper Instructions or otherwise act on behalf
of the Fund by appropriate resolution of its Board of Directors (the `Board"),
and set forth in a certificate as required by Section 4 hereof.

            2.2. Security. The term security as used herein will have the same
meaning as when such term is used in the Securities Act of 1933 as amended,
including, without limitation, any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest or participation in any profit
sharing agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
a foreign currency, or, in general, any interest or instrument commonly known as
a "security", or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to, or option contract to purchase or sell any of the foregoing and
futures, forward contracts and options thereon.

            2.3. Portfolio Security. Portfolio Security will mean any Security
owned by the Fund.

<PAGE>

            2.4. Officers' Certificate. Officers' Certificate will mean, unless
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Fund.

            2.5. Book-Entry System. Book-Entry System shall mean the Federal
Reserve-Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor or successors and its nominee or nominees.

            2.6. Depository. Depository shall mean any clearing agency
registered with the Securities and Exchange Commission under Section 17A of the
Securities Exchange Act of 1934 which acts as a securities depository, and its
nominee or nominees.

            2.7. Proper Instructions. Proper Instructions shall mean (i)
instructions regarding the purchase or sale of Portfolio Securities, and
payments and deliveries in connection therewith, given by an Authorized Person,
such instructions to be given in such form and manner as the Bank and the Fund
shall agree upon from time to time, and (ii) instructions (which may be
continuing instructions) regarding other matters signed or initialed by such one
or more Authorized Persons. Oral instructions will be considered Proper
Instructions if the Bank reasonably believes them to have been given by a person
authorized to give such instructions with respect to the transaction involved.
The Fund shall cause all oral instructions to be promptly confirmed in writing.
The Bank shall act upon and comply with any subsequent Proper Instruction which
modifies a prior instruction and the sole obligation of the Bank with respect to
any follow-up or confirmatory instruction shall be to make reasonable efforts to
detect any discrepancy between the original instruction and such confirmation
and to report such discrepancy to the Fund. The Fund shall be responsible, at
the Fund's expense, for taking any action, including any reprocessing, necessary
to correct any such discrepancy or error, and to the extent such action requires
the Bank to act the Fund shall give the Bank specific Proper Instructions as to
the action required. Upon receipt of an Officers' Certificate as to the
authorization by the Board accompanied by a detailed description of procedures
approved by the Fund, Proper Instructions may include communication effected
directly between electro-mechanical or electronic devices provided that the
Board and the Bank are satisfied that such procedures afford adequate safeguards
for the Fund's assets.

            2.8. Foreign Securities. Foreign Securities shall have the meaning
ascribed to the term in Rule 17f-5 of the Act.

            2.9. Eligible Foreign Custodian. Eligible Foreign Custodian shall
have the meaning ascribed to the term in Rule 17f-5 of the Act.

      3. Separate Accounts. If the Fund has more than one series or portfolio,
the Bank will segregate the assets of each series or portfolio to which this
Agreement relates into a separate account for each such series or portfolio
containing the assets of such series or portfolio (and all investment earnings
thereon).


                                        2

<PAGE>

      4. Certification as to Authorized Person. The Secretary or Assistant
Secretary of the Fund will at all times maintain on file with the Bank his
certification to the Bank, in such form as may be acceptable to the Bank, of (i)
the names and signatures of the Authorized Persons and (ii) the names of the
members of the Board, it being understood that upon the occurrence of any change
in the information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Fund will sign a new or amended certification setting forth the
change and the new, additional or omitted names or signatures. The Bank will be
entitled to rely and act upon any Officers' Certificate or Proper Instructions
given to it by Authorized Persons named in the most recent certification.

      5. Custody of Cash. As custodian for the Fund, the Bank will open and
maintain a separate account or accounts in the name of the Fund or in the name
of the Bank, as Custodian of the Fund, and will deposit to the account of the
Fund all of the cash of the Fund, except for cash held by a subcustodian
appointed pursuant to Section 12.2 hereof, including borrowed funds, delivered
to the Bank, subject only to draft or order by the Bank acting pursuant to the
terms of this Agreement. Upon receipt by the Bank of Proper Instructions (which
may be continuing instructions) requesting such payment, designating the payee
or the account or accounts to which the Bank will release funds for deposit, and
stating that it is for a purpose permitted under the terms of this Section 5,
specifying the applicable subsection, or describing such purpose with sufficient
particularity to permit the Bank to ascertain the applicable subsection, the
Bank will make payments of cash held for the accounts of the Fund, insofar as
funds are available for that purpose, only as permitted in subsections 5.1-5.8
below.

            5.1. Purchase of Securities. Upon the purchase of Portfolio
Securities for the Fund, against contemporaneous receipt of such Portfolio
Securities by the Bank registered in the name of the Fund or in the name of, or
properly endorsed and in form for transfer to, the Bank, or a nominee of the
Bank, or receipt for the account of the Bank pursuant to the provisions of
Section 6 below, each such payment to be made at the purchase price shown in the
Proper Instructions received by the Bank before such payment is made;

            5.2. Distributions and Expenses of Fund. For the payment on the
account of the Fund of dividends or other distributions to shareholders as may
from time to time be declared by the Board, interest, taxes, management or
supervisory fees, fees of the Bank for its services hereunder and reimbursement
of the expenses and liabilities of the Bank as provided hereunder, fees of any
transfer agent, fees for legal, accounting, and auditing services, or other
operating expenses of the Fund;

            5.3. Payment in Respect of Securities. For payments in connection
with the conversion, exchange or surrender of Portfolio Securities or Portfolio
Securities subscribed to by the Fund held by or to be delivered to the Bank;

            5.4. Repayment of Loans. To repay loans of money made to the Fund,
but, in the case of final payment, only upon redelivery to the Bank of any
Portfolio Securities pledged or hypothecated therefor and upon surrender of
documents evidencing the loan;


                                        3

<PAGE>

            5.5. Repayment of Cash. To repay the cash delivered to the Fund for
the purpose of collateralizing the obligation to return to the Fund certificates
borrowed from the Fund representing Portfolio Securities, but only upon
redelivery to the Bank of such borrowed Portfolio Securities;

            5.6. Foreign Exchange Transactions. For payments in connection with
foreign exchange contracts or options to purchase and sell foreign currencies
for spot and future delivery which may be entered into by the Bank on behalf of
the Fund upon the receipt of Proper Instructions, such Proper Instructions to
specify the currency broker or banking institution (which may be the Bank, or
any other subcustodian or agent hereunder, acting as principal) with which the
contract or option is made, and the Bank shall have no duty with respect to the
selection of such currency brokers or banking institutions with which the Fund
deals or for their failure to comply with the terms of any contract or option;

            5.7. Other Authorized Payments. For other authorized transactions of
the Fund, or other obligations of the Fund incurred for proper Fund purposes;
provided that before making any such payment the Bank will also receive a
certified copy of a resolution of the Board signed by an Authorized Person
(other than the Person certifying such resolution) and certified by its
Secretary or Assistant Secretary, naming the person or persons to whom such
payment is to be made, and either describing the transaction for which payment
is to be made and declaring it to be an authorized transaction of the Fund, or
specifying the amount of the obligation for which payment is to be made, setting
forth the purpose for which such obligation was incurred and declaring such
purpose to be a proper corporate purpose; and

            5.8. Termination. Upon the termination of this Agreement as
hereinafter set forth pursuant to Section 7 and Section 13 of this Agreement.

      6. Securities.

            6.1. Segregation and Registration. Except as otherwise provided
herein, and except for Portfolio Securities to be delivered to any subcustodian
appointed pursuant to Section 12.2 hereof, the Bank as custodian, will receive
and hold pursuant to the provisions hereof, in a separate account or accounts
and physically segregated at all times from those of other persons, any and all
Portfolio Securities which may now or hereafter be delivered to it by or for the
account of the Fund. All such Portfolio Securities will be held or disposed of
by the Bank for, and subject at all times to, the instructions of the Fund
pursuant to the terms of this Agreement. Subject to the specific provisions
herein relating to Portfolio Securities that are not physically held by the
Bank, the Bank will register all Portfolio Securities (unless otherwise directed
by Proper Instructions or an Officers' Certificate), in the name of a registered
nominee of the Bank as defined in the Internal Revenue Code and any Regulations
of the Treasury Department issued thereunder, and will execute and deliver all
such certificates in connection therewith as may be required by such laws or
regulations or under the laws of any state. The Bank will use its best efforts
to the end that the specific Portfolio Securities held by it hereunder will be
at all times identifiable.


                                        4

<PAGE>

         The Fund will from time to time furnish to the Bank appropriate
instruments to enable it to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee, any Portfolio Securities which
may from time to time be registered in the name of the Fund.

            6.2. Voting and Proxies. Neither the Bank nor any nominee of the
Bank will vote any of the Portfolio Securities held hereunder, except in
accordance with Proper Instructions or an Officers' Certificate. The Bank will
execute and deliver, or cause to be executed and delivered, to the Fund all
notices, proxies and proxy soliciting materials with respect to such Securities,
such proxies to be executed by the registered holder of such Securities (if
registered otherwise than in the name of the Fund), but without indicating the
manner in which such proxies are to be voted.

            6.3. Book-Entry System. Provided the Bank has received a certified
copy of a resolution of the Board specifically approving deposits of Fund assets
in the Book-Entry System, and the Bank has not received an Officer's Certificate
indicating that the Board has withdrawn its approval:

            (a) The Bank may keep Portfolio Securities in the Book-Entry System
      provided that such Portfolio Securities are represented in an account
      ("Account") of the Bank (or its agent) in such System which shall not
      include any assets of the Bank (or such agent) other than assets held as a
      fiduciary, custodian, or otherwise for customers.

            (b) The records of the Bank (and any such agent) with respect to the
      Fund's participation in the Book-Entry System through the Bank (or any
      such agent) will identify by book entry Portfolio Securities which are
      included with other securities deposited in the Account and shall at all
      times during the regular business hours of the Bank (or such agent) be
      open for inspection by duly authorized officers, employees or agents of
      the Fund. Where Portfolio Securities are transferred to the Fund's
      account, the Bank shall also, by book entry or otherwise, identify as
      belonging to the Fund a quantity of Portfolio Securities in fungible bulk
      of securities (i) registered in the name of the Bank or its nominee, or
      (ii) shown on the Bank's account on the books of the Federal Reserve Bank.

            (c) The Bank (or its agent) shall pay for Portfolio Securities
      purchased for the account of the Fund or shall pay cash collateral against
      the return of Portfolio Securities loaned by the Fund upon (i) receipt of
      advice from the Book-Entry System that such Securities have been
      transferred to the Account, and (ii) the making of an entry on the records
      of the Bank (or its agent) to reflect such payment and transfer for the
      account of the Fund. The Bank (or its agent) shall transfer Portfolio
      Securities sold or loaned for the account of the Fund upon

                  (i) receipt of advice from the Book-Entry System that payment
      for Portfolio Securities sold or payment of the initial cash collateral
      against the delivery of Portfolio Securities loaned by the Fund has been
      transferred to the Account, and


                                        5

<PAGE>

                  (ii) the making of an entry on the records of the Bank (or its
      agent) to reflect such transfer and payment for the account of the Fund.
      Copies of all advices from the Book-Entry System of transfers of Portfolio
      Securities for the account of the Fund shall identify the Fund, be
      maintained for the Fund by the Bank and shall be provided to the Fund at
      its request. The Bank shall send the Fund a confirmation, as defined by
      Rule 17f-4 of the Act, of any transfers to or from the account of the
      Fund.

            (d) The Bank will promptly provide the Fund with any report obtained
      by the Bank or its agent on the Book-Entry System's accounting system,
      internal accounting control and procedures for safeguarding Portfolio
      Securities deposited in the Book-Entry System.

            (e) The Bank shall be liable to the Fund for any loss or damage to
      the Fund resulting from use of the Book-Entry System by reason of any
      gross negligence, willful misfeasance or bad faith of the Bank or any of
      its agents or of any of its or their employees or from any reckless
      disregard by the Bank or any such agent of its duty to use its best
      efforts to enforce such rights as it may have against the Book-Entry
      System; at the election of the Fund, it shall be entitled to be subrogated
      for the Bank in any claim against the Book-Entry System or any other
      person which the Bank or its agent may have as a consequence of any such
      loss or damage if and to the extent that the Fund has not been made whole
      for any loss or damage.

