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[LOGO]
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January 1, 1998
Dear Shareholder:
Last year was a very good one for your Sound Shore Fund. The Fund's total
return of 36.4 % exceeded the 24.3% gain for the average Morningstar domestic
equity fund* as well as the 33.3% advance for the S&P 500. The Fund's 5-year and
10-year average annual total returns are 21.5% and 18.9% respectively. The Sound
Shore Fund's performance and lower risk profile has maintained its overall
5-star Morningstar rating, which continues to place the Fund in the top 10% of
the Morningstar domestic equity fund universe.
Our investment style is described as being from the value school, meaning we
are very sensitive to how a security is priced before we begin our research to
ascertain if the valuation is a true reflection of the company's fundamentals.
We begin with a universe of the largest companies listed on the US exchanges -
1,250 companies with market capitalization above $1 billion. From this start, we
rank each company into deciles based on its estimated P/E (on the next four
quarter earnings) versus other stocks and versus the company's own 15 year
"normal" P/E. Those in the two top deciles become the focus of our ultimate
scrutiny.
While we are pleased with the long-term results from our application of this
strategy, we are seldom accorded time for celebration, as we are continually
provided with a new set of macro-economic uncertainties. During our past twenty
years these have ranged from inflationary concerns (commodity shortages, oil
wars, and lax monetary policies) to deflationary problems (market crashes, real
estate debacles, and country collapses). The current Asian contagion has
affected Wall Street more than Main Street but the ramifications to our
"Goldilocks" economy are still unfolding.
We treat seriously the economic background music that can be deafening at
times. However, rather than attempting to be seers we have found our efforts
best rewarded by investing in companies that, relative to the market and their
own history, are inexpensive on a P/E basis taking into account the then current
economic backdrop. Our scars attest to our
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imperfection in this perpetual battle for "investment survival." The securities
we own for you reflect the opportunistic style we embrace. Their average P/E on
1998 consensus earnings is 75% of the S&P 500 P/E averages, with what we believe
are better than market characteristics.
The employees of Sound Shore Management continue to be substantial investors
in the Sound Shore Fund and we thank you for your investment. We continue to
strive to earn your confidence.
Sincerely,
[SIG]
T. GIBBS KANE, JR.
PRESIDENT
*MORNINGSTAR DOMESTIC EQUITY FUNDS AVERAGE ANNUAL TOTAL RETURN PERFORMANCE
FOR 1 YEAR: 24.3%, 5 YEARS: 16.7%, AND 10 YEARS: 15.8%. FUNDS INCLUDED IN EACH
TIME PERIOD: 2507, 949 AND 499 RESPECTIVELY. THE MORNINGSTAR PROPRIETARY RATINGS
REFLECT HISTORICAL RISK-ADJUSTED PERFORMANCE. THESE RATINGS ARE SUBJECT TO
CHANGE MONTHLY AND ARE CALCULATED FROM THE FUND'S 3-, 5-, AND 10-YEAR AVERAGE
ANNUAL TOTAL RETURNS IN EXCESS OF 90-DAY TREASURY BILL RETURNS. 10% OF THE FUNDS
IN AN INVESTMENT CATEGORY RECEIVE 5 STARS, THE NEXT 22.5% RECEIVE 4 STARS, 35%
RECEIVE 3 STARS, 22.5% RECEIVE 2 STARS, AND 10% RECEIVE ONE STAR. THE NUMBERS OF
DOMESTIC EQUITY FUNDS INCLUDED IN THE 3-, 5- AND 10-YEAR RATING PERIODS AS OF
12/31/97 WERE 2332, 1292, AND 676, 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.
