<PAGE>
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SOUND SHORE FUND
TWO PORTLAND SQUARE, PORTLAND, ME 04101 -- 1-800-754-8758
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July 1, 1999
Dear Shareholder:
The Sound Shore Fund ended the second quarter with a net asset value of
$31.42, following a distribution of $0.09 on June 30th. The Fund's total return
of 11.1% in the second quarter exceeded the S&P 500, which gained 7.0%. For the
first six months of 1999, the Fund is up 6.4% while the S&P 500 is up 12.4%. The
Fund's strong second quarter performance was driven by a long overdue increase
in market breadth, and a corresponding decline in the dominance of a small group
of highly valued large capitalization companies.
The improvement in market breadth is coincident with an upward revision of
forecast 1999 corporate earnings and follows a 5% first quarter increase that
was stronger than expected. The uncertainty about the short-term profit outlook
following the Asian, Russian and Brazilian economic turmoil appears to have
peaked in the first quarter of 1999. A strong domestic economy, low inflation,
and increased stability in emerging economies should continue to support the
stock market and advantage a number of our economically sensitive issues.
Moreover, the second quarter witnessed a renewed emphasis on valuation as
low P/E stocks outperformed high P/E stocks (as they have over long measurement
periods). For instance, the S&P Barra Value Index beat its Growth Index by 10.8%
to 3.8%. The Sound Shore Fund's recent quarter supports our confidence that the
unusually strong growth stock phenomena for the prior 18 months does not herald
a permanent new order.
By adhering to our low relative and absolute P/E approach, we believe we
have constructed a portfolio of high quality companies at very attractive
valuations. The benefits of our discipline were clearly evident in our second
quarter performance and the emergence of a more rational market environment
should have just begun. While the process will not be without temporary
reversals, we are sanguine that the long-term results of our disciplined value
approach will continue to benefit our shareholders over both the intermediate
and longer term.
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As always, we thank you for your continued support and welcome any questions
you may have.
Sincerely,
/s/ T. Gibbs Kane, Jr.
T. GIBBS KANE, JR.
PRESIDENT
THE FUND'S 1-, 5-, AND 10-YEAR AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDING 6/30/99 WERE 5.8%, 21.7%, AND 15.8%, RESPECTIVELY.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE FUND'S AVERAGE
ANNUAL TOTAL RETURN ASSUMES REINVESTMENT OF ALL DIVIDEND AND CAPITAL GAIN
DISTRIBUTIONS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT,
WHEN REDEEMED, AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
THE S&P 500 IS AN UNMANAGED INDEX REPRESENTING THE AVERAGE PERFORMANCE OF
500 WIDELY HELD, PUBLICLY TRADED, LARGE CAPITALIZATION STOCKS. THE S&P BARRA
VALUE INDEX CONTAINS STOCKS THAT TEND TO HAVE LOW PRICE-TO-EARNINGS RATIOS, HIGH
DIVIDEND YIELDS, AND LOW HISTORICAL AND PREDICTED EARNINGS GROWTH. THE S&P BARRA
GROWTH INDEX CONTAINS COMPANIES WITH HIGHER PRICE-TO-EARNINGS RATIOS, LOW
DIVIDEND YIELDS, AND HIGHER EARNINGS GROWTH. IT IS NOT POSSIBLE TO INVEST
DIRECTLY IN THESE INDICES.
FORUM FUND SERVICES, LLC IS THE FUND'S DISTRIBUTOR.