            6.4. Use of a Depository. Provided the Bank has received a certified
copy of a resolution o the Board specifically approving deposits in a Depository
and the Bank has not received an Officer's Certificate indicating that the Board
has withdrawn its approval:

            (a) The Bank may use a Depository to hold, receive, exchange,
      release, lend, deliver and otherwise deal with Portfolio Securities
      including stock dividends, rights and other items of like nature, and to
      receive and remit to the Bank on behalf of the Fund all income and other
      payments thereon and to take all steps necessary and proper in connection
      with the collection thereof.

            (b) Registration of Portfolio Securities may be made in the name of
      any nominee or nominees used by such Depository.

            (c) Payment for Portfolio Securities purchased and sold may be made
      through the clearing medium employed by such Depository for transactions
      of participants acting through it. Upon any purchase of Portfolio
      Securities, payment will be made only upon delivery of the Portfolio
      Securities to or for the account of the Fund and the Fund shall pay cash
      collateral against the return of Portfolio Securities loaned by the Fund
      only upon delivery of the Securities to or for the account of the Fund;
      and upon any sale of Portfolio Securities, delivery of the Securities will
      be made only against payment thereof or, in the event Portfolio Securities
      are loaned, delivery of Securities will be made only against receipt of
      the initial cash collateral to or for the account of the Fund.


                                        6

<PAGE>

            (d) The Bank shall be liable to the Fund for any loss or damage to
      the Fund resulting from use of a Depository by reason of any gross
      negligence, wilful misfeasance or bad faith of the Bank or its employees
      or from any reckless disregard by the Bank of its duty to use its best
      efforts to enforce such rights as it may have against a Depository. In
      this connection, the Bank shall use its best efforts to ensure that:

                  (i) The Depository obtains replacement of any certificated
            Portfolio Security deposited with it in the event such Security is
            lost, destroyed, wrongfully taken or otherwise not available to be
            returned to the Bank upon its request;

                  (ii) Any proxy materials received by a Depository with respect
            to Portfolio Securities deposited with such Depository are forwarded
            immediately to the Bank for prompt transmittal to the Fund;

                  (iii) Such Depository immediately forwards to the Bank
            confirmation of any purchase or sale of Portfolio Securities and of
            the appropriate book entry made by such Depository to the Fund's
            account;

                  (iv) Such Depository prepares and delivers to the Bank such
            records with respect to the performance of the Bank's obligations
            and duties hereunder as may be necessary for the Fund to comply with
            the recordkeeping requirements of Section 31(a) of the Act and Rule
            31a thereunder; and

                  (v) Such Depository delivers to the Bank and the Fund all
            internal accounting control reports, whether or not audited by an
            independent public accountant, as well as such other reports as the
            Fund may reasonably request in order to verify the Portfolio
            Securities held by such Depository.

            6.5. Use of Book-Entry System for Commercial Paper. Provided the
Bank has received a certified copy of a resolution of the Board specifically
approving participation in a system maintained by the Bank for the holding of
commercial paper in book-entry form ("Book Entry Paper") and the Bank has not
received an Officer's Certificate withdrawing such approval, upon receipt of
Proper Instructions and upon receipt of confirmation from an Issuer (as defined
below) that the Fund has purchased such Issuer's Book Entry Paper, the Bank
shall issue and hold in book-entry form, on behalf of the Fund, commercial paper
issued by issuers with whom the Bank has entered into a book-entry agreement
(the "Issuers"). In maintaining its Book Entry Paper System, the Bank agrees
that:

            (a) the Bank will maintain all Book Entry Paper held by the Fund in
      an account of the Bank that includes only assets held by it for customers;

            (b) the records of the Bank with respect to the Fund's purchase of
      Book Entry Paper through the Bank will identify, by book entry, Commercial
      Paper belonging to the Fund which is included in the Book Entry Paper
      System and shall at all times during the regular business hours of the
      Bank be open for inspection by duly authorized officers, employees or
      agents of the Fund.


                                        7

<PAGE>

            (c) The Bank shall pay for Book Entry Paper purchased for the
      account of the Fund upon contemporaneous (i) receipt of advice from the
      Issuer that such sale of Book Entry Paper has been effected, and (ii) the
      making of an entry on the records of the Bank to reflect such payment and
      transfer for the account of the Fund.

            (d) The Bank shall cancel such Book Entry Paper obligation upon the
      maturity thereof upon contemporaneous (i) receipt of advice that payment
      for such Book Entry Paper has been transferred to the Fund, and (ii) the
      making of an entry on the records of the Bank to reflect such payment for
      the account of the Fund.

            (e) the Bank shall transmit to the Fund a transaction journal
      confirming each transaction in Book Entry Paper for the account of the
      Fund on the next business day following the transaction; and

            (f) the Bank will send to the Fund such reports on its system of
      internal accounting control with respect to the Book Entry Paper System as
      the Fund may reasonably request from time to time.

            6.6. Use of Immobilization Programs. Provided the Bank has received
a certified copy of a resolution of the Board specifically approving the
maintenance of Portfolio Securities in an immobilization program operated by a
bank which meets the requirements of Section 26(a)(1) of the Act, and the Bank
has not received an Officer's Certificate indicating that the Board has
withdrawn its approval, the Bank shall enter into such immobilization program
with such bank acting as a subcustodian hereunder.

            6.7. Eurodollar CDs. Any Portfolio Securities which are Eurodollar
CDs may be physically held by the European branch of the U.S. banking
institution that is the issuer of such Eurodollar CD (a "European Branch"),
provided that such Securities are identified on the books of the Bank as
belonging to the Fund and that the books of the Bank identify the European
Branch holding such Securities. Notwithstanding any other provision of this
Agreement to the contrary, except as stated in the first sentence of this
subsection 6.7, the Bank shall be under no other duty with respect to such
Eurodollar CDs belonging to the Fund, and shall have no liability to the Fund or
its shareholders with respect to the actions, inactions, whether negligent or
otherwise of such European Branch in connection with such Eurodollar CDs, except
for any loss or damage to the Fund resulting from the Bank's own gross
negligence, wilful misfeasance or bad faith in the performance of its duties
hereunder.

            6.8. Options and Futures Transactions.

            (a) Puts and Calls Traded on Securities Exchanges, NASDAQ or
      Over-the-Counter.

                  1. The Bank shall take action as to put options ("puts") and
            call options ("calls") purchased or sold (written) by the Fund
            regarding escrow or other arrangements in accordance with the
            provisions of any agreement entered into upon receipt of Proper
            Instructions between the Bank, any broker-dealer registered under


                                        8

<PAGE>

            the Securities Exchange Act of 1934 and a member of the National
            Association of Securities Dealers, Inc. (the "NASD"), and, if
            necessary, the Fund relating to the compliance with the rules of the
            Options Clearing Corporation and of any registered national
            securities exchange, or of any similar organization or
            organizations.

                  2. Unless another agreement requires it to do so, the Bank
            shall be under no duty or obligation to see that the Fund has
            deposited or is maintaining adequate margin, if required, with any
            broker in connection with any option, nor shall the Bank be under
            duty or obligation to present such option to the broker for exercise
            unless it receives Proper Instructions from the Fund. The Bank shall
            have no responsibility for the legality of any put or call purchased
            or sold on behalf of the Fund, the propriety of any such purchase or
            sale, or the adequacy of any collateral delivered to a broker in
            connection with an option or deposited to or withdrawn from a
            Segregated Account (as defined in subsection 6.9 below). The Bank
            specifically, but not by way of limitation, shall not be under any
            duty or obligation to: (i) periodically check or notify the Fund
            that the amount of such collateral held by a broker or held in a
            Segregated Account is sufficient to protect such broker of the Fund
            against any loss; (ii) effect the return of any collateral delivered
            to a broker; or (iii) advise the Fund that any option it holds, has
            or is about to expire. Such duties or obligations shall be the sole
            responsibility of the Fund.

            (b) Puts, Calls and Futures Traded on Commodities Exchanges.

                  1. The Bank shall take action as to puts, calls and futures
            contracts ("Futures") purchased or sold by the Fund in accordance
            with the provisions of any agreement among the Fund, the Bank and a
            Futures Commission Merchant registered under the Commodity Exchange
            Act, relating to compliance with the rules of the Commodity Futures
            Trading Commission and/or any Contract Market, or any similar
            organization or organizations, regarding account deposits in
            connection with transactions by the Fund.

                  2. The responsibilities and liabilities of the Bank as to
            Futures, puts and calls traded on commodities exchanges, any Futures
            Commission Merchant account and the Segregated Account shall be
            limited as set forth in subparagraph (a)(2) of this Section 6.8 as
            if such subparagraph referred to Futures Commission Merchants rather
            than brokers, and Futures and puts and calls thereon instead of
            options.

            6.9. Segregated Account. The Bank shall upon receipt of Proper
Instructions establish and maintain a Segregated Account or Accounts for and on
behalf of the Fund, into which Account or Accounts may be transferred upon
receipt of Proper Instructions cash and/or Portfolio Securities:

            (a) in accordance with the provisions of any agreement among the
      Fund, the Bank and a broker-dealer registered under the Exchange Act and a
      member of the NASD or any Futures Commission Merchant registered under the
      Commodity Exchange Act, relating to compliance with the rules of the
      Options Clearing Corporation and of any

                                        9

<PAGE>

      registered national securities exchange or the Commodity Futures Trading
      Commission or any registered Contract Market, or of any similar
      organization or organizations regarding escrow or other arrangements in
      connection with transactions by the Fund;

            (b) for the purpose of segregating cash or Portfolio Securities in
      connection with options purchased, or written by the Fund or commodity
      futures purchased or written by the Fund;

            (c) for the deposit of liquid assets, such as cash, U.S. Government
      securities or other high grade debt obligations, having a market value
      (marked to the market on a daily basis) at all times equal to not less
      than the aggregate purchase price due on the settlement dates of all the
      Fund's then outstanding forward commitment or "when-issued" agreements
      relating to the purchase of Portfolio Securities and all the Fund's then
      outstanding commitments under reverse repurchase agreements entered into
      with broker-dealer firms;

            (d) for the deposit of any Portfolio Securities which the Fund has
      agreed to sell on a forward commitment basis, all in accordance with
      Investment Company Act Release No. 10666;

            (e) for the purposes of compliance by the Fund with the procedures
      required by Investment Company Act Release No. 10666, or any subsequent
      release or releases of the Securities and Exchange Commission relating to
      the maintenance of Segregated Accounts by registered investment companies;

            (f) for other proper corporate purposes, but only, in the case of
      the clause (f), upon receipt of, in addition to Proper Instructions, a
      certified copy of a resolution of the Board, or of the Executive Committee
      signed by an officer of the Fund and certified by the Secretary or an
      Assistant Secretary, setting forth the purpose or purposes of such
      Segregated Account and declaring such purposes to be proper corporate
      purposes.

            (g) Assets may be withdrawn from the Segregated Account pursuant to
      Proper Instructions only

                  (i) in accordance with the provisions of any agreements
            referenced in (a) or (b) above;

                  (ii) for sale or delivery to meet the Fund's obligations under
            outstanding firm commitment or when-issued agreements for the
            purchase of Portfolio Securities and under reverse repurchase
            agreements;

                  (iii) for exchange for other liquid assets of equal or greater
            value deposited in the Segregated Account;

                  (iv) to the extent that the Fund's outstanding forward
            commitment or when-issued agreements for the purchase of portfolio
            securities or reverse repurchase agreements are sold to other
            parties or the Fund's obligations thereunder are met from assets of
            the Fund other than those in the Segregated Account; or


                                       10

<PAGE>

                  (v) for delivery upon settlement of a forward commitment
            agreement for the sale of Portfolio Securities.

            6.10. Interest Bearing Call or Time Deposits. The Bank shall, upon
receipt of Proper Instructions relating to the purchase by the Fund of interest
bearing fixed term and call deposits, transfer cash, by wire or otherwise, in
such amounts and to such bank or banks as shall be indicated in such Proper
Instructions. The Bank shall include in its records with respect to the assets
of the Fund appropriate notation as to the amount of each such deposit, the
banking institution with which such deposit is made (the "Deposit Bank"), and
shall retain such forms of advice or receipt evidencing the deposit, if any, as
may be forwarded to the Bank by the Deposit Bank. Such deposits shall be deemed
Portfolio Securities of the Fund and the responsibility of the Bank therefore
shall be the same as and no greater than the Bank's responsibility in respect of
other Portfolio Securities of the Fund.