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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 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
excludes the effect of any 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 CANNOT PREDICT NOR GUARANTEE 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>
12/31/87 $10,000 $10,000
01/31/88 $10,130 $10,420
02/29/88 $10,743 $10,904
3/31/88 $10,656 $10,567
04/30/88 $10,855 $10,684
05/31/88 $10,933 $10,775
6/30/88 $11,278 $11,270
07/31/88 $11,460 $11,227
08/31/88 $11,382 $10,846
9/30/88 $11,851 $11,308
10/31/88 $11,981 $11,622
11/30/88 $11,712 $11,456
12/31/88 $12,113 $11,656
01/31/89 $13,060 $12,507
02/28/89 $12,974 $12,196
3/31/89 $13,366 $12,480
04/30/89 $13,959 $13,128
05/31/89 $14,351 $13,595
6/30/89 $14,417 $13,580
07/31/89 $14,986 $14,805
08/31/89 $15,352 $15,094
9/30/89 $15,294 $15,032
10/31/89 $14,735 $14,684
11/30/89 $14,755 $14,982
12/31/89 $14,829 $15,341
01/31/90 $14,073 $14,322
02/28/90 $14,494 $14,498
3/31/90 $14,602 $14,882
04/30/90 $14,105 $14,511
05/31/90 $15,228 $15,923
6/30/90 $15,228 $15,815
07/31/90 $15,206 $15,765
08/31/90 $13,896 $14,342
9/30/90 $12,912 $13,645
10/31/90 $12,388 $13,587
11/30/90 $12,814 $14,463
12/31/90 $13,251 $14,866
01/31/91 $14,062 $15,512
02/28/91 $15,109 $16,620
3/31/91 $15,446 $17,022
04/30/91 $15,491 $17,062
05/31/91 $16,707 $17,796
6/30/91 $15,818 $16,981
07/31/91 $16,580 $17,772
08/31/91 $16,921 $18,192
9/30/91 $16,773 $17,887
10/31/91 $16,750 $18,127
11/30/91 $16,034 $17,399
12/31/91 $17,524 $19,385
01/31/92 $17,870 $19,024
02/29/92 $18,367 $19,271
3/31/92 $18,263 $18,896
04/30/92 $18,274 $19,450
5/31/92 $18,367 $19,545
06/30/92 $18,274 $19,255
07/31/92 $19,332 $20,041
8/31/92 $18,786 $19,631
09/30/92 $19,158 $19,862
10/31/92 $19,832 $19,970
11/30/92 $20,995 $20,607
12/31/92 $21,233 $20,860
01/31/93 $21,521 $21,034
2/28/93 $21,508 $21,331
03/31/93 $22,501 $21,771
04/30/93 $21,978 $21,244
5/31/93 $22,410 $21,811
06/30/93 $22,305 $21,875
07/31/93 $22,122 $21,787
8/31/93 $22,620 $22,612
09/30/93 $22,462 $22,433
10/31/93 $23,039 $22,897
11/30/93 $22,987 $22,680
12/31/93 $23,772 $22,954
01/31/94 $24,622 $23,734
2/28/94 $24,291 $23,090
03/31/94 $23,643 $22,085
04/30/94 $23,715 $22,368
5/31/94 $23,758 $22,734
06/30/94 $23,398 $22,177
07/31/94 $23,760 $22,905
8/31/94 $24,702 $23,843
09/30/94 $24,209 $23,261
10/31/94 $24,267 $23,781
11/30/94 $23,630 $22,916
12/31/94 $23,843 $23,256
01/31/95 $24,274 $23,858
2/28/95 $25,200 $24,797
03/31/95 $25,724 $25,517
04/30/95 $25,924 $26,268
5/31/95 $27,235 $27,316
06/30/95 $27,991 $27,950
07/31/95 $28,550 $28,877
8/31/95 $28,891 $28,949
09/30/95 $29,450 $30,170
10/31/95 $29,000 $30,062
11/30/95 $30,366 $31,381
12/31/95 $30,965 $31,985
01/31/96 $31,443 $33,072
2/29/96 $32,056 $33,380
03/31/96 $32,875 $33,701
04/30/96 $34,171 $34,198
5/31/96 $35,774 $35,078
06/30/96 $35,279 $35,212
07/31/96 $33,911 $33,657
8/31/96 $35,159 $34,368
09/30/96 $36,955 $36,300
10/31/96 $37,930 $37,301
11/30/96 $41,110 $40,118
12/31/96 $41,267 $39,324
01/31/97 $43,301 $41,779
2/28/97 $43,757 $42,107
03/31/97 $42,142 $40,380
04/30/97 $43,871 $42,789
5/31/97 $46,761 $45,392
06/30/97 $48,966 $47,425
07/31/97 $53,386 $51,197
8/31/97 $53,176 $48,331
09/30/97 $56,873 $50,976
10/31/97 $54,472 $49,376
11/30/97 $54,948 $49,835
12/31/97 $56,289 $51,266
Value on 12/31/97
Sound Shore Fund $56,289
S&P 500 Index $51,266
Average Annual Total Return 1 Year 5 Year 10 Year
Sound Shore Fund 36.40% 21.52% 18.85%
S&P 500 Index 33.34% 20.23% 18.00%
</TABLE>
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3
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SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS
