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OMB APPROVAL
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OMB Number:3235-0307
Expires:May 31, 2000
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As filed with the Securities and Exchange Commission on March 1, 1999
File Nos. 2-96141 and 811-4244
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
Post-Effective Amendment No. 20
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 17
SOUND SHORE FUND, INC.
Two Portland Square
Portland, Maine 04101
203-629-1980
David I. Goldstein, Esq.
Forum Financial Services, Inc.
Two Portland Square
Portland, Maine 04101
Copies to:
Margaret Bancroft, Esq.
Dechert Price & Rhoads
30 Rockefeller Plaza
New York, NY 10112
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to Rule 485, paragraph (b)
[ ] on ___________ pursuant to Rule 485, paragraph (b)
[X] 60 days after filing pursuant to Rule 485, paragraph (a)(1)
[ ] on ___________ pursuant to Rule 485, paragraph (a)(1)
[ ] 75 days after filing pursuant to Rule 485, paragraph (a)(2)
[ ] on ___________ pursuant to Rule 485, paragraph (a)(2)
this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Sound Shore Fund
<PAGE>
LOGO
SOUND SHORE FUND
PROSPECTUS
MAY 1, 1999
The Fund's investment objective is long-term capital appreciation.
Shares of the Fund are offered to investors without
any sales charge or Rule 12b-1 (distribution) fees.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED
OR DISAPPROVED THE FUND'S SHARES OR DETERMINED WHETHER
THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY............................................ XX
PERFORMANCE.................................................... XX
FEE TABLES..................................................... XX
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS.................... XX
MANAGEMENT..................................................... XX
YOUR ACCOUNT................................................... XX
How to Contact the Fund XX
General Information XX
Buying Shares XX
Selling Shares XX
Exchange Privileges XX
Retirement Accounts XX
OTHER INFORMATION.............................................. XX
FINANCIAL HIGHLIGHTS........................................... XX
<PAGE>
RISK/RETURN SUMMARY
THE INVESTMENT GOAL OF THE SOUND SHORE FUND (THE "FUND")
Long-term capital appreciation
PRINCIPAL INVESTMENT STRATEGY The investment objective of the Fund is to seek
growth of capital, and investments will be made based upon their potential for
capital growth. In seeking to meet this objective, the Fund intends to purchase
equity securities that management believes display good growth potential and are
selling at a discount to perceived value in the marketplace. Current income,
while considered important, will be secondary to the objective of capital
growth.
PRINCIPAL RISKS OF INVESTING IN THE FUND
You could lose money on your investment in the Fund, or the Fund could
underperform other investments, if any of the following occurs:
o The stock market goes down
o Value stocks fall out of favor with the stock market
o The stock market continues to undervalue the stocks in the Fund's
portfolio
o The judgment of the investment adviser to the Fund, Sound Shore
Management, Inc. (the "Adviser"), as to the value of a stock proves to
be wrong
WHO MAY WANT TO INVEST IN THE FUND
The Fund may be appropriate for investors who:
o Are willing to tolerate significant changes in the value of their
investment
o Are pursuing a long-term goal
o Are willing to accept higher short-term risk for higher potential
long-term returns
The Fund may NOT be appropriate for investors who:
o Want an investment that pursues market trends or focuses only on
particular sectors or industries
o Need regular income or stability of principal
o Are pursuing a short-term goal or investing emergency reserves
<PAGE>
PERFORMANCE
The following chart illustrates the variability of the Fund's returns. This
chart and the following tables provide some indication of the risks of investing
in the Fund by showing changes in the Fund's performance from year to year and
how the Fund's returns compare to a broad measure of market performance.
PERFORMANCE INFORMATION REPRESENTS ONLY PAST PERFORMANCE AND DOES NOT
NECESSARILY INDICATE FUTURE RESULTS.
The following chart shows the annual total return of the Fund for each calendar
year it has been in existence.
[EDGAR REPRESENTATION OF GRAPH CHART]
Year Average Annual Total Return
- ---- ---------------------------
1989 22.42%
1990 -10.64%
1991 32.24%
1992 21.17%
1993 11.96%
1994 0.30%
1995 29.87%
1996 33.27%
1997 36.40%
1998 16.34%
During the periods shown in the chart, the highest quarterly
return was 16.57% (for the quarter ended March 31, 1991) and the lowest
quarterly return was -15.21% (for the quarter ended September 30, 1990).
The following table compares the Fund's average annual total return as of
December 31, 1998 to the S&P 500 Index.
YEAR(S) FUND S&P 500 INDEX
1 Year (1/1/1998-12/31/98) 4.40% 28.58%
5 Years (1/1/1994-12/31/1998) 19.83% 24.03%
10 Years (1/1/1989-12/31/1998) 17.10% 19.18%
Since Inception (5/xx/85-12/31/98) 16.34% 18.11%
The S&P 500(R)Index is the Standard & Poor's 500(R)Index, a widely recognized,
unmanaged index of common stock prices. The S&P 500 figures assume reinvestment
of all dividends paid by stocks included in the Index.
2
<PAGE>
FEE TABLES
The following tables describe the various fees and expenses that you will bear
if you invest in the Fund.
Shareholder transaction expenses are charges you pay when buying, selling or
exchanging shares of the Fund. Operating expenses, which include fees and
expenses for the Adviser and shareholder services, are paid out of the Fund's
assets and are factored into the Fund's share price rather than charged directly
to shareholder accounts.
<TABLE>
<S> <C>
SHAREHOLDER FEES (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases None
Maximum Sales Charge (Load) Imposed on Reinvested Distributions None
Maximum Deferred Sales Charge (Load) None
Redemption Fee None
Exchange Fee None
Maximum Account Fee $0(1)
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
FUND
Advisory fees 0.75%
Distribution (12b-1 fees) None
Other expenses 0.24%
TOTAL ANNUAL FUND OPERATING EXPENSES 0.99%
</TABLE>
(1) IRA accounts are subject to an annual $10 maintenance fee.
The following is a hypothetical example intended to help you compare the cost of
investing in the Fund to the cost of investing in other mutual funds. This
example assumes a $10,000 investment in the Fund, a 5% annual return, the Fund's
operating expenses remain the same as stated in the table above, reinvestment of
all distributions and redemption at the end of each period. Although your actual
costs may be higher or lower, under these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$102 $317 $550 $1,220
3
<PAGE>
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Fund is growth of capital. Investments will be
made based upon their potential for capital growth. Current income, while
considered important, will be secondary to the objective of capital growth.
There is no assurance that the Fund will achieve its investment objective. The
Fund's investment objective is fundamental and may not be changed without
shareholder approval.
INVESTMENT STRATEGIES
The Fund expects that for most periods a substantial portion, if not all, of its
assets will be invested in a diversified portfolio of common stocks judged by
the Adviser to have favorable value to price characteristics. The Fund may also
invest, however, in U.S. Government or Government agency obligations, investment
grade corporate bonds, preferred stocks, convertible securities, and/or
short-term money market instruments when the Adviser believes that investment in
these securities, in light of current market conditions, is consistent with the
Fund's investment objectives.
[Margin callout: CONCEPTS TO UNDERSTAND VALUE INVESTING means to
invest in stocks whose prices are low relative to comparable companies
COMMON STOCK represents an equity or ownership interest in a company
INVESTMENT GRADE means a bond with a Standard & Poors' rating of AAA
to BBB or Moody's rating of Aaa to Baa
PREFERRED STOCK is stock that has a preference over common stock to
the company's dividends (and thus greater potential for income) and
whose value generally fluctuates less than common stock
CONVERTIBLE SECURITY is a security such as preferred stock or bonds
that may be converted into a specified number of shares of common
stock]
The Adviser chooses investments in equity securities based on its judgment of
fundamental value. Factors deemed particularly relevant include price, earnings
expectations, earnings and price histories, balance sheet characteristics and
perceived management skills. Changes in the economic and political outlooks, as
well as individual corporate developments, influence specific security prices.
When the Fund's investments lose their perceived value relative to other similar
investments and investment alternatives, they are sold. The Fund may hold cash
or cash equivalents pending investment and to retain flexibility in meeting
redemptions and paying expenses.
INVESTMENT RISKS
An investment in the Fund is not by itself a complete or balanced investment
program. Because the Adviser seeks securities that are undervalued by the
market, there is a risk that the market will not recognize a security's
intrinsic value for an unexpectedly long time. There is also a risk that the
securities the Adviser believes are undervalued are actually appropriately
priced due to problems that are not yet apparent. The value of Fund shares will
fluctuate with changes in the market value of the Fund's portfolio securities
and is consequently subject to the usual market risks of investment. In
addition, the Fund's value approach can undergo cycles of greater or lesser
investor interest.
YEAR 2000 Like other organizations around the world, the Fund could be adversely
affected if the computer systems used by its various service providers (or the
market in general) do not properly operate after January 1, 2000. The Fund is
taking steps to address the Year 2000 issue with respect to the computer systems
that they rely on. There can be no assurance, however, that these steps will be
sufficient to avoid a temporary service disruption or any adverse impact on the
Fund.
4
<PAGE>
MANAGEMENT
The business of the Fund is managed under the direction of the Board of
Directors ("Board"). The Board formulates the general policies of the Fund and
meets periodically to review the Fund's performance, monitor investment
activities and practices, and discuss other matters affecting the Fund.
Additional information regarding the Board, as well as executive officers, may
be found in the Statement of Additional Information ("SAI").
THE ADVISER
Sound Shore Management, Inc., 8 Sound Shore Drive, Greenwich, Connecticut 06836,
serves as investment adviser to the Fund. Subject to the general control of the
Board, the Adviser makes investment decisions for the Fund. For its services,
the Adviser receives an advisory fee at an annual rate of 0.75% of the average
daily net assets of the Fund.
As of the date of this prospectus, the Adviser has over $XX billion of assets
under management.
PORTFOLIO MANAGERS
The day-to-day management of the Fund is shared by a team of individuals
employed by the Adviser. Harry Burn, III and T. Gibbs Kane, Jr. are responsible
for the day-to-day management of the Fund. Each portfolio manager's business
experience and educational background is as follows:
HARRY BURN, III Chairman and Director of the Adviser. He has been with the
Adviser since 1978 and is responsible for investment policy, portfolio
management and investment research. Mr. Burn received a B.A. and an M.B.A. from
the University of Virginia.
T. GIBBS KANE, JR. President and Director of the Adviser. He has been with the
Adviser since 1977 and is responsible for investment policy, portfolio
management and investment research. Mr. Kane received a B.S.E. from the
University of Pennsylvania Wharton School.
OTHER SERVICE PROVIDERS
The Forum Financial Group ("Forum") of companies provide various services to the
Fund. As of December 31, 1998, Forum provided administration and distribution
services to investment companies and collective investment funds with assets of
approximately $66.2 billion.
Forum Fund Services, LLC, a registered broker-dealer and member of the National
Association of Securities Dealers, Inc., is the distributor (principal
underwriter) of the Fund's shares. The distributor acts as the agent of the Fund
in connection with the offering of shares of the Fund. The distributor may enter
into arrangements with banks, broker-dealers or other financial institutions
through which investors may purchase or redeem shares and may, at its own
expense, compensate persons who provide services in connection with the sale or
expected sale of shares of the Fund.
Forum Shareholder Services, LLC (the "Transfer Agent") is the Fund's transfer
agent.
FUND EXPENSES
The Fund pays for all of its expenses. The Adviser or other service providers
may voluntarily waive all or any portion of their fees, which are accrued daily
and paid monthly. Any waiver would have the effect of increasing the Fund's
performance for the period during which the waiver was in effect and may not be
recouped at a later date.
The Adviser has voluntarily undertaken to waive its fees or assume certain
expenses of the Fund in order to limit the Fund's expenses (excluding taxes,
interest, portfolio transaction expenses and extraordinary expenses) to X.XX% or
less of the average daily net assets of the Fund. This undertaking may be
terminated at any time.
5
<PAGE>
YOUR ACCOUNT
HOW TO CONTACT THE FUND
Write to us at:
Sound Shore Fund
P.O. Box 446
Portland, ME 04112
Telephone us Toll-Free at:
(800) 551-1980
Wire investments (or ACH payments) to us at:
BankBoston Boston, Massachusetts ABA #011000390 For Credit to:
Forum Shareholder Services, LLC
Account # 541-54171
Sound Shore Fund, Inc.
(Your Name goes on this line)
(Your Account Number goes on this line)
(Your Social Security number or tax identification number goes
on this line)
GENERAL INFORMATION
You pay no sales charge to purchase or sell shares of the Fund. Shares are
purchased and sold by the Fund at the next share price, which is known as net
asset value per share or NAV. Your shares' NAV is calculated after the Transfer
Agent receives your purchase request in good order. For instance, if your
purchase request is received in proper form after 4 p.m., your transaction will
be priced at the next day's NAV. The Fund cannot accept orders that request a
particular day or price for the transaction or any other special conditions.
The Fund does not issue share certificates.
You will receive annual statements and a confirmation of each transaction. You
should verify the accuracy of all transactions in your account immediately upon
receipt of confirmations.
The Fund reserves the right to minimum investment amounts and may temporarily
suspend (during unusual market conditions) or discontinue any service or
privilege.
WHEN AND HOW NAV IS DETERMINED The NAV of the Fund is calculated as of the close
of the New York Stock Exchange (normally 4:00 p.m., eastern time) on each
weekday except days when the New York Stock Exchange is closed, normally, New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The time
at which NAV is calculated may be changed in case of an emergency or if the New
York Stock Exchange closes early. The Fund's NAV is determined by dividing the
value of the Fund's assets by the number of shares outstanding. Securities for
which market quotations are readily available are valued at current market
value. If market quotations are not readily available, then securities are
valued at fair value, as determined by the Board of Directors.
TRANSACTIONS THROUGH THIRD PARTIES If you invest through a broker or other
financial institution, the policies and fees charged by that institution may be
different than those of the Fund. Banks, brokers, retirement plans and financial
advisers may charge transaction fees and may set different minimum investments
or limitations on buying or selling shares. Consult a representative of your
financial institution or retirement plan for further information.
6
<PAGE>
BUYING SHARES
HOW TO MAKE PAYMENTS All investments must be in U.S. dollars and checks must be
drawn on U.S. banks.
CHECKS For individual or Uniform Gift to Minors Act ("UGMA") accounts,
the check must be made payable to "Sound Shore Fund, Inc." or to one or
more owners of the account and endorsed to "Sound Shore Fund, Inc." For
all other accounts, the check must be made payable on its face to
"Sound Shore Fund, Inc." No other method of check payment is acceptable
(for instance, payment by travelers checks is prohibited).
ACH PAYMENT Instruct your financial institution to make an ACH
(automated clearinghouse) payment to us. These payments typically take
two days. Your financial institution may charge you a fee for this
service.
WIRES Instruct your financial institution to make a Federal Funds wire
payment to us. Your financial institution may charge you a fee for this
service.
MINIMUM INVESTMENTS. Following are the minimum investments accepted by the Fund:
<TABLE>
<S> <C> <C>
------------------------- --------------------------
MINIMUM INITIAL MINIMUM ADDITIONAL
INVESTMENT INVESTMENT
-------------------------------------- ------------------------- --------------------------
-------------------------------------- ------------------------- --------------------------
Standard Minimums $10,000(1) None
-------------------------------------- ------------------------- --------------------------
-------------------------------------- ------------------------- --------------------------
Traditional and Roth IRA Accounts $2,000 None
-------------------------------------- ------------------------- --------------------------
-------------------------------------- ------------------------- --------------------------
Electronic Fund Transfers Automatic $10,000 $50
Investment Plans
-------------------------------------- ------------------------- --------------------------
-------------------------------------- ------------------------- --------------------------
Exchange Privileges $2,500 None
-------------------------------------- ------------------------- --------------------------
</TABLE>
(1) $5,000 minimum initial investment if made through certain broker dealers.
ACCOUNT REQUIREMENTS
<TABLE>
<S> <C>
- ------------------------------------------------------------ ---------------------------------------------------------
TYPE OF ACCOUNT REQUIREMENT
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
INDIVIDUAL, SOLE PROPRIETORSHIP AND JOINT ACCOUNTS o Joint accounts can have two or more owners
Individual accounts are owned by one person, as are sole (tenants)
proprietorship accounts. o Instructions must be signed by all persons
required to sign (you choose who must sign)
exactly as each name appears on the account
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA) o Depending on state laws, you can set up a custodial
These custodial accounts provide a way to give money account under the Uniform Gift to Minors Act or
to a child and obtain tax benefits. You can give up to the Uniform Transfers to Minors Act
$10,000 a year per child without paying Federal gift tax. o The trustee must sign instructions in a
manner indicating trustee capacity
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
CORPORATIONS AND PARTNERSHIPS o For corporations, provide a corporate
resolution signed by an authorized person with a
signature guarantee
o For partnerships, provide a certification for
a partnership agreement, or the pages from the
partnership agreement that identify the general
partners
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
TRUSTS o The trust must be established before an
account can be opened
o Provide a certification for trust, or the
pages from the trust document that identify the
trustees
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
7
<PAGE>
INVESTMENT PROCEDURES
<TABLE>
<S> <C>
- ------------------------------------------------------------ ---------------------------------------------------------
TO OPEN AN ACCOUNT TO ADD TO YOUR ACCOUNT
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
BY CHECK BY CHECK
o Call or write us for an account application o Fill out an investment slip from a
o Complete the application confirmation statement Or
o Mail us your application and a check o Write a letter to us
o Write your account number on your check.
BY WIRE o Mail us the slip (or your letter) and a check
o Call or write us for an account application
o Complete the application BY WIRE
o Call us o Call to notify us of your incoming wire
o You will be assigned an account number o Instruct your bank to wire your money to us
o Mail us your application
o Instruct your bank to wire your money to us
BY ACH PAYMENT BY AUTOMATIC INVESTMENT
o Call or write us for an account application o Call or write us for an "Automatic Investment"
o Complete the application form
o You will be assigned an account number o Complete the form
o Mail us your application o Attach a voided check to your form
o Make an ACH payment o Mail us the form
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
AUTOMATIC INVESTMENTS You may invest a specified amount of money in the Fund
once or twice a month on specified dates. These payments are taken from your
bank account by ACH payment. Automatic investments must be for at least $50.
LIMITATIONS ON PURCHASES The Fund reserves the right to refuse any purchase
(including exchange) request, particularly requests that could adversely affect
the Fund or its operations. This includes those from any individual or group
who, in the Fund's view, is likely to engage in excessive trading (usually
defined as more than four exchanges out of the Fund within a calendar year).