            6.11. Transfer of Securities. The Bank will transfer, exchange,
deliver or release Portfolio Securities held by it hereunder, insofar as such
Securities are available for such purpose, provided that before making any
transfer, exchange, delivery or release under this Section the Bank will receive
Proper Instructions requesting such transfer, exchange or delivery stating that
it is for a purpose permitted under the terms of this Section 6.11, specifying
the applicable subsection, or describing the purpose of the transaction with
sufficient particularity to permit the Bank to ascertain the applicable
subsection, only

            (a) upon sales of Portfolio Securities for the account of the Fund,
      against contemporaneous receipt by the Bank of payment therefor in full,
      each such payment to be in the amount of the sale price shown in Proper
      Instructions received by the Bank before such payment is made;

            (b) in exchange for or upon conversion into other securities alone
      or other securities and cash pursuant to any plan of merger,
      consolidation, reorganization, share split-up, change in par value,
      recapitalization or readjustment or otherwise, upon exercise of
      subscription, purchase or sale or other similar rights represented by such
      Portfolio Securities, or for the purpose of tendering shares in the event
      of a tender offer therefor, provided however that in the event of an offer
      of exchange, tender offer, or other exercise of rights requiring the
      physical tender or delivery of Portfolio Securities, the Bank shall have
      no liability for failure to so tender in a timely manner unless such
      Proper Instructions are received by the Bank at least two business days
      prior to the date required for tender, and unless the Bank (or its agent
      or subcustodian hereunder) has actual possession of such Portfolio
      Security at least two business days prior to the date of tender;

            (c) upon conversion of Portfolio Securities pursuant to their terms
      into other securities;

            (d) in the case of option contracts owned by the Fund, for
      presentation to the endorsing broker;


                                       11

<PAGE>

            (e) when such Portfolio Securities are called, redeemed or retired
      or otherwise become payable;

            (f) for the purpose of effectuating the pledge of Portfolio
      Securities held by the Bank in order to collateralize loans made to the
      Fund by any bank, including the Bank; provided, however, that such
      Portfolio Securities will be released only upon payment to the Bank for
      the account of the Fund of the moneys borrowed, except that in cases where
      additional collateral is required to secure a borrowing already made, and
      such fact is made to appear in the Proper instructions, further Portfolio
      Securities may be released for that purpose without any such payment. In
      the event that any such pledged Portfolio Securities are held by the Bank,
      they will be so held for the account of the lender, and after notice to
      the Fund from the lender in accordance with the normal procedures of the
      lender, that an event of deficiency or default on the loan has occurred,
      the Bank may deliver such pledged Portfolio Securities to or for the
      account of the lender;

            (g) for the purpose of releasing certificates representing Portfolio
      Securities, against contemporaneous receipt by the Bank of the fair market
      value of such security, as set forth in Proper Instructions received by
      the Bank before such payment is made;

            (h) for the purpose of delivering Portfolio Securities lent by the
      Fund to a bank or broker dealer, but only against receipt in accordance
      with street delivery custom except as otherwise provided herein, of
      adequate collateral as agreed upon from time to time by the Fund and the
      Bank, and upon receipt of payment in connection with any repurchase
      agreement relating to such Portfolio Securities entered into by the Fund;

            (i) for other authorized transactions of the Fund or for other
      proper corporate purposes; provided that before making such transfer, the
      Bank will also receive a certified copy of resolutions of the Board,
      signed by an authorized officer of the Fund (other than the officer
      certifying such resolution) and certified by its Secretary or Assistant
      Secretary, specifying the Portfolio Securities to be delivered, setting
      forth the transaction in or purpose for which such delivery is to be made,
      declaring such transaction to be an authorized transaction of the Fund or
      such purpose to be a proper corporate purpose, and naming the person or
      persons to whom delivery of such Portfolio Securities shall be made; and

            (j) upon termination of this Agreement as hereinafter set forth
      pursuant to Section 7 and Section 13 of this Agreement.

      As to any deliveries made by the Bank pursuant to subsections (a), (b),
(c), (d), (e), (f), (g) and (h) Portfolio Securities or cash receivable in
exchange therefor shall be delivered to the Bank.


                                       12

<PAGE>

      7. Merger, Dissolution, etc. of Fund. In the case of the following
transactions, not in the ordinary course of business, namely, the merger of the
Fund into or the consolidation of the Fund with another investment company, the
sale by the Fund of all, or substantially all, of its assets to another
investment company, or the liquidation or dissolution of the Fund and
distribution of its assets, the Bank will deliver the Portfolio Securities held
by it under this Agreement and disburse cash only upon the order of the Fund set
forth in an Officers' Certificate, accompanied by a certified copy of a
resolution of the Board authorizing any of the foregoing transactions. Upon
completion of such delivery and disbursement and the payment of the fees,
disbursements and expenses of the Bank, this Agreement will terminate.

      8. Actions of Bank Without Prior Authorization. Notwithstanding anything
herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, it will without prior authorization or instruction
of the Fund or the transfer agent:

            8.1. Endorse for collection and collect on behalf of and in the
name of the Fund all checks, drafts, or other negotiable or transferable
instruments or other orders for the payment of money received by it for the
account of the Fund and hold for the account of the Fund all income, dividends,
interest and other payments or distribution of cash with respect to the
Portfolio Securities held thereunder;

            8.2. Present for payment all coupons and other income items held by
it for the account of the Fund which call for payment upon presentation and hold
the cash received by it upon such payment for the account of the Fund;

            8.3. Receive and hold for the account of the Fund all Securities
received as a distribution on Portfolio Securities as a result of a stock
dividend, share split-up, reorganization, recapitalization, merger,
consolidation, readjustment, distribution of rights and similar Securities
issued with respect to any Portfolio Securities held by it hereunder.

            8.4. Execute as agent on behalf of the Fund all necessary ownership
and other certificates and affidavits required by the Internal Revenue Code or
the regulations of the Treasury Department issued thereunder, or by the laws of
any state, now or hereafter in effect, inserting the Fund's name on such
certificates as the owner of the Portfolio Securities covered thereby, to the
extent it may lawfully do so and as may be required to obtain payment in respect
thereof. The Bank will execute and deliver such certificates in connection with
Portfolio Securities delivered to it or by it under this Agreement as may be
required under the provisions of the Internal Revenue Code and any Regulations
of the Treasury Department issued thereunder, or under the laws of any State;

            8.5. Present for payment all Portfolio Securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by it upon
payment for the account of the Fund; and

            8.6. Exchange interim receipts or temporary Portfolio Securities for
definitive Portfolio Securities.


                                       13

<PAGE>

      9. Collection; Defaults. The Bank will use all reasonable effort to
collect any funds which may to its knowledge become collectible arising from
Portfolio Securities, including dividends, interest and other income, and to
transmit to the Fund notice actually received by it of any call for redemption,
offer of exchange, right of subscription, reorganization or other proceedings
affecting such Securities.

      If Portfolio Securities upon which such income is payable are in default
or payment is refused after due demand or presentation, the Bank will notify the
Fund in writing of any default or refusal to pay within two business days from
the day on which it receives knowledge of such default or refusal. In addition,
the Bank will send the Fund a written report once each, month showing any income
on any Portfolio Security held by it which is more than ten days overdue on the
date of such report and which has not previously been reported.

      10. Maintenance of Records: Accounting Services. The Bank will maintain
records with respect to transactions for which the Bank is responsible pursuant
to the terms and conditions of this Agreement, and in compliance with the
applicable rules and regulations of the Act and will furnish the Fund daily with
a statement of condition of the Fund. The Bank will furnish to the Fund at the
end of every month, and at the close of each quarter of the Fund's fiscal year,
a list of the Portfolio Securities and the aggregate amount of cash held by it
for the Fund. The books and records of the Bank pertaining to its actions under
this Agreement and reports by the Bank or its independent accountants concerning
its accounting system, procedures for safeguarding Portfolio Securities and
internal accounting controls will be open to inspection and audit at reasonable
times by officers of or auditors employed by the Fund and will be preserved by
the Bank in the manner and in accordance with the applicable rules and
regulations under the Act.

      The Bank shall keep the books of account and render statements or copies
from time to time as reasonably requested by the Treasurer or any executive
officer of the Fund.

      The Bank shall assist generally in the preparation of reports to
shareholders and others, audits of accounts, and other ministerial matters of
like nature.

      11. Fund Evaluation. The Bank shall compute and, unless otherwise directed
by the Board, determine as of the close of business on the New York Stock
Exchange ("NYSE") on the last day of each week on which said Exchange is open
for unrestricted trading and as of such other days and hours, if any, as may be
authorized by the Board, the net asset value of a share of capital stock of the
Fund, such determination to be made in accordance with the provisions of the
Articles and By-laws of the Fund and Prospectus and Statement of Additional
Information relating to the Fund, as they may from time to time be amended, and
any applicable resolutions of the Board at the time in force and applicable; and
promptly to notify the Fund, the NYSE, and the National Association of
Securities Dealers ("NASD") or such other persons as the Fund may request of the
results of such computation and determination. In computing the net asset value
hereunder, the Bank may rely in good faith upon information furnished to it by
any Authorized Person in respect of (i) the manner of accrual of the liabilities
of the Fund and in respect of liabilities of the Fund not appearing on its books
of account kept by the Bank, (ii) reserves, if any, authorized by the Board or
that no such reserves have been authorized, (iii) the source of the


                                       14

<PAGE>

quotations to be used in computing the net asset value, and (iv) the value to be
assigned to any security for which no price quotations are available, and the
Bank shall not be responsible for any loss occasioned by such reliance or for
any good faith reliance on any quotations received from a source pursuant to
(iii) above.

      12. Concerning the Bank.

            12.1. Performance of Duties; Standard of Care. In performing its
duties hereunder and any other duties listed on any Schedule hereto, if any, the
Bank will be entitled to receive and act upon the advice of independent counsel
of its own selection, which may be counsel for the Fund, and will he without
liability for any action taken or thing done or omitted to be done in accordance
with this Agreement in good faith in conformity with such advice. In the
performance of its duties hereunder, the Bank will be protected and not be
liable, and will be indemnified and saved harmless for any action taken or
omitted to be taken by it in good faith reliance upon the terms of this
Agreement, any Officers' Certificate, Proper Instructions, resolution of the
Board, telegram, notice, request, certificate or other instrument reasonably
believed by the flank to be genuine and for any other loss to the Fund except in
the case of its gross negligence, wilful misfeasance or bad faith in the
performance of its duties or reckless disregard of its obligations and duties
hereunder.

            The Bank will be under no duty or obligation to inquire into and
will not be liable for:

            (a) the validity of the issue of any Portfolio Securities purchased
      by or for the Fund, the legality of the purchases thereof or the propriety
      of the price incurred therefor;

            (b) the legality of any sale of any Portfolio Securities by or for
      the Fund or the propriety of the amount for which the same are sold;

            (c) the legality of an issue or sale of any common shares of the
      Fund or the sufficiency of the amount to be received therefor;

            (d) the legality of the repurchase of any common shares of the Fund
      or the propriety of the amount to be paid therefor;

            (e) the legality of the declaration of any dividend by the Fund or
      the legality of the distribution of any Portfolio Securities as payment in
      kind of such dividend; or

            (f) any property or moneys of the Fund unless and until received by
      it, and any such property or moneys delivered or paid by it pursuant to
      the terms hereof.

      Moreover, the Bank will not be under any duty or obligation to ascertain
whether any Portfolio Securities at any time delivered to or held by it for the
account of the Fund are such as may properly be held by the Fund under the
provisions of its Articles, By-laws, any federal or state statutes or any rule
or regulation of any governmental agency.


                                       15

<PAGE>

      Notwithstanding anything in this Agreement to the contrary, in no event
shall the Bank be liable hereunder or to any third party:

            (a) for any losses or damages of any kind resulting from acts of
      God, earthquakes, fires, floods, storms or other disturbances of nature,
      epidemics, strikes, riots, nationalization, expropriation, currency
      restrictions, acts of war, civil war or terrorism, insurrection, nuclear
      fusion, fission or radiation, the interruption, loss or malfunction of
      utilities, transportation, or computers (hardware or software). and
      computer facilities, the unavailability of energy sources and other
      similar happenings or events except as results from the Bank's own gross
      negligence; or

            (b) for special, punitive or consequential damages arising from the
      provision of services hereunder, even if the Bank has been advised of the
      possibility of such damages.

            12.2. Agents and Subcustodians. The Bank may employ agents in the
performance of its duties hereunder and shall be responsible for the acts and
omissions of such agents as if performed by the Bank hereunder.

