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[LOGO]
2 PORTLAND SQUARE, PORTLAND, ME 04101 -- 1-800-754-8758
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January 1, 1996
Dear Shareholder:
The Sound Shore Fund ended 1995 with a net asset value of $18.16, following
a year-end distribution of $1.67. The Fund's total return gain for the fourth
quarter of 5.1% trailed the S&P 500 Index, which advanced 6.0%, but outpaced
Morningstar's Domestic Stock Fund Index (DSFI)(1) which advanced 3.0% for the
quarter.
Despite a large increase in 1995, the Fund's annual return of 29.9% trailed
the Morningstar's DSFI gain of 31.2%. The large capitalization weighted S&P 500
Index rose 37.5%. Within the DSFI of almost 2,000 funds, Morningstar more
narrowly characterizes the Sound Shore Fund by style as Medium Capitalization
Value(2), and the 294 funds in this segment rose 23.5% for the year ending
December 31, 1995.
The Sound Shore Fund's five-year annualized return of 18.5% places it ahead
of gains of 16.6% for the S&P 500, 16.6% for Morningstar's DSFI, and 15.6% for
the funds in Morningstar's Medium Capitalization Value universe. Over the past
ten years, the returns are 13.6%, 14.9%, 12.8%, and 12.0%, respectively.
A year ago, consensus thought was that continuing economic strength would
lift long-term rates modestly above their 8.0% level and provide tough
competition for stocks. As a 6.0% long bond now suggests, the market environment
was a lot friendlier than expected, and the broad averages rose from then record
levels by their strongest percentage gain in nearly forty years. Someone once
said that if forecasters were better able to forecast, then investors could
better prepare.
Company earning pre-announcements have become decidedly more negative, and
60% of analyst earnings revisions are downward, the highest in twenty-four
months. While that observation alone is not enough to prove the end of the 'soft
landing' thesis, recent political and corporate headlines have injected a dose
of market sobriety.
We continue to research, own, and monitor low relative and absolute P/E
stocks that have already had a bear market, but, in our judgment, have not lost
their earning power. We believe our
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adherence to this strategy has generated the strong returns for the past five
and ten years with below average risk, as evidenced by a December 31, 1995
Morningstar beta of 78, an indication that the Fund is less sensitive to
volatility in the markets. Given human nature and many decades of observations,
buying stocks when they are unpopular should remain a successful investment
strategy.
Thank you for your continued support.
Sincerely,
/s/ T. GIBBS KANE, JR.
T. GIBBS KANE, JR.
PRESIDENT
Past performance is no guarantee of future results. The Fund's annualized
return assumes reinvestment of all dividend and capital gain distributions.
Investment return and principal value will fluctuate so that, when redeemed, an
investor's shares may be worth more or less than their original cost. Forum
Financial Services, Inc., Distributor.
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(1) Source: Morningstar, Inc. The number of Domestic Stock Funds included in
this category for the 3 month, 1 year, 5 year, and 10 year time periods
shown are: 1963, 1781, 691, and 397.
(2) Source: Morningstar, Inc. The number of Medium Capitalization Value Funds
included in this category for the 3 month, 1 year, 5 year, and 10 year time
periods shown are: 312, 294, 118, and 55.
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2
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SOUND SHORE FUND, INC.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
DECEMBER 31, 1995
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The following chart reflects a comparison in the change in value of a
$10,000 investment in Sound Shore Fund, including reinvested dividends and
distributions, and the performance of the Standard & Poor's 500 Composite Stock
Index (the 'S&P 500'). The S&P 500 is a market weighted index composed of 500
large capitalization companies and reflects the reinvestment of dividends.
Investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Past performance is not predictive nor a guarantee of
future results.
SOUND SHORE FUND VS. S&P 500 INDEX
AVERAGE ANNUAL TOTAL RETURN
1 Year 5 Year 10 Year
29.87% 18.49% 13.63%
Since Inception on May 17, 1985: 14.40%
Value on 12/31/95
Sound Shore Fund: $42,110
S&P 500: $45,613*
[GRAPH]
Sound Shore Fund S&P 500 Index
5/85 $ 9,999.00 $10,000.00
12/85 $11,550.00 $11,416.00
12/86 $13,928.50 $13,547.00
12/87 $13,392.70 $14,258.00
12/88 $16,223.00 $17,356.00
12/89 $19,859.60 $21,877.00
12/90 $17,746.70 $21,197.00
12/91 $23,468.90 $27,641.00
12/92 $28,436.70 $29,744.00
12/93 $31,837.60 $32,735.00
12/94 $31,931.50 $33,165.00
12/95 $41,470.70 $45,613.00
* Value for the S&P 500 is based on an inception date of 5/31/85.
