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[LOGO]
July 1, 1997
Dear Shareholder:
The Sound Shore Fund and the stock market had a great year last quarter,
although the exuberance was not shared equally across all the market. The large
capitalization S&P 500 Index advanced 17.4%, while the equally weighted S&P 500
gained 14.1% and the S&P 400 midcap 14.7%. The Sound Shore Fund's rise of 16.2%
this quarter brought its first half 1997 gain to 18.7% and placed it in the top
quartile of equity funds according to Morningstar, where the average fund rose
13.1% for the six months. For the year ending June 30th, the Fund advanced
38.8%, and for five and ten years the average annual return is 21.8% and 15.3%,
respectively, exceeding the average return of the Morningstar domestic equity
funds for each of the time periods.*
As has been widely reported, these seem like the good old days. The economy
continues to grow (24 quarters in a row), yet interest rates are trending back
down. Corporations are benefiting from productivity gains and their profits are
often exceeding expectations. Price to earnings ratios (P/Es), which tend to
vary inversely with inflation, have moved higher, with lessened competition for
stocks from fixed income alternatives. Demand for equities has exceeded supply
as corporate share buybacks and acquisitions have overwhelmed the new issue and
secondary supply by 4 to 1 ($163 billion to $42 billion).
Rather than prognosticate macro events and their consequences, we continue
to pursue our bottom-up disciplined investment approach, researching stocks
selling at a low P/E versus the market and/or significant discounts from their
historic P/E norm. We are looking for financially sound, well-run companies with
improving fundamentals that we believe investors are temporarily overlooking.
And, if we properly gauge the fundamentals, P/E recovery often coincides with
the earnings per share gain. Recent examples include Ford Motor and Borg-Warner
in the automotive sector, Fred Meyer and Wal-Mart in retailing, and Compuware
and IBM in technology.
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To facilitate timely communication with our co-investors, we have entered
the brave new on-line world. Sound Shore Fund performance and holdings, as well
as several links to commentary by others about our investment approach, are now
available on our web site, http://www.soundshorefund.com.
For more than twelve years, we have been managing the Fund with the same
disciplines and fervor we have employed for our institutional portfolios since
1978. To new investors, we thank you for the confidence placed in us. We will
strive to continue to earn your trust, as we believe we have for those who have
entrusted us with funds for longer periods.
Sincerely,
[SIG]
T. GIBBS KANE, JR.
PRESIDENT
* MORNINGSTAR DOMESTIC EQUITY FUNDS TOTAL RETURN PERFORMANCE FOR 3 MONTHS 15.4%,
6 MONTHS 13.1%, 1 YEAR 22.3%, 5 YEARS 17.3%, AND 10 YEARS 12.6%. FUNDS INCLUDED
IN EACH TIME PERIOD: 2,461, 2,413, 2,236, 819 AND 467, RESPECTIVELY. THE S&P 500
IS AN UNMANAGED INDEX REPRESENTING THE AVERAGE PERFORMANCE OF 500 WIDELY HELD,
PUBLICLY TRADED, LARGE CAPITALIZATION STOCKS. IT IS NOT POSSIBLE TO INVEST
DIRECTLY IN THE INDEX.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE FUND'S AVERAGE
ANNUAL TOTAL 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. IS THE FUND'S DISTRIBUTOR.
2
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SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS
JUNE 30, 1997 (UNAUDITED)
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<TABLE>
<CAPTION>
SHARES OR
FACE AMOUNT MARKET VALUE
------------ -------------
<S> <C> <C>
COMMON STOCK (92.6%)
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AIRLINES (3.0%)
Southwest Airlines Co. 661,500 $ 17,116,258
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AUTOMOTIVE (8.7%)
Borg-Warner Automotive, Inc. 290,100 15,683,535
Echlin, Inc. 416,100 14,974,475
Ford Motor Co. 519,000 19,592,250
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50,250,260
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BANKING (5.9%)
Banc One Corp. 509,000 24,654,689
Mellon Bank Corp. 131,000 5,918,701
Republic New York Corp. 35,000 3,762,500
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34,335,890
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BUILDING CONSTRUCTION (3.5%)
Kaufman & Broad Home Corp. 643,500 11,301,473
Lennar Corp. 289,500 9,245,907
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20,547,380
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COMMUNICATIONS (4.1%)
Century Telephone Enterprises, Inc. 524,100 17,655,621
MCI Communications Corp. 165,500 6,286,943
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23,942,564
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COMPUTER EQUIPMENT (9.1%)
IBM Corp. 202,000 18,217,880
Quantum Corp.* 682,500 13,863,282
Varian Associates, Inc. 381,500 20,696,375
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52,777,537
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</TABLE>
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SEE NOTES TO FINANCIAL STATEMENTS
3
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SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
