[Sound Shore Fund Logo]
July 1, 2000
Dear Shareholder:
The Sound Shore Fund (the "Fund") ended June 30, 2000 with a net asset
value of $29.03 per share. Year-to-date the Fund's total return was -1.3%. By
comparison, the total return for the S&P 500 is -0.5% and the decline for the
Dow Jones Industrial Average is -8.5%. This year marks the first time since 1994
that the Fund and the major market indices have posted losses for the first six
months of a year.
These figures should be put in the perspective of four years of above
average, double-digit market returns and belie the market's recent volatility.
The Fund's first quarter total return of 4.7% was offset by the -5.7% return in
the second quarter and compared with 2.3% and -2.7%, respectively, for the S&P
500. The tech-heavy Nasdaq showed even greater volatility by advancing 12.4% in
the first quarter and falling -13.3% in the second quarter. The Nasdaq returns
are without the benefit of dividends, which are very small.
Thus far this year, the Fund has benefited by the return to favor of stable
growers like Citizen's Communications, Enron, Duke Energy, Safeway and
HCA -- The Healthcare Company. Under-performing cyclical stocks like DuPont,
Eaton, Kaufman & Broad and TRW have partly offset these. In addition, two of our
telecommunication holdings, AT&T and Century Telephone, experienced difficulties
in their transition to higher growth business platforms. Our more economically
sensitive holdings, which represent about 20% of the portfolio, have discounted
a much more severe economic downturn than we can envision. These companies,
along with many others in the portfolio, are taking significant actions,
including spin-offs, asset sales, and major share repurchases, to increase
shareholder value.
We believe the recent volatility is a reminder to investors about the
merits of risk control and diversification, portfolio characteristics of great
importance to value investors like ourselves. Earnings for most companies remain
strong, and there appears to be more market breadth than seen in years. This,
coupled with increasing strategic acquisitions of undervalued, quality companies
at solid premiums (for example, MidAmerican Energy and Mallinckrodt from our
portfolio) is signaling better returns for the value style.
We see very favorable risk reward characteristics in our holdings.
Allstate, the country's largest investor-owned personal lines insurance carrier,
sells for eight times forward earnings estimates and a modest premium to book
value. Eaton, a high quality industrial and electrical equipment
<PAGE>
manufacturer, is in the process of spinning off a semiconductor division that
provides approximately 5% of revenue and 15% of profit, but represents
approximately 40% of Eaton's current valuation. Subtracting the value of the
spin-off, Eaton's remaining businesses are valued at five times forward
earnings, less than a quarter of the S&P 500's P/E.
These stocks are indicative of the strong absolute and relative values we
see in the market. The recent growth and momentum bias in the market has given
us the opportunity to own many quality companies with P/E ratios at or below
their growth rates. The market averages by this measure are at least twice as
expensive.
We thank you for your continued investment in the Fund. We will continue to
focus our attention on identifying solid investment opportunities.
Sincerely,
/s/ T. Gibbs Kane, Jr.
T. GIBBS KANE, JR.
PRESIDENT
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The Fund's 1-, 5- and
10-year average annual total returns for the periods ending 6/30/00 were -7.16%,
15.70% and 14.32%, respectively. 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 Index is an unmanaged index representing the average
performance of 500 widely held, publicly traded, large capitalization stocks. It
is not possible to invest directly in the Index.
Percent of net assets as of 6/30/00: AT&T Corporation: 2.54%; Century
Telephone: 3.14%; Citizen's Communications: 4.07%; Enron Corporation: 0.00%;
Duke Energy Corporation: 3.14%; Safeway, Inc.: 3.04%; HCA -- The Healthcare
Company: 3.45%; E.I. duPont de Nemours & Co.: 2.05%; Eaton Corporation: 2.76%;
Kaufman & Broad Home Corporation: 1.28%; TRW, Inc.: 2.33%; MidAmerican Energy:
0.00%; Mallinckrodt, Inc.: 0.00%; and Allstate Corporation: 2.63%.