CANCELED OR FAILED PAYMENTS Checks and ACH transfers are accepted at full value
subject to collection. If your payment for shares is not received or you pay
with a check or ACH transfer that does not clear, your purchase will be
canceled. You will be responsible for any losses or expenses incurred by the
Fund or the Transfer Agent, and the Fund may redeem shares you own in the
account (or another identically registered account in any Fund) as
reimbursement. The Fund and its agents have the right to reject or cancel any
purchase, exchange, or redemption due to nonpayment.
ADDING TO YOUR ACCOUNT
All investments must be in U.S. dollars and checks must be drawn on U.S. banks.
CHECKS For individual or Uniform Gift to Minors Act ("UGMA") accounts,
the check must be made payable to "Sound Shore Fund, Inc." or to one or
more owners of the account and endorsed to "Sound Shore Fund, Inc.."
For all other accounts, the check must be made payable on its face to
"Sound Shore Fund, Inc." No other method of check payment is acceptable
(for instance, payment by travelers checks is prohibited).
ACH PAYMENT Instruct your financial institution to make an ACH
(automated clearinghouse) payment to us. These payments typically take
two days. Your financial institution may charge you a fee for this
service.
8
<PAGE>
WIRES Instruct your financial institution to make a Federal Funds wire
payment to us. Your financial institution may charge you a fee for this
service.
SELLING SHARES
Redemption orders are processed promptly. You will generally receive redemption
proceeds within a week. Delays may occur in cases of very large redemptions,
excessive trading or during unusual market conditions. If the Fund has not yet
collected payment for the shares you are selling, however, it may delay sending
redemption proceeds for up to 15 calendar days.
- --------------------------------------------------------------------------------
TO SELL SHARES FROM YOUR ACCOUNT
- --------------------------------------------------------------------------------
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The Fund name
o The dollar amount or number of shares you want to sell
o How and where to send your proceeds
o Obtain a signature guarantee (if required)
o Obtain other documentation (if required)
o Mail us your request and documentation
BY WIRE
o Wire requests are only available if:
o You have elected wire redemption privileges AND
o Your request is for $10,000 or more
o Call us with your request (if you have elected telephone redemption
privileges - See "By Telephone") Or
o Mail us your request (See "By Mail")
BY TELEPHONE
o Telephone requests are only available if you have elected telephone
redemption privileges.
o Call us with your request
o Provide the following information:
o Your account number
o Exact name(s) in which account is registered
o Additional form of identification
o Your proceeds will be:
o Mailed to you Or
o Wired to you (if you have elected wire redemption privileges - See
"By Wire"))
AUTOMATICALLY
o Call or write us for an "Automatic Redemption" form
o Attach a voided check to your form
o Mail us your form
- --------------------------------------------------------------------------------
TELEPHONE REDEMPTION PRIVILEGES You may only request your shares by telephone if
you elect telephone redemption privileges on your account application or a
separate form. You may be responsible for any fraudulent telephone order as long
as the Transfer Agent takes reasonable measures to verify the order.
WIRE REDEMPTION PRIVILEGES You may only request your shares by wire if you elect
wire redemption privileges on your account application or a separate form. The
minimum amount you may request by wire is $10,000. If you wish to make your wire
request by telephone, you must also elect telephone redemption privileges.
AUTOMATIC REDEMPTION If you own shares of the Fund with an aggregated value of
at least $10,000 you may request a specified amount of money from your account
once a month or once a quarter on a specified date. These
9
<PAGE>
payments are sent from your account to a designated bank account by ACH payment.
Automatic requests must be for at least $100.
SIGNATURE GUARANTEE REQUIREMENTS To protect you and the Fund against fraud,
signatures on certain requests must have a "signature guarantee." For requests
made in writing a signature guarantee is required for any of the following:
o Redemption of over $50,000 worth of shares
o Changes to a shareholder's record name or address
o Redemption from an account for which the address or account
registration has changed within the last 30 days
o Sending proceeds to any person, address, brokerage firm or bank
account not on record
o Sending proceeds to an account with a different registration (name or
ownership) from yours
o Changes to automatic investment or redemption, distribution, telephone
requests or exchange option or any other election in connection with
your account
A signature guarantee verifies the authenticity of your signature. You can
obtain one from most banking institutions or securities brokers, but not from a
notary public.
SMALL ACCOUNTS If the value of your account falls below $10,000 (not including
IRAs), the Fund may ask you to increase your balance. If the account value is
still below $10,000 after 30 days, the Fund may close your account and send you
the proceeds. The Fund will not close your account if it falls below these
amounts solely as a result of a reduction in your account's market value.
REDEMPTION IN KIND The Fund reserves the right to make a "redemption in kind" --
payment of redemption proceeds in portfolio securities rather than cash --if the
amount requested is large enough to affect Fund operations (for example, if it
represents more than 1% of the Fund's assets).
LOST ACCOUNTS The Transfer Agent will consider your account "lost" if
correspondence to your address of record is returned as undeliverable, unless
the Transfer Agent determines your new address. When an account is "lost," all
distributions on the account will be reinvested in additional shares of the
Fund. In addition, the amount of any outstanding (unpaid for six months or more)
checks for distributions that have been returned to the Transfer Agent will be
reinvested and the checks will be canceled.
EXCHANGE PRIVILEGES
You may sell your Fund shares and buy shares of another Fund, also known as an
exchange, by telephone or in writing. You may also exchange Fund shares for
Investors Bond Fund, TaxSaver Bond Fund and Daily Assets Government Fund (a
money market fund). The minimum amount that is required to open an account in
the Fund through an exchange with another fund is $2,500. Because exchanges are
treated as a sale and purchase, they may have tax consequences.
REQUIREMENTS Exchanges may be made only between identically registered accounts
(name(s), address and taxpayer ID number). There is currently no limit on
exchanges, but the Fund reserves the right to limit exchanges. See "Account and
Transaction Policies - Limitations on Purchases."
- --------------------------------------------------------------------------------
HOW TO EXCHANGE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The name of the Fund from which you are exchanging and into which you
are exchanging
o The dollar amount or number of shares you want to sell (and exchange)
10
<PAGE>
o If opening a new account, complete an account application if you are
requesting different shareholder privileges
o Mail us your request and documentation
BY TELEPHONE
o Telephone exchanges are only available if you have elected telephone
redemption privileges
o Call us with your request
o Provide the following information:
o Your account number
o Exact name(s) in which account is registered
o Additional form of identification
- --------------------------------------------------------------------------------
RETIREMENT ACCOUNTS
The Fund's offer IRA accounts, including traditional and Roth IRAs. Fund shares
may also be an appropriate investment for other retirement plans. Before
investing in any IRA or other retirement plan, investors should consult their
tax advisors. Whenever making an investment in an IRA, be sure to indicate the
year in which the contribution is made.
11
<PAGE>
OTHER INFORMATION
DISTRIBUTIONS
The Fund distributes its net investment income semi-annually. Any net capital
gain realized by the Fund will be distributed at least annually.
All distributions are reinvested in additional shares, unless you elect to
receive distributions in cash. For Federal income tax purposes, distributions
are treated the same whether they are received in cash or reinvested. Shares
become entitled to receive distributions on the day after the shares are issued.
TAXES
The Fund generally intends to operate in a manner such that it will not be
liable for Federal income or excise tax.
The Fund's distributions of net investment income (which include net short-term
capital gains) are taxable to shareholders as ordinary income. The Fund's
distributions of net capital gains are taxable to shareholders as long-term
capital gains, regardless of how long a shareholder has held shares.
Distributions will reduce the net asset value of the Fund's shares by the amount
of the distribution. Furthermore, a distribution made shortly after the purchase
of shares, although in effect a return of capital, will still be taxable to the
shareholder in the manner described above.
Shareholders will incur a capital gain or loss when they sell their shares. The
amount of this gain or loss is calculated based on the amount paid for the
shares and the value of the shares upon redemption.
Reports containing appropriate information with respect to the Federal income
tax status of distributions paid during the year by a Fund will be mailed to
shareholders after the close of each year.
For further information about the tax effects of investing in the Fund, please
see the SAI.
ORGANIZATION
Sound Shore Fund, Inc. is a Maryland corporation that is registered with the SEC
as an open-end, management investment company (a "mutual fund"). It is not
intended that meetings of shareholders be held except when required by Federal
or Maryland law and all shareholders of the Fund are entitled to vote at
shareholders' meetings. From time to time, large shareholders may control the
Fund.
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FINANCIAL HIGHLIGHTS
The following table reflects the Fund's financial performance for the past five
years. Total return in the table represents the rate an investor would have
earned (or lost) on an investment in the Fund (assuming the reinvestment of all
distributions). This information has been audited by Deloitte & Touche LLP. The
Fund's financial statements and the auditor's report are included in the Annual
Report, and may be obtained without charge.
<TABLE>
<S> <C> <C> <C> <C> <C>
Fiscal
Year Ended
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
---------- ---------- ----------- ---------- ----------
SELECTED DATA FOR A SINGLE SHARE
Beginning Net Asset Value $XXX $21.71 $18.16 $15.46 $16.50
Income From Investment Operations
Net investment income (losses) XXX 0.12 0.13 0.25 0.22
Net gains (losses) on securities
(realized and unrealized) XXX 7.75 5.90 4.33 (0.17)
Total From Investment Operations XXX 7.87 6.03 4.58 0.05
Less Distributions From
Net investment income XXX (0.12) (0.13) (0.21) (0.22)
In excess of net investment income XXX -(a) - - -
Capital gains XXX (0.87) (2.35) (1.67) (0.87)
In excess of net capital gains XXX (0.02) - - -
Total Distributions XXX (1.01) (2.48) (1.88) (1.09)
Ending Net Asset Value XXX $28.57 $21.71 $18.16 $15.46
OTHER INFORMATION
Ratios to Average Net Assets:
Expenses XXX 1.08% 1.15% 1.15% 1.22%
Net Investment Income XXX 0.62% 0.70% 1.41% 1.32%
Total Return XXX 36.40% 33.27% 29.87% 0.30%
Portfolio Turnover Rate XXX 53.39% 69.31% 53.01% 75.52%
Net Assets at End of Period (in thousands) XXX $1,313,686 $132,862 $67,602 $59,993
</TABLE>
(a) Per share data is less than $0.01.
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FOR MORE INFORMATION LOGO
The following documents are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS
Additional information about the Fund's investments is available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund's performances
during their last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION ("SAI") The SAI provides
more detailed information about the Fund and is
incorporated by reference into this Prospectus.
You can get free copies of both reports and the SAI, request other
information and discuss your questions about the Fund by
contacting your broker or the Fund at:
Sound Shore Fund
Two Portland Square
Portland, Maine 04101
800-551-1980
800-754-8758
You can also review the Fund's reports and SAIs at the Public Reference
Room of the Securities and Exchange Commission. You can get text-only
copies, for a fee, by writing to or calling the following:
Sound Shore Fund
Public Reference Room P.O. Box 446
Securities and Exchange Commission Portland, ME 04112
Washington, D.C. 20549-6009 800-551-1980
Telephone: 800-SEC-0330 800-754-8758
Free copies are available from the Commission's Internet website at
http://www.sec.gov.
Web Site:
http://www.soundshorefund.com
Investment Company Act File No. 811-9034.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
SOUND SHORE FUND, INC.
FUND INFORMATION:
Sound Shore Fund
P.O. Box 446
Portland, Maine 04112
(800) 754-8758
http://www.soundshorefund.com
INVESTMENT ADVISER:
Sound Shore Management, Inc.
8 Sound Shore Drive
Greenwich, Connecticut 06836
ACCOUNT INFORMATION AND SHAREHOLDER SERVICES:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
(800) 551-1980
(800) 754-8758
This Statement of Additional Information, or SAI, supplements the
Prospectus dated May 1, 1999, as may be amended from time to time, offering
shares of Sound Shore Fund, Inc. (the "Fund"). This SAI is not a prospectus and
should only be read in conjunction with a prospectus. The Prospectus may be
obtained without charge by contacting shareholder services at the address or
telephone number listed above.
Financial Statements for the Fund for the year ended December 31, 1998 included
in the Annual Report to shareholders, are incorporated into this SAI by
reference.
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TABLE OF CONTENTS
Glossary ...................................................
1. Investment Policies and Risks...............................
2. Investment Limitations......................................
3. Performance Data and Advertising............................
4. Management..................................................
5. Portfolio Transactions......................................
6. Additional Purchase and Redemption Information..............
7. Taxation ...................................................
8. Other Matters...............................................
Appendix A - Description of Securities Ratings....................... A-1
Appendix B - Miscellaneous Tables.................................... B-1
Appendix C - Performance Data........................................ C-1
<PAGE>
GLOSSARY
"Adviser" means Sound Shore Management, Inc.
"Board" means the Board of Directors of the Fund.
"Code" means the Internal Revenue Code of 1986, as amended.
"Custodian" means the custodian of the Fund's assets.
"FAdS" means Forum Administrative Services, LLC, the administrator of
the Fund.
"Fitch" means Fitch IBCA, Inc.
"FAcS" means Forum Accounting Services, LLC, fund accountant of the
Fund.
"FFS" means Forum Fund Services, LLC, distributor of the Fund's shares.
"Fund" means Sound Shore Fund, Inc.
"Moody's" means Moody's Investors Service.
"NAV" means net asset value.
"NRSRO" means a nationally recognized statistical rating organization.
"SEC" means the U.S. Securities and Exchange Commission.
"S&P" means Standard & Poor's.
"Transfer Agent" means Forum Shareholder Services, LLC, the transfer
agent and distribution disbursing agent of the Fund.
"U.S. Government Securities" means obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
"U.S. Treasury Securities" means obligations issued or guaranteed by
the U.S. Treasury.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
<PAGE>
1. INVESTMENT POLICIES AND RISKS
The following discussion supplements the disclosure in the prospectus
about the Fund's investment techniques, strategies and risks. The Fund is
designed for investment of that portion of an investor's funds that can
appropriately bear the special risks associated with certain types of
investments (E.G., investments in equity securities). The Fund expects that for
most periods, a substantial portion, if not all, of its assets will be invested
in a diversified portfolio of common stocks judged by the Adviser to have
favorable value to price characteristics. The Fund may also invest in U.S.
government or government agency obligations, investment grade corporate bonds,
preferred stocks, convertible securities, and/or short-term money market
instruments when deemed appropriate by the Adviser.
A. SECURITY RATINGS INFORMATION
The Fund's investments in fixed income securities are subject to credit risk
relating to the financial condition of the issuers of the securities that the
Fund holds. To limit credit risk, the Fund invests its assets in debt securities
that are considered investment grade. Investment grade means rated in the top
four long-term rating categories or top two short-term rating categories by an
NRSRO, or unrated and determined by the Adviser to be of comparable quality.
The lowest long-term ratings that are investment grade for corporate bonds,
including convertible bonds, are "Baa" in the case of Moody's and "BBB" in the
case of S&P and Fitch; for preferred stock are "Baa" in the case of Moody's and
"BBB" in the case of S&P and Fitch; and for short-term debt, including
commercial paper, are Prime-2 (P-2) in the case of Moody's, "A-2" in the case of
S&P and "F-2" in the case of Fitch.
Unrated securities may not be as actively traded as rated securities. The Fund
may retain securities whose rating has been lowered below the lowest permissible
rating category (or that are unrated and determined by the Adviser to be of
comparable quality to securities whose rating has been lowered below the lowest
permissible rating category) if the Adviser determines that retaining such
security is in the best interests of the Fund. Because a downgrade often results
in a reduction in the market price of the security, sale of a downgraded
security may result in a loss.
Moody's, S&P and other NRSROs are private services that provide ratings of the
credit quality of debt obligations, including convertible securities. A
description of the range of ratings assigned to various types of bonds and other
securities by several NRSROs is included in Appendix A to this SAI. The Fund may
use these ratings to determine whether to purchase, sell or hold a security.
Ratings are general and are not absolute standards of quality. Securities with
the same maturity, interest rate and rating may have different market prices. If
an issue of securities ceases to be rated or if its rating is reduced after it
is purchased by the Fund (neither event requiring sale of such security by the
Fund), the Adviser will determine whether the Fund should continue to hold the
obligation. To the extent that the ratings given by a NRSRO may change as a
result of changes in such organizations or their rating systems, the Investment
Adviser will attempt to substitute comparable ratings. Credit ratings attempt to
evaluate the safety of principal and interest payments and do not evaluate the
risks of fluctuations in market value. Also, rating agencies may fail to make
timely changes in credit ratings. An issuer's current financial condition may be
better or worse than a rating indicates.
B. TEMPORARY DEFENSIVE POSITION
The Fund may assume a temporary defensive position and may invest without limit
in commercial paper and other money market instruments that are of prime
quality. Prime quality instruments are those instruments that are rated in one
of the two highest rating categories by an NRSRO or, if not rated, determined by
the Adviser to be of comparable quality.
Money market instruments usually have maturities of one year or less and fixed
rates of return. The money market instruments in which the Fund may invest
include U.S. Government Securities, time deposits, bankers acceptances and
certificates of deposit issued by domestic banks having assets in excess of one
billion dollars, corporate notes and short-term bonds and money market mutual
funds. The Fund may only invest in money market mutual funds to the extent
permitted by the 1940 Act.
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The money market instruments in which the Fund may invest may have variable or
floating rates of interest. These obligations include master demand notes that
permit investment of fluctuating amounts at varying rates of interest pursuant
to direct arrangement with the issuer of the instrument. The issuer of these
obligations often has the right, after a given period, to prepay the outstanding
principal amount of the obligations upon a specified number of days' notice.
These obligations generally are not traded, nor generally is there an
established secondary market for these obligations. To the extent a demand note
does not have a 7-day or shorter demand feature and there is no readily
available market for the obligation, it is treated as an illiquid security.
CONVERTIBLE SECURITIES
The Fund may only invest in convertible securities that are investment grade.
1. IN GENERAL
Convertible securities, which include convertible debt, convertible preferred
stock and other securities exchangeable under certain circumstances for shares
of common stock, are fixed income securities or preferred stock which generally
may be converted at a stated price within a specific amount of time into a
specified number of shares of common stock. A convertible security entitles the
holder to receive interest paid or accrued on debt or the dividend paid on
preferred stock until the convertible security matures or is redeemed,
converted, or exchanged. Before conversion, convertible securities have
characteristics similar to nonconvertible debt securities or preferred equity in
that they ordinarily provide a stream of income with generally higher yields
than do those of common stocks of the same or similar issuers. These securities
are usually senior to common stock in a company's capital structure, but usually
are subordinated to non-convertible debt securities.