      Upon receipt of Proper Instructions, the Bank may employ subcustodians
with respect to domestic Portfolio Securities, provided that any such
subcustodian meets at least the minimum qualifications required by Section
17(f)(1) of the Act to act as a custodian of the Fund's assets. Provided the
Bank has received a certified copy of a resolution of the Board specifically
approving the appointment of an Eligible Foreign Custodian and the depositing of
Portfolio Securities which are Foreign Securities therewith and the Bank has not
received an Officer's Certificate indicating that such approval has been
withdrawn, the Bank may deposit such Foreign Securities and cash with such
Eligible Foreign Custodian, as a subcustodian hereunder, in accordance with
Schedule A hereto. The Bank shall have the same liability to the Fund on account
of any actions or omissions of any sub-custodian so employed as any such
sub-custodian has to the Bank. The Fund shall indemnify the Bank and hold it
harmless from and against any and all actions, suits and claims, arising
directly or indirectly out of the performance of any subcustodian. Upon request
of the Bank, the Fund shall assume the entire defense of any action, suit, or
claim subject to the foregoing indemnity. The Fund shall pay all fees and
expenses of any subcustodian.

      The Bank shall use its best efforts to provide the Fund with information
described in the "NOTES" to Rule 17f-5 and such other similar information as the
Fund may reasonably request to assist its Board of Directors to satisfy their
obligation under such Rule. In addition, the Bank shall use its best efforts to
provide the Fund with prompt notice of any material change in information
previously provided to the Fund pursuant to this Section 12-2 or any material
changes in the facts or circumstances upon which such information is based.

            12.3. Insurance. The Bank shall use the same care with respect to
the safekeeping of Portfolio Securities and cash of the Fund held by it as it
uses in respect of its own similar property but it need not maintain any special
insurance for the benefit of the Fund.


                                       16

<PAGE>

            12.4. Fees and Expenses of Bank. The Fund will pay or reimburse the
Bank from time to time for any transfer taxes payable upon transfer of Portfolio
Securities made hereunder, and for all necessary proper disbursements, expenses
and charges made or incurred by the Bank in the performance of this Agreement
(including any duties listed on any Schedule hereto, if any) including any
indemnities for any loss, liabilities or expense to the Bank as provided above.
For the services rendered by the Bank hereunder, the Fund will pay to the Bank
such compensation or fees at such rate and at such times as shall be agreed upon
in writing by the parties from time to time. The Bank will also be entitled to
reimbursement by the Fund for all reasonable expenses incurred in conjunction
with termination of this Agreement by the Fund.

            12.5. Advances by Bank. The Bank may, in its sole discretion,
advance funds on behalf of the Fund to make any payment permitted by this
Agreement upon receipt of any proper authorization required by this Agreement
for such payments by the Fund. Should such a payment or payments, with advanced
funds, result in an overdraft (due to insufficiencies of the Fund's account with
the Bank, or for any other reason) this Agreement deems any such overdraft or
related indebtedness, a loan made by the Bank to the Fund payable on demand and
bearing interest at the current rate charged by the Bank for such loans unless
the Fund shall provide the Bank with agreed upon compensating balances. The Fund
agrees that the Bank shall have a continuing lien and security interest to the
extent of any overdraft or indebtedness, in and to any property at any time held
by it for the Fund's benefit or in which the Fund has an interest and which is
then in the Bank's possession or control (or in the possession or control of any
third party acting on the Bank's behalf). The Fund authorizes the Bank, in its
sole discretion, at any time to charge any overdraft or indebtedness, together
with interest due thereon against any balance of account standing to the credit
of the Fund on the Bank's books.

      13. Termination.

            13.1. This Agreement may be terminated at any time without penalty
upon sixty days written notice delivered by either party to the other by means
of registered mail, and upon the expiration of such sixty days this Agreement
will terminate; provided, however, that the effective date of such termination
may be postponed to a date not more than ninety days from the date of delivery
of such notice (i) by the Bank in order to prepare for the transfer by the Bank
of all of the assets of the Fund held hereunder, and (ii) by the Fund in order
to give the Fund an opportunity to make suitable arrangements for a successor
custodian. At any time after the termination of this Agreement, the Fund will,
at its request, have access to the records of the Bank relating to the
performance of its duties as custodian.

            13.2. In the event of the termination of this Agreement, the Bank
will immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Fund. The obligation of the Bank to deliver and transfer over the assets of the
Fund held by it directly to such successor custodian will commence as soon as
such successor is appointed and will continue until completed as aforesaid. If
the Fund does not select a successor custodian within ninety (90) days from the
date of delivery of notice of termination the Bank may, subject to the
provisions of subsection (13.3), deliver the Portfolio Securities and cash of
the Fund held by


                                       17

<PAGE>

the Bank to a bank or trust company of its own selection which meets the
requirements of Section 17(f)(1) of the Act and has a reported capital, surplus
and undivided profits aggregating not less than $2,000,000, to be held as the
property of the Fund under terms similar to those on which they were held by the
Bank, whereupon such bank or trust company so selected by the Bank will become
the successor custodian of such assets of the Fund with the same effect as
though selected by the Board.

            13.3. Prior to the expiration of ninety (90) days after notice of
termination has been given, the Fund may furnish the Bank with an order of the
Fund advising that a successor custodian cannot be found willing and able to act
upon reasonable and customary terms and that there has been submitted to the
shareholders of the Fund the question of whether the Fund will be liquidated or
will function without a custodian for the assets of the Fund held by the Bank.
In that event the Bank will deliver the Portfolio Securities and cash of the
Fund held by it, subject as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite vote of shareholders, upon
receipt by the Bank of a copy of the minutes of the meeting of shareholders at
which action was taken, certified by the Fund's Secretary and an opinion of
counsel to the Fund in form and content satisfactory to the Bank.

      14. Notices. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and mailed or delivered to it at
its office at the address set forth below; namely:

      (a) In the case of notices sent to the Fund to:

            The Herzfeld Caribbean Basin Fund, Inc.
            Thomas J. Herzfeld & Co., Inc.
            10750 Southwest 98 Court
            Miami, Florida 33176
            Attention: Cecelia Gondor

      (b) In the case of notices sent to the Bank to:

            Investors Bank & Trust Company
            89 South Street
            Boston, Massachusetts 02111
            Attention: James Keenan

      or at such other place as such party may from time to time designate in
writing.

      15. Amendments. This Agreement may not be altered or amended, except by an
instrument in writing, executed by both parties, and in the case of the Fund,
such alteration or amendment will be authorized and approved by its Board.


                                       18

<PAGE>

      16. Parties. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of the Bank or by the Bank without the written
consent of the Fund, authorized and approved by its Board; and provided further
that termination proceedings pursuant to Section 14 hereof will not be deemed to
be an assignment within the meaning of this provision.

      17. Governing Law. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts.

      18. Use of Name. The Fund shall not use the name of the Bank or any of its
affiliates in any prospectus, sales literature or other material relating to the
Fund in a manner not approved by the Bank prior thereto in writing; provided,
however, that the approval of the Bank shall not be required for any use of its
name which merely refers in accurate and factual terms to its appointment
hereunder or which is required by the Securities and Exchange Commission or any
state securities authority or any other appropriate regulatory, governmental or
judicial authority; provided, further, that in no event shall such approval be
unreasonably withheld or delayed.

      IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate and their respective corporate seals to be affixed hereto
as of the date first above written by their respective officers thereunto duly
authorized.

                                        THE HERZFELD CARIBBEAN BASIN FUND, INC.


                                        By: /s/ Thomas J. Herzfeld
                                            ------------------------------------

ATTEST:

____________________


                                        INVESTORS BANK & TRUST COMPANY


                                        By: /s/ Andrew M. Nesvet
                                            ------------------------------------

ATTEST:

J M Keenan

DATED:_______


                                       19

<PAGE>
                                   SCHEDULE A

INVESTORS BANK AND TRUST
SUBCUSTODIAN RELATIONSHIPS
AUGUST, 1994

<TABLE>
<CAPTION>
                        Meet         Equity                Debt                  Physical
       Country         171-5      Subcustodian         Subcustodian            Subcustodian                    Depository
--------------------   -----   ------------------   ------------------   -----------------------   ---------------------------------
<S>                    <C>     <C>                  <C>                  <C>                       <C>
Argentina              Yes     Citibank             Citibank             Citibank Branch           CA
Australia              Yes     NAB                  Euroclear            NAB                       AUSTRACLEAR/RITS
Austria                Yes     Euroclear            Euroclear            Citibank Subsidiary       CESTERECHSCHE
Bangladesh             Yes     Standard Chartered   Standard Chartered   Standard Chartered
Belgium                Yes     Euroclear            Euroclear            General de Banque         CIK, BNB
Brazil                 Yes     Bank of Boston       Bank of Boston       Bank of Boston Branch     BOVESPA-CALISPA
Canada*                Yes     Euroclear            Euroclear            Royal Trust               COS
Chile                  Yes     Bank of Boston       Bank of Boston       Bank of Boston Branch
China-Shanghai         Yes     Standard Chartered   Standard Chartered   Standard Chartered        SECCRC
China-Shanzen          Yes     Standard Chartered   Standard Chartered   Standard Chartered        HONG KONG SHANGHAI BANK,
                                                                                                   CITIBANK,  STD. CHARTERED BANK
Colombia               Yes     Citibank             Citibank             Citibank Subsidiary       BANCE DE LA REPUBLICA
Czech Republic         Yes     Chase                Chase                CSCB                      SCP
Denmark                Yes     Euroclear            Euroclear            Den Danske Bank           VASERDIPAPIRCENTRALEN
Finland                Yes     Euroclear            Euroclear            Kansailis-Osake-Pankki    CSR
France                 Yes     Euroclear            Euroclear            Citibank Subsidiary       SICOVAM, BANQUE DE FRANCE
Germany                Yes     Euroclear            Euroclear            Citibank subsidiary       DKV
Greece                 Yes     Citibank             Citibank             Citibank Branch           CSD
Hong Kong              Yes     Standard Chartered   Standard Chartered   Standard Chartered        CCASS
Hungary                Yes     Citibank             Citibank             Citibank Subsidiary       STOCK EXCHANGE
India                  Yes     Std. Chartered/SBI   Std. Chartered/SBI   Std. Chartered/SBI
Indonesia              Yes     Standard Chartered   Standard Chartered   Standard Chartered
Ireland                Yes     Citibank             Citibank             Citibank Branch           GSO
Israel                 Yes     Chase                Chase                Bank Leumi                STOCK EXCHANGE CLEARING HOUSE
                                                                                                   LTD.
Italy                  Yes     Euroclear            Euroclear            Citibank Branch           MONTI TITOLI, BANK OF ITALY
Japan                  Yes     Euroclear            Standard Chartered   Standard Chartered        JASDEC/BANK OF JAPAN
Jordan                 Yes     Chase                Chase                Arab Bank
Korea                  Yes     Standard Chartered   Standard Chartered   Standard Chartered        KSSC
Luxembourg             Yes     Euroclear            Euroclear            Cedel                     CEDEL
Malaysia               Yes     Euroclear            Standard Chartered   Standard Chartered        MALAYSIAN CENT DEP
Mexico                 Yes     Citibank             Citibank             Citibank Branch           INDEVAL
Netherlands            Yes     Euroclear            Euroclear            Citibank Branch           NEGIGEF, DUTCH CENTRAL BANK
New Zealand            Yes     NAB                  Euroclear            National Nominee Ltd.     AUSTRACLEAR
Norway                 Yes     Euroclear            Euroclear            Christiania Bank          VPS
Pakistan               Yes     Standard Chartered   Standard Chartered   Standard Chartered
Papua New Guinea       Yes     NAB                  Euroclear            NAB                       AUSTRACLEAR
Peru                   Yes     Citibank             Citibank             Citibank Branch           CAVAL
Philippines            Yes     Standard Chartered   Standard Chartered   Standard Chartered
Poland                 Yes     Citibank             Citibank             Citibank Subsidiary       NATL DEP OF SEC, BK OF POLAND
Portugal               Yes     Euroclear            Citibank             Citibank Subsidiary       CENTRAL DE REGISTOE VALORES
Singapore              Yes     Euroclear            Standard Chartered   Standard Chartered        CENTRAL DEPOSITORY PTE
South Africa           Yes     Chase                Chase                Standard Bank of South
                                                                         Africa
Spain                  Yes     Euroclear            Euroclear            Citibank Branch           SCLV
Sri Lanka              Yes     Standard Chartered   Standard Chartered   Standard Chartered        CENTRAL DEPOSITORY SYS
Sweden                 Yes     Euroclear            Euroclear            Skandinaviska             VARDEPAPPERCENTRALEN
Switzerland            Yes     Euroclear            Euroclear            Citibank Subsidiary       SCHETZERSCHEFFECTEN
Taiwan                 Yes     Standard Chartered   Standard Chartered   Standard Chartered        TAIWAN SEC DEPOSITORY
Thailand               Yes     Standard Chartered   Standard Chartered   Standard Chartered        SDC
Turkey                 Yes     Chase/Citibank       Chase/Citibank       Chase/Citibank Branches   VAKIBANK
United Kingdom         Yes     Royal Trust          Royal Trust          Royal Trust               CGOCMO
United Kingdom (ST)*   Yes     n/a                  First Chicago        CGOCMO                    CGOCMO
Uruguay                Yes     Citibank             Citibank             Citibank Branch
Venezuela              Yes     Citibank             Citibank             Citibank Branch
</TABLE>

