<PAGE>
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SOUND SHORE FUND
TWO PORTLAND SQUARE, PORTLAND, ME 04101 -- 1-800-754-8758
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December 31, 1999
Dear Shareholder:
The total return for Sound Shore Fund, Inc. (the "Fund") was 7.30% for the
quarter ended December 31, 1999 compared to 14.88% for the S&P 500 and 5.6% for
the Morningstar Mid-Cap Value Funds average. For the year ended December 31,
1999, the Fund's total return was 0.05% compared to 21.04% for the S&P 500 and
6.7% for the Morningstar Mid-Cap Value Funds average.
1999 was a year in which the major indices increased while more stocks fell
than rose. More importantly, the emphasis on growth stocks, to the detriment of
value, was the dominant theme in 1999, particularly in the mid-cap sector. The
Morningstar Mid-Cap Growth Funds average gained 60.1% while the corresponding
value average, as noted above, rose just 6.7%.
While these statistics do not fully explain the Fund's lackluster
performance, a review of the types of stocks that rose versus those that fell is
revealing. The average stock in the S&P 500, excluding its technology
components, rose just 2% in 1999 as inflation fears cut valuations in
"traditional economy" companies. Market participants appeared to abandon an
appreciation for company specific earnings and valuations, the fundamental
drivers of equity returns. Richard Bernstein, Merrill Lynch's veteran market
analyst, recently said to BARRONS "the big shock for me was that the market
ignored fundamentals in favor of speculation."
The counter-intuitive dichotomy of returns in 1999 is clearly reflected in
the performance of the Fund's holdings. As expected and as usual, we had our
share of stocks that performed well, from both a fundamental and return
standpoint. The stocks that outperformed the S&P 500 represented approximately
one-third of the portfolio and increased more than 65% on average. Several were
technology and telecommunications holdings such as BMC Software, Texas
Instruments, Parametric Technology, Telephone and Data Systems and Citizens
Utilities. In addition to these, many of 1999's winners were energy, industrial
and consumer oriented concerns including Enron, Weatherford International,
American Standard, 3M and Kimberly-Clark.
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Our focus on value has never precluded us from investing in the technology
and communications sectors, provided that these stocks can be acquired at
attractive valuations relative to their returns and growth prospects. BMC
Software, for example, was acquired during an early spring sell-off over Y2K
concerns for approximately 16 times earnings despite its consistent 25% plus
growth rate and long history of trading at a significant P/E premium to the S&P
500. In addition to valuation support, we are determined to manage risk through
diversification, and, therefore, continually spread our holdings across a
variety of industries.
However, diversification, like low valuation, was a detriment in 1999. A
large group of stocks, representing approximately 30% of the portfolio,
performed well from a fundamental standpoint but suffered severe share price
declines. This group will report increased earnings of approximately 20% in 1999
versus 16% for the S&P 500. Yet these stocks declined almost 20% on average in
1999. Earnings growth in 1998 outpaced the S&P 500, and consensus earnings
growth in 2000 is expected to be equal to that of the S&P 500. Moreover, this
group trades at an average P/E of 12 times 1999 earnings or less than half the
S&P 500 multiple.
Several companies that performed poorly on both fundamentals and share price
were sold during the year. These included Bank One, CK Witco and Partner Re.
Others, particularly in the out-of-favor insurance sector, are under close
surveillance for an expected improvement in fundamentals and valuation.
A portion of the Fund's performance can be attributed to the almost 150
basis point increase in long-term interest rates from the highly depressed
levels at the end of 1998. This rate increase negatively impacted our financial
service holdings like Fannie Mae and Ambac Financial. Both companies are
demonstrating accelerating growth and improving returns on investment despite
the rate increase. In addition, interest rate increases reflect the improved
global economic outlook after a near brush with a deflationary collapse late in
1998. This environment bodes well for credit quality and demand, which should
benefit many of the companies in the portfolio.
We believe that the bifurcation of the equity market into a small group of
highly valued stocks and a large group of undervalued stocks is not sustainable.
History would indicate that those who chase the narrow list of dramatic winners
and soaring IPOs of the
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2
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recent past have a very low probability of generating attractive long-term
returns. We have used this environment to construct a portfolio of high quality
companies that trade for a significant discount to both their intrinsic fair
value and the S&P 500. We have added several new positions including The Walt
Disney Company, Bell South, Safeway and Columbia Healthcare. For more detailed
information about the market and our holdings, please visit our web site at
www.soundshorefund.com.
