united states

securities and exchange commission

washington, d.c. 20549

form N-CSR

certified shareholder report of registered management

investment companies

Investment Company Act file number 811-06445

Herzfeld Credit Income Fund, Inc.

(Exact name of registrant as specified in charter)

119 Washington Ave, Suite 405, Miami Beach, FL 33139

(Address of principal executive offices) (Zip code)

Erik M. Herzfeld

119 Washington Ave. Suite 405, Miami Beach, FL 33139

(Name and address of agent for service)

With Copies to:

Adam D. Kanter, Partner

Mayer Brown LLP

1999 K Street NW

Washington, DC 20006

Registrant's telephone number, including area code: 305-777-1660

Date of fiscal year end: June 30

Date of reporting period: July 1, 2025 – June 30, 2026

Item 1. Reports to Stockholders.

Herzfeld Credit
Income Fund, Inc.

119 Washington Avenue, Suite 405
Miami Beach, FL 33139
(305) 777-1660

Investment Advisor

Thomas J. Herzfeld Advisors, Inc.
119 Washington Avenue, Suite 405
Miami Beach, FL 33139
(305) 777-1660

Administrator, Transfer Agent
and Fund Accountant

Ultimus Fund Solutions, LLC
225 Pictoria Drive, Suite 450
Cincinnati, OH 45246

Sub-Transfer Agent

Equiniti Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219

Custodian

U.S. Bank N.A.
RiverCenter
1555 N. RiverCenter Dr.
Milwaukee, WI 53212

Counsel

Mayer Brown LLP
1999 K Street NW
Washington, DC 20006

Independent Registered Public Accounting Firm

Deloitte & Touche, LLP
115 Federal Street
Boston, MA 02110

The primary investment objective of Herzfeld Credit Income Fund, Inc. (the “Fund”) is maximizing risk adjusted total returns with a secondary objective of generating high current income for stockholders. The Fund seeks to achieve its investment objective by investing primarily in credit related instruments, including equity and junior debt tranches of collateralized loan obligations, or “CLOs.” The Fund may also invest in other related securities and instruments or other securities and instruments that we believe are consistent with the Fund’s investment objectives, including senior debt tranches of CLOs, loan accumulation facilities (“LAFs”), collateralized fund obligations (“CFOs”), and securities issued by other securitization vehicles, such as collateralized bond obligations, or “CBOs.” Under normal circumstances, the Fund will invest at least 80% of the aggregate of its net assets and borrowings for investment purposes in credit related instruments (see the section titled “Investment Objectives and Policies” for additional details regarding the Fund’s investment objectives and principal investment strategies).

Listed NASDAQ Capital Market
Symbol: HERZ

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Dear Fellow Stockholders,

We are pleased to present our Annual Report for the fiscal year ending June 30, 2026. On that date, the net asset value (“NAV”) of Herzfeld Credit Income Fund, Inc. (the “Fund”) (NASDAQ: HERZ) was $19.51 per share. The Fund’s market share price closed the period at $17.20 per share. Over the period, the discount to NAV widened from -4.59% to -11.84%. The total investment return, adjusted for distributions, was -0.20% based on NAV per share and -8.34% based on market value per share.

The Fund’s primary investment objective is maximizing risk adjusted total returns with a secondary objective of generating high current income for stockholders. In accordance with the investment objective, the Fund’s current principal investment strategies and policies focus on investing in credit related instruments, including equity and junior debt tranches of collateralized loan obligations, or “CLOs.” The Fund may also invest in other related securities and instruments or other securities and instruments that we believe are consistent with the Fund’s investment objectives, including senior debt tranches of CLOs, loan accumulation facilities (“LAFs”), collateralized fund obligations (“CFOs”), and securities issued by other securitization vehicles, such as collateralized bond obligations, or (“CBOs.”)

Portfolio

Since the effective date of the strategy change on July 1, 2025, the Fund liquidated most of its legacy holdings from its prior Caribbean Basin strategy and has invested in credit-related instruments, including securitized products, closed-end funds, and preferred equity shares. The period was characterized by heightened geopolitical uncertainty, evolving Federal Reserve policy, and shifting expectations for interest rates, all of which contributed to elevated market volatility. To achieve our goals during this period of market volatility, the Fund targeted a disciplined approach to its capital deployment, seeking to focus on attractive risk-adjusted opportunities while maintaining a prudent approach to portfolio construction and liquidity.

We note that the CLO equity market during this period was particularly challenging. The Flat Rock CLO Equity Returns Index (which seeks to measure the unlevered, gross of fee performance of U.S. CLO equity tranches as represented by the market-weighted performance of the underlying assets of funds that publicly disclose their holdings and fair market values to the U.S. Securities and Exchange commission) generated a -21.45% return from June 2025-March 2026. We approached investment cautiously, focusing instead on other credit related instruments such as fixed income closed-end funds

Thomas J. Herzfeld
Chair Emeritus and Founder

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Erik M. Herzfeld
President, Interested Director and
Portfolio Manager

(“CEFs”), CFO equity, private placements and certain income producing Interval Funds. As a result, we were able minimize the general downturn in NAV experienced by the CLO equity CEFs.

The portfolio’s top performer over the Fund’s fiscal year was the Dawson Logan 5 Equity position, which returned +63.25% over the period. Dawson Logan 5 is a CFO backed by a diversified portfolio of General Partners (“GP”) and Limited Partners (“LP”) interests in private investment funds, including portfolio finance vehicles and GP financing strategies. These interests are typically acquired in the secondary market at discounts to their estimated net asset values, providing the potential for attractive returns as the underlying funds continue to generate distributions and portfolio companies are sold. During the fiscal year, the underlying Dawson portfolio continued to perform well, producing strong cash flows and an increase in the estimated value of the collateral, which drove appreciation in our equity investment. We believe the transaction remains well positioned to benefit from additional realizations and cash distributions for the immediate future.