Notes:   * Preferred custodian is euroclear it asset is eligible.
         * Eurobonds of any country settle at Euroclear if eligible.
         * Physical location used only for an ineligible Euroclear asset
           when the asset type is Euroclear eligible.
         * All 17F-5 Eligible Standard Chartered operations are Branches

<PAGE>

                         Thomas J. Herzfe1d & Co., Inc.
                        The Herzfeld Caribbean Basin Fund
                                  Fee Schedule
                                December 30, 1993

      FUND ACCOUNTING (including Calculation of N.A.V.), DOMESTIC CUSTODY,
                       GLOBAL CUSTODY, and TRANSFER AGENCY

A.    Fund Accounting (includes Calculation of N.A.V.) and Domestic Custody

      The funds will be charged either Basis Point Fees or Minimum Fees.

      o     The Basis Points are exclusive of transaction costs and
            out-of-pocket expenses.

                                      Annual Fee
                                  -----------------
First $50 MM of net assets        10.0 Basis Points
Next $50 MM of net assets         2.0 Basis Points
Net assets in excess of $100 MM   1.0 Basis Point

      o     There will be a monthly minimum fee for The Herzfeld Caribbean Basin
            Fund according to the following schedule:

                         Monthly Fee
                         -----------
Month 1-6                   2,000
Months 6-12                 4,000
Every month thereafter      4,500

      o     Custody Transaction Costs

            o  DT~/Fed Book Entry              12
            o  Non-DTC, Boston Settlement      20*
            o  Non-DTC, New York Settlement    35
            o  Non-DTC, New York Maturities    10
            o  Government Paydown            $  5
            o  GNMA Securities                 35
            o  Options                         25
            o  Futures                         18
            o  Incoming/Outgoing Wires          7

      *There is no charge for maturities of these items.

* This fee schedule will be reviewed after an escrow period plus the first six
months of the fund's operation.

<PAGE>

B.    Global Custody

Country                    Annual Fee     Transaction Costs Per Trade
----------------------   --------------   ---------------------------
U.S.                     2 Basis Points    Standard Trans. Costs (B)
Euroclear                4 Basis Points     $20; 50 (Cross Border)
Argentina                      26                      80
Brazil*                        28                     125
Chile*                         26                      80
Colombia*                      29                     125
Mexico Equities                20                      55
Venezuela*                     23                      55
Barbados**
Belize**
Costa Rica**
Guatemala**
Guyana**
Honduras**
Jamaica**
Netherlands Antilles**
Panama**
Tabago**
Trinidad**

*     Local Exchange and Administration costs are passed through.

**    To our knowledge, none of these countries have a bank meeting 17f-5
      approval. As soon as a bank in these countries meets 17f-5 approval, we
      will have a subcustodial agreement in place with that bank.

<PAGE>

C.    Institutional and Retail Transfer Agency (Full Service)

      This fee schedule was developed based on the following assumptions:

      o     Transfer Agency Services are offered when combined with Custody and
            Fund Accounting Services.

      The annual fee for the first 300 retail shareholders will be $17,500. For
      every retail shareholder in excess of 300, the annual fee is the
      following:

Service                  Annual Fee.
----------------------   -----------
Annual Per Account Fee      $14.00

D.    Out of Pocket Expenses

      o     These charges consist of:

            o Micro Rental                     o Telephone

            o Pricing & Verification Services  o Forms& Supplies

            o Printing, Delivery & Postage     o Support Equipment Rental

            o Travel and Legal fees are        o Initial Offering Certificates
               billed by mutual agreement
                                               o Third Party Audit
            o Legal fees for substantial
               changes to Investors Bank's
               Contracts

E.    Balance Credit

      We allow balance credit against fees (excluding out-of-pocket charges) for
      collected fund balances arising out of the custody and transfer agency
      relationships. The monthly earnings allowance is equal to 75% of the
      90-day T-bill rate.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(K)
<SEQUENCE>8
<FILENAME>v081245_subscriptionagmt.txt
<TEXT>

[COLBENT LOGO]

                             The Colbent Corporation
                               -General Proposal-

A. Fees for Services*

--------------------------------------------------------------------------------
  Fee                           Service Provided
  ---                           ----------------
--------------------------------------------------------------------------------
$5000.00           Project Management Fee
================================================================================
$1.00              Per subscription form generated
================================================================================
$1.00              Per replacement forms/fulfillment
================================================================================
$0.25 and up       Mailing of Subscription forms (depending on the number of
                   enclosures)
================================================================================
$6.00              Per subscription form processed (registered and beneficial)
================================================================================
$6.50              Per defective subscription form received
================================================================================
$3.00              Per notice of guaranteed delivery received via fax
================================================================================
$1.50              Per sale of right (if applicable)
================================================================================
$2.00              Per invoice mailed (if applicable)
================================================================================
$0.75              Per refund check issued and mailed (if applicable)
================================================================================
$3.00              Per solicitation check processed and mailed (if applicable)
================================================================================
$750.00            Per Pro-ration (if applicable)
================================================================================
$1500.00           Per offer extension
================================================================================
$5000.00           Minimum charge should the project be cancelled for any reason
                   prior to the mailing of the subscription form
================================================================================
$500.00/month      DTCC connectivity fee
================================================================================
================================================================================

--------------------------------------------------------------------------------
o Excludes out-of-pocket expenses as described in Section C, "Items Not Covered"
<PAGE>

B.    Services Covered

      o     Designate an operational team to carry out Subscription Agent
            duties, including document review and execution of legal agreement,
            review of subscription forms and communication materials, project
            management and on-going project updates and reporting.
      o     Calculating Rights to be distributed to each shareholder and
            printing shareholder information on the subscription form.
      o     Issuing subscription forms, and causing forms to be mailed to
            registered shareholders.
      o     Tracking and reporting the number of exercises made, as required.
      o     Processing Rights received and exercised.
      o     Deposit participant checks daily and forward all participant funds
            to Fund at the end of the offering period.
      o     Providing receipt summation of checks received.
      o     Run a pro-ration against the file if the rights offering is
            oversubscribed.
      o     Interface with the Depository Trust Company (DTC).
      o     Issuing/ Printing (if applicable,) and mailing stock certificates
            and/or checks.
      o     Interfacing with the Information Agent.
      o     Calculating, issuing and mailing of proration and/or
            over-subscription checks if applicable.
      o     Calculating, issuing and mailing of solicitation checks if
            applicable.
      o     Interface with Transfer Agent - produce a create tape for all shares
            being issued.
      o     Produce and Report to IRS 1099B's (for the sale of rights) to
            registered shareholders at year end.

C.    Items Not Covered

      o     Items not specified in the "Services Covered" section set forth in
            this Agreement, including any services associated with new duties,
            legislation or regulatory fiat which become effective after the date
            of this Agreement (these will be provided on an appraisal basis)
      o     All out-of-pocket expenses such as telephone line charges,
            certificates, checks, postage, stationary, wire transfers and excess
            material disposal (these will be billed as incurred)
      o     Reasonable legal review fees if referred to outside counsel.
      o     Overtime charges assessed in the event of late delivery of material
            for mailings unless the target mail date is rescheduled.
      o     Additional programming to accommodate project specific requirements.

D.    Assumptions

      o     Proposal based upon document review and information known at this
            time about the transaction.
      o     Significant changes made in the term or requirements of this
            transaction could require modifications to this proposal.
      o     Proposal must be executed prior to the initial mailing.
      o     Company responsible for printing of materials (Rights Card,
            Prospectus and ancillary documents).
      o     Material to be mailed to shareholders must be received no less than
            five (5) business days prior to the start of the mailing project.
      o     Accrued interest in Deposit account will be used to offset bank
            fees. All remaining account interest will go back to the company.
<PAGE>

E.    Payment for Services

      o     The Project Management Fee will be rendered and payable upon the
            effective date of the transaction. An invoice for any out-of-pocket
            and per items fees realized will be rendered and payable on a
            monthly basis, except for postage expenses in excess of $5,000.00.
            Funds for such mailing expenses must be received one (1) business
            day prior to the scheduled mail date.


--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

The Colbent Corporation

By:                                             By:
   ------------------------------                  -----------------------------
   Carmine C. Chirichiello


Title: President, The Colbent Corporation       Title:
      -----------------------------------             --------------------------


Date:                                           Date:
     ------------------------------                  ---------------------------
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(R)
<SEQUENCE>9
<FILENAME>v081245_ex99-codeeth.txt
<TEXT>
<PAGE>

                                 CODE OF ETHICS

                                       OF

                     THE HERZFELD CARIBBEAN BASIN FUND, INC.
                                        &
                        THOMAS J. HERZFELD ADVISORS, INC.

                                    PREAMBLE

            This Code of Ethics is being adopted in compliance with the
requirements of Rule 17j-1 under the Investment Company Act of 1940 (the "Act")
and Rule 204A-1 under the Investment Advisers Act of 1940 (the "Advisers Act")
adopted by the United States Securities and Exchange Commission to effectuate
the purposes and objectives of the rules.

            Rule 17j-1 makes it unlawful for certain persons, in connection with
purchase or sale by such person of a security held or to be acquired by The
Herzfeld Caribbean Basin Fund, Inc. (the "Fund"):

            (1)   To employ a device, scheme or artifice to defraud the Fund;

            (2)   To make to the Fund any untrue statement of a material fact or
                  omit to state to the Fund a material fact necessary in order
                  to make the statements made, in light of the circumstances in
                  which they are made, not misleading;

            (3)   To engage in any act, practice or course of business which
                  operates or would operate as a fraud or deceit upon the Fund;
                  or

            (4)   To engage in a manipulative practice with respect to the Fund.

            Section 206 of the Advisers Act makes it unlawful for certain
persons including Thomas J. Herzfeld Advisors, Inc. (the "Adviser"):

            (1) To employ any device, scheme or artifice to defraud any client
or prospective client;

            (2) To engage in any transaction, practice or course of business
which operates as a fraud or deceit upon any client or prospective client;

            (3) Acting as principal for his own account, knowingly to sell any
security to or purchase any security from a client; or acting as broker for a
person other than such client, knowingly to effect any sale or purchase of any
security for the account of such client, without disclosing to such client in
writing before the completion of such transaction, the capacity in which he is
acting and obtaining the consent of the client to such transaction. The
prohibitions of this paragraph (3) shall not apply to any transaction with a
customer of a broker or dealer if such broker or dealer is not acting as an
investment adviser in relation to such transaction; or

<PAGE>

            (4) To engage in any act, practice, or course of business which is
fraudulent, deceptive or manipulative.

Rule 17j-1 and/or Rule 204A-1 require the Fund and its investment adviser to
adopt a written Code of Ethics containing provisions reasonably necessary to
prevent persons from engaging in acts in violation of the above standard and to
use reasonable diligence, and institute procedures reasonably necessary to
prevent violations of the Code.

                  Set forth below is the Code of Ethics adopted by the Board of
Directors of the Fund (the "Fund Board") and by the Adviser in compliance with
the Rule. This Code is based upon the principle that the directors and officers
of the Fund, and certain affiliated persons of the Fund and Adviser, owe a
fiduciary duty to, among others, the shareholders of the Fund to conduct their
affairs, including their personal securities transactions, in such manner to
avoid (i) serving their own personal interests ahead of shareholders; (ii)
taking inappropriate advantage of their position with the Fund; and (iii) any
actual or potential conflicts of interest or any abuse of their position of Fund
and responsibility.