Despite the unusual market environment, we remain convinced that our
disciplined value approach, and its consistent execution, will benefit our
investors over the long-term. We wish you a happy and healthy New Year and thank
you for your continued support.
Sincerely,
/s/ T. Gibbs Kane, Jr.
T. GIBBS KANE, JR.
PRESIDENT
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
TO QUALIFY AS A MORNINGSTAR MID-CAP VALUE FUND, THE AVERAGE WEIGHTED MARKET
CAPITALIZATION OF THE STOCKS IN THE MIDDLE CAPITALIZATION QUINTILE OF A FUND'S
PORTFOLIO, MUST FALL BETWEEN $1.55 BILLION AND $9.52 BILLION. IN ADDITION,
MORNINGSTAR'S MID-CAP VALUE FUNDS HAVE A COMBINED RELATIVE PRICE/EARNINGS AND
RELATIVE PRICE/BOOK FIGURE OF LESS THAN 1.75. THE S&P 500 IS AN UNMANAGED INDEX
REPRESENTING THE AVERAGE PERFORMANCE OF 500 WIDELY HELD, PUBLICLY TRADED, LARGE
CAPITALIZATION STOCKS. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN THE INDEX.
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3
<PAGE>
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The following chart reflects a comparison in the change in value of a
$10,000 investment in Sound Shore Fund, Inc. (the "Fund") including reinvested
dividends and distributions, and the performance of the Standard & Poor's 500
Index (the "S&P 500"). The S&P 500 is a market weighted index composed of 500
large capitalization companies and reflects the reinvestment of dividends. The
S&P 500 excludes the effect of any expenses, which have been deducted from the
Fund's return. Investment return and principal value of an investment in the
Fund will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost. PAST PERFORMANCE CANNOT PREDICT NOR
GUARANTEE FUTURE RESULTS.
SOUND SHORE FUND VS. S&P 500 INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SOUND SHORE FUND S&P 500 INDEX
<S> <C> <C> <C>
12/31/89 10,000 10,000.00
01/31/90 9,490 9,329.00
02/28/90 9,774 9,450.04
03/31/90 9,847 9,700.27
04/30/90 9,512 9,458.64
05/31/90 10,269 10,378.88
06/30/90 10,269 10,308.91
07/31/90 10,254 10,275.97
08/31/90 9,370 9,348.25
09/30/90 8,707 8,893.93
10/31/90 8,354 8,856.33
11/30/90 8,641 9,427.68
12/31/90 8,936 9,690.16
01/31/91 9,482 10,111.11
02/28/91 10,188 10,833.32
03/31/91 10,416 11,095.39
04/30/91 10,446 11,121.47
05/31/91 11,266 11,599.91
06/30/91 10,667 11,068.87
07/31/91 11,180 11,584.36
08/31/91 11,410 11,858.00
09/30/91 11,311 11,659.50
10/31/91 11,295 11,815.60
11/30/91 10,812 11,341.08
12/31/91 11,817 12,635.89
01/31/92 12,051 12,400.41
02/29/92 12,385 12,561.24
03/31/92 12,315 12,317.18
04/30/92 12,323 12,678.34
05/31/92 12,385 12,740.34
06/30/92 12,323 12,550.89
07/31/92 13,037 13,063.52
08/31/92 12,668 12,796.37
09/30/92 12,919 12,946.79
10/31/92 13,374 12,991.24
11/30/92 14,158 13,432.38
12/31/92 14,318 13,597.18
01/31/93 14,512 13,710.76
02/28/93 14,503 13,897.56
03/31/93 15,173 14,190.77
04/30/93 14,821 13,847.78
05/31/93 15,112 14,217.13
06/30/93 15,041 14,258.64
07/31/93 14,917 14,201.28
08/31/93 15,253 14,739.01
09/30/93 15,147 14,622.66
10/31/93 15,536 14,924.89
11/30/93 15,501 14,783.29
12/31/93 16,031 14,962.08
01/31/94 16,604 15,470.26
02/28/94 16,380 15,050.71
03/31/94 15,943 14,395.40
04/30/94 15,992 14,580.15
05/31/94 16,021 14,818.81
06/30/94 15,778 14,455.90
07/31/94 16,022 14,930.24
08/31/94 16,657 15,541.31
09/30/94 16,325 15,161.94
10/31/94 16,364 15,501.45
11/30/94 15,934 14,937.66
12/31/94 16,078 15,158.79
01/31/95 16,369 15,551.58
02/28/95 16,993 16,157.07