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2
<PAGE>
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SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS
JUNE 30, 1999 (UNAUDITED)
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<TABLE>
<CAPTION>
FACE/SHARE MARKET
AMOUNT VALUE
----------- --------------
<S> <C> <C>
COMMON STOCK (96.0%)
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AUTOMOTIVE (10.1%)
AutoNation, Inc.* 2,914,000 $ 51,905,623
Borg-Warner Automotive, Inc. 441,000 24,255,000
Ford Motor Co. 753,500 42,525,656
Magna International, Inc., Class A 851,000 48,294,250
--------------
166,980,529
--------------
BANKS (3.6%)
Bank One Corp. 1,011,500 60,247,468
--------------
BASIC MATERIALS (3.3%)
Crompton & Knowles Corp. 1,700,500 33,266,031
Engelhard Corp. 956,800 21,647,601
--------------
54,913,632
--------------
BUILDING & BUILDING MATERIALS (4.6%)
American Standard Cos., Inc.* 911,600 43,756,800
Kaufman & Broad Home Corp. 1,310,500 32,598,688
--------------
76,355,488
--------------
COMMUNICATIONS (5.5%)
AT&T Corp. 754,500 42,110,532
CenturyTel., Inc. 644,500 25,618,875
Telephone and Data Systems, Inc. 314,500 22,978,156
--------------
90,707,563
--------------
</TABLE>
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SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE>
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SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
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<TABLE>
<CAPTION>
FACE/SHARE MARKET
AMOUNT VALUE
----------- --------------
CONSUMER PRODUCTS (12.9%)
<S> <C> <C>
Brunswick Corp. 600,900 $ 16,750,088
Hasbro, Inc. 1,732,000 48,387,750
Kimberly-Clark Corp. 888,000 50,616,000
Minnesota Mining & Manufacturing Co. 382,500 33,253,594
Polaris Industries, Inc. 294,000 12,789,000
UST, Inc. 1,740,600 50,912,550
--------------
212,708,982
--------------
ENERGY (4.8%)
Enron Corp. 587,000 47,987,250
Weatherford International, Inc.* 840,000 30,765,000
--------------
78,752,250
--------------
FINANCIAL (3.8%)
Fannie Mae 916,000 62,631,500
--------------
HEALTHCARE (3.7%)
Mallinckrodt, Inc. 1,680,500 61,128,187
--------------
INSURANCE (13.1%)
Allstate Corp. 1,402,500 50,314,686
Ambac Financial Group, Inc. 565,200 32,287,051
Loews Corp. 612,800 48,487,801
MBIA, Inc. 716,400 46,386,900
PartnerRe Ltd. 1,044,800 39,049,400
--------------
216,525,838
--------------
RESTAURANTS & LODGING (2.5%)
Tricon Global Restaurants, Inc.* 763,000 41,297,376
--------------
</TABLE>
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SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
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SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
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<TABLE>
<CAPTION>
FACE/SHARE MARKET
AMOUNT VALUE
----------- --------------
TECHNOLOGY (15.3%)
<S> <C> <C>
BMC Software, Inc.* 1,014,200 $ 54,766,800
IBM Corp. 465,000 60,101,250
Parametric Technology Co.* 3,206,000 44,483,250
Sterling Commerce, Inc.* 969,500 35,386,750
Texas Instruments, Inc. 397,500 57,637,500
--------------
252,375,550
--------------
TRANSPORTATION (2.6%)
Delta Airlines, Inc. 733,000 42,239,125
--------------
UTILITIES (10.2%)
Azurix Corp.* 200,000 4,000,000
Citizens Utilities Co.* 4,163,400 46,317,823
MidAmerican Energy Holdings Co. 1,874,400 64,901,100
Texas Utilities Co. 1,301,000 53,666,252
--------------
168,885,175
--------------
TOTAL COMMON STOCK (COST $1,256,563,697) $1,585,748,663
--------------
SHORT-TERM HOLDINGS (4.2%)
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Bankers Trust Institutional Cash Management Fund 52,485,103 $ 52,485,103
Bankers Trust Investment Money Market Fund 13,050,000 13,050,000
Forum Daily Assets Cash Fund 2,901,537 2,901,537
Forum Daily Assets Government Obligations 1,562,270 1,562,270
--------------
TOTAL SHORT-TERM HOLDINGS (COST $69,998,910) $ 69,998,910
--------------
TOTAL INVESTMENTS (100.2%) (COST $1,326,562,607) $1,655,747,573
OTHER ASSETS LESS LIABILITIES (-0.2%) (3,214,422)
--------------
NET ASSETS (100.0%) (52,601,962 SHARES OUTSTANDING) $1,652,533,151
--------------
--------------
NET ASSET VALUE (OFFERING AND REDEMPTION PRICE PER SHARE) $ 31.42
--------------
--------------
</TABLE>
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SEE NOTES TO FINANCIAL STATEMENTS.