Convertible securities have unique investment characteristics in that they
generally have higher yields than common stocks, but lower yields than
comparable non-convertible securities. Convertible securities are less subject
to fluctuation in value than the underlying stock since they have fixed income
characteristics; and they provide the potential for capital appreciation if the
market price of the underlying common stock increases.
A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security held by the Fund is called for redemption, the Fund will be
required to permit the issuer to redeem the security, convert it into the
underlying common stock or sell it to a third party.
2. RISKS
Investment in convertible securities generally entails less risk than investment
in the issuer's common stock. The extent to which such risk is reduced, however,
depends in large measure upon the degree to which the convertible security sells
above its value as a fixed income security.
3. VALUE OF CONVERTIBLE SECURITIES
The value of a convertible security is a function of its "investment value" and
its "conversion value". The investment value of a covertible security is
determined by comparing its yield with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege. The
conversion value is the security's worth, at market value, if converted into the
underlying common stock. The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may affect the convertible
security's investment value. The conversion value of a convertible security is
determined by the market price of the underlying common stock. If the conversion
value is low relative to the investment value, the price of the
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convertible security is governed principally by its investment value and
generally the conversion value decreases as the convertible security approaches
maturity. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. In addition, a
convertible security generally will sell at a premium over its conversion value
determined by the extent to which investors place value on the right to acquire
the underlying common stock while holding a fixed income security.
D. ILLIQUID AND RESTRICTED SECURITIES
The Fund may not acquire securities or invest in repurchase agreements if, as a
result, more than 10% of the Fund's net assets (taken at current value) would be
invested in illiquid securities.
1. IN GENERAL
The term "illiquid securities" means securities that cannot be disposed of
within seven days in the ordinary course of business at approximately the amount
at which the Fund has valued the securities. Illiquid securities include
repurchase agreements not entitling the holder to payment of principal within
seven days, purchased over-the-counter options, securities which are not readily
marketable and restricted securities. Restricted securities, except as otherwise
determined by the Adviser, are securities subject to contractual or legal
restrictions on resale because they have not been registered under the 1933 Act.
2. RISKS
Certain risks are associated with holding illiquid and restricted securities.
For instance, limitations on resale may have an adverse effect on the
marketability of a security and the Fund might also have to register a
restricted security in order to dispose of it, resulting in expense and delay.
The Fund might not be able to dispose of restricted or illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions. There can be no assurance that a liquid market will
exist for any security at any particular time. Any security, including
securities determined by the Adviser to be liquid, can become illiquid.
3. DETERMINATION OF LIQUIDITY
The Board has the ultimate responsibility for determining whether specific
securities are liquid or illiquid and has delegated the function of making
determinations of liquidity to the Adviser, pursuant to guidelines approved by
the Board. The Adviser determines and monitors the liquidity of the portfolio
securities and reports periodically on its decisions to the Board. The Adviser
takes into account a number of factors in reaching liquidity decisions,
including but not limited to: (1) the frequency of trades and quotations for the
security; (2) the number of dealers willing to purchase or sell the security and
the number of other potential buyers; (3) the willingness of dealers to
undertake to make a market in the security; and (4) the nature of the
marketplace trades, including the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer.
An institutional market has developed for certain restricted securities.
Accordingly, contractual or legal restrictions on the resale of a security may
not be indicative of the liquidity of the security. If such securities are
eligible for purchase by institutional buyers in accordance with Rule 144A under
the 1933 Act or other exemptions, the Adviser may determine that the securities
are not illiquid.
E. WARRANTS
The Fund may invest in warrants, which entitle the holder to buy equity
securities at a specific price for a specific period of time. The Fund will not
invest in warrants if more than 5% of the Fund's total assets would be invested
in warrants or more than 2% of the value of the Fund's total assets would be
invested in warrants not listed on the New York Stock Exchange or the American
Stock Exchange
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RISKS
Warrants may be considered more speculative than certain other types of
investments in that they do not entitle a holder to dividends or voting rights
with respect to the securities that may be purchased nor do they represent any
rights in the assets of the issuing company. Investments in warrants involve
certain additional risks, including the possible lack of a liquid market for the
resale of the warrants, potential price fluctuations as a result of speculation
or other factors and failure of the price of the underlying security to reach a
level at which the warrant can be prudently exercised (in which case the warrant
may expire without being exercised, resulting in the loss of the Fund's entire
investment therein).
2. INVESTMENT LIMITATIONS
For purposes of all investment policies of the Fund: (1) the term 1940 Act
includes the rules thereunder, SEC interpretations and any exemptive order upon
which the Fund may rely; and (2) the term Code includes the rules thereunder,
IRS interpretations and any private letter ruling or similar authority upon
which the Fund may rely.
Except as required by the 1940 Act or the Code, if any percentage restriction on
investment or utilization of assets is adhered to at the time an investment is
made, a later change in percentage resulting from a change in the market values
of the Fund's assets or purchases and redemptions of shares will not be
considered a violation of the limitation.
A fundamental policy of the Fund cannot be changed without the affirmative vote
of the lesser of: (1) 50% of the outstanding shares of the Fund; or (2) 67% of
the shares of the Fund present or represented at a shareholders meeting at which
the holders of more than 50% of the outstanding shares of the Fund are present
or represented. The Board may change a nonfundamental policy of the Fund without
shareholder approval.
A. FUNDAMENTAL LIMITATIONS
The Fund has adopted the following investment limitations, which are fundamental
policies of the Fund. The Fund may not:
1. Purchase or otherwise acquire interests in real estate, real estate
mortgage loans or interests in oil, gas or other mineral exploration or
development programs;
2. Sell securities short or invest in puts, calls, straddles, spreads or
combinations thereof;
3. Purchase or acquire commodities or commodity contracts;
4. Issue senior securities, except insofar as the Fund may be deemed to have
issued a senior security in connection with any permitted borrowing;
5. Participate on a joint, or a joint and several, basis in any securities
trading account; or
6. Invest in companies for the purpose of exercising control.
B. NONFUNDAMENTAL LIMITATIONS
The Fund has adopted the following investment limitation, which is not a
fundamental policy of the Fund. The Board may change the policies of the Fund
without shareholder approval. The Fund may not:
a. Invest in any oil, gas or other mineral lease.
b. Invest in the securities of other investment companies except to the extent
permitted by the 1940 Act.
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3. PERFORMANCE DATA AND ADVERTISING
A. PERFORMANCE DATA
The Fund may quote performance in various ways. All performance information
supplied in advertising, sales literature, shareholder reports or other
materials is historical and is not intended to indicate future returns.
The Fund may compare any of its performance information with:
o Data published by independent evaluators such as Morningstar, Inc.,
Lipper Analytical Services, Inc., IBC/Donoghue, Inc., CDA/Wiesenberger
or other companies which track the investment performance of
investment companies ("Fund Tracking Companies").
o The performance of other mutual funds.
o The performance of recognized stock, bond and other indices, including
but not limited to the Standard & Poor's 500(R) Index, the Russell
2000(R) Index, the Russell MidcapTM Index, the Russell 1000(R) Value
Index, the Russell 2500(R) Index, the Morgan Stanley - Europe,
Australian and Far East Index, the Dow Jones Industrial Average, the
Salomon Brothers Bond Index, the Shearson Lehman Bond Index, U.S.
Treasury bonds, bills or notes and changes in the Consumer Price Index
as published by the U.S. Department of Commerce.
Performance information may be presented numerically or in a table, graph, or
similar illustration.
Indices are not used in the management of the Fund but rather are standards by
which the Fund's Adviser and shareholders may compare the performance of the
Fund to an unmanaged composite of securities with similar, but not identical,
characteristics as the Fund.
The Fund may refer to: (1) general market performances over past time periods
such as those published by Ibbotson Associates (for instance, its "Stocks,
Bonds, Bills and Inflation Yearbook"); (2) mutual fund performance rankings and
other data published by Fund Tracking Companies; and (3) material and
comparative mutual fund data and ratings reported in independent periodicals,
such as newspapers and financial magazines.
The Fund's performance will fluctuate in response to market conditions and other
factors.
The Fund's performance may be quoted in terms of yield or total return. The
Fund's yield is a way of showing the rate of income the Fund earns on its
investments as a percentage of the Fund's share price. To calculate standardized
yield, the Fund takes the income it earned from its investments for a 30-day
period (net of expenses), divides it by the average number of shares entitled to
receive dividends, and expresses the result as an annualized percentage rate
based on the Fund's share price at the end of the 30-day period.
A listing of certain performance data as of December 31, 1998 is contained in
Appendix C -- Performance Data.
B. PERFORMANCE CALCULATIONS
The Fund's performance may be quoted in terms of yield or total return.
1. SEC YIELD
Standardized SEC yields for the Fund used in advertising are computed by
dividing the Fund's interest income (in accordance with specific standardized
rules) for a given 30 day or one month period, net of expenses, by the average
number of shares entitled to receive income distributions during the period,
dividing this figure by the Fund's net
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asset value per share at the end of the period and annualizing the result
(assuming compounding of income in accordance with specific standardized rules)
in order to arrive at an annual percentage rate.
Capital gains and losses generally are excluded from these calculations.
Income calculated for the purpose of determining the Fund's yield differs from
income as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding assumed in yield
calculations, the yield quoted for the Fund may differ from the rate of
distribution of income from the Fund over the same period or the rate of income
reported in the Fund's financial statements.
Although published yield information is useful to investors in reviewing the
Fund's performance, investors should be aware that the Fund's yield fluctuates
from day to day and that the Fund's yield for any given period is not an
indication or representation by the Fund of future yields or rates of return on
the Fund's shares. Financial intermediaries may charge their customers that
invest in the Fund fees in connection with that investment. This will have the
effect of reducing the Fund's after-fee yield to those shareholders.
The yields of the Fund are not fixed or guaranteed, and an investment in the
Fund is not insured or guaranteed. Accordingly, yield information should not be
used to compare shares of the Fund with investment alternatives, which, like
money market instruments or bank accounts, may provide a fixed rate of interest.
Also, it may not be appropriate to compare the Fund's yield information directly
to similar information regarding investment alternatives which are insured or
guaranteed.
Yield quotations are based on amounts invested in the Fund net of any applicable
sales charges that may be paid by an investor. A computation of yield that does
not take into account sales charges paid by an investor would be higher than a
similar computation that takes into account payment of sales charges.
The Fund charges no sales charges.
Yield is calculated according to the following formula:
a - b
Yield = 2[(------ + 1)6 - 1]
cd
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of
reimbursements)
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = the maximum offering price per share on the last day
of the period
2. TOTAL RETURN CALCULATIONS
The Fund's total return shows its overall change in value, including changes in
share price and assuming all of the Fund's distributions are reinvested.
Total return figures may be based on amounts invested in the Fund net of sales
charges that may be paid by an investor. A computation of total return that does
not take into account sales charges paid by an investor would be higher than a
similar computation that takes into account payment of sales charges.
The Fund charges no sales charges.
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is calculated using a
formula prescribed by the SEC. To calculate standard average annual total
returns the Fund: (1) determines the growth or decline in value of a
hypothetical historical investment in the Fund over a stated period; and (2)
calculates the annually compounded percentage rate that would have produced the
same result if the rate of growth or decline in value had been constant over the
period. For example, a cumulative return of 100% over ten years would produce an
average annual total return of 7.18%. While average annual returns are a
convenient means of comparing investment alternatives,
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<PAGE>
investors should realize that performance is not constant over time but changes
from year to year, and that average annual returns represent averaged figures as
opposed to the actual year-to-year performance of the Fund.
Average annual total return is calculated according to the following formula:
P(1+T) n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 payment made at the
beginning of the applicable period
Because average annual returns tend to smooth out variations in the Fund's
returns, shareholders should recognize that they are not the same as actual
year-by-year results.
OTHER MEASURES OF TOTAL RETURN. Standardized total return quotes may be
accompanied by non-standardized total return figures calculated by alternative
methods.
The Fund may quote unaveraged or cumulative total returns, which
reflect the Fund's performance over a stated period of time.
Total returns may be stated in their components of income and capital
(including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to
total return.
Any total return may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments and/or a series of
redemptions over any time period. Total returns may be quoted with or without
taking into consideration the Fund's front-end sales charge or contingent
deferred sales charge (if applicable).
Period total return is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return
The other definitions are the same as in average annual total
return above
B. OTHER MATTERS
The Fund may also include various information in its advertising, sales
literature, shareholder reports or other materials including, but not limited
to: (1) portfolio holdings and portfolio allocation as of certain dates, such as
portfolio diversification by instrument type, by instrument, by location of
issuer or by maturity; (2) statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
by an investor to meet specific financial goals, such as funding retirement,
paying for children's education and financially supporting aging parents; (3)
information (including charts and illustrations) showing the effects of
compounding interest (compounding is the process of earning interest on
principal plus interest that was earned earlier; interest can be compounded at
different intervals, such as annually, quarterly or daily); (4) information
relating to inflation and its effects on the dollar; (for example, after ten
years the purchasing power of $25,000 would shrink to $16,621, $14,968, $13,465
and $12,100, respectively, if the annual rates of inflation were 4%, 5%, 6% and
7%, respectively); (5) information regarding the effects of automatic investment
and systematic withdrawal plans, including the principal of dollar-cost
averaging; (6) biographical descriptions of the Fund's portfolio managers and
the portfolio management staff of the Fund's investment adviser, summaries of
the views of the portfolio managers with respect
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to the financial markets, or descriptions of the nature of the Adviser's and its
staff's management techniques; (7) the results of a hypothetical investment in
the Fund over a given number of years, including the amount that the investment
would be at the end of the period; (8) the effects of earning Federally and, if
applicable, state tax-exempt income from the Fund or investing in a tax-deferred
account, such as an individual retirement account or Section 401(k) pension
plan; (9) the net asset value, net assets or number of shareholders of the Fund
as of one or more dates; and (10) a comparison of the Fund's operations to the
operations of other funds or similar investment products, such as a comparison
of the nature and scope of regulation of the products and the products' weighted
average maturity, liquidity, investment policies, and the manner of calculating
and reporting performance.
As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,118 at the end
of the second year (an increase in $98). The extra $8 that was earned on the $90
interest from the first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of ten years and
$5,604 at the end of 20 years. Other examples of compounding are as follows: at
7% and 12% annually, $1,000 will grow to $1,967 and $3,106, respectively, at the
end of ten years and $3,870 and $9,646, respectively, at the end of twenty
years. These examples are for illustrative purposes only and are not indicative
of the Fund's performance.
The Fund may advertise information regarding the effects of automatic investment
and systematic withdrawal plans, including the principal of dollar cost
averaging. In a dollar-cost averaging program, an investor invests a fixed
dollar amount in the Fund at period intervals, thereby purchasing fewer shares
when prices are high and more shares when prices are low. While such a strategy
does not insure a profit or guard against a loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers of shares
had been purchased at those intervals. In evaluating such a plan, investors
should consider their ability to continue purchasing shares through periods of
low price levels. For example, if an investor invests $100 a month for a period
of six months in the Fund the following will be the relationship between average
cost per share ($14.35 in the example given) and average price per share:
<TABLE>
<S> <C> <C> <C>
SYSTEMATIC SHARE SHARES
PERIOD INVESTMENT PRICE PURCHASED
------ ---------- ----- ---------
1 $100 $10 10.00
2 $100 $12 8.33
3 $100 $15 6.67
4 $100 $20 5.00
5 $100 $18 5.56
6 $100 $16 6.25
---- --- ----
TOTAL AVERAGE TOTAL
INVESTED $600 PRICE $15.17 SHARES 41.81
</TABLE>
In connection with its advertisements, the Fund may provide "shareholder's
letters" which serve to provide shareholders or investors an introduction into
the Fund's, the Trust's or any of the Fund's service provider's policies or
business practices. For instance, advertisements may provide for a message from
the Adviser that it has for more than twenty years been committed to quality
products and outstanding service to assist its customers in meeting their
financial goals and setting forth the reasons that the Adviser believes that it
has been successful as a portfolio manager.
4. MANAGEMENT
Those officers, as well as certain other officers and Directors of the Fund, may
be directors, officers or employees of (and persons providing services to the
Fund may include) Forum, its affiliates or affiliates of Sound Shore Fund.
9
<PAGE>
A. DIRECTORS AND OFFICERS
DIRECTORS AND OFFICERS OF THE FUND. The names of the Directors and officers of
the Fund, their position with the Fund, address, date of birth and principal
occupations during the past five years are set forth below. Each Director who is
an "interested person" (as defined by the 1940 Act) of the Fund is indicated by
an asterisk.
<TABLE>
<S> <C>
NAME, POSITION WITH FUND, DATE OF BIRTH, ADDRESS PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS
Dr. D. Kenneth Baker, Director Trustee, Harvey Mudd College
Born: Month 19XX President (retired), Harvey Mudd College
3088 Fairway Woods, Carolina Trace
Sanford, North Carolina 27330
Harry Burn, III, M.B.A.* Chairman and Director Chairman and Director, Sound Shore Management, Inc. since
Born: Month 19XX 1978. He is a Chartered Financial Analyst.
8 Sound Shore Drive
Greenwich, Connecticut 06836
Charles J. Hedlund, Director Member, Board of Trustees, American University in Cairo
Born: Month 19XX Member, Board of Trustees, Conservation International of
Country Club of Florida Washington, D.C.
58 Country Road South
Village of Golf, Florida 33436
T. Gibbs Kane, Jr.* President and Director President and Director, Sound Shore Management, Inc. since
Born: Month 19XX 1977. He is a Chartered Financial Analyst.
8 Sound Shore Drive
Greenwich, Connecticut 06836
John L. Lesher, Director President, Resource Evaluation, Inc. since March 1994.
Born: Month 19XX Member of the Board, Resource Evaluation, Ltd.
500 Mamaroneck Avenue Member of the Board, First Industrial Real Estate Trust
Harrison, New York 10528
John J. McCloy II, Director Director, Noise Cancellation Technologies, Inc.