03/31/95 17,347 16,633.07
04/30/95 17,482 17,122.53
05/31/95 18,366 17,805.53
06/30/95 18,875 18,218.80
07/31/95 19,252 18,822.64
08/31/95 19,483 18,869.77
09/30/95 19,860 19,665.68
10/31/95 19,556 19,595.45
11/30/95 20,477 20,454.81
12/31/95 20,881 20,848.81
01/31/96 21,203 21,557.57
02/29/96 21,617 21,757.99
03/31/96 22,169 21,967.52
04/30/96 23,043 22,291.06
05/31/96 24,123 22,865.03
06/30/96 23,790 22,952.17
07/31/96 22,867 21,938.60
08/31/96 23,709 22,402.03
09/30/96 24,920 23,661.79
10/31/96 25,577 24,314.17
11/30/96 27,722 26,150.40
12/31/96 27,828 25,632.36
01/31/97 29,200 27,232.84
02/28/97 29,507 27,446.62
03/31/97 28,418 26,321.03
04/30/97 29,584 27,891.00
05/31/97 31,533 29,587.98
06/30/97 33,020 30,912.84
07/31/97 36,000 33,371.80
08/31/97 35,859 31,503.65
09/30/97 38,352 33,227.97
10/31/97 36,733 32,119.48
11/30/97 37,054 33,605.10
12/31/97 37,958 34,181.80
01/31/98 37,812 34,559.48
02/28/98 40,642 37,050.63
03/31/98 42,037 38,946.43
04/30/98 42,303 39,338.12
05/31/98 40,562 38,662.68
06/30/98 39,842 40,231.92
07/31/98 38,004 39,804.66
08/31/98 32,944 34,056.87
09/30/98 34,076 36,238.79
10/31/98 37,764 39,183.88
11/30/98 38,790 41,557.75
12/31/98 39,630 43,950.98
01/31/99 38,881 45,788.18
02/28/99 37,235 44,365.54
03/31/99 37,958 46,140.07
04/30/99 40,901 47,926.89
05/31/99 40,968 46,796.78
06/30/99 42,159 49,391.80
07/31/99 40,737 47,851.27
08/31/99 38,201 47,612.92
09/30/99 36,953 46,309.18
10/31/99 38,510 49,238.47
11/30/99 38,657 50,239.39
12/31/99 39,650 53,196.48
Value on 12/31/99
Sound Shore Fund: $39,650
S&P 500 Index: $53,196
AVERAGE ANNUAL TOTAL RETURN
1 Year 5 Year 10 Year
Sound Shore Fund 0.05% 19.79% 14.77%
S&P 500 Index 21.04% 28.52% 18.18%
</TABLE>
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4
<PAGE>
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SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
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<TABLE>
<CAPTION>
FACE/SHARE MARKET
AMOUNT VALUE
----------- --------------
<S> <C> <C>
COMMON STOCK (95.7%)
------------------------------------------------------------------------------------------
AUTOMOTIVE (4.5%)
Borg-Warner Automotive, Inc. 166,500 $ 6,743,250
Ford Motor Co. 473,200 25,286,625
Magna International, Inc., Class A 494,200 20,941,725
--------------
52,971,600
--------------
BASIC MATERIALS (2.0%)
E.I. du Pont de Nemours & Co. 349,200 23,003,550
--------------
BUILDING & BUILDING MATERIALS (6.4%)
American Standard Cos., Inc.* 949,300 43,549,138
Kaufman & Broad Home Corp. 1,283,000 31,032,563
--------------
74,581,701
--------------
CAPITAL GOODS (1.3%)
Boeing Co. 358,500 14,900,156
--------------
COMMUNICATIONS (15.8%)
AT&T Corp. 649,000 32,936,750
BellSouth Corp. 711,500 33,307,094
CenturyTel, Inc. 716,700 33,953,663
Citizens Utilities Co.* 3,373,500 47,861,531
Telephone and Data Systems, Inc. 294,500 37,107,000
--------------
185,166,038
--------------
CONSUMER PRODUCTS (12.6%)
Hasbro, Inc. 1,666,800 31,773,375
Kimberly-Clark Corp. 584,000 38,106,000
Minnesota Mining and Manufacturing Co. 355,000 34,745,625
UST, Inc. 840,400 21,167,575
Walt Disney Co. 765,500 22,390,875
--------------
148,183,450
--------------
</TABLE>
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SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
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SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
DECEMBER 31, 1999
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<TABLE>