Another positive contributor to performance was Evermore Bank, which gained +43.33% over the fiscal year. Evermore Bank is a privately held community bank serving South Florida. The investment benefited from continued growth in the bank’s operations, with total assets increasing 46.11% year-over-year to $314.4 million as of March 31, 2026, while revenue grew 56.4% year-over-year to approximately $17.0 million in fiscal 2025. Continued strong operating performance and a favorable environment for community banks contributed to the appreciation of our investment. We believe Evermore Bank remains well positioned to benefit from continued loan growth and expansion within the South Florida market.

PIMCO Dynamic Income Strategy Fund (PDX) was another top performer for the fiscal year, gaining + 10.47%. That fund’s largest holding, Venture Global (VG), benefited from a sharp rally in liquefied natural gas (“LNG”) prices as markets reacted to supply disruptions tied to the Iran conflict. PDX made its first sales of VG in the first quarter of 2026, which should result in a large capital gain that will need to be distributed to shareholders. Typically, these special distributions drive discount narrowing when announced, so we have continued to maintain our position in the fund. We also expect management to continue to sell down the VG position, potentially resulting in further special distributions.

Ryan M. Paylor
Portfolio Manager

Cecilia Gondor
Chairperson

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Our worst performer during the fiscal year was XAI Floating Rate & Alternative Income Trust (XFLT), which fell -21.83% over the fiscal year. Since XFLT’s inception in 2017, this fund has traded at an average 0.66% premium, but over the last fiscal year it traded at an average -16.02% discount. The fund’s adviser, XAI Investments, announced their board had recommended firing the sub-adviser, Octagon Credit Investors, and replacing them with Rockford Tower Asset Management, L.L.C. (the “King Street Sub-Adviser”), a wholly owned subsidiary of King Street Capital Management, L.P. Octagon has taken the fight public and has submitted a presentation for Octagon to solely take over as the fund’s adviser, lower fees from 1.7% to 1.3%, and potentially to conduct a tender offer at or close to NAV. Ahead of the shareholder meeting on July 30th, 2026, XFLT’s board announced an initial 12.50% tender to commence approximately 45 days following shareholder approval of the King Street sub-advisory agreement, along with two contingent tender offers for the next two years. The fund closed the period at a discount of -23.40% and a distribution yield of 15.58%.

Another weak performer during the fiscal year was Carlyle Credit Income Fund (CCIF), which declined -17.69% as the downturn in the CLO equity market continued to pressure both NAVs and market prices. During the period, the fund’s NAV fell -36.87% and it reduced its distribution by 43%, reflecting lower cash flows from its underlying CLO equity investments. We believe much of the market’s pessimism is already reflected in the share price. However, we expect the fund to remain under pressure in the near term as the CLO equity market continues to face headwinds and investors harvest tax losses later this year. The fund closed the period at a discount of -15.96% and a distribution yield of 26.38%.

Oxford Lane Capital Corporation (OXLC) was another bottom performer, declining -17.49% over the fiscal year as weakness in the CLO equity market reduced expected equity distributions and pressured NAV. OXLC is the largest CLO equity closed-end fund, with nearly $2 billion in total assets. Since its inception in 2011, the fund has traded at an average 5.75% premium to NAV. However, over the last fiscal year it reduced its distribution by 55%, and traded to a meaningful discount. We exited our position in April as we believed better risk-adjusted opportunities existed elsewhere. After our exit, OXLC closed the period at a -23.72% discount to NAV and a distribution yield of 28.02%.

Outlook

The structured credit market enters the second half of 2026 amid an increasingly uncertain macroeconomic backdrop. While inflation has continued to moderate, markets remain focused on the path of monetary policy, elevated geopolitical tensions, and the potential impact of trade and fiscal policy on economic growth. Although volatility is likely to persist, we believe periods of market dislocation often create attractive investment opportunities for long-term investors.

CLO equity has experienced a challenging period. However, credit fundamentals remain relatively resilient, with defaults expected to remain concentrated in select sectors rather than broad-based across the leveraged loan market. After a muted first quarter 2026, when geopolitical tensions in the Middle East and uncertainty surrounding the path of interest

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rates weighed on issuance, the CLO market has regained momentum. We expect issuance to remain healthy through the remainder of the calendar year, supported by continued refinancing activity and improving leveraged loan supply. At the same time, we expect CLO equity cash flows to remain pressured as the market continues to adjust to higher financing costs and lower excess spreads.

The evolution of the structured credit market has expanded the opportunity set beyond traditional CLO equity and debt. As the CLO market has matured, increased investor participation has generally compressed spreads and reduced expected returns relative to prior years. At the same time, other structured credit sectors, including CFOs, rated feeder vehicles, asset-backed credit opportunities, and privately negotiated credit investments, remain less competitive and often require specialized underwriting expertise. These characteristics can create opportunities to earn attractive risk-adjusted returns through structural complexity, negotiated transaction terms, and differentiated sources of cash flow. We believe our experience in structured credit positions allows us to identify these opportunities while constructing a more diversified portfolio that is less dependent on any single segment of the market.

