<PAGE>
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[LOGO]
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January 1, 1997
Dear Shareholder:
The Sound Shore Fund's 1996 total return of 33.3% was well in excess of the
S&P 500 Index, which advanced 23.0%, and exceeded the average of 907 domestic
equity growth funds (as categorized by Morningstar), which advanced 19.2%, for
the same period. For the fourth quarter, the Fund rose 11.7%, versus the S&P's
8.4%. The Fund's 5 and 10 year average annual total returns as of December 31,
1996 are 18.7% and 14.8%, respectively. The Fund's ending net asset value of
$21.71 followed a year-end distribution of $2.42 of income and capital gains.
We continue to adhere to our contrarian value strategy believing that
corporations do not change as much as investors' enthusiasm for them changes. We
seek to profit from these disparities, devoting our efforts toward the
evaluation of unpopular stocks, as reflected by low absolute and relative price
earnings ratios. We are looking for financially sound companies that may have
lost their Wall Street sponsorship, but not their earning power.
Last year, our performance can be attributed to a number of stocks which
underwent P/E expansion following the attainment or surpassing of consensus
earnings estimates during the year. Holdings enjoying a return to more "normal"
investor valuation last year included Allstate, MBIA, and PartnerRe in the
insurance field; Vons, TJX, and Fred Meyer in retailing; and Compuware, IBM, and
KLA Instruments in technology.
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We believe strongly in our ability to execute our disciplined value
approach, and as co-investors in the Sound Shore Fund, we will continue to
strive for above average absolute and relative equity performance.
Sincerely,
[SIG]
T. GIBBS KANE, JR.
PRESIDENT
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.
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2
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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. The
Index return does not reflect expenses, which have been deducted from the Fund's
return. 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
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SOUND SHORE FUND S&P 500 INDEX
<S> <C> <C> <C> <C>
5/85 $9,990 $10,000
12/85 $11,549 $11,416
12/86 $13,926 $13,547
12/87 $13,393 $14,257
12/88 $16,227 $16,618
12/89 $19,862 $21,873
12/90 $17,749 $21,195
12/91 $23,473 $27,638
12/92 $28,440 $29,741
12/93 $31,839 $32,726
12/94 $31,929 $33,156
12/95 $41,465 $45,602
12/96 $55,259 $56,065
Value on 12/31/96
Sound Shore Fund $55,259
S&P 500 Index $56,065
Average Annual Total Return 1 Year 5 Year 10 Year on 5/17/85
Sound Shore Fund 33.27% 18.66% 14.76% 15.83%
S&P 500 Index 22.96% 15.18% 15.25% 16.03%
</TABLE>
* 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, 1996
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<TABLE>
<CAPTION>
SHARES OR
FACE AMOUNT MARKET VALUE
------------ -------------
<S> <C> <C>
COMMON STOCKS (90.1%)
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AIRLINES (2.0%)
Southwest Airlines Company 118,000 $ 2,611,790
-------------
BANKING (5.5%)
Banc One Corporation 37,400 1,608,200
Mellon Bank Corporation 40,500 2,875,500
Republic New York Corporation 35,000 2,856,877
-------------
7,340,577
-------------
BUILDING CONSTRUCTION (1.7%)
Kaufman & Broad Home Corporation 170,000 2,188,742
-------------
BUILDING MATERIALS (1.8%)
Masco Corporation 65,500 2,358,000
-------------
COMMUNICATIONS (3.7%)
MCI Communications Corporation 150,500 4,919,482
-------------
CONSUMER/FOODS (1.6%)
Interstate Bakeries Corporation 44,000 2,161,500
-------------
DIVERSIFIED INDUSTRIAL (4.0%)
Polaris Industries, Inc. 105,000 2,493,750
Wolverine Tube, Inc.* 82,000 2,883,600
-------------
5,377,350
-------------
</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, 1996
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<TABLE>
<CAPTION>
SHARES OR
FACE AMOUNT MARKET VALUE
------------ -------------
<S> <C> <C>
ELECTRONICS (7.1%)
Amphenol Corporation* 183,500 $ 4,082,875
KLA Instruments Corporation* 44,500 1,579,750
Texas Instruments, Inc. 59,000 3,761,250
-------------
9,423,875
-------------
ENERGY (1.8%)