Born: Month 19XX Director, Passenger Express
313 Stanwich Road Director, EPT Technologies
Greenwich, Connecticut 06830 Director, Geo History
Trustee, American University in Cairo
Walter R. Nelson, Director President, W.R. Nelson & Company, a private investment firm
Born: Month 19XX President (retired), Nelson Publications, an information
60 Kirby lane provider to the financial services and investment industry
Rye, New York 10580
10
<PAGE>
John Y. Keffer, Vice President President and Director, Forum Fund Services, LLC for more
Born: Month 19XX than five years
Two Portland Square Director and sole shareholder (directly and indirectly) Forum
Portland, Maine 04101 Financial Group LLC, which owns (directly or indirectly)
Forum Administrative Services, LLC. Forum Shareholder
Services, LLC and Forum Investment Advisers, LLC
Officer, Director or Trustee, various funds
managed and distributed by Forum Fund Services,
LLC and Forum Administrative Services, LLC
Sara M. Morris, Treasurer Managing Director, Forum Fund Services, LLC
Born: September 1963 Treasurer and CFO, Forum Financial Group LLC since 1994
Two Portland Square Officer, various funds managed and distributed by Forum Fund
Portland, Maine 04101 Services, LLC and Forum Administrative Services, LLC
Shanna S. Sullivan, Secretary Vice President, Treasurer, Secretary and Director, Sound
Born: Month 19XX Shore Management, Inc. since 1979
8 Sound Shore Drive
Greenwich, Connecticut 06836
Ellen S. Smoller, Assistant Secretary Equity Trader, Sound Shore Management, Inc. since 1984
Born: Month 19XX
8 Sound Shore Drive
Greenwich, Connecticut 06836
Stephen J. Barrett, Assistant Secretary Manager of Client Services, Forum Financial Group, LLC since
Born: November 1968 1996
Two Portland Square Senior Product Manager, Fidelity Investments, 1994 - 1996
Portland, Maine 04101 Officer, various registered investment companies for which
Forum Administrative Services, LLC or Forum
Fund Services, LLC serves as manager, administrator
and/or distributor
D. Blaine Riggle, Assistant Secretary 1/98 - Present. Assistant Counsel, Forum Financial Group, LLC
Born: November 1966 3/97 - 1/98. Associate Counsel, Wright Express Corporation
Two Portland Square (a fleet credit card company)
Portland, Maine 04101 1994 - 3/97. Associate at the law firm of Friedman, Babcock
& Gaythwaite
Officer, various funds managed and distributed by
Forum Fund Services, LLC and Forum Administrative Services, LLC
Dawn L. Taylor, Assistant Treasurer 10/97 - Present. Tax Manager, Forum Financial Group, LLC
Born: May 1964 1/97 - 10/97. Senior Tax Accountant, Purdy, Bingham &
Two Portland Square Burrell, LLC
Portland, Maine 04101 9/94 - 10/97. Senior Fund Accountant, Forum Financial Group,
LLC
6/86 - 9/94. Tax Consultant, New England Financial Services
Officer, various funds managed and distributed
by Forum Fund Services, LLC and Forum
Administrative Services, LLC
</TABLE>
11
<PAGE>
B. COMPENSATION OF DIRECTORS AND OFFICERS
Each Director receives quarterly fees of $1,000 plus $750 per meeting attended.
Directors are also reimbursed for travel and related expenses incurred in
attending meetings of the Board.
Directors that are affiliated with the Adviser receive no compensation for their
services or reimbursement for their associated expenses. No officer of the Fund
is compensated by the Fund.
The following table sets forth the fees paid to each Director by the Fund for
the fiscal year ended December 31, 1998.
<TABLE>
<S> <C> <C> <C> <C>
Pension or
Retirement
Aggregate Benefits Accrued Estimated Annual Total
Compensation from as Part of Fund Benefits upon Compensation from
Name, Position Fund Expenses Retirement Fund
- ------------------------------------- ------------------- ------------------- -------------------- -------------------
Dr. D. Kenneth Baker $7,000 $0 $0 $7,000
Director
Charles J. Hedlund $7,000 $0 $0 $7,000
Director
John L. Lesher $6,000 $0 $0 $6,000
Director
John J. McCloy II $4,000 $0 $0 $4,000
Director
Walter R. Nelson $6,000 $0 $0 $6,000
Director
</TABLE>
C. INVESTMENT ADVISER
1. SERVICES OF ADVISER
The Adviser serves as investment adviser to the Fund pursuant to an investment
advisory agreement with the Fund. Under that agreement, the Adviser furnishes at
its own expense all services, facilities and personnel necessary in connection
with managing the Fund's investments and effecting portfolio transactions for
the Fund.
12
<PAGE>
2. OWNERSHIP OF ADVISER/AFFILIATIONS
The Adviser is 100% owned by Harry Burn, III, T. Gibbs Kane, Jr., Shanna S.
Sullivan and therefore controlled by Harry Burn, III, T. Gibbs Kane, Jr., Shanna
S. Sullivan. The Adviser is registered as an investment adviser with the SEC
under the 1940 Act.
The Directors or officers of the Fund that are employed by the Adviser (or
affiliates of the Adviser) are Harry Burn, III, T. Gibbs Kane, Jr., Shanna S.
Sullivan and Ellen S. Smoller.
3. FEES
The Adviser's fee is calculated as a percentage of the applicable Fund's average
net assets. The fee is accrued daily by the Fund and is paid monthly, equal to
0.75% per annum based on average daily net assets for the previous month.
In addition to receiving its advisory fee from the Fund, the Adviser may also
act and be compensated as investment manager for its clients with respect to
assets which are invested in the Fund. If an investor in the Fund also has a
separately managed account with the Adviser with assets invested in the Fund,
the Adviser will credit an amount equal to all or a portion of the fees received
by the Adviser against any investment management fee received from a client.
Table 1 in Appendix B shows the dollar amount of the fees payable by the Fund to
the Adviser, the amount of the fee waived by the Adviser and the actual fee
received by the Adviser.
4. OTHER PROVISIONS OF ADVISER'S AGREEMENT
The Adviser's agreement must be approved at least annually by the Board or by
vote of the shareholders, and in either case by a majority of the Directors who
are not parties to the agreement or interested persons of any such party.
The Adviser's agreement is terminable without penalty by the Fund with respect
to the Fund on 60 days' written notice when authorized either by vote of the
Fund's shareholders or by a vote of a majority of the Board, or by the Adviser
on 60 days' written notice to the Fund.
Under its agreement, the Adviser is not liable for any error of judgment,
mistake of law, or for any act or omission in the performance of its duties to
the Fund, except for willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of reckless disregard of its obligations
and duties under the agreement.
5. EXPENSE LIMITATIONS
The Adviser has voluntarily undertaken to assume certain expenses of the Fund
(or waive its fees). This undertaking is designed to place a maximum limit on
expenses such that the amount payable by the Fund to the Adviser shall be
reduced by 75% of the amount of such excesses. However, if the excess should be
greater than the amounts payable to the Adviser in that year, the Adviser shall
pay to the Fund 75% of the difference between such excess and the fees of the
Adviser for that year. For the purpose of this calculation, expenses shall
include the fees payable to the Adviser and the amortization of organization
expenses paid to the Adviser, but shall exclude taxes, interest, brokerage and
extraordinary expenses.
13
<PAGE>
D. DISTRIBUTOR
1. DISTRIBUTOR; SERVICES AND COMPENSATION OF DISTRIBUTOR
FFS, the distributor (also known as principal underwriter) of the shares of the
Fund, is located at Two Portland Square, Portland, Maine 04101. FFS is a
registered broker-dealer and is a member of the National Association of
Securities Dealers, Inc.
FFS, FAdS, FAcS and the Transfer Agent are each controlled indirectly by Forum
Financial Group, LLC. John Y. Keffer controls Forum Financial Group, LLC.
Under its agreement with the Fund, FFS acts as the agent of the Fund in
connection with the offering of shares of the Fund. FFS continually distributes
shares of the Fund on a best efforts basis. FFS has no obligation to sell any
specific quantity of Fund shares.
FFS receives no compensation for its distribution services. Shares are sold with
no sales commission; accordingly, FFS receives no sales commissions. FFS may
enter into arrangements with various financial institutions through which
investors may purchase or redeem shares. FFS may, at its own expense and from
its own resources, compensate certain persons who provide services in connection
with the sale or expected sale of shares of the Fund. Prior to May 1, 1999,
Forum Financial Services, Inc. served as the distributor of the Fund's shares.
2. OTHER PROVISIONS OF DISTRIBUTOR'S AGREEMENT
FFS's distribution agreement must be approved at least annually by the Board or
by vote of the shareholders, and in either case by a majority of the Directors
who are not parties to the agreement or interested persons of any such party.
FFS's agreement is terminable without penalty by the Fund with respect to the
Fund on 60 days' written notice when authorized either by vote of the Fund's
shareholders or by a vote of a majority of the Board, or by FFS on 60 days'
written notice to the Fund.
Under its agreement, FFS is not liable for any error of judgment or mistake of
law or for any act or omission in the performance of its duties to the Fund,
except for willful misfeasance, bad faith or gross negligence in the performance
of its duties or by reason of reckless disregard of its obligations and duties
under the agreement.
Under its agreement, FFS and certain related parties (such as FFS's officers and
persons that control FFS) are indemnified by the Fund against any and all claims
and expenses in any way related to FFS's actions (or failures to act) that are
consistent with FFS's contractual standard of care. This means that as long as
FFS satisfies its contractual duties, the Fund is responsible for the costs of:
(1) defending FFS against claims that FFS breached a duty it owed to the Fund;
and (2) paying judgments against FFS. The Fund is not required to indemnify FFS
if the Fund does not receive written notice of and reasonable opportunity to
defend against a claim against FFS in the Fund's own name or in the name of FFS.
E. OTHER FUND SERVICE PROVIDERS
1. ADMINISTRATOR
As administrator, pursuant to an agreement with the Fund, FAdS is responsible
for the supervision of the overall management of the Fund, providing the Fund
with general office facilities and providing persons satisfactory to the Board
to serve as officers of the Fund.
For its services, FAdS receives a fee from the Fund equal to 0.10% of the
average daily net assets of the Fund. The fee is accrued daily by the Fund and
is paid monthly based on average net assets for the previous month.
14
<PAGE>
Table 2 in Appendix B shows the dollar amount of the fees payable by the Fund to
FAdS, the amount of the fee waived by FAdS and the actual fee received by FAdS.
FAdS's agreement is terminable without penalty by the Fund or by FAdS with
respect to the Fund on 60 days' written notice. Under the agreement, FAdS is not
liable for any error of judgment or mistake of law or for any act or omission in
the performance of its duties to the Fund, except for willful misfeasance, bad
faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under the agreement.
2. FUND ACCOUNTANT
As fund accountant, pursuant to an agreement with the Fund, FAcS provides fund
accounting services to the Fund. These services include calculating the NAV per
share of the Fund and preparing the Fund's financial statements and tax returns.
For its services, FAcS receives a fee from the Fund at an annual rate of
$60,000. The fee is paid monthly.
Table 3 in Appendix B shows the dollar amount of the fees payable by the Fund to
FAcS, the amount of the fee waived by FAcS and the actual fee received by FAcS.
FAcS's agreement is terminable without penalty by the Fund or by FAcS with
respect to the Fund on 60 days' written notice. Under the agreement, FAcS is not
liable for any error of judgment or mistake of law or for any act or omission in
the performance of its duties to the Fund, except for willful misfeasance, bad
faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under the agreement.
3. TRANSFER AGENT
As transfer agent and distribution paying agent, pursuant to an agreement with
the Fund, the Transfer Agent maintains an account for each shareholder of record
of the Fund and is responsible for processing purchase and redemption requests
and paying distributions to shareholders of record. The Transfer Agent is
located at Two Portland Square, Portland, Maine 04101 and is registered as a
transfer agent with the SEC.
For its services, the Transfer Agent receives a fee from the Fund equal to 0.10%
of the annual average daily net assets of the Fund. Such fees shall be payable
monthly in arrears on the first day of each calendar month for services
performed during the prior calendar month. Table 4 in Appendix B shows the
dollar amount of the fees payable by the Fund to the Transfer Agent, the amount
of the fee waived by the Transfer Agent and the actual fee received by the
Transfer Agent.
The Transfer Agent's agreement is terminable without penalty by the Fund or by
the Transfer Agent with respect to the Fund on 60 days' written notice. Under
the agreement, the Transfer Agent is not liable for any error of judgment or
mistake of law or for any act or omission in the performance of its duties to
the Fund, except for willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of reckless disregard of its obligations
and duties under the agreement.
4. CUSTODIAN
As custodian, pursuant to an agreement with the Fund, Investors Bank & Trust
Company safeguards and controls the Fund's cash and securities, determines
income and collects interest on Fund investments. The Custodian may employ
foreign subcustodians to provide custody of the Fund's foreign assets. The
Custodian is located at 200 Clarendon, Boston, Massachusetts 02105.
For its services, the Custodian receives a fee from the Fund at an annual rate
as follows: (1) 0.02% of the average daily net assets of the Fund for the first
$100 million in Fund assets; (2) 0.015% of the average daily net assets of the
15
<PAGE>
Fund for the next $100 million in Fund assets; and (3) 0.001% of the average
daily net assets of the Fund for remaining Fund assets. The Custodian is also
paid certain transaction fees. These fees are accrued daily by the Fund and are
paid monthly based on average net assets and transactions for the previous
month.
5. LEGAL COUNSEL
Legal matters in connection with the issuance of shares of the Fund are passed
upon by Dechert Price & Rhoads, 30 Rockefeller Plaza, New York, New York 10112.
Dechert Price & Rhoads has relied upon the opinion of Venable, Baetjer and
Howard, Baltimore, Maryland, for matters relating to Maryland law.
6. INDEPENDENT AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts 02110,
independent auditors, have been selected as auditors for the Fund. The auditors
audit the annual financial statements of the Fund and provide the Fund with an
audit opinion. The auditors also review certain regulatory filings of the Fund
and the Fund's tax returns.
16
<PAGE>
5. PORTFOLIO TRANSACTIONS
A. HOW SECURITIES ARE PURCHASED AND SOLD
Purchases and sales of portfolio securities that are fixed income securities
(for instance, money market instruments and bonds, notes and bills) usually are
principal transactions. In a principal transaction, the party from whom the Fund
purchases or to whom the Fund sells is acting on its own behalf (and not as the
agent of some other party such as its customers). These securities normally are
purchased directly from the issuer or from an underwriter or market maker for
the securities. There usually are no brokerage commissions paid for these
securities.
Purchases and sales of portfolio securities that are equity securities (for
instance common stock and preferred stock) are generally effected; (1) if the
security is traded on an exchange, through brokers who charge commissions; and
(2) if the security is traded in the "over-the-counter" markets, in a principal
transaction directly from a market maker. In transactions on stock exchanges,
commissions are negotiated. When transactions are executed in an
over-the-counter market, the Adviser will seek to deal with the primary market
makers; but when necessary in order to obtain best execution, the Adviser will
utilize the services of others.
Purchases of securities from underwriters of the securities include a disclosed
fixed commission or concession paid by the issuer to the underwriter, and
purchases from dealers serving as market makers include the spread between the
bid and asked price.
In the case of fixed income and equity securities traded in the over-the-counter
markets, there is generally no stated commission, but the price usually includes
an undisclosed commission or markup.
B. COMMISSIONS PAID
Table 5 in Appendix B shows the aggregate brokerage commissions with respect to
the Fund. The data presented are for the past three fiscal years. The table also
indicates the reason for any material change in the last two years in the amount
of brokerage commissions paid by the Fund.
C. ADVISER RESPONSIBILITY FOR PURCHASES AND SALES
The Adviser of the Fund places orders for the purchase and sale of securities
with brokers and dealers selected by and in the discretion of the Adviser. No
Fund has any obligation to deal with any specific broker or dealer in the
execution of portfolio transactions. Allocations of transactions to brokers and
dealers and the frequency of transactions are determined by the Adviser in its
best judgment and in a manner deemed to be in the best interest of the Fund
rather than by any formula.
The Adviser of the Fund seeks "best execution" for all portfolio transactions.
This means that the Adviser seeks the most favorable price and execution
available. The Adviser's primary consideration in executing transactions for the
Fund is prompt execution of orders in an effective manner and at the most
favorable price available.
1. CHOOSING BROKER-DEALERS
The Fund may not always pay the lowest commission or spread available. Rather,
in determining the amount of commissions (including certain dealer spreads) paid
in connection with securities transactions, the Adviser of each find takes into
account factors such as size of the order, difficulty of execution, efficiency
of the executing broker's facilities (including the research services described
below) and any risk assumed by the executing broker.
Consistent with applicable rules and the Adviser's duties, the Adviser may: (1)
consider sales of shares of the Fund as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund; and (2) take into
account payments made by brokers effecting transactions for the Fund (these
payments may be made to the fund or to other persons on behalf of the fund for
services provided to the fund for which those other persons would be obligated
to pay.
17
<PAGE>
2. OBTAINING RESEARCH FROM BROKERS
The Adviser of the Fund may give consideration to research services furnished by
brokers to the Adviser for its use and may cause the Fund to pay these brokers a
higher amount of commission than may be charged by other brokers. This research
is designed to augment the Adviser's own internal research and investment
strategy capabilities. This research may be used by the Adviser in connection
with services to clients other than the Fund, and not all research services may
be used by the Adviser in connection with the Fund. The Adviser's fees are not
reduced by reason of the Adviser's receipt of research services.
The Adviser of the Fund has full brokerage discretion. It evaluates the range of
quality of a broker's services in placing trades including securing best price,
confidentiality, clearance and settlement capabilities, promptness of execution
and the financial stability of the broker-dealer. Under certain circumstances,
the value of research provided by a broker-dealer may be a factor in the
selection of a broker. This research would include reports that are common in
the industry. Typically, the research will be used to service all of the
Adviser's accounts although a particular client may not benefit from all the
research received on each occasion. The nature of the services purchased for
clients include industry research reports and periodicals, quotation systems,
software for portfolio management and formal databases.
Occasionally, the Adviser may place an order with a broker and pay a slightly
higher commission than another broker might charge. If this is done it will be
because of the Adviser's need for specific research, for specific expertise a
firm may have in a particular type of transaction (due to factors such as size
or difficulty), or for speed/efficiency in execution. Since most of the
Adviser's brokerage commissions for research are for economic research on
specific companies or industries, and since the Adviser is involved with a
limited number of securities, most of the commission dollars spent for industry
and stock research directly benefit the clients.
There are occasions on which portfolio transactions may be executed as part of
concurrent authorizations to purchase or sell the same securities for more than
one account served by the Adviser, some of which accounts may have similar
investment objectives. Although such concurrent authorizations potentially could
be either advantageous or disadvantageous to any one or more particular
accounts, they will be effected only when the Adviser believes that to do so
will be in the best interest of the affected accounts. When such concurrent
authorizations occur, the objective will be to allocate the execution in a
manner, which is deemed equitable to the accounts involved. Clients are
typically allocated securities with prices averaged on a per-share or per-bond
basis.