JUNE 30, 1997 (UNAUDITED)
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<TABLE>
<CAPTION>
SHARES OR
FACE AMOUNT MARKET VALUE
------------ -------------
<S> <C> <C>
COMPUTER SOFTWARE (6.2%)
Compuware Corp.* 370,000 $ 17,667,500
Sterling Software, Inc.* 582,500 18,201,765
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35,869,265
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DIVERSIFIED INDUSTRIAL (3.0%)
Polaris Industries, Inc. 257,300 8,378,333
Wolverine Tube, Inc. 312,800 8,715,420
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17,093,753
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ENERGY (8.4%)
Occidental Petroleum Corp. 808,000 20,250,501
Sun Co., Inc. 618,500 19,173,500
Tidewater, Inc. 213,400 9,392,300
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48,816,301
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ELECTRONICS (0.9%)
Texas Instruments, Inc. 59,000 4,959,689
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FINANCE (2.3%)
Fannie Mae 301,000 13,131,126
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FINANCIAL SERVICES (4.1%)
MBIA, Inc. 112,500 12,691,409
Morgan Stanley, Dean Witter, Discover and Co. 249,000 10,722,564
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23,413,973
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HEALTH SERVICES (2.6%)
Beverly Enterprises, Inc.* 931,500 15,136,875
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HOTELS (0.9%)
La Quinta Inns, Inc. 236,000 5,162,501
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HOUSEHOLD PRODUCTS -- NONDURABLE (1.9%)
Department 56, Inc.* 481,900 10,691,885
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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)
JUNE 30, 1997 (UNAUDITED)
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<TABLE>
<CAPTION>
SHARES OR
FACE AMOUNT MARKET VALUE
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<S> <C> <C>
INSURANCE (9.5%)
Allstate Corp. 120,400 $ 8,789,200
John Alden Financial Corp. 407,000 8,521,567
Loews Corp. 234,600 23,489,326
PartnerRe Ltd. 368,500 14,049,066
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54,849,159
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MACHINERY (0.9%)
Albany International Corp. 219,600 4,941,000
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PRINTING, PUBLISHING & ALLIED INDUSTRIES (2.4%)
American Greetings Corp. 373,000 13,847,627
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RETAIL (7.8%)
Fred Meyer, Inc.* 116,700 6,031,934
Toys "R" Us, Inc.* 697,000 24,395,000
Wal-Mart Stores, Inc. 427,500 14,454,846
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44,881,780
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RESTAURANTS (4.4%)
Brinker International, Inc.* 1,030,400 14,683,200
Lone Star Steakhouse & Saloon, Inc.* 425,000 11,050,000
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25,733,200
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TOYS (3.0%)
Hasbro, Inc. 610,100 17,311,589
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TOTAL COMMON STOCK (COST $451,905,615) $ 534,809,612
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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)
JUNE 30, 1997 (UNAUDITED)
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<TABLE>
<CAPTION>
SHARES OR
FACE AMOUNT MARKET VALUE
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<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (5.7%)
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U.S. TREASURY BILLS
4.69% yield, 7/3/97 $ 6,000,000 $ 5,998,437
4.80% yield, 7/24/97 12,000,000 11,963,200
4.80% yield, 7/31/97 5,000,000 4,980,000
4.88% yield, 8/7/97 5,000,000 4,974,923
4.97% yield, 8/14/97 5,000,000 4,969,628
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TOTAL U.S. GOVERNMENT OBLIGATIONS (COST $32,886,188) $ 32,886,188
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SHORT-TERM HOLDINGS (6.7%)
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Boston 1784 Institutional U.S. Treasury Money Market Fund 30,140,091 $ 30,140,091
Dreyfus Government Cash Management Fund 7,530,621 7,530,621
Forum Daily Assets Treasury Fund 1,316,160 1,316,160
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TOTAL SHORT-TERM HOLDINGS (COST $38,986,872) $ 38,986,872
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TOTAL INVESTMENTS (105.0%) (COST $523,778,675) $ 606,682,672
LIABILITIES IN EXCESS OF OTHER ASSETS (-5.0%) (28,948,414)
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NET ASSETS (100.0%) (22,482,159 SHARES OUTSTANDING) $ 577,734,258
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NET ASSET VALUE (OFFERING AND REDEMPTION PRICE PER SHARE) $ 25.70
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<CAPTION>
<S> <C> <C>
AT JUNE 30, 1997 NET ASSETS CONSISTED OF:
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Par Value $ 22,482
Paid in Capital 488,845,303
Undistributed Net Investment Income (Loss) (78,986)
Unrealized Appreciation on Investments 82,903,997
Accumulated Net Realized Gain on Investments 6,041,462
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NET ASSETS $ 577,734,258
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</TABLE>
* Non-income producing security.