Westcoast Energy, Inc. 140,000 2,345,000
-------------
FINANCE (3.1%)
Federal National Mortgage Association 109,000 4,060,250
-------------
FINANCIAL SERVICES (5.9%)
Dean Witter Discover & Company 51,500 3,411,875
Lehman Brothers Holdings, Inc. 25,000 784,375
MBIA, Inc. 35,500 3,594,375
-------------
7,790,625
-------------
HEALTH SERVICES (14.1%)
American Medical Response, Inc.* 82,700 2,687,750
Apria Healthcare Group, Inc.* 144,000 2,700,000
Beverly Enterprises, Inc.* 232,600 2,965,650
Columbia/HCA Healthcare Corporation 89,500 3,647,125
Health Systems International, Inc.* 206,000 5,098,500
PacifiCare Health Systems, Inc.* 20,000 1,705,000
-------------
18,804,025
HOUSEHOLD PRODUCTS -- NONDURABLE (1.5%)
Department 56, Inc.* 82,000 2,029,500
-------------
</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, 1996
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<TABLE>
<CAPTION>
SHARES OR
FACE AMOUNT MARKET VALUE
------------ -------------
<S> <C> <C>
INSURANCE (10.6%)
Allstate Corporation 57,700 $ 3,339,388
John Alden Financial Corporation 207,000 3,829,500
Loews Corporation 46,500 4,382,625
PartnerRe Ltd. 74,000 2,516,000
-------------
14,067,513
-------------
MACHINERY & COMPUTER EQUIPMENT (4.2%)
Albany International Corporation 63,700 1,473,063
International Business Machines Corporation 27,500 4,152,500
-------------
5,625,563
-------------
MEDICAL SUPPLIES (0.6%)
Bard (C.R.), Inc. 26,000 728,000
-------------
RETAIL (4.7%)
Fred Meyer, Inc.* 82,800 2,939,400
Neiman-Marcus Group, Inc.* 18,000 459,000
Wal-Mart Stores Inc. 123,000 2,813,625
-------------
6,212,025
-------------
SOFTWARE (2.8%)
Compuware Corporation* 75,000 3,759,375
-------------
STEEL (1.1%)
Birmingham Steel Corporation 77,500 1,472,500
-------------
TOYS (4.3%)
Hasbro, Inc. 73,500 2,857,313
Toy Biz, Inc.* 147,600 2,878,200
-------------
5,735,513
-------------
</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, 1996
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<TABLE>
<CAPTION>
SHARES OR
FACE AMOUNT MARKET VALUE
------------ -------------
<S> <C> <C>
TRANSPORTATION EQUIPMENT (5.8%)
Borg Warner Automotive, Inc. 65,500 $ 2,521,750
Cummins Engine Company, Inc. 39,000 1,794,000
Echlin, Inc. 109,000 3,447,127
-------------
7,762,877
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UTILITIES (2.2%)
BCE, Inc. 62,500 2,984,375
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TOTAL COMMON STOCKS (COST $94,871,654) $ 119,758,457
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U.S. GOVERNMENT OBLIGATIONS (2.3%)
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U.S. Treasury Bills, 4.166% yield, due 1/2/97 $ 1,000,000 $ 1,000,000
U.S. Treasury Bills, 4.591% yield, due 1/9/97 1,000,000 999,125
U.S. Treasury Bills, 4.582% yield, due 1/16/97 1,000,000 998,250
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TOTAL U.S. GOVERNMENT OBLIGATIONS (COST $2,997,375) $ 2,997,375
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SHORT-TERM HOLDINGS (5.9%)
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1784 U.S. Treasury Money Market Fund 1,898,824 $ 1,898,824
Forum Daily Assets Treasury Fund 6,002,392 6,002,392
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TOTAL SHORT-TERM HOLDINGS (COST $7,901,216) $ 7,901,216
-------------
TOTAL INVESTMENTS (98.3%) (COST $105,770,245)+ $ 130,657,048
OTHER ASSETS IN EXCESS OF LIABILITIES (1.7%) 2,204,840
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NET ASSETS (100.0%) (6,120,584 SHARES OUTSTANDING) $ 132,861,888
-------------
-------------
NET ASSET VALUE (OFFERING AND REDEMPTION PRICE PER SHARE) $ 21.71
-------------
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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, 1996
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<TABLE>
<CAPTION>
AT DECEMBER 31, 1996, NET ASSETS CONSISTED OF:
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<S> <C> <C>
Paid in Capital $ 107,982,113
Undistributed Net Investment Income 3,642
Unrealized Appreciation on Investments 24,886,803
Accumulated Net Realized Loss on Investments (10,670)
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NET ASSETS $ 132,861,888
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-------------
</TABLE>
* Non-income producing security.