5
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SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS (CONCLUDED)
JUNE 30, 1999 (UNAUDITED)
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<TABLE>
<S> <C> <C>
MARKET
VALUE
--------------
AT JUNE 30, 1999, NET ASSETS CONSISTED OF:
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Par Value $ 52,602
Paid in Capital 1,385,498,650
Accumulated Distributions in Excess of Net Investment Income (142,360)
Unrealized Appreciation of Investments 329,184,966
Accumulated Net Realized Loss from Investments (62,060,707)
--------------
NET ASSETS $1,652,533,151
--------------
--------------
</TABLE>
* Non-income producing security.
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SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
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SOUND SHORE FUND, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
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<TABLE>
<S> <C>
INVESTMENT INCOME
Income:
Dividends..................................... $11,924,437
Interest...................................... 1,087,626
-----------
Total Income.............................. 13,012,063
-----------
Expenses:
Investment adviser fee (Note 3)............... 6,370,480
Administrator fee (Note 3).................... 849,397
Transfer agent fee (Note 3)................... 849,397
Custodian fee................................. 109,234
Accounting fee (Note 3)....................... 30,000
Legal fee..................................... 4,175
Auditing fee.................................. 12,750
Directors' fees and expenses (Note 3)......... 15,872
Registration fees............................. 87,782
Miscellaneous................................. 78,610
-----------
Total Expenses............................ 8,407,697
-----------
Net Investment Income............................. 4,604,366
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from investments................ 24,476,175
Net change in unrealized appreciation of
investments...................................... 62,334,891
-----------
Net realized and unrealized gain on investments... 86,811,066
-----------
Net increase in net assets resulting from
operations....................................... $91,415,432
-----------
-----------
</TABLE>
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SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
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SOUND SHORE FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
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<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS (UNAUDITED) 1998
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income.......... $ 4,604,366 $ 13,880,107
Net realized gain (loss) on
investments sold............. 24,476,175 (84,757,185)
Net change in unrealized
appreciation of investments.. 62,334,891 113,919,945
--------------- ---------------
Increase in net assets from
operations................... 91,415,432 43,042,867
Dividends to shareholders from net
investment income................. (4,746,726) (13,133,750)
Return of Capital.................. -- (563,092)
Capital share transactions (Note
5)................................ (395,622,367) 618,454,819
--------------- ---------------
Total increase (decrease)...... (308,953,661) 647,800,844
Net assets:
Beginning of the year.......... 1,961,486,812 1,313,685,968
--------------- ---------------
End of period (A).............. $ 1,652,533,151 $ 1,961,486,812
--------------- ---------------
--------------- ---------------
(A) Including accumulated
distributions in excess of
net investment income
(loss)..................... $ (142,360) $ --
--------------- ---------------
--------------- ---------------
</TABLE>
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SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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1. ORGANIZATION
Sound Shore Fund, Inc. (the "Fund") was incorporated on February 19, 1985, as a
no-load, diversified, open-end management investment company under the
Investment Company Act of 1940.
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements are prepared in accordance with generally accepted
accounting principles, which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of increase and decrease in net assets from
operations during the fiscal period. Actual results could differ from those
estimates.