DECEMBER 31, 1997
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<TABLE>
<CAPTION>
SHARES OR MARKET
FACE AMOUNT VALUE
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<S> <C> <C>
COMMON STOCK (91.6%)
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AUTOMOTIVE (6.8%)
Borg-Warner Automotive, Inc. 584,300 $ 30,383,600
Ford Motor Co. 684,000 33,302,255
Magna International, Inc. 415,800 26,117,439
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89,803,294
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BANKS (5.6%)
Banc One Corp. 823,500 44,726,346
First Union Corp. 386,000 19,782,500
Mellon Bank Corp. 154,100 9,342,314
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73,851,160
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BASIC MATERIALS (1.7%)
Ispat International NV* 1,027,000 22,208,877
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BUILDING & BUILDING MATERIALS (2.7%)
American Standard Cos., Inc.* 473,700 18,148,633
Kaufman & Broad Home Corp. 747,800 16,778,767
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34,927,400
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CAPITAL GOODS (0.7%)
Albany International Corp. 429,800 9,885,400
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COMMUNICATIONS (2.9%)
Century Telephone Enterprises, Inc. 761,000 37,907,319
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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, 1997
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<TABLE>
<CAPTION>
SHARES OR MARKET
FACE AMOUNT VALUE
------------ -------------
<S> <C> <C>
CONSUMER PRODUCTS (15.4%)
American Greetings Corp. 1,021,000 $ 39,946,630
Department 56, Inc.* 598,000 17,192,500
Hasbro, Inc. 1,383,100 43,567,650
Philip Morris Cos., Inc. 843,000 38,198,440
Polaris Industries, Inc. 261,900 8,004,321
Polaroid Corp. 244,000 11,879,750
UST, Inc. 1,172,500 43,309,221
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202,098,512
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ENERGY (7.5%)
Enron Corp. 457,700 19,023,159
Occidental Petroleum Corp. 1,058,000 31,012,626
Sun Co., Inc. 311,300 13,094,056
Tidewater, Inc. 639,500 35,252,346
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98,382,187
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FINANCIAL (5.3%)
Fannie Mae 856,000 48,845,505
Morgan Stanley, Dean Witter, Discover and Co. 342,500 20,250,313
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69,095,818
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HEALTHCARE (2.6%)
Beverly Enterprises, Inc.* 1,353,000 17,589,000
John Alden Financial Corp. 407,000 9,768,000
PharMerica, Inc.* 611,204 6,341,190
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33,698,190
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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, 1997
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<TABLE>
<CAPTION>
SHARES OR MARKET
FACE AMOUNT VALUE
------------ -------------
<S> <C> <C>
INSURANCE (12.0%)
Allstate Corp. 229,400 $ 20,846,726
Ambac Financial Group, Inc. 275,200 12,659,200
Loews Corp. 478,500 50,780,814
MBIA, Inc. 315,600 21,086,028
PartnerRe Ltd. 706,600 32,768,579
The PMI Group, Inc. 276,700 20,008,872
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158,150,219
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PROFESSIONAL SERVICES (4.3%)
GTECH Holdings Corp.* 781,200 24,949,577
IKON Office Solutions, Inc. 323,000 9,084,375
Valassis Communications, Inc.* 623,500 23,069,500
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57,103,452
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RESTAURANTS & LODGING (4.4%)