+ Aggregate cost for Federal income tax purposes is $105,780,882.
Aggregate tax appreciation and depreciation are $25,813,812 and $937,646,
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, 1996
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<TABLE>
<S> <C>
INVESTMENT INCOME
Income:
Dividends..................................... $ 1,211,586
Interest...................................... 306,427
-----------
Total Income.............................. 1,518,013
-----------
Expenses:
Investment advisor fee (Note 2)............... 614,942
Administration fee (Note 2)................... 81,993
Transfer agent fee (Note 2)................... 74,231
Custodian fee................................. 14,494
Accounting fee (Note 2)....................... 61,494
Legal fee..................................... 5,145
Auditing fee.................................. 19,700
Directors fee................................. 28,641
Registration fees............................. 27,086
Miscellaneous................................. 23,407
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Total expenses............................ 951,133
Fees waived (Note 2).......................... (9,672)
-----------
Net expenses.............................. 941,461
-----------
Net Investment Income............................. 576,552
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments sold............. 12,422,759
Net change in unrealized appreciation of
investments...................................... 11,319,079
-----------
Net realized and unrealized gain on investments... 23,741,838
-----------
Increase in net assets resulting from
operations....................................... $24,318,390
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-----------
</TABLE>
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SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
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SOUND SHORE FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
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<TABLE>
<CAPTION>
INCREASE IN NET ASSETS 1996 1995
----------- ----------
<S> <C> <C>
Operations:
Net investment income.................................... $ 576,552 $ 908,397
Net realized gain on investments sold.................... 12,422,759 5,894,436
Net change in unrealized appreciation of investments..... 11,319,079 10,117,906
----------- ----------
Increase in net assets from operations................... 24,318,390 16,920,739
Dividends to shareholders from net investment income......... (574,084) (755,501)
Distributions to shareholders from net realized gains........ (12,433,396) (5,712,224)
Capital share transactions (Note 4).......................... 53,949,300 (2,844,493)
----------- ----------
Total increase........................................... 65,260,210 7,608,521
Net assets:
Beginning of the year.................................... 67,601,678 59,993,157
----------- ----------
End of year (including undistributed net investment
income of $3,642 and $1,174, respectively)............. $132,861,888 $67,601,678
----------- ----------
----------- ----------
</TABLE>
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SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
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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. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from these estimates. The
Fund's financial statements are prepared in accordance with generally accepted
accounting principles and based upon the following significant accounting
policies.
A) VALUATION OF SECURITIES
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 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
As it is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
all of its taxable income to its shareholders, no Federal income tax provision
is required.
C) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income, if any, are declared and paid
semi-annually. Distributions of net capital gains, if any, are declared and
paid annually.
Distributions from net investment income and realized capital gain are based
on amounts calculated in accordance with applicable income tax regulations
which may differ from generally accepted accounting principles. Permanent book
and tax differences relating to shareholder distributions will result in
reclassifications to paid in capital and may affect per share allocation
between net investment income and realized and unrealized gain or loss.
Undistributed net investment income and accumulated undistributed net realized
gain or loss may include temporary book and tax basis differences that will
reverse in a subsequent period. Any taxable income or gain remaining in the
fiscal year end is distributed the following year.
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11
<PAGE>
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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D) 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 0.75% of the Fund's average
daily net assets.
Effective January 1, 1996, under the Administration Agreement, the Fund pays an
administration fee to Forum Financial Services, Inc. ("Forum") equal to 0.10% of
the Fund's average daily net assets. Under the Fund Accounting Agreement dated
January 1, 1996, Forum Accounting Services, LLC, an affiliate of Forum, 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 dated
January 1, 1996, Forum Financial Corp. provides transfer agency services to the
Fund for a total fee of 0.075% plus $12,000 per year.