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3
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SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS
DECEMBER 31, 1995
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<TABLE>
<CAPTION>
SHARES OR
FACE AMOUNT VALUE
------------------- -----------
<S> <C> <C>
COMMON STOCKS (97.9%)
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AIRLINES (2.5%)
AMR Corporation* 22,000 $ 1,633,500
-----------
AUTO MANUFACTURERS (1.8%)
Ford Motor Company 40,500 1,174,500
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BANKING (8.5%)
Banc One Corporation 34,000 1,283,500
Mellon Bank Corporation 43,000 2,311,250
Republic New York Corporation 35,000 2,174,375
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5,769,125
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BUILDING MATERIALS (3.0%)
Masco Corporation 65,500 2,055,063
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BUSINESS SERVICES (1.4%)
Novell, Inc.* 68,000 969,000
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CHEMICALS AND ALLIED PRODUCTS (1.4%)
Lubrizol Corporation 34,000 947,750
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CONSUMER PRODUCTS (2.9%)
Philip Morris Companies, Inc. 22,000 1,991,000
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CONSUMER/FOODS (2.6%)
Interstate Bakeries Corporation 79,000 1,767,625
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</TABLE>
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SEE NOTES TO FINANCIAL STATEMENTS
4
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SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
DECEMBER 31, 1995
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<TABLE>
<CAPTION>
SHARES OR
FACE AMOUNT VALUE
------------------- -----------
<S> <C> <C>
ELECTRONICS (6.6%)
Amphenol Corporation* 76,000 $ 1,843,000
KLA Instruments Corporation* 24,000 625,500
Texas Instruments, Inc. 39,000 2,018,250
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4,486,750
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ENERGY (3.0%)
Westcoast Energy, Inc. 140,000 2,047,500
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FINANCE (3.3%)
Federal National Mortgage Association 18,000 2,234,250
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FINANCIAL SERVICES (6.1%)
Lehman Brothers Holdings, Inc. 78,000 1,657,500
MBIA, Inc. 33,000 2,475,000
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4,132,500
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FOOD, RETAIL (4.3%)
Vons Companies, Inc.* 102,000 2,881,500
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INDUSTRIAL SERVICES (3.4%)
ADT, Ltd.* 152,000 2,280,000
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</TABLE>
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SEE NOTES TO FINANCIAL STATEMENTS
5
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SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
DECEMBER 31, 1995
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<TABLE>
<CAPTION>
SHARES OR
FACE AMOUNT VALUE
------------------- -----------
<S> <C> <C>
INSURANCE (16.9%)
Allstate Corporation 57,700 $ 2,372,913
Commerce Group, Inc. 21,400 441,375
GCR Holdings, Ltd.* 50,000 1,125,000
John Alden Financial Corporation 33,500 699,313
Loews Corporation 40,000 3,135,000
PartnerRe Holdings, Ltd. 89,000 2,447,500
Value Health, Inc.* 44,000 1,210,000
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11,431,101
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MANUFACTURING SYSTEMS (1.1%)
Gerber Scientific, Inc. 45,000 731,250
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MEDICAL SUPPLIES (3.4%)
Bard (C.R.), Inc. 71,500 2,305,875
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MINING (1.1%)
Vulcan Materials Company 13,000 749,125
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PETROLEUM REFINING (3.2%)
MAPCO, Inc. 13,000 710,125
Tosco Corporation 38,000 1,448,750
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2,158,875
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RETAIL (3.4%)
Fred Meyer, Inc.* 39,000 877,500
TJX Companies, Inc. 74,000 1,396,750
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2,274,250
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</TABLE>
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SEE NOTES TO FINANCIAL STATEMENTS
6
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SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
DECEMBER 31, 1995
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<TABLE>
<CAPTION>
SHARES OR
FACE AMOUNT VALUE
------------------- -----------
<S> <C> <C>
SOFTWARE (5.5%)
Compuware Corporation* 70,000 $ 1,295,000
Sterling Software, Inc.* 38,500 2,401,437
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3,696,437
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STEEL (2.5%)
Birmingham Steel Corporation 115,000 1,710,625
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TOYS (2.0%)
Hasbro, Inc. 43,000 1,333,000
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TRANSPORTATION (2.7%)
Arkansas Best Corporation 232,000 1,827,000
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TRANSPORTATION EQUIPMENT (2.1%)
Cummins Engine Company, Inc.* 39,000 1,443,000
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UTILITIES (3.2%)
BCE, Inc. 62,500 2,156,250
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TOTAL COMMON STOCKS (COST $52,682,630) $66,186,851
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</TABLE>
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SEE NOTES TO FINANCIAL STATEMENTS
7
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SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
DECEMBER 31, 1995
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<TABLE>
<CAPTION>
SHARES OR
FACE AMOUNT VALUE
------------------- -----------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (1.2%)
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U.S. Treasury Notes, 8.00%, due 8/15/99 725,000 $ 788,890
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TOTAL U.S. GOVERNMENT OBLIGATIONS (COST $725,387) $ 788,890
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SHORT-TERM HOLDINGS (2.7%)
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1784 U.S. Treasury Money Market Fund 81,443 $ 81,443
Dreyfus Government Cash Management Fund 182,160 182,160
Forum Daily Assets Treasury Fund 1,601,162 1,601,162