<CAPTION>
FACE/SHARE MARKET
AMOUNT VALUE
----------- --------------
<S> <C> <C>
ENERGY (5.9%)
Enron Corp. 814,000 $ 36,121,250
Weatherfold International, Inc.* 840,000 33,547,500
--------------
69,668,750
--------------
FINANCIAL (6.3%)
Federal National Mortgage Association 757,000 47,265,188
Federal Home Loan Mortgage Corp. 569,300 26,792,681
--------------
74,057,869
--------------
HEALTHCARE (4.6%)
Columbia HCA Healthcare Corp. 536,900 15,737,881
Mallinckrodt, Inc. 1,195,000 38,015,938
--------------
53,753,819
--------------
INSURANCE (8.5%)
Allstate Corp. 972,100 23,330,400
Ambac Financial Group, Inc. 465,200 24,277,625
Loews Corp. 276,300 16,767,956
MBIA, Inc. 678,500 35,833,281
--------------
100,209,262
--------------
RETAIL (4.7%)
Office Depot, Inc.* 3,131,900 34,255,156
Safeway, Inc.* 589,500 20,964,094
--------------
55,219,250
--------------
SPECIALTY CHEMICALS (0.7%)
Engelhard Corp. 444,400 8,388,050
--------------
</TABLE>
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SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
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SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
DECEMBER 31, 1999
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<TABLE>
<CAPTION>
FACE/SHARE MARKET
AMOUNT VALUE
----------- --------------
<S> <C> <C>
TECHNOLOGY (12.7%)
BMC Software, Inc.* 634,700 $ 50,736,331
Cypress Semiconductor Corp.* 614,000 19,878,250
IBM Corp. 177,400 19,159,200
Parametric Technology Co.* 1,278,500 34,599,406
Texas Instruments, Inc. 257,000 24,896,875
--------------
149,270,062
--------------
TRANSPORTATION (1.5%)
Delta Airlines, Inc. 365,800 18,221,413
--------------
UTILITIES (8.2%)
Illinova Corp. 1,207,900 41,974,525
MidAmerican Energy Holdings Co. 910,800 30,682,575
Texas Utilities Co. 662,800 23,570,825
--------------
96,227,925
--------------
TOTAL COMMON STOCK (COST $899,790,277) $1,123,822,895
--------------
SHORT-TERM HOLDINGS (1.7%)
------------------------------------------------------------------------------------------
Institutional Cash Management Fund 2,204,344 $ 2,204,344
Investment Money Market Fund 13,050,000 13,050,000
Daily Assets Cash Fund 3,023,730 3,023,730
Daily Assets Government Obligations Fund 1,872,602 1,872,602
--------------
TOTAL SHORT-TERM HOLDINGS (COST $20,150,676) $ 20,150,676
--------------
TOTAL INVESTMENTS (97.4%) (COST $919,940,953) $1,143,973,571
OTHER ASSETS LESS LIABILITIES (2.6%) 30,761,810
--------------
NET ASSETS (100.0%) (39,863,725 SHARES OUTSTANDING) $1,174,735,381
==============
NET ASSET VALUE (OFFERING AND REDEMPTION PRICE PER SHARE) $ 29.47
==============
</TABLE>
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SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
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SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS (CONCLUDED)
DECEMBER 31, 1999
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<TABLE>
<CAPTION>
MARKET
VALUE
--------------
<S> <C> <C>
AT DECEMBER 31, 1999, NET ASSETS CONSISTED OF:
------------------------------------------------------------------------------------------
Par Value $ 39,864
Paid in Capital 1,015,659,065
Accumulated Distributions in Excess of Net Investment Income (1,966)
Unrealized Appreciation of Investments 224,032,618
Accumulated Net Realized Loss from Investments (64,994,200)
--------------
NET ASSETS $1,174,735,381
==============
</TABLE>
*Non-income producing security.