2
<PAGE>
SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
FACE/SHARE MARKET
AMOUNT VALUE
---------- ------------
<S> <C> <C>
COMMON STOCK (95.3%)
----------------------------------------------------------------------------------------
BASIC MATERIALS (2.0%)
E.I. duPont de Nemours & Co. 426,700 $ 18,668,125
------------
BUILDING & BUILDING MATERIALS (4.0%)
American Standard Cos., Inc.+ 619,900 25,415,900
Kaufman & Broad Home Corp. 587,800 11,645,788
------------
37,061,688
------------
CAPITAL GOODS (8.8%)
Boeing Co. 480,000 20,070,000
Deere & Co. 326,300 12,073,100
Eaton Corp. 375,800 25,178,600
Thermo Electron Corp.+ 113,600 2,392,700
TRW, Inc. 489,200 21,219,050
------------
80,933,450
------------
COMMUNICATIONS (15.6%)
AT&T Corp. 733,000 23,181,125
BellSouth Corp. 641,500 27,343,938
CenturyTel, Inc. 995,000 28,606,250
Citizens Communications+ 2,154,000 37,156,500
Telephone and Data Systems, Inc. 262,500 26,315,625
------------
142,603,438
------------
CONSUMER PRODUCTS (8.5%)
Hasbro, Inc. 648,200 9,763,513
Kimberly-Clark Corp. 337,000 19,335,375
Minnesota Mining and Manufacturing Co. 224,000 18,480,000
Sara Lee Corp. 234,700 4,532,644
Walt Disney Co. 654,500 25,402,781
------------
77,514,313
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE>
SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
FACE/SHARE MARKET
AMOUNT VALUE
---------- ------------
<S> <C> <C>
ENERGY (3.1%)
Grant Prideco, Inc.+ 433,000 $ 10,825,000
Weatherford International, Inc.+ 431,000 17,159,188
------------
27,984,188
------------
FINANCIAL (9.9%)
Capital One Financial Corp. 105,500 4,707,937
Federal Home Loan Mortgage Corp. 374,500 15,167,250
Federal National Mortgage Association 628,500 32,799,843
Lehman Brothers, Inc. 157,500 14,893,594
Providian Financial Corp. 248,300 22,347,000
------------
89,915,624
------------
HEALTHCARE (4.1%)
Baxter International, Inc. 56,500 3,972,656
HCA -- The Healthcare Company 1,036,900 31,495,838
HEALTHSOUTH Corp.+ 274,000 1,969,375
------------
37,437,869
------------
INSURANCE (7.8%)
Allstate Corp. 1,076,500 23,952,125
Ambac Financial Group, Inc. 412,200 22,593,712
MBIA, Inc. 507,000 24,431,063
------------
70,976,900
------------
PROFESSIONAL SERVICES (2.0%)
Cendant Corp.+ 1,313,000 18,382,000
------------
RETAIL (7.6%)
Office Depot, Inc.+ 2,417,000 15,106,250
Safeway, Inc.+ 613,700 27,693,212
TJX Cos., Inc. 1,408,000 26,400,000
------------
69,199,462
------------
SPECIALTY CHEMICALS (1.4%)
Engelhard Corp. 731,900 12,488,044
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
FACE/SHARE MARKET
AMOUNT VALUE
---------- ------------
<S> <C> <C>
TECHNOLOGY (10.2%)
BMC Software, Inc.+ 605,500 $ 22,091,304
Compaq Computer Corp. 742,000 18,967,375
Computer Associates International, Inc. 100,000 5,118,750
Cypress Semiconductor Corp.+ 386,000 16,308,500
IBM Corp. 259,000 28,376,688
Sabre Holdings Corp. 55,000 1,567,500
------------
92,430,117
------------
TRANSPORTATION (1.3%)
Delta Airlines, Inc. 235,500 11,907,468
------------
UTILITIES (9.0%)
Duke Energy Corp. 508,000 28,638,500
Dynegy, Inc. 515,500 35,215,093
Kinder Morgan Inc 142,300 4,918,244
Williams Cos., Inc. 316,000 13,173,250
------------
81,945,087
------------
TOTAL COMMON STOCK (COST $760,867,123) $869,447,773
------------
SHORT-TERM HOLDINGS (3.5%)
----------------------------------------------------------------------------------------
Institutional Cash Management Fund 25,712,630 $ 25,712,630
Daily Assets Cash Fund 3,070,923 3,070,923
Daily Assets Government Obligations Fund 2,708,894 2,708,894
------------
TOTAL SHORT-TERM HOLDINGS (COST $31,492,447) $ 31,492,447
------------
TOTAL INVESTMENTS (98.8%) (COST $792,359,570) $900,940,220
OTHER ASSETS LESS LIABILITIES (1.2%) 11,415,147
------------
NET ASSETS (100.0%) (31,431,700 SHARES OUTSTANDING) $912,355,367
============
NET ASSET VALUE (OFFERING AND REDEMPTION PRICE PER SHARE) $ 29.03
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS (CONCLUDED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
VALUE
------------
<S> <C> <C>
AT JUNE 30, 2000, NET ASSETS CONSISTED OF:
----------------------------------------------------------------------------------------
Par Value $ 31,432
Paid in Capital 774,740,049
Accumulated Distributions in Excess of Net Investment Income (58,608)
Unrealized Appreciation of Investments 108,580,650
Accumulated Net Realized Gain from Investments 29,061,844