In some cases, the client may direct the Adviser to use a broker or dealer of
the client's choice. If the client directs the Adviser to use a particular
broker, the Adviser may not be authorized to negotiate commissions and may be
unable to obtain volume discounts or best execution. In these cases, there could
be some disparity in commission charges among these clients.
3. COUNTERPARTY RISK
The Adviser of the Fund monitors the creditworthiness of counterparties to the
Fund's transactions and intends to enter into a transaction only when it
believes that the counterparty presents minimal and appropriate credit risks.
4. TRANSACTIONS THROUGH AFFILIATES
The Adviser of the Fund may not effect brokerage transactions through affiliates
of the Adviser (or affiliates of those persons). The Board has not adopted
respective procedures.
5. OTHER ACCOUNTS OF THE ADVISER
Investment decisions for the Fund are made independently from those for any
other account or investment company that is or may in the future become managed
by the Adviser of the Fund or its affiliates. Investment decisions are the
18
<PAGE>
product of many factors, including basic suitability for the particular client
involved. Thus, a particular security may be bought or sold for certain clients
even though it could have been bought or sold for other clients at the same
time. Likewise, a particular security may be bought for one or more clients when
one or more clients are selling the security. In some instances, one client may
sell a particular security to another client. It also sometimes happens that two
or more clients simultaneously purchase or sell the same security. In that
event, each day's transactions in such security are, insofar as is possible,
averaged as to price and allocated between such clients in a manner which, in
the respective Adviser's opinion, is equitable to each and in accordance with
the amount being purchased or sold by each. There may be circumstances when
purchases or sales of a portfolio security for one client could have an adverse
effect on another client that has a position in that security. In addition, when
purchases or sales of the same security for the Fund and other client accounts
managed by the Adviser occurs contemporaneously, the purchase or sale orders may
be aggregated in order to obtain any price advantages available to large
denomination purchases or sales.
6. PORTFOLIO TURNOVER
The frequency of portfolio transactions of the Fund (the portfolio turnover
rate) will vary from year to year depending on many factors. Portfolio turnover
rate is reported in the Prospectus. From time to time the Fund may engage in
active short-term trading to take advantage of price movements affecting
individual issues, groups of issues or markets. The Fund expects normal turnover
in the range of 50-75%, although there can be periods of greater or lesser
action based upon market and corporate earnings activity. An annual portfolio
turnover rate of 100% would occur if all of the securities in the Fund were
replaced once in a period of one year. Higher portfolio turnover rates may
result in increased brokerage costs to the Fund and a possible increase in
short-term capital gains or losses. The Fund's commission costs are usually done
at rates far under those in the retail market.
D. SECURITIES OF REGULAR BROKER-DEALERS
From time to time the Fund may acquire and hold securities issued by its
"regular brokers and dealers" or the parents of those brokers and dealers. For
this purpose, regular brokers and dealers means the 10 brokers or dealers that:
(1) received the greatest amount of brokerage commissions during the Fund's last
fiscal year; (2) engaged in the largest amount of principal transactions for
portfolio transactions of the Fund during the Fund's last fiscal year; or (3)
sold the largest amount of the Fund's shares during the Fund's last fiscal year.
Following is a list of the regular brokers and dealers of the Fund whose
securities (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Fund's holdings of those
securities as of the Fund's most recent fiscal year.
Regular Broker or Dealer Value of Securities Held ($)(000's omitted)
Fund
Broker Dealer & Co., Inc. $0,000
FUND
Broker Dealer & Co., Inc. $0,000
6. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
A. GENERAL INFORMATION
Shareholders may effect purchases or redemptions or request any shareholder
privilege in person at the Transfer Agent's offices located at Two Portland
Square, Portland, Maine 04101.
19
<PAGE>
The Fund accepts orders for the purchase or redemption of shares on any weekday
except days when the New York Stock Exchange is closed.
B. ADDITIONAL PURCHASE INFORMATION
Shares of the Fund are sold on a continuous basis by the distributor at net
asset value ("NAV") per share without any sales charge. Accordingly, the
offering price per share is the same as the NAV per share. That information is
contained in the Fund's financial statements (specifically in the statements of
assets and liabilities).
The Fund reserves the right to refuse any purchase request in excess of 1% of
the Fund's total assets.
Fund shares are normally issued for cash only. In the Adviser's discretion,
however, the Fund may accept portfolio securities that meet the investment
objective and policies of the Fund as payment for Fund shares. The Fund will
only accept securities that: (1) are not restricted as to transfer by law and
are not illiquid; and (2) have a value which is readily ascertainable (and not
established only by valuation procedures).
1. IRAS
All contributions into an IRA through the automatic investing service are
treated as IRA contributions made during the year the investment is received.
2. UGMAS/UTMAS
If the trustee's name is not in the account registration of a gift or transfer
to minor ("UGMA/UTMA") account, the investor must provide a copy of the trust
document.
3. PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks and
other financial institutions. Financial institutions may charge their customers
a fee for their services and are responsible for promptly transmitting purchase,
redemption and other requests to the Fund.
If you purchase shares through a financial institution, you will be subject to
the institution's procedures, which may include charges, limitations, investment
minimums, cutoff times and restrictions in addition to, or different from, those
applicable when you invest in the Fund directly. When you purchase the Fund's
shares through a financial institution, you may or may not be the shareholder of
record and, subject to your institution's procedures, you may have Fund shares
transferred into your name. There is typically a three-day settlement period for
purchases and redemptions through broker-dealers. Certain financial institutions
may also enter purchase orders with payment to follow.
You may not be eligible for certain shareholder services when you purchase
shares through a financial institution. Contact your institution for further
information. If you hold shares through a financial institution, the Fund may
confirm purchases and redemptions to the financial institution, which will
provide you with confirmations and periodic statements. The Fund is not
responsible for the failure of any financial institution to carry out its
obligations.
Investors purchasing shares of the Fund through a financial institution should
read any materials and information provided by the financial institution to
acquaint themselves with its procedures and any fees that the institution may
charge.
C. ADDITIONAL REDEMPTION INFORMATION
The Fund may redeem shares involuntarily to reimburse the Fund for any loss
sustained by reason of the failure of a shareholder to make full payment for
shares purchased by the shareholder or to collect any charge relating to
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<PAGE>
transactions effected for the benefit of a shareholder which is applicable to
the Fund's shares as provided in the Prospectus.
1. SUSPENSION OF RIGHT OF REDEMPTION
The right of redemption may not be suspended, except for any period during
which: (1) the New York Stock Exchange, Inc. is closed (other than customary
weekend and holiday closings) or during which the Securities and Exchange
Commission determines that trading thereon is restricted; (2) an emergency (as
determined by the SEC) exists as a result of which disposal by the Fund of its
securities is not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets; or (3) the SEC may by order permit for the protection of the
shareholders of the Fund.
2. REDEMPTION-IN-KIND
Redemption proceeds normally are paid in cash. Payments may be made wholly or
partly in portfolio securities, however, if the Board determines conditions
exist which would make payment in cash detrimental to the best interests of the
Fund. If redemption proceeds are paid wholly or partly in portfolio securities,
brokerage costs may be incurred by the shareholder in converting the securities
to cash. The Fund has filed an election with the SEC pursuant to which the Fund
may only effect a redemption in portfolio securities if the particular
shareholder is redeeming more than $250,000 or 1% of the Fund's total net
assets, whichever is less, during any 90-day period. In the opinion of the
Fund's management, however, the amount of a redemption request would have to be
significantly greater than $250,000 or 1% of total net assets before a
redemption wholly or partly in portfolio securities would be made.
D. NAV DETERMINATION
In determining the Fund's NAV per share, securities for which market quotations
are readily available are valued at current market value using the last reported
sales price. If no sale price is reported, the average of the last bid and ask
price is used. If no average price is available, the last bid price is used. If
market quotations are not readily available, then securities are valued at fair
value as determined by the Board (or its delegate).
E. DISTRIBUTIONS
Distributions of net investment income will be reinvested at the Fund's NAV per
share as of the last day of the period with respect to which the distribution is
paid. Distributions of capital gain will be reinvested at the NAV per share of
the Fund on the payment date for the distribution. Cash payments may be made
more than seven days following the date on which distributions would otherwise
be reinvested.
7. TAXATION
The tax information set forth in the Prospectus and the information in this
section relates solely to U.S. federal income tax law and assumes that the Fund
qualifies as a regulated investment company (as discussed below). Such
information is only a summary of certain key federal income tax considerations
affecting the Fund and its shareholders that are not described in the
prospectus. No attempt has been made to present a complete explanation of the
federal tax treatment of the Fund or the implications to shareholders. The
discussions here and in the prospectus are not intended as substitutes for
careful tax planning.
This "Taxation" section is based on the Code and applicable regulations in
effect on the date hereof. Future legislative or administrative changes or court
decisions may significantly change the tax rules applicable to the Fund and its
shareholders. Any of these changes or court decisions may have a retroactive
effect.
ALL INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISOR AS TO THE FEDERAL, STATE,
LOCAL AND FOREIGN TAX PROVISIONS APPLICABLE TO THEM.
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A. QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Fund intends for each tax year to qualify as a "regulated investment
company" under the Code. This qualification does not involve governmental
supervision of management or investment practices or policies of the Fund.
The tax year-end of the Fund is December 31 (the same as the Fund's fiscal year
end).
1. MEANING OF QUALIFICATION
As a regulated investment company, the Fund will not be subject to federal
income tax on the portion of its net investment income (i.e., taxable interest,
dividends and other taxable ordinary income, net of expenses) and capital gain
net income (i.e., the excess of long-term capital gains over long-term capital
losses) that it distributes to shareholders. In order to qualify as a regulated
investment company the Fund must satisfy the following requirements:
o The Fund must distribute at least 90% of its investment company
taxable income (i.e., net investment income and capital gain net
income) for the tax year. (Certain distributions made by the Fund
after the close of its tax year are considered distributions
attributable to the previous tax year for purposes of satisfying this
requirement.)
o The Fund must derive at least 90% of its gross income from certain
types of income derived with respect to its business of investing.
o The Fund must satisfy the following asset diversification test at the
close of each quarter of the Fund's tax year: (1) at least 50% of the
value of the Fund's assets must consist of cash and cash items, U.S.
government securities, securities of other regulated investment
companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in
securities of the issuer and as to which the Fund does not hold more
than 10% of the outstanding voting securities of the issuer); and (2)
no more than 25% of the value of the Fund's total assets may be
invested in the securities of any one issuer (other than U.S.
Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and
which are engaged in the same or similar trades or businesses.
2. FAILURE TO QUALIFY
If for any tax year the Fund does not qualify as a regulated investment company,
all of its taxable income (including its net capital gain) will be subject to
tax at regular corporate rates without any deduction for dividends to
shareholders, and the dividends will be taxable to the shareholders as ordinary
income to the extent of the Fund's current and accumulated earnings and profits.
A portion of these distributions generally may be eligible for the
dividends-received deduction in the case of corporate shareholders.
Failure to qualify as a regulated investment company would thus have a negative
impact on the Fund's income and performance. It is possible that the Fund will
not qualify as a regulated investment company in any given tax year.
B. FUND DISTRIBUTIONS
The Fund anticipates distributing substantially all of its net investment income
for each tax year. These distributions are taxable to shareholders as ordinary
income. These distributions may qualify for the 70% dividends-received deduction
for corporate shareholders.
The Fund anticipates distributing substantially all of its net capital gain for
each tax year. These distributions generally are made only once a year, usually
in November or December, but the Fund may make additional
22
<PAGE>
distributions of net capital gain at any time during the year. These
distributions are taxable to shareholders as long-term capital gain, regardless
of how long a shareholder has held shares.
The Fund may have capital loss carryovers (unutilized capital losses from prior
years). These capital loss carryovers (which can be used for up to eight years)
may be used to offset any current capital gain (whether short- or long-term).
All capital loss carryovers are listed in the Fund's financial statements. Any
such losses may not be carried back.
Distributions by the Fund that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital. Return of capital
distributions reduce the shareholder's tax basis in the shares and are treated
as gain from the sale of the shares to the extent the shareholder's basis would
be reduced below zero.
All distributions by the Fund will be treated in the manner described above
regardless of whether the distribution is paid in cash or reinvested in
additional shares of the Fund (or of another Fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date.
A shareholder may purchase shares whose net asset value at the time reflects
undistributed net investment income or recognized capital gain, or unrealized
appreciation in the value of the assets of the Fund. Distributions of these
amounts are taxable to the shareholder in the manner described above, although
the distribution economically constitutes a return of capital to the
shareholder.
Shareholders purchasing shares of the Fund just prior to the ex-dividend date of
a distribution will be taxed on the entire amount of the distribution received,
even though the net asset value per share on the date of the purchase reflected
the amount of the distribution.
If a shareholder holds shares for six months or less and redeems shares at a
loss after receiving a capital gain distribution, the loss will be treated as a
long-term capital loss to the extent of the distribution.
Ordinarily, shareholders are required to take distributions by the Fund into
account in the year in which they are made. A distribution declared in October,
November or December of any year and payable to shareholders of record on a
specified date in those months, however, is deemed to be received by the
shareholders (and made by the Fund) on December 31 of that calendar year if the
distribution is actually paid in January of the following year.
Shareholders will be advised annually as to the U.S. federal income tax
consequences of distributions made (or deemed made) to them during the year.
C. FEDERAL EXCISE TAX
A 4% non-deductible excise tax is imposed on a regulated investment company that
fails to distribute in each calendar year an amount equal to: (1) 98% of
ordinary its taxable income for the calendar year; and (2) 98% of its capital
gain net income for the one-year period ended on October 31 of the calendar
year. If the Fund changes its tax year-end to November 30 or December 31, it may
elect to use that date instead of the October 31 date in making this
calculation. The balance of the Fund's income must be distributed during the
next calendar year. The Fund will be treated as having distributed any amount on
which it is subject to income tax for any tax year ending in a calendar year.
For purposes of calculating the excise tax, the Fund: (1) reduces its capital
gain net income (but not below its net capital gain) by the amount of any net
ordinary loss for the calendar year and (2) excludes foreign currency gains and
losses incurred after October 31 of any year (or November 30 or December 31 if
it has made the election described above) in determining the amount of ordinary
taxable income for the current calendar year. The Fund will include foreign
currency gains and losses incurred after October 31 in determining ordinary
taxable income for the succeeding calendar year.
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The Fund intends to make sufficient distributions of its ordinary taxable income
and capital gain net income prior to the end of each calendar year to avoid
liability for the excise tax. Investors should note, however, that the Fund
might in certain circumstances be required to liquidate portfolio investments to
make sufficient distributions to avoid excise tax liability.
D. SALE OR REDEMPTION OF SHARES
In general, a shareholder will recognize gain or loss on the sale or redemption
of shares of the Fund in an amount equal to the difference between the proceeds
of the sale or redemption and the shareholder's adjusted tax basis in the
shares. All or a portion of any loss so recognized may be disallowed if the
shareholder purchases other shares of the Fund within 30 days before or after
the sale or redemption (a so called "wash sale"). In general, any gain or loss
arising from the sale or redemption of shares of the Fund will be considered
capital gain or loss and will be long-term capital gain or loss if the shares
were held for longer than one year. Any capital loss arising from the sale or
redemption of shares held for six months or less, however, is treated as a
long-term capital loss to the extent of the amount of capital gain distributions
received on such shares. For this purpose, the special holding period rules of
Code Section 246(c) (3) and (4) generally will apply in determining the holding
period of shares. Capital losses in any year are deductible only to the extent
of capital gains plus, in the case of a noncorporate taxpayer, $3,000 of
ordinary income.
E. WITHHOLDING TAX
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of distributions, and the proceeds of redemptions of shares, paid
to any shareholder: (1) who has failed to provide correct tax payer
identification number; (2) who is subject to backup withholding by the IRS for
failure to report the receipt of interest or dividend income properly; or (3)
who has failed to certify to the Fund that it is not subject to backup
withholding or that it is a corporation or other "exempt recipient."
F. FOREIGN SHAREHOLDERS
Taxation of a shareholder who under the Code is a nonresident alien individual,
foreign trust or estate, foreign corporation, or foreign partnership ("foreign
shareholder"), depends on whether the income from the Fund is "effectively
connected" with a U.S. trade or business carried on by the foreign shareholder.
If the income from the Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, ordinary income distributions paid
to a foreign shareholder will be subject to U.S. withholding tax at the rate of
30% (or lower applicable treaty rate) upon the gross amount of the distribution.
The foreign shareholder generally would be exempt from U.S. federal income tax
on gain realized on the sale of shares of the Fund, capital gain distributions
from the Fund and amounts retained by the Fund that are designated as
undistributed capital gain.
If the income from the Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income
distributions, capital gain distributions, and any gain realized upon the sale
of shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or U.S. corporations.
In the case of a noncorporate foreign shareholder, the Fund may be required to
withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding (or taxable at a reduced treaty rate), unless
the shareholder furnishes the Fund with proper notification of its foreign
status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty might be different from those described herein.
The tax rules of other countries with respect to distributions from the Fund can
differ from the rules for U.S. federal income taxation described above. These
foreign rules are not discussed herein. Foreign shareholders are urged to
24
<PAGE>
consult their own tax advisers as to the consequences of foreign tax rules with
respect to an investment in the Fund, distributions from the Fund, the
applicability of foreign taxes and related matters.
G. STATE AND LOCAL TAXES
The tax rules of the various states of the U.S. and their local jurisdictions
with respect to distributions from the Fund can differ from the rules for U.S.
federal income taxation described above. These state and local rules are not
discussed herein. Shareholders are urged to consult their tax advisers as to the
consequences of state and local tax rules with respect to an investment in the
Fund, distributions from the Fund, the applicability of state and local taxes
and related matters.
8. OTHER MATTERS
1. GENERAL INFORMATION
Sound Shore Fund, Inc. was organized as a corporation under the laws of the
State of Maryland on February 15, 1985. The Fund has operated under that name
and as an investment company since that date.
Sound Shore Fund, Inc. is registered as an open-end, management investment
company under the 1940 Act. The Fund is diversified as that term is defined by
the 1940 Act. The Fund offers shares of beneficial interest in its sole series
(the Fund).
The Fund has an unlimited number of authorized shares of beneficial interest.
The Board may, without shareholder approval, divide the authorized shares into
an unlimited number of separate series and may divide series into classes of
shares; the costs of doing so will be borne by the Fund.