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SEE NOTES TO FINANCIAL STATEMENTS
6
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SOUND SHORE FUND, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
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<TABLE>
<S> <C>
INVESTMENT INCOME
Income:
Dividends..................................... $ 2,153,191
Interest...................................... 1,059,550
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Total Income.............................. 3,212,741
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Expenses:
Investment adviser fee (Note 3)............... 1,311,716
Administration fee (Note 3)................... 174,896
Transfer agent fee (Note 3)................... 137,172
Custodian fee................................. 37,424
Accounting fee (Note 3)....................... 131,172
Legal fee..................................... 3,500
Auditing fee.................................. 11,750
Director's fees and expenses (Note 3)......... 15,298
Miscellaneous................................. 104,806
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Total Expenses............................ 1,927,734
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Net Investment Income............................. 1,285,007
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REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments sold............. 6,052,132
Net change in unrealized appreciation of
investments...................................... 58,017,194
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Net realized and unrealized gain on investments... 64,069,326
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Net increase in net assets resulting from
operations....................................... $65,354,333
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</TABLE>
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SEE NOTES TO FINANCIAL STATEMENTS
7
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SOUND SHORE FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
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<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS (UNAUDITED) 1996
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<S> <C> <C>
Operations:
Net investment income................................. $ 1,285,007 $ 576,552
Net realized gain on investments sold................. 6,052,132 12,422,759
Net change in unrealized appreciation of
investments......................................... 58,017,194 11,319,079
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Net increase in net assets resulting from
operations.......................................... 65,354,333 24,318,390
Dividends to shareholders from net investment income...... (1,367,635) (574,084)
Distributions to shareholders from net realized gains..... -- (12,433,396)
Capital share transactions (Note 5)....................... 380,885,672 53,949,300
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Total increase........................................ 444,872,370 65,260,210
Net assets:
Beginning of the year................................. 132,861,888 67,601,678
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End of year (including line A)........................ $577,734,258 1$32,861,888
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(A) Accumulated undistributed net investment income
(loss)............................................. $ (78,986) $ 3,642
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</TABLE>
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SEE NOTES TO FINANCIAL STATEMENTS
8
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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1. ORGANIZATION
Sound Shore Fund, Inc. (the "Fund") was incorporated on February 19, 1985, as a
no-load, diversified, open-end management investment company under the
Investment Company Act of 1940.
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements are prepared in accordance with generally accepted
accounting principles, which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of increase and decrease in net assets from
operations during the fiscal period. Actual results could differ from those
estimates.
The following represent significant accounting policies of the Fund:
A) SECURITY VALUATION
Securities traded on a national securities exchange 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 closing 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) INVESTMENT INCOME
Dividend income is recorded on the ex-dividend date. Interest income is
recorded on an accrual basis.
C) DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income, if any, are declared and paid
semi-annually. Capital gain distributions, if any, are distributed to
shareholders at least annually. Distributions are based on amounts calculated
in accordance with applicable federal income tax regulations.
D) FEDERAL TAXES
The Fund intends to qualify and continue to qualify each year as a regulated
investment company and distribute all of its taxable income. In addition, by
distributing in each calendar year substantially all of its net
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9
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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investment income, capital gain and certain other amounts, if any, the Fund
will not be subject to a federal excise tax. Therefore, no federal income or
excise tax provision is required.
E) REALIZED GAIN AND LOSS
Security transactions are recorded on a trade date basis. Realized gain and
loss on investments sold are recorded on the basis of identified cost.
3. INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
The investment adviser is Sound Shore Management, Inc. ("Adviser"). Pursuant to
an Investment Advisory Agreement, the Adviser receives an advisory fee, at an
annual rate of 0.75% of the Fund's average daily net assets.
OTHER SERVICES
Under the Administration Agreement, effective January 1, 1997, the Fund pays an
administration fee to Forum Administrative Services, Limited Liability Company
("FAS") equal to 0.10% of the Fund's average daily net assets. A previous
administration agreement in effect with Forum Financial Services, Inc. ("FFSI")
was identical in all material terms including fees.
Under the Fund Accounting Agreement, Forum Accounting Services, Limited
Liability Company, an affiliate of FAS and FFSI, provides portfolio accounting
services to the Fund for a total fee of 0.075% of the Fund's average daily net
assets. Under the Transfer Agency Agreement, Forum Financial Corp. provides
transfer agency services to the Fund for a total fee of 0.075% plus certain
other fees and expenses.
Pursuant to a separate Distribution Services Agreement, FFSI acts as distributor
of the Fund's shares and is not paid any fee for its distribution services.