1.    DEFINITIONS

      (a)   "Access Person" means any Advisory Person of the Fund or the Fund's
            Adviser.

      (b)   "Advisory Person" means

            (i)   any director, trustee, officer, general partner or employee of
                  the Fund or its Adviser (or any company in a control
                  relationship to the Fund or investment adviser) who, in
                  connection with his or her regular functions or duties, makes,
                  participates in, or obtains information regarding, the
                  purchase or sale of Covered Securities by the Fund, or whose
                  functions relate to the making of any recommendations with
                  respect to such purchase or sales; and

            (ii)  any natural person in a control relationship to the Fund or
                  the Adviser who obtains information concerning recommendations
                  made to the Fund with regard to the purchase or sale of a
                  Covered Security by the Fund.

      (c)   A security is "being considered for purchase or sale" or is "being
            purchased or sold" when a recommendation to purchase or sell the
            security has been made and communicated to the trading desk, which
            includes when the Fund has a pending "buy" or "sell" order with
            respect to a security, and, with respect to the person making the
            recommendation, when such person seriously considers making such a
            recommendation.

      (d)   "Beneficial ownership" shall be as defined in, and interpreted in
            the same manner as it would be in determining whether a person is
            subject to the provisions of, Section 16 of the Securities Exchange
            Act of 1934 and the rules and regulations thereunder which,
            generally speaking, encompasses those situations where the
            beneficial owner has the right to enjoy some economic benefit from
            the ownership of the security regardless of who is the registered
            owner. This would include:


                                       2-

<PAGE>

            (i)   securities which a person holds for his or her own benefit
                  either in bearer form, registered in his or her own name or
                  otherwise regardless of whether the securities are owned
                  individually or jointly;

            (ii)  securities held in the name of a member of his or her
                  immediate family (spouse or child) sharing the same household;

            (iii) securities held by a trustee, executor, administrator,
                  custodian or broker;

            (iv)  securities owned by a general partnership of which the person
                  is a member or a limited partnership of which such person is a
                  general partner;

            (v)   securities held by a corporation which can be regarded as a
                  personal holding company of a person; and

            (vi)  securities recently purchased by a person and awaiting
                  transfer into his or her name.

      (e)   "Control" shall have the same meaning as that set forth in Section
            2(a)(9) of the Act.

      (f)   "Chief Compliance Officer" means Cecilia Gondor or her successor(s)
            appointed by the Board, on the one hand, and by the board of
            directors of the Adviser, on the other hand.

      (g)   "Covered Security" means a security, except that it shall not
            include

            (i)   direct obligations of the Government of the United States;

            (ii)  bankers' acceptances, bank certificates of deposit, commercial
                  paper and high quality short-term debt instruments, including
                  repurchase agreements; and

            (iii) shares issued by registered, open-end investment companies,
                  including the Fund.

      (h)   "Independent Director" means a Director of the Fund who is not an
            "interested person" of the Fund within the meaning of Section
            2(a)(19) of the Act.

      (i)   "Initial Public Offering" ("IPO") means an offering of securities
            registered under the Securities Act of 1933 ("Securities Act"), the
            issuer of which, immediately before the registration, was not
            subject to the reporting requirements of Sections 13 or 15(d) of the
            Securities Exchange Act of 1934.


                                       3-

<PAGE>

      (j)   "Investment Personnel" means:

            (i)   Any Advisory Person who, in connection with his regular
                  functions or duties, makes or participates in making
                  recommendations regarding the purchase or sale of securities
                  by the Fund.

            (ii)  Any natural person who controls the Fund or Adviser and who
                  obtains current information concerning recommendations made to
                  the Fund regarding the purchase or sale of securities by the
                  Fund.

      (k)   "Limited Offering" means an offering that is exempt from
            registration under the Securities Act pursuant to Section 4(2) or
            Section 4(6) or pursuant to rule 504, rule 505 or rule 506 under the
            Securities Act.

      (l)   "Purchase or Sale of a Covered Security" includes the writing of an
            option to purchase or sell a Covered Security.

      (m)   "Security Held or to be Acquired" by the Fund means:

            (i)   any Covered Security which, within the most recent fifteen
                  (15) days:

                  (A)   is or has been held by the Fund; or

                  (B)   is being or has been considered by the Fund or the
                        Adviser for purchase by the Fund; and

            (ii)  any option to purchase or sell, and any security convertible
                  into or exchangeable for, a Covered Security described in
                  paragraph (m)(i) of this section.

      (n)   "security" as defined in Section 2(a)(36) of the Act means any note,
            stock, treasury stock, bond, debenture, evidence of indebtedness,
            certificate of interest or participation in any profit-sharing
            agreement, collateral-trust certificate, preorganization certificate
            or subscription, transferable share, investment contract,
            voting-trust certificate, certificate of deposit for a security,
            fractional undivided interest in oil, gas, or other mineral rights,
            any put, call, straddle, option, or privilege on any security
            (including a certificate of deposit) or on any group or index of
            securities (including any interest therein or based on the value
            thereof), or any put, call, straddle, option, or privilege entered
            into in a national securities exchange relating to foreign currency,
            or, in general, any interest or instrument commonly known as a
            "security," or any certificate of interest or participation in,
            temporary or interim certificate for, receipt for, guarantee of, or
            warrant or right to subscribe to or purchase, any of the foregoing.

2.    PROHIBITED TRANSACTIONS

      (a)   No Access Person shall engage in any act, practice or course of
            conduct, which would violate the provisions of Rule 17j-1 under the
            Act, Section 206 of the Adviser Act or Rule 204A-1 under the
            Advisers Act.


                                       4-

<PAGE>

      (b)   No Access Person shall:

            (i)   purchase or sell, directly or indirectly, any security in
                  which he has or by reason of such transaction acquires, any
                  direct or indirect beneficial ownership and which to his or
                  her actual knowledge at the time of such purchase or sale:

                  (A)   is being considered for purchase or sale by the Fund, or

                  (B)   is being purchased or sold by the Fund;

            (ii)  disclose to other persons the securities activities engaged in
                  or contemplated for the various series of the Fund;

            (iii) seek or accept anything of value, either directly or
                  indirectly, from broker-dealers or other persons providing
                  services to the Fund because of such person's association with
                  the Fund. For the purposes of this provision, the following
                  gifts from broker-dealers or other persons providing services
                  to the Fund will not be considered to be in violation of this
                  section:

                  (A)   an occasional meal;

                  (B)   an occasional ticket to a sporting event, the theater or
                        comparable entertainment;

                  (C)   a holiday gift of fruit or other foods, or other
                        comparable gift.

      (c)   No Investment Personnel shall:

            (i)   Acquire directly or indirectly any beneficial ownership in any
                  securities in an IPO if such security is being considered for
                  purchase or sale by the Fund or is being purchased or sold by
                  the Fund.

            (ii)  Acquire directly or indirectly any beneficial ownership in any
                  securities in a Limited Offering without prior approval of the
                  Chief Compliance Officer or other person designated by the
                  Fund Board. Any person authorized to purchase securities in a
                  Limited Offering shall disclose such investment when they play
                  a part in any subsequent consideration of an investment by the
                  Fund in the issuer. In such circumstances, the Fund's decision
                  to purchase securities of the issuer shall be subject to
                  independent review by the Fund's officers with no personal
                  interest in the issuer.

            (iii) Applicable only to Fund managers identified on Schedule A from
                  time to time, buy or sell a Covered Security within at least
                  seven (7) calendar days before and after any series of the
                  Fund that he or she manages trades in that security. Any
                  profits realized on trades within the proscribed period are
                  required to be disgorged. Schedule A will be amended as
                  necessary by the Fund Board to reflect changes in Adviser
                  personnel.


                                       5-

<PAGE>

            (iv)  Profit in the purchase and sale, or sale and purchase, of the
                  same (or equivalent) securities within 60 calendar days. Any
                  profits realized on such short-term trades must be disgorged.

            (v)   Serve on the board of directors of any publicly traded company
                  without prior authorization of the Chairman and/or President
                  of the Fund. Any such authorization shall be based upon a
                  determination that the board service would be consistent with
                  the interests of the Fund and its shareholders.

3.    EXEMPTED TRANSACTIONS

            The prohibitions of Sections 2(b) and 2(c) shall not apply to:

      (a)   purchases or sales effected in any account over which the Access
            Person has no direct or indirect influence or control;

      (b)   purchases or sales which are non-volitional on the part of either
            the Access Person or the Fund;

      (c)   purchases which are part of an automatic dividend reinvestment plan;

      (d)   purchases effected upon the exercise of rights issued by an issuer
            pro rata to all holders of a class of its securities, to the extent
            such rights were acquired from such issuer, and sales of such rights
            so acquired; and

      (e)   purchases or sales other than those exempted in (a) through (d) of
            this Section 3 that have been authorized in advance and in writing
            by the Chief Compliance Officer following a specific determination
            that the transaction is consistent with the provisions of the
            Preamble.

4.    COMPLIANCE PROCEDURES

      (a)   Pre-clearance

            With the exception of the Independent Directors, all Access Persons
            shall receive prior approval from the Chief Compliance Officer or
            other officer designated by the Fund Board or Adviser's board, as
            the case may be, before purchasing or selling securities. Any
            approval is valid only for one day after authorization is received.
            If an Access Person is unable to effect the securities transaction
            during such period, he or she must re-obtain approval prior to
            effecting the securities transaction.

      (b)   Reporting Requirements

            Initial & Annual Reports All Access Persons, except Independent
            Directors, shall disclose to the Chief Compliance Officer within 10
            days of becoming an Access Person, and thereafter on an annual basis
            as of December 31(i) the name, number of shares and principal amount
            of each Covered Security in which the Access Person has any direct
            or indirect beneficial ownership and (ii) the name of any broker,
            dealer or bank with whom the Access Person maintains a securities
            account. The initial holdings report shall be made on the form
            attached as Exhibit A, and the annual holdings report shall be made
            on the form attached as Exhibit B. The information on the initial
            holdings and annual reports must be current as of a date no more
            than 45 days before the date the person becomes an Access Person.


                                       6-

<PAGE>

            Quarterly Reports Every Access Person shall report to the Chief
            Compliance Officer the information described below with respect to
            transactions in any Covered Security in which such person has, or by
            reason of such transaction acquires, any direct or indirect
            beneficial ownership in the security; provided, however, that an
            Access Person shall not be required to make a report with respect to
            transactions effected for any account over which such person has no
            direct or indirect influence or control.

            (i)   Each Independent Director need only report a transaction in a
                  Covered Security if such Director, at the time of that
                  transaction, knew, or, in the ordinary course of fulfilling
                  his official duties as a trustee, should have known that
                  during the 15-day period immediately before or after the date
                  of the Director's transaction, such Covered Security was
                  purchased or sold by the Fund or was being considered for
                  purchase or sale by the Fund or Adviser.

            (ii)  Reports required to be made under this Paragraph (b) shall be
                  made not later than 30 days after the end of the calendar
                  quarter. Every Access Person shall be required to submit a
                  report for all periods, including those periods in which no
                  securities transactions were effected. A report shall be made
                  on the form attached hereto as Exhibit C or on any other form
                  containing the following information:

                  With respect to any transaction during the quarter in a
                  Covered Security in which the Access Person had any direct or
                  indirect beneficial ownership:

                  (A)   the date of the transaction, the name, the interest rate
                        and maturity date (if applicable), the number of shares,
                        and the principal amount of each Covered Security
                        involved;

                  (B)   the nature of the transaction (i.e., purchase, sale or
                        any other type of acquisition or disposition);

                  (C)   the price of the Covered Security at which the
                        transaction was effected;

                  (D)   the name of the broker, dealer or bank with or through
                        which the transaction was effected; and


                                       7-

<PAGE>

                  (E)   the date that the report is submitted by the Access
                        Person.

                  With respect to any securities account established at a
                  broker, dealer, or bank during the quarter for the direct or
                  indirect benefit of the Access Person:

                  (A)   the name of the broker, dealer or bank with whom the
                        Access Person established the account;

                  (B)   the date the account was established; and

                  (C)   the date that the report is submitted by the Access
                        Person.

            Any report may contain a statement that the report shall not be
            construed as an admission by the person making such report that he
            or she has any direct or indirect beneficial ownership in the
            security to which the report relates.