The following represent significant accounting policies of the Fund:
a) SECURITY VALUATION
Securities traded on a national securities exchange are valued at the last
reported sales price. Common stocks which are not so traded, for which no sale
was reported, and over-the-counter securities are valued at the mean between
the closing bid and asked prices. Instruments having sixty days or less
remaining until maturity are stated at amortized cost. Debt instruments having
a remaining maturity of more than sixty days are valued at the mean between
the last reported bid and asked price obtained from a dealer maintaining an
active market in that security or on the basis of prices obtained from a
pricing service approved as reliable by the Board of Directors. All other
investment assets, including restricted and not readily marketable securities,
are valued in such manner as the Board of Directors in good faith deems
appropriate to reflect their fair market value.
b) SECURITY TRANSACTIONS AND INVESTMENT INCOME
Dividend income is recorded on the ex-dividend date. Interest income is
recorded on an accrual basis. Security transactions are recorded on a trade
date basis. Realized gain and loss on investments sold are recorded on the
basis of identified cost.
c) DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income, if any, are declared and paid
semi-annually. Capital gains, if any, are distributed to shareholders at least
annually. Distributions are based on amounts calculated in accordance with
applicable federal income tax regulations, which may differ from generally
accepted accounting principles. These differences are due primarily to
differing treatments of income and gain on various investment securities held
by the Fund, timing differences and differing characterizations of
distributions made by the Fund.
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9
<PAGE>
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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d) FEDERAL TAXES
The Fund intends to qualify each year as a regulated investment company and
distribute all its taxable income. In addition, by distributing in each
calendar year substantially all its net investment income, capital gain and
certain other amounts, if any, the Fund will not be subject to a federal
excise tax. Therefore, no federal income or excise tax provision is required.
3. INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
The Fund's investment adviser is Sound Shore Management, Inc. ("Adviser").
Pursuant to an Investment Advisory Agreement, the Adviser receives an advisory
fee at an annual rate of 0.75% of the Fund's average daily net assets.
OTHER SERVICES
Under an Administration Agreement, the Fund pays an administration fee to Forum
Administrative Services, LLC ("FAdS") at an annual rate of 0.10% of the Fund's
average daily net assets.
Under a Fund Accounting Agreement, Forum Accounting Services, LLC ("FAcS"), an
affiliate of FAdS, provides portfolio accounting services to the Fund. FAcS is
paid a fee at an annual rate of $60,000 per year.
Under a Transfer Agency Agreement, Forum Shareholder Services, LLC ("FSS"), an
affiliate of FAdS, provides transfer agency services to the Fund. FSS is paid a
fee at an annual rate of 0.10% of the Fund's average daily net assets.
Pursuant to a Distribution Agreement, Forum Fund Services, LLC, an affiliate of
FAdS, acts as distributor of the Fund's shares and is not paid any fee for its
distribution services. Prior to May 1, 1999, Forum Financial Services, Inc.
acted as the distributor of the Fund's shares.
The Fund pays five Directors who are unaffiliated with the Adviser, FAdS or any
of its afflilates, $1,000 per meeting attended, plus $750 per quarter.
Fees for investment advisory and other related parties in the amount of
$1,009,746 and $134,633, respectively, are payable at June 30, 1999.
4. PURCHASES AND SALES OF SECURITIES
The cost of securities purchased and the proceeds from sales of securities
(excluding short-term investments) for the six months ended June 30, 1999,
aggregated $229,180,180 and $616,431,600, respectively.
For federal income tax purposes, the tax basis of investment securities owned as
of June 30, 1999 was $1,326,562,607. The aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over tax cost
was $385,572,939 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over market value was $56,387,974.
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10
<PAGE>
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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5. CAPITAL STOCK
As of June 30, 1999, 100,000,000 shares of $0.001 par value stock were
authorized and capital paid in amounted to $1,385,551,252. Transactions in
capital stock were as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
------------------------------ -------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C>
Sale of shares.................................. 10,253,844 $ 303,714,846 51,045,753 $ 1,504,978,826
Reinvestment of dividends....................... 136,593 4,290,976 418,730 12,344,557
Redemption of shares............................ (24,003,690) (703,628,189) (31,229,053) (898,868,564)
------------- --------------- ------------- ----------------
Net increase (decrease) from capital
transactions................................... (13,613,253) $ (395,622,367) 20,235,430 $ 618,454,819
------------- --------------- ------------- ----------------
------------- --------------- ------------- ----------------
</TABLE>
Of the 52,601,962 shares outstanding as of June 30, 1999, the Employees' Profit
Sharing Plan of the Adviser owned 263,270 shares.