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TOTAL SHORT-TERM HOLDINGS (COST $1,864,765) $ 1,864,765
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TOTAL INVESTMENTS (101.8%) (COST $55,272,782)`D' $68,840,506
LIABILITIES IN EXCESS OF OTHER ASSETS (-1.8%) (1,238,828)
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NET ASSETS (100%) (3,722,085 SHARES OUTSTANDING) $67,601,678
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NET ASSET VALUE (OFFERING AND REDEMPTION PRICE PER SHARE) $ 18.16
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</TABLE>
* Non-income producing security.
`D' Aggregate cost for federal income tax purposes.
Aggregate appreciation and depreciation are $15,724,006 and $2,156,282,
respectively.
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SEE NOTES TO FINANCIAL STATEMENTS
8
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SOUND SHORE FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
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<TABLE>
<S> <C>
INVESTMENT INCOME
Income:
Dividends....................................................................................... $ 1,238,959
Interest........................................................................................ 415,829
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Total Income............................................................................... 1,654,788
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Expenses: (Note 2)
Investment advisor.............................................................................. 485,139
Administration.................................................................................. 161,713
Transfer agent.................................................................................. 12,000
Custodian....................................................................................... 13,963
Legal........................................................................................... 6,786
Directors....................................................................................... 25,500
Other........................................................................................... 41,290
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Total expenses............................................................................. 746,391
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Net Investment Income................................................................................ 908,397
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REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments..................................................................... 5,894,436
Net change in unrealized appreciation of investments................................................. 10,117,906
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Net realized and unrealized gain on investments...................................................... 16,012,342
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Increase in net assets resulting from operations..................................................... $16,920,739
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</TABLE>
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SEE NOTES TO FINANCIAL STATEMENTS
9
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SOUND SHORE FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
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INCREASE (DECREASE) IN NET ASSETS
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
Operations:
Net investment income...................................................... $ 908,397 $ 796,916
Net realized gain on investments........................................... 5,894,436 3,007,088
Net change in unrealized appreciation of investments....................... 10,117,906 (3,644,272)
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Increase in net assets from operations..................................... 16,920,739 159,732
Dividends to shareholders from net investment income............................ (755,501) (797,704)
Distributions to shareholders from net realized gains........................... (5,712,224) (3,185,908)
Capital share transactions (Note 4)............................................. (2,844,493) 5,638,353
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Total increase............................................................. 7,608,521 1,814,473
Net assets:
Beginning of the year...................................................... 59,993,157 58,178,684
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End of year (including undistributed net investment income of $0 and $641
respectively)............................................................ $67,601,678 $59,993,157
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</TABLE>
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SEE NOTES TO FINANCIAL STATEMENTS
10
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
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1. SUMMARY OF ACCOUNTING POLICIES
Sound Shore Fund, Inc. (the 'Fund') is a no-load, diversified, open-end
management investment company registered under the Investment Company Act of
1940, as amended. Its financial statements are prepared in accordance with
generally accepted accounting principles for investment companies based on the
following significant accounting policies:
a) VALUATION OF SECURITIES
Securities traded on a national securities exchange or admitted to trading
on the National Association of Securities Dealers Inc. National List are
valued at the last reported sales price. Common stocks which are not so
traded, for which no sale was reported, and over-the-counter securities are
valued at the mean between the last reported bid and asked prices. United
States Government obligations and other debt instruments having sixty days
or less remaining until maturity are stated at amortized cost. Debt
instruments having a remaining maturity of more than sixty days will be
valued at the mean between the last reported bid and asked price obtained
from a dealer maintaining an active market in that security or on the basis
of prices obtained from a pricing service approved as reliable by the Board
of Directors. All other investment assets, including restricted and not
readily marketable securities, are valued in such manner as the Board of
Directors in good faith deems appropriate to reflect their fair market
value.