------------
$912,355,367
============
</TABLE>
+ Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
SOUND SHORE FUND, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME
Income:
Dividends.............................................. $ 5,767,911
Interest............................................... 990,635
-------------
Total Income...................................... 6,758,546
-------------
Expenses:
Investment adviser fee (Note 3)........................ 3,705,135
Administrator fee (Note 3)............................. 494,018
Transfer agent fee (Note 3)............................ 494,018
Custodian fee.......................................... 58,240
Accounting fee (Note 3)................................ 30,000
Legal fee.............................................. 27,043
Auditing fee........................................... 13,250
Directors' fees and expenses (Note 3).................. 18,161
Registration fees...................................... 31,947
Miscellaneous.......................................... 70,527
-------------
Total Expenses.................................... 4,942,339
-------------
Net Investment Income....................................... 1,816,207
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments sold....................... 94,056,044
Net change in unrealized depreciation of investments........ (115,451,968)
-------------
Net realized and unrealized depreciation of investments..... (21,395,924)
-------------
Net decrease in net assets resulting from operations........ $ (19,579,717)
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
SOUND SHORE FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS FOR THE
ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999
-------------- --------------
<S> <C> <C>
Operations:
Net investment income......................... $ 1,816,207 $ 7,796,710
Net realized gain on investments sold......... 94,056,044 21,551,718
Net change in unrealized depreciation of
investments................................. (115,451,968) (42,817,457)
-------------- --------------
Decrease in net assets from operations........ (19,579,717) (13,469,029)
Dividends to shareholders from net investment
income........................................... (1,872,849) (7,947,649)
Capital share transactions (Note 5)................ (240,927,448) (765,334,753)
-------------- --------------
Total decrease................................ (262,380,014) (786,751,431)
Net assets:
Beginning of the year......................... 1,174,735,381 1,961,486,812
-------------- --------------
End of period (Including line (A))............ $ 912,355,367 $1,174,735,381
============== ==============
(A) Accumulated distributions in excess of net
investment income......................... $ (58,608) $ (1,966)
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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, other than short-term securities, held by the Fund for which
market quotations are readily available are valued using the last reported
sales price provided by independent pricing services as of the close of
trading on the New York Stock Exchange (normally 4:00 p.m. Eastern time),
on the Fund's business day. 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 treatment of income and gain on
9
<PAGE>
SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
various investment securities held by the Fund, timing differences and
differing characterizations of distributions made by the Fund.
d) FEDERAL TAXES
The Fund intends to qualify each year as a regulated investment company and
distribute all of its taxable income. In addition, by distributing in each
calendar year substantially all of its net investment income, capital gain
and certain other amounts, if any, the Fund will not be subject to a
federal excise tax. Therefore, no federal income or excise tax provision is
required.
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.
Under a Distribution Agreement, Forum Fund Services, LLC ("FFS") 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 affiliates, $1,000 per meeting attended, plus $750 per quarter.
Fees for investment advisory and other related parties in the amount of $581,255
and $293,109, respectively, are payable at June 30, 2000.
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, 2000,
aggregated $436,087,400 and $669,066,598, respectively.