Brinker International, Inc.* 994,900 15,918,400
La Quinta Inns, Inc. 1,573,600 30,390,156
Lone Star Steakhouse & Saloon, Inc.* 642,900 11,250,750
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57,559,306
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RETAIL (6.9%)
Nine West Group, Inc.* 707,500 18,350,784
Toys "R" Us, Inc.* 1,499,100 47,127,959
Wal-Mart Stores, Inc. 652,500 25,732,971
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91,211,714
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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, 1997
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<TABLE>
<CAPTION>
SHARES OR MARKET
FACE AMOUNT VALUE
------------ -------------
<S> <C> <C>
TECHNOLOGY (8.9%)
IBM Corp. 323,500 $ 33,825,975
Quantum Corp.* 1,207,000 24,215,439
Sterling Software, Inc.* 384,600 15,768,600
Texas Instruments, Inc. 283,000 12,735,000
Varian Associates, Inc. 594,500 30,059,410
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116,604,424
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TRANSPORTATION (2.0%)
Southwest Airlines Co. 1,065,300 26,233,015
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UTILITIES (1.9%)
CalEnergy Co., Inc.* 652,200 18,750,750
SCANA Corp. 64,500 1,930,969
TECO Energy, Inc. 145,000 4,078,127
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24,759,846
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TOTAL COMMON STOCK (COST $1,050,550,003) $1,203,480,133
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SHORT-TERM HOLDINGS (8.0%)
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U.S. GOVERNMENT OBLIGATIONS (5.3%)
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U.S. TREASURY BILLS
4.94% yield, 1/8/98 30,000,000 $ 29,971,709
4.84% yield, 1/15/98 40,000,000 39,926,111
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TOTAL U.S. GOVERNMENT OBLIGATIONS (COST $69,897,820) $ 69,897,820
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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, 1997
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<TABLE>
<CAPTION>
SHARES OR MARKET
FACE AMOUNT VALUE
------------ -------------
<S> <C> <C>
MONEY MARKET HOLDINGS (2.7%)
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Boston 1784 Institutional U.S. Treasury Money Market Fund 31,012,254 $ 31,012,254
Federated Treasury Obligation Fund 2,729,444 2,729,444
Forum Daily Assets Treasury Fund 1,364,250 1,364,250
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TOTAL MONEY MARKET HOLDINGS (COST $35,105,948) $ 35,105,948
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TOTAL SHORT-TERM HOLDINGS (COST $105,003,768) $ 105,003,768
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TOTAL INVESTMENTS (99.6%) (COST $1,155,553,771) $1,308,483,901
OTHER ASSETS IN EXCESS OF LIABILITIES (0.4%) 5,202,067
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NET ASSETS (100.0%) (45,979,785 SHARES OUTSTANDING) $1,313,685,968
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NET ASSET VALUE (OFFERING AND REDEMPTION PRICE PER SHARE) $ 28.57
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AT DECEMBER 31, 1997, NET ASSETS CONSISTED OF:
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Par Value $ 45,980
Paid in Capital 1,163,237,757
Accumulated Distributions in Excess of Net Investment Income (1,487)
Unrealized Appreciation on Investments 152,930,130
Accumulated Distributions in Excess of Net Realized Gain on
Investments (2,526,412)
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NET ASSETS $1,313,685,968
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</TABLE>
* Non-income producing security.