b) FEDERAL INCOME TAXES
It is the Fund's policy to comply with the requirements under Subchapter M
of the Internal Revenue Code applicable to regulated investment companies
and to distribute all of its taxable income and net realized capital gains,
if any, less any available capital loss carryover to its shareholders.
Therefore, no provision for federal income tax is required.
c) REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements with major dealers in U.S.
Government securities and member banks of the Federal Reserve System which
are selected by the Advisor in accordance with procedures approved by the
Board of Directors. The underlying securities are ordinarily U.S. Treasury
or other governmental obligations or high quality money market instruments
and the Fund will monitor and require that the value of such underlying
securities always equals or exceeds the amount of the repurchase obligations
of the borrower. The Fund will make payment for such securities only upon
physical delivery or upon evidence of book entry transfer to the account of
the custodian. If the seller defaults and the value of the collateral
declines or if bankruptcy proceedings are commenced with respect to the
seller of the security, realization of the collateral by the Fund may be
delayed or limited.
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11
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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d) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends and capital gain distributions to shareholders are recorded on the
ex-dividend date.
e) GENERAL
Securities transactions are recorded on a trade date basis. Interest income
is accrued as earned and dividend income is recorded on the ex-dividend
date. Realized gain and loss from securities transactions are recorded on
the identified cost basis.
2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Under the Investment Advisory Agreement, the Fund pays an advisory fee to Sound
Shore Management, Inc. (the 'Advisor') equal to .75% of the Fund's average daily
net assets.
In addition, the Fund has an Administration Agreement, under which it pays an
administration fee to Forum Financial Services, Inc. (the 'Administrator') equal
to .25% of the Fund's average daily net assets.
The Advisor and the Administrator have each agreed that if in any fiscal year
the sum of the Fund's expenses exceeds the limits set by applicable regulations
of state securities commissions, the amounts payable by the Fund to the Advisor
for the advisory fee and to the Administrator for the administration fee for
that year shall each be reduced by 75% and 25%, respectively, of the amount of
such excess. However, if the excess should be greater than the amounts payable
to the Advisor and the Administrator in that year, the Advisor and the
Administrator shall each pay to the Fund 75% and 25%, respectively, of the
difference between such excess and the fees of the Advisor and Administrator for
that year. For the purpose of the calculation, the Advisor and the Administrator
are required to reimburse the Fund for its expenses (exclusive of interest,
taxes, brokerage, and extraordinary expenses) to the extent that such expenses,
including the advisory and the administration fees, for any fiscal year exceed
2 1/2% of the first $30 million of the Fund's average net assets, 2% of the next
$70 million of its average net assets, and 1 1/2% of its average net assets in
excess of $100 million.
The Fund has a Transfer Agency Agreement effective October 1, 1991 under which
it paid $12,000 to Forum Financial Corp., an affiliate of the Administrator.
The Fund's Board of Directors has adopted a Distribution Plan (the 'Plan') and,
pursuant to the Plan, the Fund and the Advisor have entered into the Investment
Advisory Agreement and the Fund and the Administrator have entered into the
Administration Agreement. The Advisor and the Administrator, in their sole
discretion, will determine the amounts of such payments made pursuant to the
Plan, but no such payment will increase the amount which the Fund is required to
pay to the Advisor or the Administrator for any fiscal year under the Investment
Advisory Agreement, the Administration Agreement or otherwise.
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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Fees are paid to Directors who are unaffiliated with the Advisor or the
Administrator on the basis of $3,000 per annum plus $500 per meeting attended.