The Fund will continue indefinitely until terminated.
2. SHAREHOLDER VOTING AND OTHER RIGHTS
Each share of the Fund has equal dividend, distribution, liquidation and voting
rights, and fractional shares have those rights proportionately. Maryland law
does not require the Fund to hold annual meetings of shareholders, and it is
anticipated that shareholder meetings will be held only when specifically
required by federal or state law. There are no conversion or preemptive rights
in connection with shares of the Fund.
All shares, when issued in accordance with the terms of the offering, will be
fully paid and nonassessable.
A shareholder in the Fund is entitled to the shareholder's pro rata share of all
distributions arising from the Fund's assets and, upon redeeming shares, will
receive the portion of the Fund's net assets represented by the redeemed shares.
Shareholders representing 25% or more of the Fund's outstanding shares may, as
set forth in the Articles of Incorporation, call meetings of the Fund (or Fund)
for any purpose related to the Fund (or Fund), including, in the case of a
meeting of the Fund, the purpose of voting on removal of one or more Directors.
3. CERTAIN REORGANIZATION TRANSACTIONS
The Fund may be terminated upon the sale of its assets to, or merger with,
another open-end, management investment company or series thereof, or upon
liquidation and distribution of its assets. Generally such terminations must be
approved by the vote of the holders of a majority of the outstanding shares of
the Fund or the Fund. The Directors may, without prior shareholder approval,
change the form of organization of the Fund by merger, consolidation or
incorporation.
25
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B. FUND OWNERSHIP
As of April 1, 1999, the percentage of shares owned by all officers and
Directors of the Fund as a group was less than 1% of the shares of the Fund.
Also as of that date, certain shareholders of record owned 5% or more of a class
of shares of the Fund. These shareholders and any shareholder known by the Fund
to own beneficially 5% or more of a class of shares of the Fund are listed in
Table 6 in Appendix B.
From time to time, certain shareholders may own a large percentage of the shares
of the Fund. Accordingly, those shareholders may be able to greatly affect (if
not determine) the outcome of a shareholder vote. As of April 1, 1999, the
following persons beneficially owned 25% or more of the shares of the Fund and
may be deemed to control the Fund. For each person listed that is a company, the
jurisdiction under the laws of which the company is organized (if applicable)
and the company's parents are listed.
CONTROLLING PERSON INFORMATION
PERCENTAGE OF
SHARES OWNED
SHAREHOLDER FUND (OR TRUST)
XXXXXX XXXXXXX XXXX%
C. LIMITATIONS ON SHAREHOLDERS' AND DIRECTORS' LIABILITY
Maryland law provides that Fund shareholders are entitled to the same
limitations of personal liability extended to stockholders of private
corporations for profit. In the past, the Fund believes that the securities
regulators of some states, however, have indicated that they and the courts in
their state may decline to apply Maryland law on this point. The Articles of
Incorporation contains an express disclaimer of shareholder liability for the
debts, liabilities, obligations and expenses of the Fund and requires that a
disclaimer be given in each contract entered into or executed by the Fund or the
Directors. The Fund's Articles of Incorporation (the document that governs the
operation of the Fund) provides for indemnification out of the Fund's property
of any shareholder or former shareholder held personally liable for the
obligations of the Fund. The Articles of Incorporation also provides that each
Fund shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Fund and satisfy any judgment
thereon. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which Maryland law does not
apply, no contractual limitation of liability was in effect, and the portfolio
is unable to meet its obligations. FAdS believes that, in view of the above,
there is no risk of personal liability to shareholders.
The Articles of Incorporation provides that the Directors shall not be liable to
any person other than the Fund or its shareholders. In addition, the Articles of
Incorporation provides that the Directors shall not be liable for any conduct
whatsoever, provided that a Director is not protected against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
D. REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Fund's registration statement filed with the SEC under the 1933 Act with respect
to the securities offered hereby. The registration statement, including the
exhibits filed therewith, may be examined at the office of the SEC in
Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract or other documents are not necessarily complete, and, in each instance,
are qualified by, and reference is made to the copy of such contract or other
documents filed as exhibits to the registration statement.
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E. FINANCIAL STATEMENTS
The financial statements of the Fund for the year ended December 31, 1998
included in the Annual Report to shareholders of the Fund are incorporated
herein by reference. These financial statements only include the schedules of
investments, statements of assets and liabilities, statements of operations,
statements of changes in net assets, financial highlights, notes and independent
auditors' report.
27
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APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
A. CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
1. MOODY'S INVESTORS SERVICE
Aaa Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present that make
the long-term risk appear somewhat larger than the Aaa securities.
A Bonds that are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to
impairment some time in the future.
Baa Bonds that are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate,
and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this
class.
B Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long
period of time may be small.
Caa Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest. Ca Bonds that are rated Ca represent
obligations that are speculative in a high degree. Such issues are
often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
NOTE Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates
a ranking in the lower end of that generic rating category.
A-1
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2. STANDARD AND POOR'S CORPORATION
AAA An obligation rated AAA has the highest rating assigned by Standard
& Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated obligations
only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's
capacity to meet its financial commitment on the obligation is still
strong.
BBB An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet
its financial commitment on the obligation.
NOTE Obligations rated BB, B, CCC, CC, and C are regarded as having
significant speculative characteristics. BB indicates the least
degree of speculation and C the highest. While such obligations will
likely have some quality and protective characteristics, large
uncertainties or major exposures to adverse conditions may outweigh
these.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions that
could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
B An obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to
meet its financial commitment on the obligation. Adverse business,
financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitment on the
obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment, and
is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the
obligation. In the event of adverse business, financial, or economic
conditions, the obligor is not likely to have the capacity to meet
its financial commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
D An obligation rated D is in payment default. The D rating category
is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard
& Poor's believes that such payments will be made during such grace
period. The D rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
NOTE Plus (+) or minus (-). The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing
within the major rating categories.
A-2
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The `r' symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or
volatility of expected returns that are not addressed in the credit
rating. Examples include: obligations linked or indexed to equities,
currencies, or commodities; obligations exposed to severe prepayment
risk-such as interest-only or principal-only mortgage securities;
and obligations with unusually risky interest terms, such as inverse
floaters.
3. DUFF & PHELPS CREDIT RATING CO.
AAA Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong. Risk is modest
AA but may vary slightly from time to time because of economic
conditions.
A+,A, Protection factors are average but adequate. However, risk factors
A- are more variable in periods of greater economic stress.
BBB+ Below-average protection factors but still considered sufficient
BBB for prudent investment. Considerable variability in risk during
BBB- economic cycles.
BB+ Below investment grade but deemed likely to meet obligations
BB when due. Present or prospective financial protection factors
BB- fluctuate according to industry conditions. Overall quality may
move up or down frequently within this category.
B+ Below investment grade and possessing risk that obligations will
B not be met when due. Financial protection factors will fluctuate
B- widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the
rating within this category or into a higher or lower rating
grade.
CCC Well below investment-grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be
substantial with unfavorable economic/industry conditions, and/or
with unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
DP Preferred stock with dividend arrearages.
4. FITCH IBCA, INC.
INVESTMENT GRADE
AAA Highest credit quality. `AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low expectation
of credit risk. They indicate very strong capacity for timely payment
of financial commitments. This capacity is not significantly
vulnerable to foreseeable events.
A High credit quality. `A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable
to changes in circumstances or in economic conditions than is the case
for higher ratings.
A-3
<PAGE>
BBB Good credit quality. `BBB' ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of
financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair
this capacity. This is the lowest investment-grade category.
SPECULATIVE GRADE
BB Speculative. `BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse
economic change over time; however, business or financial
alternatives may be available to allow financial commitments to be
met. Securities rated in this category are not investment grade.
B Highly speculative. `B' ratings indicate that significant credit risk
is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and
economic environment.
CCC, CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained,
favorable business or economic developments. A `CC' rating indicates
that default of some kind appears probable. `C' ratings signal
imminent default.
DDD, Default. Securities are not meeting current obligations and are
DD, D extremely speculative. `DDD' designates the highest potential for
recovery of amounts outstanding on any securities involved. For U.S.
corporates, for example, `DD' indicates expected recovery of
50% - 90% of such outstandings and `D' the lowest recovery potential,
i.e. below 50%.
PREFERRED STOCK
1. MOODY'S INVESTORS SERVICE
aaa An issue that is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and
the least risk of dividend impairment within the universe of
preferred stocks.
aa An issue that is rated "aa" is considered a high- grade preferred
stock. This rating indicates that there is a reasonable assurance
the earnings and asset protection will remain relatively well
maintained in the foreseeable future.
a An issue which is rated "a" is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat
greater then in the "aaa" and "aa" classification, earnings and
asset protection are, nevertheless, expected to be maintained at
adequate levels.
baa An issue that is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured.
Earnings and asset protection appear adequate at present but may be
questionable over any great length of time.
Ba An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings
and asset protection may be very moderate and not well safeguarded
during adverse periods. Uncertainty of position characterizes
preferred stocks in this class.
B An issue that is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and
maintenance of other terms of the issue over any long period of
time may be small.
caa An issue that is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the
future status of payments.
A-4
<PAGE>
ca An issue that is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of
eventual payments.
c This is the lowest rated class of preferred or preference stock.
Issues so rated can thus be regarded as having extremely poor
prospects of ever attaining any real investment standing.
NOTE Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification: the modifier 1 indicates that the security ranks in
the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking and the modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.
2. STANDARD & POOR'S
AAA This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong
capacity to pay the preferred stock obligations.
AA A preferred stock issue rated AA also qualifies as a high-quality,
fixed-income security. The capacity to pay preferred stock
obligations is very strong, although not as overwhelming as for
issues rated AAA.
A An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
BBB An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to make payments for a preferred stock in this category
than for issues in the A category.
BB, Preferred stock rated BB, B, and CCC is regarded, on balance,
B, as predominantly speculative with respect to the issuer's capacity
CCC to pay preferred stock obligations. BB indicates the lowest degree
of speculation and CCC the highest. While such issues will likely
have some quality and protective characteristics, large
uncertainties or major risk exposures to adverse conditions outweigh
these.
CC The rating CC is reserved for a preferred stock issue that is in
arrears on dividends or sinking fund payments, but that is currently
paying.
C A preferred stock rated C is a nonpaying issue.
D A preferred stock rated D is a nonpaying issue with the issuer in
default on debt instruments.
N.R. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard
& Poor's does not rate a particular type of obligation as a matter
of policy.
NOTE Plus (+) or minus (-). To provide more detailed indications of
preferred stock quality, ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing
within the major rating categories.
A-5
<PAGE>
C. SHORT TERM RATINGS
1. MOODY'S INVESTORS SERVICE
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
PRIME-1 Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be evidenced
by many of the following characteristics:
o Leading market positions in well-established
industries. o High rates of return on funds employed.
o Conservative capitalization structure with moderate
reliance on debt and ample asset protection.
o Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
o Well-established access to a range of financial markets
and assured sources of alternate liquidity.
PRIME-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations.
This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage
ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity
is maintained.
PRIME-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt
protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
NOT
PRIME Issuers rated Not Prime do not fall within any of the Prime
rating categories.
STANDARD & POOR'S
A-1 A short-term obligation rated A-1 is rated in the highest
category by Standard & Poor's. The obligor's capacity to meet
its financial commitment on the obligation is strong. Within
this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible
to the adverse effects of changes in circumstances and economic
conditions than obligations in higher rating categories.
However, the obligor's capacity to meet its financial commitment
on the obligation is satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of
the obligor to meet its financial commitment on the obligation.
B A short-term obligation rated B is regarded as having
significant speculative characteristics. The obligor currently
has the capacity to meet its financial commitment on the
obligation; however, it faces major ongoing uncertainties that
could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
C A short-term obligation rated C is currently vulnerable to
nonpayment and is dependent upon favorable business, financial,
and economic conditions for the obligor to meet its financial
commitment on the obligation.
A-6
<PAGE>
D A short-term obligation rated D is in payment default. The D
rating category is used when payments on an obligation are not
made on the date due even if the applicable grace period has not
expired, unless Standard & Poor's believes that such payments
will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition or the taking of a
similar action if payments on an obligation are jeopardized.
FITCH IBCA, INC.
F1 Obligations assigned this rating have the highest capacity for
timely repayment under Fitch IBCA's national rating scale for that
country, relative to other obligations in the same country. This
rating is automatically assigned to all obligations issued or
guaranteed by the sovereign state. Where issues possess a
particularly strong credit feature, a "+" is added to the assigned
rating.
F2 Obligations supported by a strong capacity for timely repayment
relative to other obligors in the same country. However, the
relative degree of risk is slightly higher than for issues
classified as `A1' and capacity for timely repayment may be
susceptible to adverse change sin business, economic, or financial
conditions.
F3 Obligations supported by an adequate capacity for timely repayment
relative to other obligors in the same country. Such capacity is
more susceptible to adverse changes in business, economic, or
financial conditions than for obligations in higher categories.
B Obligations for which the capacity for timely repayment is
uncertain relative to other obligors in the same country. The
capacity for timely repayment is susceptible to adverse changes in
business, economic, or financial conditions.
C Obligations for which there is a high risk of default to other
obligors in the same country or which are in default.
A-7
<PAGE>
APPENDIX B - MISCELLANEOUS TABLES
TABLE 1 - INVESTMENT ADVISORY FEES
The following Table shows the dollar amount of fees payable to the Adviser with
respect to the Fund, the amount of fee that was waived by the Adviser, if any,
and the actual fee received by the Adviser.
<TABLE>
<S> <C> <C> <C>
ADVISORY FEE ADVISORY FEE ADVISORY FEE
PAYABLE WAIVED RETAINED
Year Ended December 31, 1998 $13,562,484 $0 $13,562,484
Year Ended December 31, 1997 $5,000,341 $0 $5,000,341
Year Ended December 31, 1996 $614,941 $0 $614,941
</TABLE>
TABLE 2 - ADMINISTRATION FEES
The following Table shows the dollar amount of fees payable to FAdS with respect
to the Fund, the amount of fee that was waived by FAdS, if any, and the actual
fee received by FAdS.
<TABLE>
<S> <C> <C> <C>
ADMINISTRATION FEE ADMINISTRATION FEE ADMINISTRATION FEE
PAYABLE WAIVED RETAINED
Year Ended December 31, 1998 $1,808,331 $25,047 $1,783,284
Year Ended December 31, 1997 $666,712 $0 $666,712
Year Ended December 31, 1996 $81,993 $0 $81,993
</TABLE>
TABLE 3 - ACCOUNTING FEES
The following table shows the dollar amount of fees payable to FAcS with respect
to the Fund, the amount of fee that was waived by FAcS, if any, and the actual
fee received by FAcS.
<TABLE>
<S> <C> <C> <C>
ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE
RETAINED
Year Ended December 31, 1998 $133,122 $0 $133,122
Year Ended December 31, 1997 $500,034 $0 $500,034
Year Ended December 31, 1996 $61,494 $0 $61,494
</TABLE>
TABLE 4 - TRANSFER AGENCY FEES
The following table shows the dollar amount of shareholder service fees payable
to the Transfer Agent with respect to the Fund, the amount of fee that was
waived by the Transfer Agent, if any, and the actual fee received by the
Transfer Agent.
<TABLE>
<S> <C> <C> <C>
TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
PAYABLE WAIVED RETAINED
Year Ended December 31, 1998 $1,783,355 $0 $1,783,355
Year Ended December 31, 1997 $512,034 $0 $512,034
Year Ended December 31, 1996 $74,231 $0 $74,231
</TABLE>
B-1
<PAGE>
TABLE 5 - COMMISSIONS
The following table shows the aggregate brokerage commissions with respect to
the Fund.
AGGREGATE COMMISSION
PAID
Year Ended December 31, 1998 $------------
Year Ended December 31, 1997 $2,392,468
Year Ended December 31, 1996 $264,939
TABLE 6 - 5% SHAREHOLDERS
The following table lists the persons who owned of record 5% or more of the
outstanding shares of a class of shares of the Fund as of the day, month and
year as well as their percentage holding of all shares of the Fund.
% OF % OF FUND
NAME AND ADDRESS SHARES CLASS
B-2
<PAGE>
APPENDIX C - PERFORMANCE DATA
TABLE 1 - TOTAL RETURNS
The average annual total return of the Fund for the period ended January 31,
1999, was as follows
NON STANDARDIZED RETURNS (WITHOUT A SALES LOAD)
<TABLE>
<S> <C> <C> <C> <C>
CALENDAR YEAR
ONE MONTH THREE MONTHS TO DATE ONE YEAR THREE YEARS
-1.89% 2.96% -1.89% 2.83% 22.40%
FIVE YEARS TEN YEARS SINCE INCEPTION
18.55% 16.01% 16.07%
</TABLE>
C-1
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Articles of Incorporation of Registrant dated February 15, 1985 (see Note
1).
(b) By-Laws of Registrant (filed herewith).
(c) See the following Articles and Sections of the Articles of Incorporation
filed as Exhibit 1: Article FIFTH, Sections (3), (4) and (5); Article
SEVENTH, Sections (b), (c) and (d); Article NINTH, Sections (a), (b), (c)
and (f) and Article TENTH.
(d) Investment Advisory Agreement between Registrant and Sound Shore
Management, Inc. dated May 3, 1985 and restated March 14, 1995 (see Note
1).
(e) Distribution Agreement between Registrant and Forum Financial Services,
Inc. dated June 8, 1993 (see Note 1).
(f) Not Applicable.
(g) Custodian Agreement between Registrant and The First National Bank of
Boston (see Note 1).
(h)(1) Transfer Agency Agreement between Registrant and Forum Shareholder
Services, LLC dated January 29, 1998 (see Note 2).
(2) Fund Accounting Agreement between Registrant and Forum Accounting
Services, LLC dated January 1, 1996 (see Note 1).
(3) Administration Agreement between Registrant and Forum Administrative
Services, LLC dated as of January 24, 1997 (see Note 3).
(i) Opinion of Seward & Kissel dated April 29, 1985 (see Note 2).
(j) (1) Opinion of Messrs. Venable, Baetjer and Howard dated April 29, 1985
(see Note 2).
(2) Independent Auditors' Consent (see Note 2).
(k) Not Applicable.
(l) Investment representation letter of Employees' Profit Sharing Plan of
McConnell & Miller, Inc. as initial purchaser of shares of stock of
Registrant dated April 22, 1985 (see Note 2).