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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, 1997
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<TABLE>
<S> <C>
INVESTMENT INCOME
Income:
Dividends..................................... $ 7,706,106
Interest...................................... 3,624,078
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Total Income.............................. 11,330,184
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Expenses:
Investment adviser fee (Note 3)............... 5,000,341
Administration fee (Note 3)................... 666,712
Transfer agent fee (Note 3)................... 512,034
Custodian fee................................. 93,037
Accounting fee (Note 3)....................... 500,034
Legal fee..................................... 9,550
Auditing fee.................................. 26,245
Director's fees and expenses (Note 3)......... 33,757
Registration fees............................. 390,902
Miscellaneous................................. 76,007
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Total Expenses............................ 7,308,619
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Fees waived (Note 3).......................... (114,906)
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Net Expenses.................................. 7,193,713
-----------
Net Investment Income............................. 4,136,471
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REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments sold............. 37,617,224
Net change in unrealized appreciation of
investments...................................... 128,043,327
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Net realized and unrealized gain on investments... 165,660,551
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Net increase in net assets resulting from
operations....................................... $169,797,022
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</TABLE>
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SEE NOTES TO FINANCIAL STATEMENTS
9
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SOUND SHORE FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
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<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS 1997 1996
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<S> <C> <C>
Operations:
Net investment income.................................. $ 4,136,471 $ 576,552
Net realized gain on investments sold.................. 37,617,224 12,422,759
Net change in unrealized appreciation of investments... 128,043,327 11,319,079
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Increase in net assets resulting from operations....... 169,797,022 24,318,390
Dividends to shareholders from net investment income....... (4,140,113) (574,084)
Distributions to shareholders in excess of net investment
income.................................................... (19,001) --
Distributions to shareholders from net realized gain....... (37,617,224) (12,433,396)
Distributions to shareholders in excess of net realized
gain...................................................... (986,085) --
Capital share transactions (Note 5)........................ 1,053,789,481 53,949,300
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Total increase......................................... 1,180,824,080 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))....................... $1,313,685,968 $132,861,888
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(A) Accumulated undistributed (distribution in excess
of) net investment income.......................... $ (1,487) $ 3,642
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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. 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, or 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 valued 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 gains, if any, are distributed to shareholders at least
annually. Distributions are based on amounts calculated in accordance with
applicable federal income tax regulations, which may differ from generally
accepted accounting principles. These differences are due primarily to
differing treatments of income and gain on various investment securities held
by the Fund, timing differences and differing characterizations of
distributions made by the Fund.
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11
<PAGE>
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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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 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 an Administration Agreement, the Fund paid an administration fee to Forum
Administrative Services, LLC ("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") during the period was identical in all material terms
including fees.
Under a Fund Accounting Agreement, Forum Accounting Services, LLC, an affiliate
of FAS and FFSI, provided 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. provided 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 acted as
distributor of the Fund's shares and was 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 $1,000 per meeting attended.
Fees for investment advisory services in the amount of $792,172 are payable at
December 31, 1997. The amount of $9,283 is receivable from FAS at December 31,
1997.
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12
<PAGE>
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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The Adviser and FAS 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, 1997, FAS
waived fees of $114,906.
4. PURCHASES AND SALES OF SECURITIES
The cost of securities purchased and the proceeds from sales of securities
(excluding short-term investments) for the year ended December 31, 1997,
aggregated $1,237,754,117 and $319,682,954 respectively.
For federal income tax purposes, the tax basis of investment securities owned as
of December 31, 1997 was $1,158,089,219 and the net unrealized appreciation of
investment securities was $150,394,682. The aggregate gross unrealized
appreciation for all securities in which there was an excess of market value
over tax cost was $186,891,331 and aggregate gross unrealized depreciation for
all securities in which there was an excess of tax cost over market value was
$36,496,649.