Looking ahead, we expect market performance to be driven by disciplined security selection, thoughtful portfolio construction, and active capital allocation rather than broad market beta. While geopolitical risks and uncertainty surrounding the path of interest rates are likely to continue to drive periods of volatility, we believe these dislocations will generate attractive investment opportunities across the structured credit landscape. We continue to evaluate a number of differentiated structured credit investments, including CFOs, privately negotiated transactions and other bespoke opportunities, that we believe can enhance portfolio returns and further diversify the Fund’s sources of income. We remain focused on preserving capital, generating durable cash flows, and investing in opportunities that offer compelling long-term risk-adjusted returns.

The above commentary is for informational purposes only and does not represent an offer, recommendation or solicitation to buy, hold or sell any security. The commentary is intended to assist stockholders in understanding our performance during the fiscal year ended June 30, 2026. The views and opinions in this letter were current as of August 28, 2026. Statements other than those of historical facts included herein may constitute forward-looking statements regarding management’s future expectations, beliefs, intentions, goals, strategies, plans or prospects, including statements relating to management’s beliefs that the cash and stock distribution will allow the Fund to strengthen its balance sheet and to be in a position to capitalize on potential future investment opportunities, when there can be no assurance either will occur, and other factors may contain forward looking

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statements within the meaning of the Private Securities Litigation Reform Act, with respect to the Fund’s future financial or business performance, strategies or expectations. Nothing herein should be relied upon as a representation as to the future performance holdings of the Fund. We undertake no duty to update any forward-looking statement made herein. The specific securities identified and described do not represent all of the securities purchased or sold and you should not assume that investments in the securities identified and discussed will be profitable. Portfolio composition is subject to change.

Largest Allocations

The following table presents our largest investments as of June 30, 2026.

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The following table and chart present our largest investment allocations as of June 30, 2026.

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Average Annual Total Returns*
(For the periods ended June 30, 2026)

On June 24, 2025, the Fund’s stockholders approved an Amended and Restated Investment Advisory Agreement (the “Amended Agreement”) between the Fund and the Adviser. During the fiscal year ended June 30, 2026, under the Amended Agreement, the Fund was subject to a management fee equal to an annual rate of 1.25% of the Fund’s Managed Assets (gross assets less non-investment liabilities) and an incentive fee equal to 10% of the Fund’s pre-incentive fee net investment income, for each calendar quarter subject to a 9.0% annualized hurdle rate, with a “catch-up” provision intended to provide the Adviser with an incentive fee of 10% on all of the Fund’s Pre-Incentive Fee net investment income as if a hurdle rate did not apply when the Fund’s net investment income exceeds 2.25% in any calendar quarter. Additional information pertaining to the Fund’s expense ratios as of June 30, 2026 can be found in the financial highlights.

The performance quoted represents past performance, which does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect deduction of taxes that a stockholder would pay on Fund distributions or the redemption of Fund shares. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling (305) 777-1660.

Effective July 1, 2025, the Fund’s primary investment objective changed to a total return strategy with a secondary objective of generating high current income for stockholders. In accordance with the change in investment objective, the Fund’s current principal investment strategies and policies focus on investing in credit related instruments, including equity and junior debt tranches of collateralized loan obligations, or “CLOs.” The Fund may also invest in other related securities and instruments or other securities and instruments that we believe are consistent with the Fund’s investment objectives, including senior debt tranches of CLOs, loan accumulation facilities (“LAFs”), collateralized fund obligations (“CFOs”), and securities issued by other securitization vehicles, such as collateralized bond obligations, or “CBOs.” Performance prior to July 1, 2025, is not reflective of the current strategy.

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The Fund’s investment objectives, strategies, risks, charges and expenses must be considered carefully before investing. The prospectus contains this and other important information about the Fund and may be obtained by calling the same number as above. Please read it carefully before investing.

The Fund is not sponsored, endorsed, sold or promoted by Morningstar, Inc. or any of its affiliates (all such entities, collectively, “Morningstar Entities”). The Morningstar Entities make no representation or warranty, express or implied, to individuals who invest in the Fund or any member of the public regarding the advisability of investing in equity securities generally or in the Fund in particular or the ability of the Fund to track the Morningstar Indices or general equity market performance. THE MORNINGSTAR ENTITIES DO NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE FUND OR ANY DATA INCLUDED THEREIN AND MORNINGSTAR ENTITIES SHALL HAVE NO LIABILITY FOR ANY ERRORS,OMISSIONS, OR INTERRUPTIONS THEREIN.

ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN.

The Fund’s investment objectives, strategies, risks, charges and expenses must be considered carefully before investing. The prospectus contains this and other important information about the Fund and may be obtained by calling the same number as above. Please read it carefully before investing.

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Comparison of the Growth of a $10,000 Investment in the
Herzfeld Credit Income Fund (at Market Value), the Morningstar LSTA US Leveraged Loan Index and the S&P BDC Total Return Index

The chart above assumes an initial investment of $10,000 made on June 30, 2016 and held through June 30, 2026. The S&P BDC Total Return Index and the Morningstar LSTA US Leveraged Loan Index are widely recognized unmanaged indexes of equity securities and each is representative of a broader equity market and range of securities than is found in the Fund’s portfolio. Individuals cannot invest directly in an Index; however, an individual can invest in exchange traded funds or other investment vehicles that attempt to track the performance of a benchmark index. THE FUND’S RETURN REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. The returns shown do not reflect deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Investment returns and principal values will fluctuate so that your shares, when redeemed, may be worth more or less than their original purchase price.