(m) Distribution Plan Pursuant to Rule 12b-1 Under the Investment Company Act
of 1940 adopted by Registrant (see Note 2).
(n) Financial Data Schedule (see Note 2).
(o) Not Applicable.
Other Exhibits:
Powers of Attorney of T. Gibbs Kane, Jr., Harry Burn, III, John L. Lesher,
Charles J. Hedlund, D. Kenneth Baker, John J. McCloy, II and Walter R.
Nelson (see Note 1).
-----------
Note:
1 Exhibit incorporated by reference as filed on Post-Effective Amendment No.
16 via EDGAR on May 1, 1996, accession number 0000912057-96-007773.
2 Exhibit incorporated by reference as filed on Post-Effective Amendment No.
19 via EDGAR on April 30, 1998, accession number 0001004402-98-000268.
<PAGE>
3 Exhibit incorporated by reference as filed on Post-Effective Amendment No
18 via EDGAR on April 30, 1997, accession number 000091257-97-014939.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 25. INDEMNIFICATION
The Registrant's Articles of Incorporation and Maryland law provide for
indemnification by the Registrant of officers and directors under certain
circumstances. In accordance with Section 2-418 of the General Corporation Law
of the State of Maryland, Article EIGHTH of the Registrant's Articles of
Incorporation provides as follows:
"EIGHTH: To the maximum extent permitted by the General Corporation Law
of the State of Maryland as from time to time amended, the Corporation
shall indemnify its currently acting and its former directors and
officers and those persons who, at the request of the Corporation,
serve or have served another corporation, partnership, joint venture,
trust or other enterprise in one or more of such capacities."
Further, the Registrant has agreed to indemnify (1) Sound Shore
Management, Inc. ("Sound Shore Management") in the Investment Advisory
Agreement, (2) Forum Financial Services, Inc. ("Forum") in the
Distribution Agreement, (3) Forum in the Distribution Agreement, (4)
Forum Shareholder Services, LLC ("FSS") in the Transfer Agency
Agreement, and (5) Forum Accounting Services LLC ("FAS") in the Fund
Accounting Agreement for certain liabilities and expenses arising out
of their acts or omissions under the respective agreements.
Paragraph 4 of the Investment Advisory Agreement between the Registrant
and Sound Shore Management provides generally that Sound Shore
Management will not be liable for any mistake of judgment or for any
other cause but shall not be protected against any liability due to
willful misfeasance, bad faith or gross negligence in the performance
of or reckless disregard of the adviser's duties.
Section 2(f) of the Distribution Agreement the Registrant and Forum
provides generally that the Registrant will indemnify, defend and hold
harmless from and against any and all claims, demands, liabilities and
expenses which Forum may incur arising out of or based upon any alleged
untrue statement of a material fact contained in the Registrant's
Registration Statement or Prospectus or arising out of or based upon
any alleged omission to state a material fact, provided that Forum will
not be protected against any liability to the Registrant or its
security holders to which Forum would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance
of or reckless disregard of the Forum's duties.
Section 3(a) of the Administration Agreement between the Registrant and
Forum provides generally that Forum shall not be liable to the
Registrant for any action or inaction of Forum in the absence of bad
faith, willful misconduct or gross negligence or based upon
information, instructions or requests made to Forum by an officer of
the Registrant duly authorized or caused by circumstances beyond
Forum's reasonable control. Section 3(b) provides that the Registrant
will indemnify and hold harmless Forum from and against any and all
claims, demands, liabilities and expenses arising out of any action or
inaction for which Forum is not liable under the agreement.
Section 25 of the Transfer Agency Agreement between the Registrant and
FSS provides generally that FSS shall not be liable for any
non-negligent action taken in good faith and reasonably believed by FSS
to be within the powers conferred upon it by the agreement, and that
the Registrant shall indemnify FSS and hold it harmless from and
against any and all claims, damages, liabilities and expenses arising
out performance of the agreement; provided such loss, claim, damage,
liability or expense is not the result of FSS 's gross negligence or
willful misconduct.
<PAGE>
Section 4(a) of the Fund Accounting Agreement between the Registrant
and FAS provides generally that FAS shall not be liable to the
Registrant for any action or inaction of FAS in the absence of bad
faith, willful misconduct or gross negligence or based upon
information, instructions or requests made to FAS by an officer of the
Registrant duly authorized or caused by circumstances beyond FAS's
reasonable control. Section 4(b) provides that the Registrant will
indemnify and hold harmless FAS from and against any and all claims,
demands, liabilities and expenses arising out of any action or inaction
for which Forum is not liable under the agreement.
The foregoing references are qualified in their entirety by the
Registrant's Articles of Incorporation and the respective agreements.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or the
Registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The description of Sound Shore Management, Inc. (the "Adviser"), 8 Sound Shore
Drive, Greenwich, Connecticut 06836 under the captions "Investment Adviser" in
the Prospectus and "Management " in the Statement of Additional Information
constituting Parts A and B respectively, of this Registration Statement are
incorporated herein by reference. The following are the directors and principal
executive officers of the Adviser, including their titles and other business
connections that are of a substantial nature.
<TABLE>
<S> <C> <C>
----------------------------- ---------------------------------------- ----------------------------------------
Name Title Business Connections
----------------------------- ---------------------------------------- ----------------------------------------
----------------------------- ---------------------------------------- ----------------------------------------
Harry Burn, III Chairman and Director Sound Shore Management, Inc.
---------------------------------------- ----------------------------------------
Chairman and Director Sound Shore Fund, Inc.
----------------------------- ---------------------------------------- ----------------------------------------
----------------------------- ---------------------------------------- ----------------------------------------
T. Gibbs Kane, Jr. President and Director Sound Shore Management, Inc.
---------------------------------------- ----------------------------------------
President and Director Sound Shore Fund, Inc.
----------------------------- ---------------------------------------- ----------------------------------------
----------------------------- ---------------------------------------- ----------------------------------------
Shanna S. Sullivan Vice President, Treasurer, Secretary Sound Shore Management, Inc.
and Director
----------------------------------------
----------------------------------------
Secretary Sound Shore Fund, Inc.
----------------------------- ---------------------------------------- ----------------------------------------
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Forum Fund Services, LLC, Registrant's underwriter, or its affiliate,
Forum Financial Services, Inc., serve as underwriter for the
following investment companies registered under the Investment Company
Act of 1940. As amended:
The CRM Funds Monarch Funds
The Cutler Trust Norwest Advantage Funds
Forum Funds Norwest Select Funds
Memorial Funds Sound Shore Fund, Inc.
<PAGE>
(b) The following officer of Forum Fund Services, LLC, Registrant's
underwriter, holds the following position with registrant. Her business
address is Two Portland Square, Portland, Maine 04101.
<TABLE>
<S> <C> <C>
Name Position with Underwriter Position with Registrant
---- ------------------------- ------------------------
Sara M. Morris Treasurer Treasurer
</TABLE>
(c) Not Applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder are maintained at the
offices of Forum Administrative Services, LLC, Two Portland Square, Portland,
Maine 04101 and Forum Shareholder Services, LLC, Two Portland Square, Portland,
Maine 04101 except that certain items are maintained at the following locations:
(a) Investors Bank & Trust Company, 200 Clarendon Street, Boston, Massachusetts
02116 (journals of receipts and disbursements of cash).
(b) Sound Shore Management, Inc., 8 Sound Shore Drive, Greenwich, Connecticut
06836 (brokerage orders, portfolio purchases or sales, and quarterly
records showing the basis for the allocation of orders).
ITEM 29. MANAGEMENT SERVICES
Not Applicable.
ITEM 30. UNDERTAKINGS
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
post-effective amendment number 20 to Registrant's registration statement to be
signed on its behalf by the undersigned, duly authorized in the City of New
York, State of New York on March 1, 1999.
SOUND SHORE FUND, INC.
T. Gibbs Kane, Jr., President
By: /s/ David I. Goldstein
----------------------------------
David I. Goldstein, Attorney-in-fact*
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed below by the following persons on March
1, 1999.
(a) Principal Executive Officer
T. Gibbs Kane, Jr., President
/s/ David I. Goldstein
-------------------------------
David I. Goldstein, Attorney-in-fact*
(b) Principal Financial Officer
/s/ Sara Morris
-------------------------------
Sara Morris, Treasurer
(c) A majority of the Directors
T. Gibbs Kane, Jr., Director
Dr. D. Kenneth Baker, Director
Harry Burn, III, Director
Charles J. Hedlund, Director
John L. Lesher, Director
John J. McCloy, II, Director
Walter R. Nelson, Director
By: /s/ David I. Goldstein
-----------------------------
David I. Goldstein, Attorney-in-fact*
* Pursuant to powers of attorney filed as Other Exhibits to this Registration
Statement.
<PAGE>
INDEX TO EXHIBITS
Exhibit
(2) By-Laws of Registrant.
Other Exhibits:
Powers of Attorney of T. Gibbs Kane, Jr., Harry Burn, III, John L.
Lesher, Charles J. Hedlund, D. Kenneth Baker, John J. McCloy II and
Walter R. Nelson.
EXHIBIT (2)
BY-LAWS
OF
SOUND SHORE FUND, INC.
ARTICLE I
Offices
Section 1. Principal Office in Maryland. The Corporation shall
have a principal office in the city of Baltimore, State of Maryland.
Section 2. Other Offices. The Corporation may have offices also at such
other places within and without the State of Maryland as the Board of Directors
may from time to time determine or as the business of the corporation may
require.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meeting. Meetings of stockholders shall be held at
such place, either within the State of Maryland or at such other place within
the United States, as shall be fixed from time to time by the Board of
Directors.
Section 2. Annual Meetings. The Corporation shall not be required to
hold an annual meeting of stockholders in any year in which the election of
directors is not required under the Investment Company Act of 1940. If the
Corporation is required to hold a meeting of stockholders to elect directors,
the meeting shall be held on a date fixed by the Board of Directors no later
than one hundred twenty days after the occurrence of the event requiring the
meeting. If the Board of Directors determines to hold an annual meeting of
stockholders in any year in which the election of directors is not required
under the Investment Company Act of 1940, the meeting shall be held on a date
fixed by the Board of Directors not less than ninety nor more than one hundred
twenty days following the end of the fiscal year of the Corporation. Annual
meetings of stockholders shall be held on a date fixed from time to time by the
Board of Directors not less than ninety nor more than one hundred twenty days
following the end of each fiscal year of the Corporation, for the election of
directors and the transaction of any other business within the powers of the
Corporation.
Section 3. Notice of Annual Meeting. Written or printed notice of the
annual meeting, stating the place, date and hour thereof, shall be given to each
stockholder entitled to vote thereat not less than ten nor more than ninety days
before the date of the meeting.
Section 4. Special Meetings. Special meetings of stockholders may be
called by the chairman, the president or by the Board of Directors and shall be
called by the secretary upon the written request of holders of shares entitled
to cast not less than twenty-five per cent of all the votes entitled to be cast
at such meeting. Such request shall state the purpose of purposes of such
meeting and the matters proposed to be acted on thereat. In the case of such
request for a special meeting, upon payment by such stockholders to the
Corporation of the estimated reasonable cost of preparing and mailing a notice
of such meeting, the secretary shall give the notice of such meeting. The
secretary shall not be required to call a special meeting to consider any matter
which is substantially the same as a matter acted upon at any special meeting of
stockholders held within the preceding twelve months unless requested to do so
by holders of shares entitled to cast not less than a majority of all votes
entitled to be cast at such meeting.
<PAGE>
Section 5. Notice of Special Meeting. Written or printed notice of a
special meeting of stockholders, stating the place, date, hour and purpose
thereof, shall be given by the secretary to each stockholder entitled to vote
thereat not less than ten nor more than ninety days before the date fixed for
the meeting.
Section 6. Business of Special Meetings. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice thereof.
Section 7. Quorum. The holders of one-third of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except with respect to any matter which, under
applicable statutes or regulatory requirements, requires approval by a separate
vote of one or more classes of stock, in which case the presence in person or by
proxy of the holders of one-third of the shares of stock of each class required
to vote as a class on the matter shall constitute a quorum.
Section 8. Voting. When a quorum is present at any meeting, the
affirmative vote of a majority of the votes cast, or, with respect to any matter
requiring a class vote, the affirmative vote of a majority of the votes cast of
each class entitled to vote as a class on the matter, shall decide any question
brought before such meeting (except that directors may be elected by the
affirmative vote of a plurality of the votes cast), unless the question is one
upon which by express provision of the Investment Company Act of 1940, as from
time to time in effect, or other statutes or rules or orders of the Securities
and Exchange Commission or any successor thereto or of the Articles of
Incorporation a different vote is required, in which case such express provision
shall govern and control the decision of such question.
Section 9. Proxies. Each stockholder shall at every meeting of
stockholders by entitled to one vote in person or by proxy for each share of the
stock having voting power held by such stockholder, but no proxy shall be voted
after eleven months from its date, unless otherwise provided in the proxy.
Section 10. Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, to express consent to corporate action in writing
without a meeting, or to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date which shall be
not more than ninety days and, in the case of a meeting of stockholders, not
less than ten days prior to the date on which the particular action requiring
such determination of stockholders is to be taken. In lieu of fixing a record
date, the Board of Directors may provide that the stock transfer books shall be
closed for a stated period, but not to exceed, in any case, twenty days. If the
stock transfer books are closed for the purpose of determining stockholders
entitled to notice of or to vote at a meeting of stockholders, such books shall
be closed for at least ten days immediately preceding such meeting. If no record
date is fixed and the stock transfer books are not closed for the determination
of stockholders: (1) The record date for the determination of stockholders
entitled to notice of, or to vote at, a meeting of stockholders shall be at the
close of business on the day on which notice of the meeting of stockholders is
mailed or the day thirty days before the meeting, whichever is the closer date
to the meeting; and (2) The record date for the determination of stockholders
entitled to receive payment of a dividend or an allotment of any rights shall be
at the close of business on the day on which the resolution of the Board of
Directors, declaring the dividend or allotment of rights, is adopted, provided
that the payment or allotment date shall not be more than sixty days after the
date of the adoption of such resolution.
Section 11. Inspectors of Election. The directors, in advance of any
meeting, may, but need not, appoint one or more inspectors to act at the meeting
or and adjournment thereof. If an inspector or inspectors are not appointed, the
person presiding at the meeting may, but need not, appoint one or more
inspectors. In case any person who may be appointed as an inspector fails to
appear or act, the vacancy may be filled by appointment made by the directors in
advance of the meeting or at the meeting by the person presiding thereat. Each
inspector, if any, before entering upon the discharge of his duties, shall take
and sign an oath faithfully to execute the duties of inspector at such meeting
with strict impartiality and according to the best of his ability. The
inspectors, if any, shall determine the number of shares outstanding and the
voting power of each, the shares represented at the
<PAGE>
meeting, the existence of a quorum, the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do such acts as are proper
to conduct the election or vote with fairness to all stockholders. On request of
the person presiding at the meeting or any stockholder, the inspector or
inspectors, if any, shall make a report in writing of any challenge, question or
matter determined by him or them and execute a certificate of any fact found by
him or them.
Section 12. Informal Action by Stockholders. Except to the extent
prohibited by the Investment Company Act of 1940, as from time to time in
effect, or rules or orders of the Securities and Exchange Commission or any
successor thereto, any action required or permitted to be taken without a
meeting if a consent in writing, setting forth such action, is signed by all the
stockholders entitled to vote on the subject matter thereof and any other
stockholders entitled to notice of a meeting of stockholders (but not to vote
thereat) have waived in writing any rights which they may have to dissent from
such action, and such consent and waiver are filed with the records of the
Corporation.
ARTICLE III
Board of Directors.
Section 1. Number of Directors. The number of directors constituting
the entire Board of Directors (which initially was fixed at one in the
Corporation's Articles of Incorporation) may be increased or decreased from time
to time by the vote of a majority of the entire Board of Directors within the
limits permitted by law but at no time may be more than twenty as provided in
the Articles of Incorporation, but the tenure of office of a director in office
at the time of any decrease in the number of directors shall not be affected as
a result thereof. The directors shall be elected to hold office at the annual
meeting of stockholders, except as provided in Section 2 of this Article, and
each director shall hold office until the next annual meeting of stockholders or
until his successor is elected and qualified. Any director may resign at any
time upon written notice to the Corporation. Any director may be removed, either
with or without cause, at any meeting of stockholders duly called and at which a
quorum is present by the affirmative vote of the majority of the votes entitled
to be cast thereon, and the vacancy in the Board of Directors caused by such
removal may be filled by the stockholders at the time of such removal. Directors
need not be stockholders.
Section 2. Vacancies and Newly-Created Directorships. Any vacancy
occurring in the Board of Directors for any cause other than by reason of an
increase in the number of directors may be filled by a majority of the remaining
members of the Board of Directors although such majority is less than a quorum.
Any vacancy occurring by reason of an increase in the number of directors may be
filled by a majority of the directors then in office, though less than a quorum.
A director elected by the Board of Directors to fill a vacancy shall be elected
to hold office until the next annual meeting of stockholders or until his
successor is elected and qualifies.
Section 3. Powers. The business and affairs of the Corporation shall be
managed under the direction of the Board of Directors which may exercise all
such powers of the Corporation and do all such lawful acts and things as are not
by statute or by the Articles of Incorporation or by these By-Laws conferred
upon or reserved to the stockholders.
Section 4. Annual Meeting. The first meeting of each newly elected
Board of Directors shall be held immediately following the adjournment of the
annual meeting of stockholders and at the place thereof. No notice of such
meeting to the directors shall be necessary in order legally to constitute the
meeting, provided a quorum shall be present. In the event such meeting is not so
held, the meeting may be held at such time and place as shall be specified in a
notice given as hereinafter provided for special meetings of the Board of
Directors.
Section 5. Other Meetings. The Board of Directors of the Corporation or
any committee thereof may hold meetings, both regular and special, either within
or without the State of Maryland. Regular meetings of the Board of Directors may
be held without notice at such time and at such place as shall from time to time
be determined by the Board of Directors. Special meetings of the Board of
Directors may be called by the chairman, the president or by two or more
directors. Notice of special meetings of the Board of Directors shall be given
by the secretary to
<PAGE>
each director at least three days before the meeting if by mail or at least 24
hours before the meeting if given in person or by telephone or by telegraph. The
notice need not specify the business to be transacted.
Section 6. Quorum and Voting. During such times when the Board of
Directors shall consist of more than one director, a quorum for the transaction
of business at meetings of the Board of Directors shall consist of two of the
directors in office at the time, but in no event shall a quorum consist of less
than one-third of the entire Board of Directors. The action of a majority of the
directors present at a meeting at which a quorum is present shall be the action
of the Board of Directors. If a quorum shall not be present at any meeting of
the Board of Directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.