5. CAPITAL STOCK
As of December 31, 1997, 100,000,000 shares of $.001 par value stock were
authorized and capital paid in amounted to $1,161,771,594. Transactions in
capital stock were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
----------------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ---------------- ---------- --------------
<S> <C> <C> <C> <C>
Sale of shares............................................ 44,779,211 $ 1,186,548,003 2,754,183 $ 61,386,956
Reinvestment of distributions............................. 1,423,166 39,625,513 548,843 11,889,059
Redemption of shares...................................... (6,343,176) (172,384,035) (904,527) (19,326,715)
------------ ---------------- ---------- --------------
Net increase from capital transactions.................... 39,859,201 $ 1,053,789,481 2,398,499 $ 53,949,300
------------ ---------------- ---------- --------------
------------ ---------------- ---------- --------------
</TABLE>
6. FEDERAL TAX STATUS OF DIVIDENDS DECLARED DURING THE FISCAL YEAR (UNAUDITED)
For federal income tax purposes, dividends from short-term capital gains are
classified as ordinary income. The percentage of qualifying dividends eligible
for the corporate dividends received deduction is 24.73%.
In December 1997, the Fund declared $13,416,519 in long-term capital gains, and
$4,752,743 in mid-term capital gains.
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13
<PAGE>
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SOUND SHORE FUND, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------- --------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period...... $ 21.71 $ 18.16 $ 15.46 $ 16.50 $ 16.24
Investment Operations
Net Investment Income (Loss)............ 0.12 0.13 0.25 0.22 0.14
Net Realized and Unrealized Gain (Loss)
on Investments........................ 7.75 5.90 4.33 (0.17) 1.80
-------------- --------------- -------------- ------ ------
Total from Investment Operations.......... 7.87 6.03 4.58 0.05 1.94
-------------- --------------- -------------- ------ ------
Distributions
Net Investment Income................. (0.12) (0.13) (0.21) (0.22) (0.14)
In Excess of Net Investment Income.... --(a) -- -- -- --
Net Realized Gain..................... (0.87) (2.35) (1.67) (0.87) (1.54)
In Excess of Net Realized Gain........ (0.02) -- -- -- --
-------------- --------------- -------------- ------ ------
Total Distributions....................... (1.01) (2.48) (1.88) (1.09) (1.68)
-------------- --------------- -------------- ------ ------
Net Asset Value, End of Period............ $ 28.57 $ 21.71 $ 18.16 $ 15.46 $ 16.50
-------------- --------------- -------------- ------ ------
-------------- --------------- -------------- ------ ------
Total return.............................. 36.40% 33.27% 29.87% 0.30% 11.96%
Ratio/Supplementary Data
Net Assets at End of Period (in
thousands)............................... $1,313,686 $132,862 $67,602 $59,993 $58,179
Ratios to Average Net Assets:
Expenses.............................. 1.08% 1.15 % 1.15 % 1.22 % 1.27 %
Net investment income................. 0.62% 0.70 % 1.41 % 1.32 % 0.88 %
Portfolio turnover rate................... 53.39% 69.31 % 53.01 % 75.52 % 90.99 %
Average commission rate (b)............... $0.0568 $0.0563 N/A N/A N/A
</TABLE>
(a) Per share data is less than $0.01.
(b) For the fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose average commission per share paid to brokers on the
purchase and sale of equity securities on which commissions are charged.
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
- --------------------------------------------------------------------------------
SOUND SHORE FUND, INC.
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TO 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, 1997, the related statement of operations for the year
then ended, the statement 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, 1997, 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, 1997, the results of its operations, the changes in its
net assets and its financial highlights for the respective stated periods, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
February 6, 1998
- --------------------------------------------------------------------------------
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.
Two Portland Square
Portland, Maine 04101
http://www.soundshorefund.com
INVESTMENT ADVISER
Sound Shore Management, Inc.
P.O. Box 1810
8 Sound Shore Drive
Greenwich, Connecticut 06836
ADMINISTRATOR
Forum Financial Services, LLC
Two Portland Square
Portland, Maine 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]
ANNUAL REPORT
DECEMBER 31, 1997