Current performance may be lower or higher than the performance data quoted. For more information on the Fund, and to obtain performance data current to the most recent month end or to request a prospectus, please call 800-TJH-FUND (800-854-3866). You should carefully consider the investment objectives, potential risks, management fees, and charges and expenses of the Fund before investing. The Fund’s prospectus contains this and other information about the Fund, and should be read carefully before investing.

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See accompanying notes to the financial statements.

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See accompanying notes to the financial statements.

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See accompanying notes to the financial statements.

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Footnote Continues

See accompanying notes to the financial statements.

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See accompanying notes to the financial statements.

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See accompanying notes to the financial statements.

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See accompanying notes to the financial statements.

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See accompanying notes to the financial statements.

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See accompanying notes to the financial statements.

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NOTE 1. ORGANIZATION AND RELATED MATTERS

Herzfeld Credit Income Fund, Inc. (formerly, The Herzfeld Caribbean Basin Fund, Inc.) (the “Fund”) is a non-diversified, closed-end management investment company incorporated under the laws of the State of Maryland on March 10, 1992, and registered under the Investment Company Act of 1940 (the “1940 Act”), as amended, and follows accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, “Financial Services - Investment Companies”. The Fund commenced investing activities in January 1994. The Fund is listed on the NASDAQ Capital Market as “HERZ.”

Effective July 1, 2025, the Fund’s primary investment objective changed to a total return strategy with a secondary objective of generating high current income for stockholders.

The Fund seeks to achieve its investment objective by investing primarily in credit related instruments, including equity and junior debt tranches of collateralized loan obligations, or “CLOs.” The Fund may also invest in other related securities and instruments or other securities and instruments that we believe are consistent with the Fund’s investment objectives, including senior debt tranches of CLOs, loan accumulation facilities (“LAFs”), collateralized fund obligations (“CFOs”), and securities issued by other securitization vehicles, such as collateralized bond obligations, or “CBOs.”

In accordance with the requirements of the 1940 Act, the Fund has adopted a policy to invest at least 80% of its assets in the particular type of investment suggested by its name. Accordingly, under normal circumstances, the Fund will invest at least 80% of the aggregate of its net assets and borrowings for investment purposes in credit-related instruments.

The Fund’s 80% policy with respect to investments in credit-related instruments is not fundamental and may be changed by the Board without prior approval of our stockholders. Stockholders will be provided with sixty (60) days’ notice in the manner prescribed by the SEC before making any change to this policy.

Effective February 6, 2026, the Fund underwent a 1-for-10 reverse share split. The effect of the reverse share split transactions was to divide the number of outstanding shares of the Fund by the reverse split factor, with a corresponding increase in the net asset value per share. These transactions did not change the net assets of the Fund or the value of a shareholder’s investment. The historical share transactions presented in the Statements of Changes in Net Assets and per share data presented in the Financial Highlights have been adjusted retroactively to give effect to the reverse share split.

The Fund has adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures. Adoption of the standard impacted financial statement disclosures only and did not affect the Fund’s financial position or the results of its operations. An operating segment is defined in Topic 280 as a component of a public entity that engages in business activities from which it may recognize revenues and incur expenses, has operating results that are regularly reviewed by the public entity’s chief operating decision

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maker (“CODM”) to make decisions about resources to be allocated to the segment and assess its performance, and has discrete financial information available. The CODM is the President of the Fund. The Fund operates as a single operating segment. The Fund’s income, expenses, assets, changes in net assets resulting from operations and performance are regularly monitored and assessed as a whole by the CODM responsible for oversight functions of the Fund, using the information presented in the financial statements and financial highlights

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Security Valuation

In accordance with accounting principles generally accepted in the United States of America (“GAAP”), fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

In determining fair value, the Fund uses various valuation approaches. In accordance with GAAP, a fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available.

Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s assumptions about the input market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows:

The availability of valuation techniques and observable inputs can vary from security to security and is affected by a wide variety of factors including, the type of security, whether the security is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that

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may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined. Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the securities existed. Accordingly, the degree of judgment exercised by the Fund in determining fair value is greatest for securities categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls, is determined based on the lowest level input that is significant to the fair value measurement.

Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Fund’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Fund uses prices and inputs that are current as of the measurement date, including periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many securities. This condition could cause a security to be reclassified to a lower level within the fair value hierarchy.

Investments in securities traded on a national securities exchange (or reported on the NASDAQ National Market or Capital Market) are stated at the last reported sales price on the day of valuation (or at the NASDAQ official closing price); other securities traded in the over-the-counter market and listed securities for which no sale was reported on that date are stated at the last quoted bid price. Restricted securities and other securities for which quotations are not readily available are valued at fair value as determined, in good faith, by the Adviser, as “valuation designee” under the oversight of the Board of Directors.

The following table summarizes the classification of the Fund’s investments by the above fair value hierarchy levels as of June 30, 2026:

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The fair valued securities (Level 3) held in the Fund consisted of Cuban Electric Company, Evermore Bank, Fuego Enterprises, Inc., Grupo Radio Centro S.A.B. de C.V., Outdoor Living., Dawson Partners Rated Fund, Class C, 12.30%, 11/30/2040, KSCF V Rated Note Feeder LLC, Class D , KSCF V Rated Note Feeder LLC, OCP CLO Ltd. Series 2025-46A, Diameter Capital CLO Ltd., Series 2025-12A, Brant Point CLO Ltd., Series 2025-9, Garnet CLO Ltd., Series 2026-5A and Republic of Cuba 4.5% bond.