Prior to January 1, 1996, Forum received a fee of 0.25% of average daily net
assets of the Fund for administration and portfolio accounting services. Another
Forum affiliate, Forum Financial Corp., served as the Fund's transfer agent and
was compensated for those services by the Fund in the amount of $12,000 per
year.
Pursuant to a separate Distribution Services Agreement, the Administrator acts
as distributor of the Fund's shares. The Administrator is not paid any fee for
its distribution services.
The Fund pays Directors who are unaffiliated with the Advisor or the
Administrator $3,000 per year plus $500 per meeting attended.
Fees for investment advisory and administrative services in the amount of
$71,598 and $8,096, respectively, are payable at December 31, 1996.
The Advisor and Administrator have voluntarily undertaken to waive a portion of
their fees and assume certain expenses of the Fund so that total expenses of the
Fund would not exceed a certain limitation. For the year ended December 31,
1996, the Advisor and Administrator waived fees totaling $7,254 and $2,418,
respectively. The Advisor or the Administrator, at their discretion, may revise
or discontinue the voluntary waivers.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, other than short-term investments,
totaled $86,699,731 and $57,658,853 respectively, for the year ended December
31, 1996.
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12
<PAGE>
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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4. CAPITAL STOCK
At December 31, 1996, 100,000,000 shares of $.001 par value stock were
authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------
DECEMBER 31, 1996 DECEMBER 31, 1995
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Sold........................................................... 2,754,183 $ 61,386,956 315,052 $ 5,545,488
Issued on reinvestment of dividends............................ 548,843 11,889,059 329,511 5,922,587
Redeemed....................................................... (904,527) (19,326,715) (802,786) (14,312,568)
---------- -------------- ---------- --------------
Net increase (decrease)........................................ 2,398,499 $ 53,949,300 (158,223) $ (2,844,493)
---------- -------------- ---------- --------------
---------- -------------- ---------- --------------
</TABLE>
Of the 6,120,584 shares outstanding at December 31, 1996, the Employees' Profit
Sharing Plan of Sound Shore Management, Inc. owned 329,303 shares.
5. FEDERAL TAX STATUS OF DIVIDENDS DECLARED DURING THE FISCAL YEAR (UNAUDITED)
63.65% of the income dividends paid by the Fund in 1996 were derived from
investments in qualifying domestic common stock.
In December 1996, the Fund declared $7,866,216 in long-term capital gains.
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13
<PAGE>
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SOUND SHORE FUND, INC.
FINANCIAL HIGHLIGHTS
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Selected data for a share
outstanding throughout
the periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Beginning net asset value per share................. $18.16 $ 15.46 $ 16.50 $ 16.24 $ 15.17
Net investment income............................... 0.13 0.25 0.22 0.14 0.17
Net realized and unrealized investment gain (loss)
on securities...................................... 5.90 4.33 (0.17) 1.80 3.02
Dividends paid from net investment income........... (0.13) (0.21) (0.22) (0.14) (0.175)
Distributions from net realized gains............... (2.35) (1.67) (0.87) (1.54) (1.95)
------------ ------ ------ ------ ------
Ending net asset value per share.................... $21.71 $ 18.16 $ 15.46 $ 16.50 $ 16.24
------------ ------ ------ ------ ------
------------ ------ ------ ------ ------
Ratios to average net assets:
Expenses........................................ 1.15 % 1.15 % 1.22 % 1.27 % 1.37 %
Net investment income........................... 0.70 % 1.41 % 1.32 % 0.88 % 1.10 %
Total return........................................ 33.27 % 29.87 % 0.30 % 11.96 % 21.17 %
Portfolio turnover rate............................. 69.31 % 53.01 % 75.52 % 90.99 % 88.33 %
Net assets at end of period (000's omitted)......... $132,862 $67,602 $59,993 $58,179 $39,974
Average commission rate paid on portfolio investment
transactions....................................... $0.0563 (a) N/A N/A N/A N/A
</TABLE>
(a) 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
14
<PAGE>
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SOUND SHORE FUND, INC.
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
SOUND SHORE FUND
We have audited the accompanying statement of net assets of Sound Shore Fund,
Inc. as of December 31, 1996, 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, 1996, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
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, 1996, 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 14, 1997
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15
<PAGE>
- ----------------------------------------------
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.
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, 1996