10
<PAGE>
SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONCLUDED)
For federal income tax purposes, the tax basis of investment securities owned as
of June 30, 2000 was $792,359,570. The aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over tax cost
was $168,882,325 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over market value was $60,301,675.
5. CAPITAL STOCK
As of June 30, 2000, 100,000,000 shares of $.001 par value stock were authorized
and capital paid in amounted to $774,771,481. Transactions in capital stock were
as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
---------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sale of shares.................. 6,010,368 $ 175,590,890 18,304,845 $ 538,394,412
Reinvestment of dividends....... 60,937 1,768,935 238,216 7,273,441
Redemption of shares............ (14,503,330) (418,287,273) (44,894,551) (1,311,002,606)
----------- ------------- ----------- ---------------
Net decrease from capital
transactions.................. (8,432,025) $(240,927,448) (26,351,490) $ (765,334,753)
=========== ============= =========== ===============
</TABLE>
Of the 31,431,700 shares outstanding as of June 30, 2000, the Employees' Profit
Sharing Plan of Sound Shore Management, Inc. owned 271,454 shares.
11
<PAGE>
SOUND SHORE FUND, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2000 ---------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.......................... $29.47 $29.62 $28.57 $21.71 $18.16 $15.46
--------- ------ ------ ------ ------ ------
Investment Operations
Net Investment Income......... 0.06 0.17 0.21 0.12 0.13 0.25
Net Realized and Unrealized
Gain (Loss) on
Investments................ (0.44) (0.15) 1.05 7.75 5.90 4.33
--------- ------ ------ ------ ------ ------
Total from Investment
Operations...................... (0.38) 0.02 1.26 7.87 6.03 4.58
--------- ------ ------ ------ ------ ------
Distributions From
Net Investment Income......... (0.06) (0.17) (0.20) (0.12) (0.13) (0.21)
In Excess of Net Investment
Income..................... -- --(a) -- --(a) -- --
From Net Realized Gains....... -- -- -- (0.87) (2.35) (1.67)
In Excess of Net Realized
Gains...................... -- -- -- (0.02) -- --
From Return of Capital........ -- -- (0.01) -- -- --
--------- ------ ------ ------ ------ ------
Total Distributions............... (0.06) (0.17) (0.21) (1.01) (2.48) (1.88)
--------- ------ ------ ------ ------ ------
Net Asset Value, End of Period.... $29.03 $29.47 $29.62 $28.57 $21.71 $18.16
========= ====== ====== ====== ====== ======
Total Return...................... (1.29%) 0.05% 4.40% 36.40% 33.27% 29.87%
Ratio/Supplementary Data
Net Assets at End of Period (in
thousands)...................... $912,355 $1,174,735 $1,961,487 $1,313,686 $132,862 $67,602
Ratios to Average Net Assets:
Expenses (net of
reimbursement)............. 0.98%(b) 0.98% 0.99% 1.08% 1.15% 1.15%
Expenses (gross)(c)........... 0.98%(b) 0.98% 1.00% 1.10% 1.16% 1.15%
Net Investment Income......... 0.09%(b) 0.50% 0.77% 0.62% 0.70% 1.41%
Portfolio Turnover Rate........... 46% 41% 44% 53% 69% 53%
</TABLE>
(a) The Fund distributed an amount in excess of net investment income of less
than $0.01 per share.
(b) Annualized.
(c) Reflects expense ratio in the absence of expense reimbursement.
SEE NOTES TO FINANCIAL STATEMENTS.
12
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<PAGE>
[Sound Shore Fund Logo]
INVESTMENT ADVISER
Sound Shore Management, Inc.
8 Sound Shore Drive
Greenwich, Connecticut 06836
ADMINISTRATOR
Forum Administrative Services, LLC
Portland, Maine
DISTRIBUTOR
Forum Fund Services, LLC
Portland, Maine
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Forum Shareholder Services, LLC
Two Portland Square
Portland, Maine 04101
1-800-754-8758
CUSTODIAN
Forum Trust, LLC
Portland, Maine
COUNSEL
Dechert Price & Rhoads
New York, New York
INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Deloitte & Touche LLP
Boston, Massachusetts
<PAGE>
SEMI-ANNUAL REPORT
(Unaudited)
JUNE 30, 2000
SOUND
SHORE
FUND
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