Quantitative Information Regarding Internally Priced Assets and Liabilities:

The following table presents quantitative information about significant unobservable inputs used in Level 3 fair value measurements that are developed internally by the Fund as of June 30, 2026:

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The following table is a reconciliation of the fair value investments for which the Fund has used Level 3 unobservable inputs in determining fair value as of June 30, 2026:

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The net change in unrealized appreciation included in the Statement of Operations attributable to Level 3 investments still held at June 30, 2026, was as follows:

Under procedures approved by the Board of Directors, the Adviser provides administration and oversight of the Fund’s valuation policies and procedures, which are reviewed at least annually by the Directors. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.

The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available. Under these procedures, the Adviser convenes on a regular and ad hoc basis to review such securities and considers a number of factors, including valuation methodologies and significant unobservable valuation inputs, when determining a fair value. The Adviser may employ a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values and other relevant information for the investment to

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determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. A discount may be applied due to the nature or duration of any restrictions on the disposition of investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The Adviser employs various methods for calibrating these valuation approaches including a regular view of valuation methodologies, key inputs and assumptions, transactional back-testing or disposition analysis and reviews of any related market activity.

The Fund adopted policies to comply with Rule 2a-5 under the 1940 Act, which establishes a regulatory framework for registered investment company fair valuation practices. The Fund’s fair value policies and procedures and valuation practices were updated prior to the rule’s required compliance date of September 8, 2022. Under Rule 2a-5, the Fund’s Board of Directors designated the Adviser as the Fund’s “Valuation Designee” to make fair value determinations.

Income Recognition

Security transactions are recorded on the trade date. Gains and losses on securities sold are determined on the basis of identified cost. Dividend income is recognized on the ex- dividend date or in the case of certain foreign securities, as soon as the Fund is notified, and interest income is recognized on an accrual basis. Discounts and premiums on debt securities purchased are amortized over the life of the respective securities. It is the Fund’s practice to include the portion of realized and unrealized gains and losses on investments denominated in foreign currencies as components of realized and unrealized gains and losses on investments and foreign currency. Withholding on foreign taxes have been provided for in accordance with the Fund’s understanding of the applicable country’s tax rules and rates.

Foreign Currency

The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts and investments denominated in a foreign currency, if any, are translated into U.S. dollar amounts at current exchange rates on the valuation date. Purchases and sales of investments denominated in foreign currencies are translated into U.S. dollar amounts at the exchange rate on the respective dates of such transactions.

Deposits with Financial Institutions

The Fund may, during the course of its operations, maintain account balances with financial institutions in excess of federally insured limits.

Counterparty Brokers

In the normal course of business, substantially all of the Fund’s money balances and security positions are custodied with the Fund’s custodian, U.S Bank N.A. The Fund also transacts with other brokers. The Fund is subject to credit risk to the extent any broker with which it conducts business is unable to fulfill contractual obligations on its behalf.

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The Fund’s management monitors the financial condition of such brokers and does not anticipate any losses from these counterparties.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Income Taxes

The Fund’s policy is to continue to comply with the provisions of the Internal Revenue Code of 1986, as amended, that are applicable to regulated investment companies and to distribute substantially all of 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 income or excise tax provision is required.

The Fund has adopted a June 30 year-end for federal income tax purposes.

Distributions to Stockholders

Distributions to stockholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from GAAP. For the fiscal year ended June 30, 2026, a distribution from Long-Term Capital Gains of $6.867 (adjusted for 1-for-10 reverse share split) per share was declared on December 31, 2025 and ordinary income distribution of $0.51. Due to the timing of dividend distributions and the differences in accounting for income and realized gains and losses for financial statement and federal income tax purposes, the fiscal year in which the amounts are distributed may differ from the year in which the income and realized gains and losses are recorded by the Fund.

Derivatives Risk Management Program

The Fund adopted policies and procedures to comply with Rule 18f-4 under the 1940 Act, which limits the amount of derivatives a fund can enter into, eliminates the asset segregation framework previously used by funds to comply with Section 18 of the 1940 Act, treats derivatives as senior securities and requires funds whose use of derivatives is more than a limited specified exposure amount to establish and maintain a comprehensive derivatives risk management program and when applicable, appoint a derivatives risk manager.

NOTE 3. RESTRICTED SECURITIES OWNED

Investments in securities include $165,000 principal, 4.5%, 1977 Republic of Cuba bonds, $140,000 purchased for $52,850 on February 15, 1995, and $25,000 purchased for $10,188 on April 27, 1995, that are currently segregated and restricted from transfer. The bonds were listed on the New York Stock Exchange (“NYSE”) and had been trading in

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default since 1960. A “regulatory halt” on trading was imposed by the NYSE in July 1995 and trading in the bonds was suspended as of December 28, 2006. The NYSE has stated that following the suspension of trading, an application will be made to the Securities and Exchange Commission to delist the issue. As of June 30, 2026, the position was valued at $0 under procedures approved by the Board of Directors.

Investments in securities also include 700 shares of Cuban Electric Company, 482 shares purchased for $4,005 on September 30, 2005, and 218 shares purchased for $1,812 on September 30, 2005, which are currently segregated and restricted from transfer. As of June 30, 2026, the position was valued at $0 under procedures approved by the Board of Directors.

Investments in securities also include 170,000 shares of Evermore Bank purchased for $2,040,000 on June 21, 2024, which are currently segregated and restricted from transfer. As of June 30, 2026, the position was valued at $2,924,000 under procedures approved by the Board of Directors.

NOTE 4. TRANSACTIONS WITH AFFILIATES AND OTHER SERVICE PROVIDERS

Transactions with Affiliates

Thomas J. Herzfeld Advisors, Inc. (the “Adviser”), is the Fund’s investment adviser. Mr. Thomas J. Herzfeld is the owner of the Adviser.