Section 7. Committees. The Board of Directors may appoint from among
its members an executive committee and other committees of the Board of
Directors, each committee to be composed of two or more of the directors of the
Corporation. The Board of Directors may, to the extent provided in the
resolution, delegate to such committees, in the intervals between meetings of
the Board of Directors, any or all of the powers of the Board of Directors in
the management of the business and affairs of the Corporation, except the power
to declare dividends, to issue stock, to recommend to stockholders any action
requiring stockholders' approval, to amend the by-laws or to approve any merger
or share exchange which does not require stockholders' approval. Such committee
or committees shall have the name of names as may be determined from time to
time by resolution adopted by the Board of Directors. Unless the Board of
Directors designates one or more directors as alternate members of any
committee, who may replace an absent or disqualified member at any meeting of
the committee, the members of any such committee present at any meeting and not
disqualified from voting may, whether or not they constitute a quorum,
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member of such committee. At
meetings of any such committee, a majority of the members or alternate members
of such committee shall constitute a quorum for the transaction of business and
the act of a majority of the members or alternate members present at any meeting
at which a quorum is present shall be the act of the committee.
Section 8. Minutes of Committee Meetings. The committees shall keep
regular minutes of their proceedings.
Section 9. Informal Action by Board of Directors and Committees. Any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if a
written consent thereto is signed by all members of the Board of Directors or of
such committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the Board of Directors or committee.
Section 10. Meetings by Conference Telephone. The members of the Board
of Directors or any committee thereof may participate in a meeting of the Board
of Directors or committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time and such participation shall
constitute presence in person at such meeting.
Section 11. Fees and Expenses. The directors may be paid their expenses
of attendance at each meeting of the Board of Directors and may be paid a fixed
sum for attendance at each meeting of the Board of Directors or a stated salary
as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like reimbursement and
compensation for attending committee meetings.
ARTICLE IV
Notices
Section 1. General. Notices to directors and stockholders mailed to
them at their post office addresses appearing on the books of the Corporation
shall be deemed to be given at the time when deposited in the United States
mail.
<PAGE>
Section 2. Waiver of Notice. Whenever any notice is required to be
given under the provisions of the statutes, of the Articles of Incorporation or
of these by-laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed the equivalent of notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
ARTICLE V
Officers
Section 1. General. The officers of the Corporation shall be chosen by
the Board of Directors at its first meeting after each annual meeting of
stockholders and shall be a chairman of the Board of Directors, a president, a
secretary and a treasurer. The Board of Directors may choose also such vice
presidents and additional officers or assistant officers as it may deem
advisable. Any number of offices, except the offices of president and vice
president, may be held by the same person. No officer shall execute, acknowledge
or verify any instrument in more than one capacity if such instrument is
required by law to be executed, acknowledged or verified by two or more
officers.
Section 2. Other Officers and Agents. The Board of Directors may
appoint such other officers and agents as it desires who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board of Directors.
Section 3. Tenure of Officers. The officers of the Corporation shall
hold office at the pleasure of the Board of Directors. Each officer shall hold
his office until his successor is elected and qualifies or until his earlier
resignation or removal. Any officer may resign at any time upon written notice
to the Corporation. Any officer elected or appointed by the Board of Directors
may be removed at any time by the Board of Directors when, in its judgment, the
best interests of the Corporation will be served thereby. Any vacancy occurring
in any office of the Corporation by death, resignation, removal or otherwise
shall be filled by the Board of Directors.
Section 4. Chairman of the Board of Directors. The chairman of the
Board of Directors shall preside at all meetings of the stockholders and of the
Board of Directors. He shall execute on behalf of the Corporation, and may affix
the seal or cause the seal to be affixed to, all instruments requiring such
execution except to the extent that signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation.
Section 5. President. The president shall, in the absence of the
chairman of the Board of Directors, preside at all meetings of the stockholders
or of the Board of Directors. He shall be the chief executive officer and shall
have general and active management of the business of the Corporation and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. He shall be ex officio a member of all committees designated by the
Board of Directors. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the Corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation.
Section 6. Vice President. The vice presidents shall act under the
direction of the president and in the absence or disability of the president
shall perform the duties and exercise the powers of the president. They shall
perform such other duties and have such other powers as the president or the
Board of Directors may from time to time prescribe. The Board of Directors may
designate one or more executive vice presidents or may otherwise specify the
order of seniority of the vice presidents and, in that event, the duties and
powers of the president shall descend to the vice presidents in the specified
order of seniority.
Section 7. Secretary. The secretary shall act under the direction of
the president. Subject to the direction of the president he shall attend all
meetings of the Board of Directors and all meetings of stockholders and record
the proceedings in a book to be kept for that purpose and shall perform like
duties for the committees designated by
<PAGE>
the Board of Directors when required. He shall give, or cause to be given,
notice of all meetings of stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the
president or the Board of Directors. He shall keep in safe custody the seal of
the Corporation and shall affix the seal or cause it to be affixed to any
instrument requiring it.
Section 8. Assistant Secretaries. The assistant secretaries in the
order of their seniority, unless otherwise determined by the president or the
Board of Directors, shall, in the absence or disability of the secretary,
perform the duties and exercise the powers of the secretary. They shall perform
such other duties and have such other powers as the president or the Board of
Directors may from time to time prescribe.
Section 9. Treasurer. The treasurer shall act under the direction of
the president. Subject to the direction of the president he shall have the
custody of the corporate funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. He shall disburse the funds of the Corporation as may be ordered
by the president or the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
Corporation.
Section 10. Assistant Treasurers. The assistant treasurers in the order
of their seniority, unless otherwise determined by the president or the Board of
Directors, shall, in the absence or disability of the treasurer, perform the
duties and exercise the powers of the treasurer. They shall perform such other
duties and have such other powers as the president or the Board of Directors may
from time to time prescribe.
ARTICLE VI
Certificates of Stock
Section 1. General. Every holder of stock of the Corporation who has
made full payment of the consideration for such stock shall be entitled upon
request to have a certificate, signed by, or in the name of the Corporation by,
the president or a vice president and countersigned by the treasurer or an
assistant treasurer or the secretary or an assistant secretary of the
Corporation, certifying the number and class of whole shares of stock owned by
him in the Corporation.
Section 2. Fractional Share Interests. The Corporation may issue
fractions of a share of stock. Fractional shares of stock shall have
proportionately to the respective fractions represented thereby all the rights
of whole shares, including the right to vote, the right to receive dividends and
distributions and the right to participate upon liquidation of the Corporation,
excluding, however, the right to receive a stock certificate representing such
fractional shares.
Section 3. Signatures on Certificates. Any of or all the signatures on
a certificate may be a facsimile. In case any officer who has signed or whose
facsimile signature has been placed upon a certificate shall cease to be such
officer before such certificate is issued, it may be issued with the same effect
as if he were such officer at the date of issue. The seal of the Corporation or
a facsimile thereof may, but need not, be affixed to certificates of stock.
Section 4. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon the making of any affidavit of that
fact by the person claiming the certificate or certificates to be lost, stolen
or destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate or
certificates alleged to have been lost, stolen or destroyed.
<PAGE>
Section 5. Transfer of Shares. Upon request by the registered owner of
shares, and if a certificate has been issued to represent such shares upon
surrender to the Corporation or a transfer agent of the Corporation of a
certificate for shares of stock duly endorsed or accompanied by proper evidence
of succession, assignment or authority to transfer, subject to the Corporation's
rights to redeem or purchase such shares, it shall be the duty of the
Corporation, if it is satisfied that all provisions of the Articles of
Incorporation, of the by-laws and of the law regarding the transfer of shares
have been duly complied with, to record the transaction upon its books, issue a
new certificate to the person entitled thereto upon request for such
certificate, and cancel the old certificate, if any.
Section 6. Registered Owners. The Corporation shall be entitled to
recognize the person registered on its books as the owner of shares to be the
exclusive owner for all purposes including redemption, voting and dividends, and
the Corporation shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Maryland.
ARTICLE VII
Net Asset Value
The net asset value of a share of Common Stock of the Corporation as at
the time of a particular determination shall be the quotient obtained by
dividing the value at such time of the net assets of the Corporation (i.e., the
value of the assets of the Corporation less its liabilities exclusive of capital
and surplus) by the total number of shares of Common Stock outstanding at such
time, all determined and computed as follows:
(1) The assets of the Corporation shall be deemed to include (A) all
cash on hand, on deposit, or on call, (B) all bills and notes and
accounts receivable, (C) all securities owned or contracted for by the
Corporation, other than shares of its own Common Stock, (D) all
interest accrued on any interest bearing securities owned by the
Corporation and (E) all other property of every kind and nature
including prepaid expenses. Portfolio securities for which market
quotations are readily available shall be valued at market value. All
other investment assets of the Corporation, including restricted
securities, shall be valued in such manner as the Board of Directors of
the Corporation in good faith shall deem appropriate to reflect such
securities' fair value.
(2) The liabilities of the Corporation shall include (A) all bills and
notes and accounts payable, (B) all administrative expenses payable
and/or accrued (including management and advisory fees payable and/or
accrued, including in the case of any contingent feature thereof, an
estimate based on the facts existing at the time), (C) all contractual
obligations for the payment of money or property, including the amount
of any unpaid dividend declared upon the Corporation's Common Stock,
(D) all reserves, if any, authorized or approved by the Board of
Directors for taxes, including reserves for taxes at current rates
based on any unrealized appreciation in the value of the assets of the
Corporation and (E) all other liabilities of the Corporation of
whatsoever kind and nature except liabilities represented by
outstanding capital stock and surplus of the Corporation.
(3) For the purposes thereof
(A) Common Stock subscribed for shall not be deemed to be
outstanding until immediately after the time as of which its
net asset value is determined as provided in the Articles of
Incorporation next following the acceptance of the
subscription therefor and the subscription price thereof shall
not be deemed to be an asset of the Corporation until after
such time, but immediately thereafter such capital stock shall
be deemed to be outstanding and until paid the subscription
price thereof shall be deemed to be an asset of the
Corporation.
(B) Common Stock surrendered for redemption by the Corporation
pursuant to the provisions of the Articles of Incorporation or
purchased by the Corporation pursuant to the provisions of the
Articles of Incorporation or these by-laws shall be deemed to
be outstanding to and including the time as of which its net
asset value is determined as provided in the Articles of
<PAGE>
Incorporation but not thereafter, and thereupon and until paid
the redemption or purchase price thereof shall be deemed to be
a liability of the Corporation.
(C) Changes in the holdings of the Corporation's portfolio
securities shall be accounted for on a trade date basis.
(D) Expenses, including management and advisory fees, shall be
included to date of calculation.
In addition to the foregoing, the Board of Directors is empowered, subject to
applicable legal requirements, in its absolute discretion, to establish other
methods for determining the net asset value of each share of Common Stock of the
Corporation.
ARTICLE VIII
Miscellaneous
Section 1. Reserves. There may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in their absolute discretion, think proper as a reserve or
reserves to meet contingencies, or for such other purpose as the Board of
Directors shall think conducive to the interest of the Corporation, and the
Board of Directors may modify or abolish any such reserve.
Section 2. Dividends. Dividends upon the stock of the Corporation may,
subject to the provisions of the Articles of Incorporation and of the provisions
of applicable law, be declared by the Board of Directors at any time. Dividends
may be paid in cash, in property or in shares of the Corporation's stock,
subject to the provisions of the Articles of Incorporation and of applicable
law.
Section 3. Capital Gains Distributions. The amount and number of
capital gains distributions paid to the stockholders during each fiscal year
shall be determined by the Board of Directors. Each such payment shall be
accompanied by a statement as to the source of such payment, to the extent
required by law.
Section 4. Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 5. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 6. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words "Corporate
Seal, Maryland". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in another manner reproduced.
ARTICLE IX
Amendments
The Board of Directors shall have the power to make, alter and repeal
by-laws of the Corporation.
ARTICLE X
Section 1. Indemnification of Directors and Officers. The Corporation
shall indemnify its directors to the fullest extent that indemnification of
directors is permitted by the Maryland General Corporation Law. The Corporation
shall indemnify its officers to the same extent as its directors and to such
further extent as is consistent with law. The Corporation shall indemnify its
directors and officers who while serving as directors or officers also serve at
the request to the Corporation as a director, officer, partner, trustee,
employee, agent or fiduciary of another corporation, partnership, joint venture,
trust, other enterprise or employee benefit plan to the fullest extent
consistent with law. The indemnification and other rights provided by this
Article shall continue as to a person who has ceased to be a director or officer
and shall inure to the benefit of the heirs, executors and administrators of
such a person. This Article shall not protect any such person against liability
to the Corporation or any stockholder thereof to
<PAGE>
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office ("disabling conduct").
Section 2. Advances. Any current or former director or officer of the
Corporation seeking indemnification within the scope of this Article shall be
entitled to advances from the Corporation for payment of the reasonable expenses
incurred by him in connection with the matter as to which he is seeking
indemnification in the manner and to the fullest extent permissible under the
Maryland General Corporation Law. The person seeking indemnification shall
provide to the Corporation a written affirmation of his good faith belief that
the standard of conduct necessary for indemnification by the Corporation has
been met and a written undertaking to repay any such advance if it should
ultimately be determined that the standard of conduct has not been met. In
addition, at least one of the following additional conditions shall be met: (a)
the person seeking indemnification shall provide a security in form and amount
acceptable to the Corporation for his undertaking; (b) the Corporation is
insured against losses arising by reason of the advance; or (c) a majority of a
quorum of directors of the Corporation who are neither "interested persons" as
defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended,
nor parties to the proceeding ("disinterested non-party directors"), or
independent legal counsel, in a written opinion, shall have determined, based on
a review of facts readily available to the Corporation at the time the advance
is proposed to be made, that there is reason to believe that the person seeking
indemnification will ultimately be found to be entitled to indemnification.
Section 3. Procedure. At the request of any person claiming
indemnification under this Article, the Board of Directors shall determine, or
cause to be determined, in a manner consistent with the Maryland General
Corporation Law, whether the standards required by this Article have been met.
Indemnification shall be made only following: (a) a final decision on the merits
by a court or other body before whom the proceeding was brought that the person
to be indemnified was not liable by person of disabling conduct or (b) in the
absence of such a decision, a reasonable determination, based upon a review of
the facts, that the person to be indemnified was not liable by reason of
disabling conduct by (i) the vote of a majority of a quorum of disinterested
non-party directors or (ii) an independent legal counsel in a written opinion.
Section 4. Indemnification of Employees and Agents. Employees and
agents who are not officers or directors of the Corporation may be indemnified,
and reasonable expenses may be advanced to such employees or agents, as may be
provided by action of the Board of Directors or by contract, subject to any
limitations imposed by the Investment Company Act of 1940.
Section 5. Other Rights. The Board of Directors may make further
provision consistent with the law for indemnification and advance of expenses to
directors, officers, employees and agents by resolution, agreement or otherwise.
The indemnification provided by this Article shall not be deemed exclusive of
any other right, with respect to indemnification or otherwise, to which those
seeking indemnification may be entitled under any insurance or other agreement
or resolution of stockholders or disinterested directors or otherwise.
Section 6. Amendments. Referenced in this Article are the Maryland
General Corporation Law and the Investment Company Act of 1940 as from time to
time amended. No amendment of these By-laws shall effect any right of any
person under this Article based on any event, omission or proceeding prior to
the amendment.
SOUND SHORE FUND, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that D. KENNETH BAKER constitutes and
appoints David I. Goldstein and D. Blaine Riggle, and each of them, as true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement on Form N1-A and any or all
amendments thereto of Sound Shore Fund, Inc. and to file the same with the
Securities and Exchange Commission, granting unto the said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their or his substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
/s/ D. Kenneth Baker
---------------------------
D. Kenneth Baker
Dated: October 29, 1998
SOUND SHORE FUND, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that HARRY BURN III constitutes and
appoints David I. Goldstein and D. Blaine Riggle, and each of them, as true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement on Form N1-A and any or all
amendments thereto of Sound Shore Fund, Inc. and to file the same with the
Securities and Exchange Commission, granting unto the said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their or his substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
/s/ Harry Burn III
---------------------------
Harry Burn III
Dated: November 9, 1998
SOUND SHORE FUND, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that CHARLES J. HEDLUND constitutes and
appoints David I. Goldstein and D. Blaine Riggle, and each of them, as true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement on Form N1-A and any or all
amendments thereto of Sound Shore Fund, Inc. and to file the same with the
Securities and Exchange Commission, granting unto the said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their or his substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
/s/ Charles J. Hedlund
---------------------------
Charles J. Hedlund
Dated: October 26, 1998
SOUND SHORE FUND, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that T. GIBBS KANE, JR. constitutes and
appoints David I. Goldstein and D. Blaine Riggle, and each of them, as true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement on Form N1-A and any or all
amendments thereto of Sound Shore Fund, Inc. and to file the same with the
Securities and Exchange Commission, granting unto the said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their or his substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
/s/ T. Gibbs Kane, Jr.
---------------------------
T. Gibbs Kane, Jr.
Dated: November 5, 1998
SOUND SHORE FUND, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that JOHN L. LESHER constitutes and
appoints David I. Goldstein and D. Blaine Riggle, and each of them, as true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement on Form N1-A and any or all
amendments thereto of Sound Shore Fund, Inc. and to file the same with the
Securities and Exchange Commission, granting unto the said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their or his substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
/s/ John L. Lesher
---------------------------
John L. Lesher
Dated: November 2, 1998
SOUND SHORE FUND, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that JOHN J. McCLOY II constitutes and
appoints David I. Goldstein and D. Blaine Riggle, and each of them, as true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement on Form N1-A and any or all
amendments thereto of Sound Shore Fund, Inc. and to file the same with the
Securities and Exchange Commission, granting unto the said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their or his substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
/s/ John J. McCloy II
---------------------------
John J. McCloy II
Dated: November 2, 1998
SOUND SHORE FUND, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that WALTER R. NELSON constitutes and
appoints David I. Goldstein and D. Blaine Riggle, and each of them, as true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement on Form N1-A and any or all
amendments thereto of Sound Shore Fund, Inc. and to file the same with the
Securities and Exchange Commission, granting unto the said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their or his substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
/s/ Walter R. Nelson
---------------------------
Walter R. Nelson
Dated: October 29, 1998