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11
<PAGE>
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SOUND SHORE FUND, INC.
FINANCIAL HIGHLIGHTS
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<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1999 ---------------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995
----------------- ----------------- ----------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period...................... $ 29.62 $ 28.57 $ 21.71 $ 18.16 $ 15.46
------ ------ -------- ------- ------
Investment Operations
Net Investment Income....... 0.09 0.21 0.12 0.13 0.25
Net Realized and Unrealized
Gain (Loss) on
Investments............... 1.80 1.05 7.75 5.90 4.33
------ ------ -------- ------- ------
Total from Investment
Operations.................. 1.89 1.26 7.87 6.03 4.58
------ ------ -------- ------- ------
Distributions From
Net Investment Income..... (0.09) (0.20) (0.12) (0.13) (0.21)
In Excess of Net
Investment Income....... --(a) -- --(a) -- --
Net Realized Gains........ -- -- (0.87) (2.35) (1.67)
In Excess of Net Realized
Gains................... -- -- (0.02) -- --
Return of Capital......... -- (0.01) -- -- --
------ ------ -------- ------- ------
Total Distributions........... (0.09) (0.21) (1.01) (2.48) (1.88)
------ ------ -------- ------- ------
Net Asset Value, End of
Period...................... $ 31.42 $ 29.62 $ 28.57 $ 21.71 $ 18.16
------ ------ -------- ------- ------
------ ------ -------- ------- ------
Total Return.................. 6.38% 4.40% 36.40% 33.27% 29.87%
Ratio/Supplementary Data
Net Assets at End of Period
(in thousands).............. $1,652,533 $1,961,487 $1,313,686 $132,862 $67,602
Ratios to Average Net
Assets:
Expenses.................. 0.99%(b) 0.99% 1.08% 1.15% 1.15%
Net Investment Income..... 0.54%(b) 0.77% 0.62% 0.70% 1.41%
Portfolio Turnover Rate....... 14% 44% 53% 69% 53%
<CAPTION>
1994
------------
<S> <C>
Net Asset Value, Beginning of
Period...................... $ 16.50
------
Investment Operations
Net Investment Income....... 0.22
Net Realized and Unrealized
Gain (Loss) on
Investments............... (0.17)
------
Total from Investment
Operations.................. 0.05
------
Distributions From
Net Investment Income..... (0.22)
In Excess of Net
Investment Income....... --
Net Realized Gains........ (0.87)
In Excess of Net Realized
Gains................... --
Return of Capital......... --
------
Total Distributions........... (1.09)
------
Net Asset Value, End of
Period...................... $ 15.46
------
------
Total Return.................. 0.30%
Ratio/Supplementary Data
Net Assets at End of Period
(in thousands).............. $59,993
Ratios to Average Net
Assets:
Expenses.................. 1.22%
Net Investment Income..... 1.32%
Portfolio Turnover Rate....... 76%
</TABLE>
(a) The Fund distributed an amount in excess of net investment income of less
than $0.01 per share.
(b) Annualized.
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SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
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This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors in the Fund
unless preceded or accompanied by an effective prospectus, which includes
information regarding the Fund's objectives and policies, experience of its
management, marketability of shares, and other information.
- ----------------------------------------------
SOUND SHORE FUND, INC.
Two Portland Square
Portland, ME 04101
http://www.soundshorefund.com
INVESTMENT ADVISER
Sound Shore Management, Inc.
P.O. Box 1810
8 Sound Shore Drive
Greenwich, Connecticut 06836
ADMINISTRATOR
Forum Administrative Services, LLC
Two Portland Square
Portland, Maine 04101
TRANSFER AGENT & DIVIDEND
DISBURSING AGENT
Forum Shareholder Services, LLC
Two Portland Square
Portland, Maine 04101
[LOGO]
SEMI-ANNUAL REPORT
JUNE 30, 1999
(UNAUDITED)