Pursuant to the Amended and Restated Investment Advisory Agreement (the “Advisory Agreement”) between the Fund and the Adviser, the Fund pays a management fee equal to an annual rate of 1.25% of the Fund’s Managed Assets (gross assets less non-investment liabilities) and an incentive fee equal to 10% of the Fund’s pre-incentive fee net investment income, for each calendar quarter subject to a 9.0% annualized hurdle rate, with a “catch-up” provision intended to provide the Adviser with an incentive fee of 10% on all of the Fund’s Pre-Incentive Fee net investment income as if a hurdle rate did not apply when the Fund’s net investment income exceeds 2.25% in any calendar quarter. The “catch-up” portion of the Fund’s pre-incentive fee net investment income is the portion that exceeds the 2.25% hurdle rate but is less than or equal to 2.5% in any calendar quarter. For the fiscal year ended June 30, 2026, there were no incentive fees.

TMorgan Advisers, LLC (“TMA”) has been engaged by the Adviser to provide, among other things, certain compliance and operational support services with respect to the Fund, including the services of Mr. Thomas K. Morgan as the Fund’s chief compliance officer. The fees charged by TMA for services to the Fund are billed directly to the Fund by TMA. Mr. Morgan is also an employee and officer of the Adviser. Compensation related to services provided to the Adviser by Mr. Morgan is paid directly by the Adviser in the form of wages. For the fiscal year ended June 30, 2026, the total compliance and operational support services fees paid or payable by the Fund to TMA amounted to $80,000.

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Other Service Providers

Under a Master Services Agreement between Ultimus Fund Solutions, LLC (“Ultimus”) and the Fund, Ultimus is responsible for fund administration, including generally managing the administrative affairs of the Fund, and supervising the preparation of reports to stockholders, reports to and filings with the SEC and materials for meetings of the Board. Ultimus is also responsible for fund accounting, including calculating the net asset value per share and maintaining the financial books and records of the Fund. Ultimus also serves as the transfer agent and provides stockholder services to the Fund. The Master Services Agreement permits Ultimus to subcontract for the provision of services it has contracted for under the Master Services Agreement, and Ultimus has subcontracted transfer agency services to Equiniti Trust Company, LLC. Ultimus is entitled to receive a fee in accordance with the agreement and was paid $82,632 for the fiscal year ended June 30, 2026.

The Fund has entered into an agreement with U.S. Bank N.A. to serve as the custodian for the Fund’s assets.

NOTE 5. INVESTMENT TRANSACTIONS

During the fiscal year ended June 30, 2026, purchases and sales of investment securities, excluding short-term investments, were $49,194,372 and $19,537,538, respectively.

NOTE 6. INCOME TAX INFORMATION

The cost basis of securities owned for financial statement purposes is lower than the cost basis for income tax purposes by $477,331 due to wash sale adjustments, passive foreign investment companies and book-to-tax adjustments to partnership investment. As of June 30, 2026, gross unrealized gains were $2,669,360 and gross unrealized losses were ($2,924,305) for income tax purposes.

Permanent differences accounted for during the year ended June 30, 2026, result from the reclassification of the Fund’s net investment loss for tax purposes. The amount of net operating losses incurred by the Fund and reclassified to paid in capital is as follows:

In accordance with GAAP, the Fund is required to determine whether a tax position is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Fund files an income tax return in the U.S. federal jurisdiction and may file income tax returns in various U.S. states and foreign jurisdictions. Generally, the Fund is no longer subject to income tax examinations by major taxing authorities for

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years before June 30, 2021. The tax benefit recognized is measured as the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.

De-recognition of a tax benefit previously recognized results in the Fund recording a tax liability that reduces ending net assets.

The Fund’s policy would be to recognize accrued interest expense to unrecognized tax benefits in interest expense and penalties in operating expenses. There were none for the fiscal year ended June 30, 2026.

The tax character of distributions paid to stockholders during the years ended June 30, 2026, and June 30, 2025, were as follows:

As of June 30, 2026, the components of accumulated earnings (deficit) on a tax basis were as follows:

Post-October capital losses incurred after October 31 and within the taxable year are deemed to arise on the first business day of the Fund’s next taxable year. As of June 30, 2026, the Fund had Post-October capital losses of $236,182.

Recent Accounting Standard: The Fund adopted Financial Accounting Standards Update 2023-09, Income Taxes (Topic 740) – Improvements to Income Tax Disclosures (“ASU 2023-09”) during the period. ASU 2023-09 enhances income tax disclosures, including disclosure of income taxes paid disaggregated by jurisdiction. The Fund’s adoption of the new standard did not have a material impact on financial statement disclosures and did not affect the Fund’s financial position or results of operations.

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NOTE 7. CAPITAL SHARE TRANSACTIONS

Shares of Common Stock

The Fund has 100,000,000 shares of common stock authorized and 2,010,017 issued and outstanding as of June 30, 2026. Transactions in common stock for the fiscal year ended June 30, 2026, were as follows:

The Share amounts above have been adjusted for 1:10 reverse stock split that occurred on February 6, 2026.

2025 Tender Offer

Fund’s Board of Directors determined to commence an offer to purchase up to 5%, or 845,433 shares of the Fund’s issued and outstanding common stock. The offer was a cash offer at a price equal to 97.5% of the Fund’s net asset value per share (“NAV”) as of the close of ordinary trading on the NASDAQ Capital Market on October 15, 2025. As a result of the tender offer 845,433 shares were purchased.