The Fund pays Directors who are unaffiliated with the Adviser or FAS $3,000 per
year plus $500 per meeting attended.
Fees payable as of June 30, 1997 to the Adviser and other related parties in the
amount of $342,292 and $45,639, respectively.
4. PURCHASES AND SALES OF SECURITIES
The cost of securities purchased and the proceeds from sales of securities
(excluding short-term investments) for the six months ended June 30, 1997,
aggregated $467,134,066 and $116,138,932 respectively.
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10
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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For federal income tax purposes, the tax basis of investment securities owned as
of June 30, 1997 was $523,778,675. The aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over tax cost
was $86,150,718 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over market value was $3,246,721.
5. CAPITAL STOCK
As of June 30, 1997, 100,000,000 shares of $.001 par value stock were authorized
and capital paid in amounted to $488,867,785. Transactions in capital stock were
as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS ENDED
JUNE 30, 1997 YEAR ENDED
DECEMBER 31, 1996
--------------------------------------------------------
--------------------------
SHARES AMOUNT SHARES AMOUNT
------------ -------------- ---------- --------------
<S> <C> <C> <C> <C>
Sale of shares.............................................. 18,561,540 $ 435,456,502 2,754,183 $ 61,386,956
Reinvestment of distributions............................... 49,118 1,258,464 548,843 11,889,059
Redemption of shares........................................ (2,249,082) (55,829,294) (904,527) (19,326,715)
------------ -------------- ---------- --------------
Net increase from capital transactions...................... 16,361,576 $ 380,885,672 2,398,499 $ 53,949,300
------------ -------------- ---------- --------------
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</TABLE>
Of the 22,482,159 shares outstanding as of June 30, 1997, the Employees' Profit
Sharing Plan of Sound Shore Management, Inc. owned 307,499 shares.
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11
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SOUND SHORE FUND, INC.
FINANCIAL HIGHLIGHTS
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<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE
30, YEAR ENDED DECEMBER 31,
1997 ---------------------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period....... $ 21.71 $ 18.16 $ 15.46 $ 16.50 $ 16.24 $ 15.17
------ ------ ------ ------ ------ ------
Investment Operations
Net Investment Income (Loss)........... 0.06 0.13 0.25 0.22 0.14 0.17
Net Realized and Unrealized Gain (Loss)
on Investments....................... 3.99 5.90 4.33 (0.17) 1.80 3.02
------ ------ ------ ------ ------ ------
Total from Investment Operations........... 4.05 6.03 4.58 0.05 1.94 3.19
------ ------ ------ ------ ------ ------
Distributions From
Net Investment Income.................. (0.06) (0.13) (0.21) (0.22) (0.14) (0.175)
Net Realized Gains..................... -- (2.35) (1.67) (0.87) (1.54) (1.95)
------ ------ ------ ------ ------ ------
Total Distributions........................ (0.06) (2.48) (1.88) (1.09) (1.68) (2.12)
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period............. $ 25.70 $ 21.71 $ 18.16 $ 15.46 $ 16.50 $ 16.24
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
Total Return............................... 18.65%(a) 33.27% 29.87% 0.30% 11.96% 21.17%
Ratio/Supplementary Data
Net Assets at End of Period (in
thousands)................................ $577,734 $132,862 $67,602 $59,993 $58,179 $39,974
Ratios to Average Net Assets:
Expenses............................... 1.10%(b) 1.15% 1.15% 1.22% 1.27% 1.37%
Net investment income.................. 0.73%(b) 0.70% 1.41% 1.32% 0.88% 1.10%
Portfolio turnover rate.................... 35.28% 69.31% 53.01% 75.52% 90.99% 88.33%
Average commission rate (c)................ $0.0560 $0.0563 N/A N/A N/A N/A
</TABLE>
(a) Not annualized.
(b) Annualized.
(c) Amount represents the average commission per share paid to brokers on the
purchase or sale of equity securities.
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SEE NOTES TO FINANCIAL STATEMENTS
12
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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.
- ----------------------------------------------
SOUND SHORE FUND, INC.
Two Portland Square
Portland, ME 04101
INVESTMENT ADVISER
Sound Shore Management, Inc.
P.O. Box 1810
8 Sound Shore Drive
Greenwich, Connecticut 06836
ADMINISTRATOR
Forum Administrative Services, LLC
Two Portland Square
Portland, ME 04101
CUSTODIAN
BankBoston, N.A.
P.O. Box 1959
Boston, Massachusetts 02105
TRANSFER AGENT & DIVIDEND
DISBURSING AGENT
Forum Financial Corp.
Two Portland Square
Portland, Maine 04101
[LOGO]
SEMI-ANNUAL REPORT
JUNE 30, 1997
(UNAUDITED)