Fees for investment advisory and administrative services in the amount of
$42,395 and $14,132, respectively, are payable at December 31, 1995.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, other than short-term investments,
totaled $34,602,901 and $37,915,419 respectively, for the year ended December
31, 1995. Accumulated distributions in excess of net realized gains amounted to
$33.
4. CAPITAL STOCK
At December 31, 1995, 100,000,000 shares of $.001 par value stock were
authorized and capital paid in amounted to $53,880,450. Transactions in capital
stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
-------- ------------ -------- -----------
<S> <C> <C> <C> <C>
Sold............................................................... 315,052 $ 5,545,488 635,410 $10,510,264
Issued on reinvestment of dividends................................ 329,511 5,922,587 232,628 3,608,798
Redeemed........................................................... (802,786) (14,312,568) (513,049) (8,480,709)
-------- ------------ -------- -----------
Net decrease/increase.............................................. (158,223) $ (2,844,493) 354,989 $ 5,638,353
-------- ------------ -------- -----------
-------- ------------ -------- -----------
</TABLE>
Of the 3,722,085 shares outstanding at December 31, 1995, the Employees' Profit
Sharing Plan of Sound Shore Management, Inc. owned 296,600 shares.
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SOUND SHORE FUND, INC.
FINANCIAL HIGHLIGHTS
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<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Beginning net asset value per share......................... $ 15.46 $ 16.50 $ 16.24 $ 15.17 $ 11.77
Net investment income....................................... 0.25 0.22 0.14 0.17 0.30
Net realized and unrealized investment gain (loss) on
securities................................................ 4.33 (0.17) 1.80 3.02 3.48
Dividends paid from net investment income................... (0.21) (0.22) (0.14) (0.175) (0.285)
Distributions from net realized gains....................... (1.67) (0.87) (1.54) (1.95) (0.095)
------- ------- ------- ------- -------
Ending net asset value per share............................ $ 18.16 $ 15.46 $ 16.50 $ 16.24 $ 15.17
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Ratios to average net assets:
Expenses............................................... 1.15% 1.22% 1.27% 1.37% 1.30%
Net investment income.................................. 1.41% 1.32% 0.88% 1.10% 2.10%
Total return................................................ 29.87% 0.30% 11.96% 21.17% 32.24%
Portfolio turnover rate..................................... 53.01% 75.52% 90.99% 88.33% 100.01%
Net assets at end of period (000's omitted)................. 67,602 59,993 58,179 39,974 32,211
</TABLE>
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SEE NOTES TO FINANCIAL STATEMENTS
14
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SOUND SHORE FUND, INC.
INDEPENDENT AUDITORS' REPORT
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The Shareholders and Board of Directors
Sound Shore Fund, Inc.
We have audited the accompanying statement of net assets of Sound Shore Fund,
Inc. as of December 31, 1995, the related statements of operations for the year
then ended and of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Sound Shore Fund,
Inc. as of December 31, 1995, the results of its operations, the changes in its
net assets and the financial highlights for the respective stated periods, in
conformity with generally accepted accounting principles.
Deloitte & Touche, LLP
New York, New York
February 16, 1996
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UNAUDITED DIVIDEND INFORMATION
54.05% of the income dividends paid by the Fund in 1995 were derived from
investment in qualifying domestic common stock.
In December 1995 the Fund declared a long term and short term capital gain
dividend of $0.631 and $1.043 respectively.
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15
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This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors in the Fund
unless preceded or accompanied by an effective prospectus, which includes
information regarding the Fund's objectives and policies, experience of its
management, marketability of shares, and other information.
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SOUND SHORE FUND, INC.
2 Portland Square
Portland, ME 04101
INVESTMENT ADVISOR
Sound Shore Management, Inc.
P.O. Box 1810
8 Sound Shore Drive
Greenwich, Connecticut 06836
ADMINISTRATOR
Forum Financial Services, Inc.
2 Portland Square
Portland, ME 04101
CUSTODIAN
The First National Bank of Boston
P.O. Box 1959
Boston, Massachusetts 02105
TRANSFER AGENT & DIVIDEND
DISBURSING AGENT
Forum Financial Corp.
2 Portland Square
Portland, Maine 04101
[LOGO]
ANNUAL REPORT
DECEMBER 31, 1995
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STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as `D'
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