      (c)   Provision of Brokers' Statements

            With the exception of the Independent Directors, every Access Person
            shall direct their brokers to supply to the Chief Compliance
            Officer, on a timely basis, duplicate copies of the confirmation of
            all personal securities transactions and copies of all periodic
            statements for all securities accounts.

      (d)   Notification of Reporting Obligations

            The Chief Compliance Officer shall notify each Access Person that he
            or she is subject to these reporting requirements, and shall deliver
            a copy of this Code of Ethics to each such person upon request.

      (e)   Certification of Compliance with Code of Ethics

            With the exception of the Independent Directors, every Access Person
            shall certify in an annual report that:

            (i)   they have read and understand the Code of Ethics and recognize
                  that they are subject thereto;

            (ii)  they have complied with the requirements of the Code of
                  Ethics; and

            (iii) they have reported all personal securities transactions
                  required to be reported pursuant to the requirements of the
                  Code of Ethics.

      (f)   Conflict of Interest

            Every Access Person shall notify the Chief Compliance Officer of any
            personal conflict of interest relationship which may involve the
            Fund, such as the existence of any economic relationship between
            their transactions and securities held or to be acquired by any
            series of the Fund. Such notification shall occur in the
            pre-clearance process.


                                       8-

<PAGE>

      (g)   Review of Reports

            The Chief Compliance Officer or her designate immediately shall
            review all personal holdings reports, submitted by each Access
            Person, including confirmations of personal securities transactions,
            to ensure no trading has taken place in violation of Rule 17j-1,
            Rule 204A-1 or the Code of Ethics. Any violations of the Code of
            Ethics shall be reported to the Fund Board in accordance with
            Section 5 of the Code. The Chief Compliance Officer shall maintain a
            list of the personnel responsible for reviewing the transactions and
            personal holdings reports.

5.    REPORTING OF VIOLATIONS

      (a)   All apparent violations of this Code of Ethics shall be promptly
            reported to the Chief Compliance Officer.

      (b)   The Chief Compliance Officer shall promptly report to the Fund
            Board:

            (i)   all apparent violations of this Code of Ethics and the
                  reporting requirements thereunder; and

            (ii)  any reported transaction in a Covered Security which was
                  purchased or sold by the Fund within fifteen (15) days before
                  or after the date of the reported transactions.

      (c)   When the Chief Compliance Officer finds that a transaction otherwise
            reportable to the Fund Board under Paragraph (b) of this Section
            could not reasonably be found to have resulted in a fraud, deceit or
            manipulative practice in violation of Rule 17j-1(a), it may, in its
            discretion, lodge a written memorandum of such finding and the
            reasons therefor with the reports made pursuant to this Code of
            Ethics, in lieu of reporting the transaction to the Fund Board.

      (d)   The Fund Board, or a committee of directors thereof created by the
            Fund Board for that purpose, shall consider reports made to the Fund
            Board hereunder and shall determine whether or not this Code of
            Ethics has been violated and what sanctions, if any, should be
            imposed in respect of transactions related to the Fund, and the
            board of the Adviser shall take such similar action in respect of
            transactions unrelated to the Fund.

6.    ANNUAL REPORTING TO THE FUND BOARD

      (a)   The Chief Compliance Officer and Adviser shall furnish to the Fund
            Board, and the Fund Board must consider, an annual report relating
            to this Code of Ethics. Such annual report shall:

            (i)   describe any issues arising under the Code of Ethics or
                  procedures during the past year;


                                       9-

<PAGE>

            (ii)  identify any material violations of this Code or procedures,
                  including sanctions imposed in response to such violations
                  during the past year;

            (iii) identify any recommended changes in the existing restrictions
                  or procedures based upon the Fund's experience under its Code
                  of Ethics, evolving industry practices or developments in
                  applicable laws or regulations; and

            (iv)  certify that the Fund, Adviser and principal underwriter have
                  adopted procedures reasonably necessary to prevent Access
                  Persons from violating the Code of Ethics.

7.    SANCTIONS

            Upon discovering a violation of this Code, the Fund Board or the
board of the Adviser, as the case may be, may impose such sanctions as they deem
appropriate, including, among other things, a letter of censure or suspension or
termination of the employment of the violator.

8.    RETENTION OF RECORDS

            This Code of Ethics, a list of all persons required to make reports
hereunder from time to time, a copy of each report made by an Access Person
hereunder, a list of all persons responsible for reviewing the reports required
hereunder, a record of any decision and the reasons supporting the decision to
approve the acquisition by Investment Personnel of securities in a Limited
Offering, each memorandum made by the Chief Compliance Officer hereunder and a
record of any violation hereof and any action taken as a result of such
violation, shall be maintained by the Fund as required under Rule 17j-1 and by
the Adviser as required under Rule 204-2.

9.    ADOPTION AND APPROVAL

            The Fund Board, including a majority of Independent Directors, shall
approve this Code of Ethics and any material changes to the Code.

            Before approving this Code or any amendment to this Code, the Fund
Board shall have received a certification from the Fund and the Adviser that it
has adopted procedures reasonably necessary to prevent Access Persons from
violating the Code.

Dated: ____________________


                                       10-

<PAGE>

                                   SCHEDULE A

Portfolio Manager

Thomas J. Herzfeld


                                       11-

<PAGE>

                        THOMAS J. HERZFELD ADVISORS, INC.

                       POLICY STATEMENT ON INSIDER TRADING


SECTION I. POLICY STATEMENT ON INSIDER TRADING

      A.    Policy Statement on Insider Trading

            Thomas J. Herzfeld Advisors, Inc. (the "Adviser") forbids any
director, officer or employee from trading, either personally or on behalf of a
Client Account, on material nonpublic information, or communicating material
nonpublic information to other persons in violation of the law. This conduct is
frequently referred to as "insider trading". The Adviser's policy applies to
every director, officer and employee and extends to activities within and
outside their duties for the Adviser. Every officer and employee must read and
retain a copy of this policy statement. Any questions regarding the Adviser's
policy and procedures should be referred to the Chief Compliance Officer.

            The term "insider trading" is not defined in the federal securities
laws, but generally is used to refer to the use of material nonpublic
information to trade in securities (whether or not one is an "insider") or to
communications of material nonpublic information to others.

            While the law concerning insider trading is not static, it is
generally understood that the law prohibits:

                  i)    trading by an insider, while in possession of material
                        nonpublic information, or

                  ii)   trading by a non-insider, while in possession of
                        material nonpublic information, where the information
                        either was disclosed to the non-insider in violation of
                        an insider's duty to keep it confidential or was
                        misappropriated, or

                  iii)  communicating material nonpublic information to others.

            The elements of insider trading and the penalties for such unlawful
conduct are discussed below. If, after reviewing this policy statement, you have
any questions, you should consult the Adviser's Chief Compliance Officer,
Cecilia Gondor, or her successor.

            2. Who is an Insider?

            The concept of "insider" is broad. It includes partners and
employees of a company. In addition, a person can be a "temporary insider" if he
or she enters into a special confidential relationship in the conduct of a
company's affairs and as a result is given access to information solely for the
company's purposes. A temporary insider can include, among others, a company's
attorneys, accountants, consultants, bank lending officers, and the employees of
such organizations. In addition, the Adviser may become a temporary insider of a
company it advises or for which it performs other services. According to the
U.S. Supreme Court, the company must expect the outsider to keep the disclosed
nonpublic information confidential and the relationship must at least imply such
a duty before the outsider will be considered an insider.


                                       -1-

<PAGE>

            3. What is Material Information?

            Trading on inside information is not a basis for liability unless
the information is material. "Material information" generally is defined as
information for which there is a substantial likelihood that a reasonable
investor would consider it important in making his or her investment decisions,
or information that is reasonably certain to have a substantial effect on the
price of a company's securities. Information that managing members and employees
should consider material includes, but is not limited to: dividend changes,
earnings estimates, changes in previously released earnings estimates,
significant merger or acquisition proposals or agreements, major litigation,
liquidation problems, and extraordinary management developments.

            Material information does not have to relate to a company's
business. For example, in Carpenter v. U.S., 108 U.S. 316 (1987), the Supreme
Court considered material certain information about the contents of a
forthcoming newspaper column that was expected to affect the market price of a
security. In that case, a Wall Street Journal reporter was found criminally
liable for disclosing to others the dates that reports on various companies
would appear in the Journal and whether those reports would be favorable or not.

            4. What is Nonpublic Information?

            Information is nonpublic until it has been effectively communicated
to the market place. One must be able to point to some fact to show that the
information is generally public. For example, information found in a report
filed with the SEC, or appearing in Dow Jones, Reuters Economic Services, The
Wall Street Journal or other publications of general circulation would be
considered public.

            5. Basis for Liability.

                  i)    fiduciary duty theory

                        In 1980, the Supreme Court found that there is no
                        general duty to disclose before trading on material
                        nonpublic information, but that such a duty arises only
                        where there is a fiduciary relationship. That is, there
                        must be a relationship between the parties to the
                        transaction such that one party has a right to expect
                        that the other party will disclose any material
                        nonpublic information or refrain from trading. Chiarella
                        v. U.S., 445 U.S. 22 (1980).

                        In Dirks v. SEC, 463 U.S. 646 (1983), the Supreme Court
                        stated alternate theories under which non-insiders can
                        acquire the fiduciary duties of insiders: they can enter
                        into a confidential relationship with the company
                        through which they gain information (i.e., attorneys,
                        accountants), or they can acquire a fiduciary duty to
                        the company's shareholders as "tippees" if they are
                        aware or should have been aware that they have been
                        given confidential information by an insider who has
                        violated his fiduciary duty to the company's
                        shareholders.


                                       -2-

<PAGE>

                        However, in the "tippee" situation, a breach of duty
                        occurs only if the insider personally benefits, directly
                        or indirectly from the disclosure. The benefit does not
                        have to be pecuniary, but can be a gift, a reputational
                        benefit that will translate into future earnings, or
                        even evidence of a relationship that suggests a quid pro
                        quo.

                  ii)   misappropriation theory

                        Another basis for insider trading liability is the
                        "misappropriation" theory, where liability is
                        established when trading occurs on material nonpublic
                        information that was stolen or misappropriated from any
                        other person. In U.S. v. Carpenter, supra, the Court
                        found, in 1987, a columnist defrauded The Wall Street
                        Journal when he stole information from the Journal and
                        used it for trading in the securities markets. It should
                        be noted that the misappropriation theory can be used to
                        reach a variety of individuals not previously thought to
                        be encompassed under the fiduciary duty theory.

            6. Penalties for Insider Trading

            Penalties for trading on or communicating material nonpublic
information are severe, both for individuals involved in such unlawful conduct
and their employers. A person can be subject to some or all of the penalties
below even if he or she does not personally benefit from the violation.
Penalties include:

                  i)    civil injunctions

                  ii)   treble damages

                  iii)  disgorgement of profits

                  iv)   jail sentences

                  v)    fines for the person who committed the violation of up
                        to three times the profit gained or loss avoided,
                        whether or not the person actually benefitted, and

                  vi)   fines for the employer or other controlling person of up
                        to the greater of $1,000,00 or three times the amount of
                        the profit gained or loss avoided.


                                       -3-

<PAGE>

            In addition, any violation of this policy statement can be expected
to result in serious sanctions by the Adviser, including dismissal of the
persons involved.

SECTION II. PROCEDURES TO IMPLEMENT INSIDER TRADING POLICY

            The following procedures have been established to aid the officers
and employees of Thomas J. Herzfeld Advisors, Inc. to avoid insider trading, and
to aid the Adviser in preventing, detecting and imposing sanctions against
insider trading. Every officer and employee of the Adviser must follow these
procedures or risk serious sanctions, including dismissal, substantial personal
liability and criminal penalties. If you have any questions about these
procedures, you should consult the Adviser's Chief Compliance Officer.

            1. Identifying Inside Information

            Before trading for yourself or others, including Client Accounts, in
the securities of a company about which you may have potential inside
information, ask yourself the following questions:

                  i)    Is the information material? Is this information that an
                        investor would consider important in making his or her
                        investment decisions? Is this information that would
                        substantially effect the market price of the securities
                        if generally disclosed?

                  ii)   Is the information nonpublic? To whom has this
                        information been provided? Has the information been
                        effectively communicated to the marketplace by being
                        published in Reuters, The Wall Street Journal, or other
                        publications of general circulation?