2024 Shelf Registration

The Fund incurred $70,831 of offering costs in association with a shelf registration, which will be recorded as deferred offering costs and will be amortized over the life of the shelf registration if and when new shares are issued. As of June 30, 2026, $70,831 is categorized as deferred offering costs (shelf) on the Statement of Assets and Liabilities. As of June 30, 2026, $0 has been amortized.

2024 Tender Offer

The Fund’s Board of Directors determined to commence an offer to purchase up to 5%, or 827,416 shares of the Fund’s issued and outstanding common stock. The offer was a cash offer at a price equal to 97.5% of the Fund’s net asset value per share (“NAV”) as of the close of ordinary trading on the NASDAQ Capital Market on November 15, 2024. As a result of the tender offer 827,416 shares were purchased.

The Fund’s Board of Directors determined to commence an offer to purchase up to 10%, or 1,681,477 shares of the Fund’s issued and outstanding common stock. The offer was a cash offer at a price equal to 97.5% of the Fund’s net asset value per share (“NAV”) as of the close of ordinary trading on the NASDAQ Capital Market on March 19, 2024. As a result of the tender offer which closed on March 19, 2024, 1,681,477 shares were purchased.

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2023 Rights Offering

On December 19, 2023, the Fund issued 9,000,000 shares of common stock in connection with a rights offering. Stockholders of record November 3, 2023, were issued one non-transferable right for every share owned on that date. The rights entitled the stockholders to purchase one new share of common stock for every one right held. In addition, the Fund had the discretion to increase the number of shares of common stock subject to subscription by up to 200% of the shares offered, or up to an additional 14,301,346 shares of common stock.

The subscription price was equal to 92% of the average volume-weighted closing sales price per share of the Fund’s common stock on the NASDAQ Capital Market on December 13, 2023, and the four preceding trading days. The final subscription price was $2.31 per share. The offering was oversubscribed, and the oversubscription requests exceeded the primary shares available. The Fund issued an additional 25.86% of the number of shares issued in the primary subscription, or 1,849,327 additional shares, for a total issuance of 9,000,000 new shares of common stock. Net proceeds to the Fund were $20,507,085, after deducting rights offering costs of $282,916. The net asset value of the Fund’s common shares was decreased by approximately $1.60 per share, as a result of the share issuance.

NOTE 9. COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Fund enters into contracts that may contain a variety of representations that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Fund expects the risk of loss to be remote.

The following table represents the Fund’s unfunded commitments on CFO investments and Rated Feeder investments held by the Fund as of June 30, 2026:

NOTE 10. SUBSEQUENT EVENTS

The Fund has evaluated events and transactions through the date the financial statements were issued and has identified the following events for disclosure in the financial statements:

Subsequent to June 30, 2026, the Fund paid or will pay the following distributions:

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To the shareholders and the Board of Directors of Herzfeld Credit Income Fund, Inc.

Opinion on the Financial Statements and Financial Highlights

We have audited the accompanying statement of assets and liabilities of Herzfeld Credit Income Fund, Inc. (the “Fund”), including the schedule of investments, as of June 30, 2026, the related statement of operations, statement of changes in net assets, statement of cash flows and financial highlights for the year then ended, and the related notes (collectively referred to as the “financial statements and financial highlights”). In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of June 30, 2026, and the results of its operations, the changes in its net assets, statement of cash flows, and the financial highlights for the year then ended in conformity with accounting principles generally accepted in the United States of America.

The statement of changes in net assets for the year ended June 30, 2025, and the financial highlights for each of the four years in the period ended June 30, 2025, of the Fund, before the effects of the adjustment to retrospectively adjust the financial highlights for the effect of the reverse stock split discussed in Note 7 to the financial statements, were audited by other auditors whose report dated August 29, 2025, expressed an unqualified opinion on those financial statements and financial highlights.

We have also audited the adjustments to the financial highlights for each of the four years in the period ended June 30, 2025 to retrospectively adjust the financial highlights to give effect to the reverse stock split discussed in Note 7 to the financial statements. Our procedures included (1) comparing the amounts shown in the financial highlights to the Fund’s underlying accounting analysis, (2) comparing the previously reported financial highlights per the Fund’s accounting analysis to the previously issued financial statements, and (3) recalculating the revised per share amounts to give effect to the change in capital structure and testing the mathematical accuracy of the underlying analysis. In our opinion, such retrospective adjustments are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to financial statements of the Fund for each of the four years in the period ended June 30, 2025 other than with respect to the retrospective adjustments, and accordingly, we do not express an opinion or any other form of assurance on the financial statements taken as a whole for each of the four years in the period ended June 30, 2025.⁠

Basis for Opinion

These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing

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an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of June 30, 2026, by correspondence with the custodian and brokers when replies were not received from brokers, we performed other auditing procedures. We believe that our audit provides a reasonable basis for our opinion.

/s/Deloitte & Touche LLP
Boston, Massachusetts
August 27, 2026

We have served as the auditor of one or more Herzfeld investment companies since 2026.

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Additional information about the Directors is included in the Fund’s Prospectus.

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The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (the “SEC”) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s complete schedule of portfolio holdings are on the Fund’s Form N-PORT reports available on the SEC’s website at http://www.sec.gov or on the Fund’s website at http://www.herzfeld.com/herz.

Information regarding how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30, and a description of the Fund’s policies and procedures used to determine how to vote proxies relating to its portfolio securities is available without charge, upon request, by calling the Fund at 800-TJH-FUND (800-854-3863), or by accessing the SEC’s website at www.sec.gov.