            If, after consideration of the above, you believe that the
information is material and nonpublic, or if you have questions as to whether
the information is material and nonpublic, you should take the following steps.

                  iii)  Report the matter immediately to the Chief Compliance
                        Officer.

                  iv)   Do not purchase or sell the securities on behalf of
                        yourself or others, including Client Accounts.

                  v)    Do not communicate the information inside or outside the
                        Adviser, other than to the Chief Compliance Office.

                  vi)   After the Chief Compliance Officer has reviewed the
                        issue, you will be instructed to continue the
                        prohibitions against trading and communication, or you
                        will be allowed to trade and communicate the
                        information.

            2.    Personal Security Trading. All officers and employees of the
                  Adviser (other than managing members and employees who are
                  required to report their securities transactions to a
                  registered investment company in accordance with a Code of
                  Ethics) shall submit to the compliance officer, on a quarterly
                  basis, a report of every securities transaction in which they,
                  their families (including the spouse, minor children and
                  adults living in the same household as the managing member or
                  employee), and Funds of which they are trustees or in which
                  they have a beneficial interest have participated, or at such
                  lesser intervals as may be required from time to time. The
                  report shall include the name of the security, date of the
                  transaction, quantity, price, and broker-dealer through which
                  the transaction was effected. All managing members and
                  employees must also instruct their broker(s) to supply the
                  Chief Compliance Officer, on a timely basis, with duplicate
                  copies of confirmations of all personal securities
                  transactions and copies of all periodic statements for all
                  securities accounts.


                                       -4-

<PAGE>

            3.    Restricting Access to Material Non-public Information. Any
                  information in your possession that you identify as material
                  and non-public may not be communicated other than in the
                  course of performing your duties to anyone, including persons
                  within your company, except as provided in paragraph 1 above.
                  In addition, care should be taken so that such information is
                  secure. For example, files containing material non-public
                  information should be sealed and access to computer files
                  containing material non-public information should be
                  restricted.

            4.    Resolving Issues Concerning Insider Trading. If, after
                  consideration of the items set forth in paragraph 1, doubt
                  remains as to whether information is material or non-public,
                  or if there is any unresolved question as to the applicability
                  or interpretation of the foregoing procedures, or as to the
                  propriety of any action, it must be discussed with the Chief
                  Compliance Officer before trading or communicating the
                  information to anyone.

SECTION III. SUPERVISION

            The role of the Chief Compliance Officer is critical to the
implementation and maintenance of this Statement on Insider Trading. These
supervisory procedures can be divided into two classifications, (1) the
prevention of insider trading, and (2) the detection of insider trading.

            1.    Prevention of Insider Trading:

            To prevent insider trading the Chief Compliance Officer should:

            (a)   answer promptly any questions regarding the Statement on
                  Insider Trading;

            (b)   resolve issues of whether information received by an officer
                  or employee is material and non-public;


                                       -5-

<PAGE>

            (c)   review and ensure that officers and employees review, at least
                  annually, and update as necessary, the Statement on Insider
                  Trading; and

            (d)   when it has been determined that an officer or employee has
                  material non-public information,

                  (i)   implement measures to prevent dissemination of such
                        information, and

                  (ii)  if necessary, restrict officers, directors, and
                        employees from trading the securities. 2. Detection of
                        Insider Trading:

            To detect insider trading, the Chief Compliance Officer should:

            (a)   review the trading activity reports filed by each officer and
                  employee, to ensure no trading took place in securities in
                  which the Adviser has material non-public information;

            (b)   review the trading activity of the mutual funds managed by the
                  Adviser;

            (c)   coordinate, if necessary, the review of such reports with
                  other appropriate officers, members, trustees or employees of
                  the Adviser and any mutual funds managed by the Adviser.

            3. Special Reports to Management:

            Promptly, upon learning of a potential violation of the Statement on
Insider Trading, the Chief Compliance Officer must prepare a written report to
management of the Adviser, and provide a copy of such report to the board of
directors of the any mutual funds managed by the Adviser, providing full details
and recommendations for further action.

            4. Annual Reports:

            On an annual basis, the Chief Compliance Officer of the Adviser will
prepare a written report to the management of the Adviser, and provide a copy of
such report to the board of directors of the any mutual funds managed by the
Adviser, setting forth the following:

            (a)   a summary of the existing procedures to detect and prevent
                  insider trading;

            (b)   full details of any investigation, either internal or by a
                  regulatory agency, of any suspected insider trading and the
                  results of such investigation;

            (c)   an evaluation of the current procedures and any
                  recommendations for improvement.


                                       -6-

            The Undersigned has read, understands and agrees to abide by the
foregoing Insider Trading Policy and has retained a copy of the said document.

Date:                          Signature:
     ------------------                   --------------------------------------


                                       -7-

<PAGE>

                                                                       EXHIBIT A

                                 CODE OF ETHICS

                             INITIAL HOLDINGS REPORT

To the Chief Compliance Officer of The Herzfeld Caribbean Basin Fund, Inc. and
Thomas J. Herzfeld Advisors, Inc.

            1. I hereby acknowledge receipt of a copy of the Code of Ethics and
Insider Trading Policy for The Herzfeld Caribbean Basin Fund, Inc.(the "Fund")
and Thomas J. Herzfeld Advisors, Inc. (the "Adviser").

            2. I have read and understand the Code and recognize that I am
subject thereto in the capacity of an "Access Person."

            3. Except as noted below, I hereby certify that I have no knowledge
of the existence of any personal conflict of interest relationship which may
involve the Fund, such as any economic relationship between my transactions and
securities held or to be acquired by the Fund or any of its series.

            4. As of the date below I had a direct or indirect beneficial
ownership interest in the following securities:

                                                             Type of Interest
Name of Securities       Number of Shares                  (Direct or Indirect)
------------------       ----------------                  --------------------


            5. As of the date below, the following is a list of all brokers,
dealers or banks with whom I maintain an account in which securities are held
for my direct or indirect benefit:

                                                             Type of Interest
Firm                     Account                           (Direct or Indirect)
----                     -------                           --------------------


Date:                           Signature:
      ------------------                   -------------------------------------
                                Print Name:
                                            ------------------------------------
                                Title:
                                       -----------------------------------------
                                Employer's Name:
                                                --------------------------------

<PAGE>

                                                                       EXHIBIT B

                                 CODE OF ETHICS

                             ANNUAL HOLDINGS REPORT

To the Chief Compliance Officer of The Herzfeld Caribbean Basin Fund, Inc. and
Thomas J. Herzfeld Advisors, Inc.

            1. I have read and understand the Code of Ethics and recognize that
I am subject thereto in the capacity of an "Access Person."

            2. I hereby certify that, during the year ended December 31, ____, I
have complied with the requirements of the Code and I have reported all
securities transactions required to be reported pursuant to the Code.

            3. Except as noted below, I hereby certify that I have no knowledge
of the existence of any personal conflict of interest relationship which may
involve the Fund, such as any economic relationship between my transactions and
securities held or to be acquired by the Fund or any of its Series.

            4. As of December 31, ____, I had a direct or indirect beneficial
ownership interest in the following securities:

                                                             Type of Interest
Name of Securities       Number of Shares                  (Direct or Indirect)
------------------       ----------------                  --------------------


            5. As of the December 31, ____ the following is a list of all
brokers, dealers or banks with whom I maintain an account in which securities
are held for my direct or indirect benefit:

                                                             Type of Interest
Firm                     Account                           (Direct or Indirect)
----                     -------                           ---------------------


Date:                           Signature:
      ------------------                   -------------------------------------
                                Print Name:
                                            ------------------------------------
                                Title:
                                       -----------------------------------------
                                Employer's Name:
                                                --------------------------------

<PAGE>

                                                                       EXHIBIT C

                         SECURITIES TRANSACTIONS REPORT
                  FOR THE CALENDAR QUARTER ENDED: _____________

To the Chief Compliance Officer of The Herzfeld Caribbean Basin Fund, Inc. and
Thomas J. Herzfeld Advisors, Inc.

            During the quarter referred to above, the following transactions
were effected in securities of which I had, or by reason of such transaction
acquired, direct or indirect beneficial ownership, and which are required to be
reported pursuant to the Code of Ethics adopted by the Fund.

<TABLE>
<CAPTION>
   SECURITY
  (including                                                                 BROKER/
interest rate                                        NATURE OF                DEALER
 and maturity                         DOLLAR        TRANSACTION              OR BANK
   date, if      DATE OF    NO. OF   AMOUNT OF   (Purchase, Sale,            THROUGH
 applicable)   TRANSACTION  SHARES  TRANSACTION       Other)       PRICE  WHOM EFFECTED
-------------  -----------  ------  -----------  ----------------  -----  -------------
<S>            <C>          <C>     <C>          <C>               <C>    <C>









</TABLE>

During the quarter referred to above, the following accounts were established by
me in which securities were held for my direct or indirect benefit:

         FIRM NAME           DATE THE ACCOUNT WAS
(of broker, dealer or bank)       ESTABLISHED      ACCOUNT NUMBER
---------------------------  --------------------  --------------










<PAGE>

            This report (i) excludes transactions with respect to which I had no
direct or indirect influence or control, (ii) other transactions not required to
be reported, and (iii) is not an admission that I have or had any direct or
indirect beneficial ownership in the securities listed above.

            Except as noted on the reverse side of this report, I hereby certify
that I have no knowledge of the existence of any personal conflict of interest
relationship which may involve the Fund, such as the existence of any economic
relationship between my transactions and securities held or to be acquired by
the Fund or any of its series.


Date:                           Signature:
      ------------------                   -------------------------------------
                                Print Name:
                                            ------------------------------------
                                Title:
                                       -----------------------------------------
                                Employer's Name:
                                                 -------------------------------
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>10
<FILENAME>filename10.txt
<TEXT>
[LOGO OMITTED]


3000 Two Logan Square
Eighteenth and Arch Streets
Philadelphia, PA  19103-2799
215.981.4000
Fax 215.981.4750

                                                                  (215) 981-4506
                                                          delrasoj@pepperlaw.com





                                                     July 24, 2007



VIA EDGAR

U.S. Securities and Exchange Commission Filing Desk 450 Fifth Street, N.W.
Washington, DC 20549

      Re:   The Herzfeld Caribbean Basin Fund, Inc. (the "Company") 1940 Act
            Filing No. 811-06445

Ladies and Gentlemen:

      On behalf of the Company, transmitted herewith for filing is a
registration statement on Form N-2 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "1933 Act"). Such Registration Statement
also constitutes Amendment No. 4 to the Company's registration statement under
the Investment Company Act of 1940, as amended. The Company is a non-diversified
closed-end investment company whose shares are listed on the NASDAQ Capital
Market (Ticker Symbol: CUBA).

      The Registration Statement relates to the registration, under the 1933
Act, of 3,375,112 shares of common stock. As described in the Registration
Statement, stockholders on the record date will receive one non-transferable
right for each outstanding share of common stock owned. The rights entitle a
stockholder to purchase one new share of common stock for every right owned, for
an aggregate of 1,687,556 shares of common stock issuable upon exercise of
non-transferable rights to subscribe to such shares. In addition, stockholders
of record who fully exercise their rights will be entitled to subscribe for
additional shares of common stock ("Over-Subscription Shares"). The
Over-Subscription Shares will be allocated pro rata to stockholders who
over-subscribe based on the number of rights originally issued to them. The
Company may increase the number of shares of Common Stock subject to
subscription by up to 100% of the shares, or up to 1,687,556 additional shares
of Common Stock.

Philadelphia     Washington, D.C.   Detroit   New York        Pittsburgh
------------------------------------------------------------------------------
Berwyn    Cherry Hill     Harrisburg    Princeton   Tysons Corner   Wilmington

                                www.pepperlaw.com


<PAGE>

[LOGO OMITTED]

U.S. Securities and Exchange Commission
July 24, 2007
Page 2

      It is anticipated that the record date for the offering will be set on or
after September 5, 2007 and the subscription price per share will be set between
80 % and 95% of the average volume-weighted closing sale price at which the
common stock trades on the NASDAQ Capital Market on the expiration date of the
offer and the four preceding trading days.

      A registration fee of $1,371.87 due with respect to the filing was paid by
wire transfer on July 24, 2007 (Fed. Ref. No. IMAD/MIR Ref. 0724A1B79N3C001439).

      The Company wishes to inform the Commission that it may request
acceleration of the effectiveness date of the Registration Statement in writing
or orally.

      Please direct your comments and questions to the undersigned at
215.981.4506 or, in his absence, or John Falco at 215.981.4659.



                                      Very truly yours,

                                      /s/ Joseph V. Del Raso

                                      Joseph V. Del Raso, Esq.


</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