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Fee Table (as of June 30, 2026)

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Example

The following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our common stock.

The example and the expenses in the tables above should not be considered a representation of past or future expenses or annual rates of return and actual expenses or annual rates of return may be more or less than those shown. The foregoing table and example are intended to assist investors in understanding the costs and expenses that an investor in the Fund will bear directly or indirectly. “Other Expenses” are based on estimated amounts for the current fiscal year.

The example assumes the reinvestment of all dividends and distributions at NAV and an expense ratio of 7.30%. The tables above and the assumption in the example of a 5% annual return are required by SEC regulations applicable to all investment companies. In addition, while the example assumes the reinvestment of all dividends and distributions at NAV, participants in the Dividend Reinvestment Plan may receive shares purchased or issued at a price or value different from NAV.

Additional information about the tables above is included in the Fund’s prospectus. See also, “Fees and Expenses”, “Management of the Fund” and “Dividends and Distributions; Dividend Reinvestment Plan” in the Fund’s prospectus for additional information.

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The Fund’s shares are traded on the NASDAQ Capital Market. During each completed fiscal quarter of the Fund during the past two fiscal years and during the current fiscal year, the highest and lowest NAV and Market Price per share, and the highest and lowest premium/discount were as follows:

The closing market price, net asset value and percentage discount to net asset value per share of the Fund’s Common Stock on June 30, 2026, were $17.20, $19.51 and -11.84%, respectively.

Our common stock has historically traded at a premium or at a discount to its NAV. We cannot predict whether our common stock will trade at a premium or discount to NAV in the future. The board of directors approved a self-tender offer policy (the “Self-Tender Policy”) beginning in 2020. Under the Self-Tender Policy, as amended effective August 20, 2021, the Fund has undertaken to conduct a tender offer by the end of October following each fiscal year-end (June 30th) of 5% of outstanding shares of the Fund at 97.5% of NAV if the average discount was greater than 10% for the fiscal year just ended. In the exercise of its business judgement, in determining whether to undertake a tender offer, the Board of will generally consider, to the extent known at the time, the timing and procedures associated with a proposed tender offer, including when and how the purchase price will be determined, and how the Fund will fund the tender offer. The Board may consider all other information that it deems relevant in the exercise of its fiduciary duty. These tender offers may be commenced or suspended at any time or from time to time without any notice. The Board may in the future determine to suspend the tender offer policy in light of prevailing economic conditions, heightened volatility in the financial markets, or other factors that the Board determines to be relevant in the exercise of its fiduciary duty.

Additional information about the table above is included in the Fund’s Prospectus. See also, “Price Range of Common Stock” and “Description of Common Stock - Share Repurchases and Tender Offers” in the Fund’s prospectus for additional information.

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The Herzfeld Credit Income Fund, Inc.’s (HERZ) (the “Fund”) amounts and sources of distributions reported are estimates and are being provided to you pursuant to regulatory requirements and are not being provided for tax reporting purposes. The actual amounts and sources for tax reporting purposes will depend upon the Fund’s investment experience during the remainder of its fiscal year and may be subject to changes based on tax regulations. The Fund will provide a Form 1099-DIV each calendar year that will tell you how to report these distributions for U.S. federal income tax purposes.

Section 19(a) notices for the Fund are available on the Fund’s website https://www.herzfeld.com/herz.

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We consider customer privacy to be an essential part of our investor relationships and are committed to maintaining the confidentiality, integrity and security of our current, prospective and former stockholders’ non-public personal information. We have developed policies that are designed to protect this confidentiality, while permitting stockholder needs to be served.

Obtaining Personal Information

While providing stockholders with products and services, we, and certain service providers, such as the Fund’s Transfer Agents and/or Administrators, may obtain non-public personal information about stockholders, which may come from sources such as (i) account applications, subscription agreements and other forms, (ii) written, electronic or verbal correspondence, (iii) stockholder transactions, (iv) a stockholder’s brokerage or financial advisory firm, financial advisor or consultant, and/or (v) from information captured on applicable websites. The non-public personal information that may be collected from stockholders may include the stockholder’s name, address, tax identification number, birth date, investment selection, beneficiary information, and possibly the stockholder’s personal bank account information and/or email address if the stockholder has provided that information, as well as the stockholder’s transaction and account history with the Fund.

Respecting Your Privacy

We do not disclose any non-public personal information provided by stockholders or gathered by us to third parties, except as required or permitted by law or as necessary for such third parties to perform their agreements with respect to the Fund. Non-affiliated companies may from time to time be used to provide certain services, such as maintaining stockholder accounts, preparing and mailing prospectuses, reports, account statements and other information, and gathering stockholder proxies. In many instances, the stockholders will be clients of a third party, but we may also provide a stockholder’s personal and account information to the stockholder’s respective brokerage or financial advisory firm and/or financial advisor or consultant.

Sharing Information with Third Parties

We reserve the right to report or disclose personal or account information to third parties in circumstances where we believe in good faith that disclosure is required or permitted under law, to cooperate with regulators or law enforcement authorities, to protect their rights or property, or upon reasonable request by the Fund’s Investment Adviser. In addition, we may disclose information about a stockholder or a stockholder’s accounts to a third party at the stockholder’s request or with the consent of the stockholder.

Procedures to Safeguard Private Information

We are committed to our obligation to safeguard stockholder non-public personal information. In addition to this policy, we have implemented procedures that are designed to limit access to a stockholder’s non-public personal information to internal personnel who require the information to complete tasks, such as processing transactions, maintaining

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