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SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
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SOUND SHORE FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
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<TABLE>
<S> <C>
INVESTMENT INCOME
Income:
Dividends............................................... $ 21,056,220
Interest................................................ 1,999,130
------------
Total Income........................................ 23,055,350
------------
Expenses:
Investment adviser fee (Note 3)......................... 11,638,514
Administrator fee (Note 3).............................. 1,551,802
Transfer agent fee (Note 3)............................. 1,551,802
Custodian fee........................................... 167,635
Accounting fee (Note 3)................................. 60,000
Legal fee............................................... 14,108
Auditing fee............................................ 25,500
Directors' fees and expenses (Note 3)................... 32,545
Miscellaneous........................................... 216,734
------------
Total Expenses...................................... 15,258,640
------------
Net Investment Income....................................... 7,796,710
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments sold....................... 21,551,718
Net change in unrealized depreciation of investments........ (42,817,457)
------------
Net realized and unrealized depreciation of investments..... (21,265,739)
------------
Net decrease in net assets resulting from operations........ $(13,469,029)
============
</TABLE>
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SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
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SOUND SHORE FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
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<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS
1999 1998
---- ----
<S> <C> <C>
Operations:
Net investment income........................... $ 7,796,710 $ 13,880,107
Net realized gain (loss) on investments sold.... 21,551,718 (84,757,185)
Net change in unrealized appreciation
(depreciation) of investments................. (42,817,457) 113,919,945
-------------- --------------
Increase (decrease) in net assets from
operations.................................... (13,469,029) 43,042,867
Dividends to shareholders from net investment
income............................................. (7,947,649) (13,133,750)
Return of capital................................... -- (563,092)
Capital share transactions (Note 5)................. (765,334,753) 618,454,819
-------------- --------------
Total increase (decrease)....................... (786,751,431) 647,800,844
Net assets:
Beginning of the year........................... 1,961,486,812 1,313,685,968
-------------- --------------
End of the year (including line (A))............ $1,174,735,381 $1,961,486,812
============== ==============
(A) Accumulated distributions in excess of net
investment income........................... $ (1,966) $ --
============== ==============
</TABLE>
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SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
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1. ORGANIZATION
Sound Shore Fund, Inc. (the "Fund") was incorporated in Maryland on
February 19, 1985. It is registered 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 represents significant accounting policies of the Fund:
a) SECURITY VALUATION
Securities traded on a national securities exchange are valued at the last
reported sales price. Securities 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 various investment securities held
by the Fund, timing differences and differing characterizations of
distributions made by the Fund.
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11
<PAGE>
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
As of December 31, 1999, the Fund had a capital loss carry forward in the
amount of $63,073,479, expiring December 31, 2006.
3. INVESTMENT ADVISORY AND OTHER SERVICES
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.
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.
Forum Accounting Services, LLC, an affiliate of FAdS, serves as the fund
accountant for the Fund for which it receives a fee of $60,000 per year.
Forum Shareholder Services, LLC, an affiliate of FAdS, serves as the transfer
agent for the Fund for which it receives a fee at an annual rate of 0.10% of the
Fund's average daily net assets.
Forum Fund Services, LLC, an affiliate of FAdS, serves as the 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 to the Adviser and other related parties in amounts of $772,079 and
$239,143, respectively, were payable on December 31, 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 year ended December 31, 1999,
aggregated $609,319,508 and $1,328,868,172, respectively.
For federal income tax purposes, the tax basis of investment securities owned as
of December 31, 1999 was $921,861,673. The aggregate gross unrealized
appreciation for all securities in which there was an excess of market value
over tax cost was $279,736,598 and aggregate gross unrealized depreciation for
all securities in which there was an excess of tax cost over market value was
$57,624,700.
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12
<PAGE>
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. CAPITAL STOCK
As of December 31, 1999, 100,000,000 shares of $.001 par value stock were
authorized and capital paid in amounted to $1,015,698,929. Transactions in
capital stock were as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sale of Shares....................... 18,304,845 $ 538,394,412 51,045,753 $1,504,978,826
Reinvestment of Dividends............ 238,216 7,273,441 418,730 12,344,557
Redemption of Shares................. (44,894,551) (1,311,002,606) (31,229,053) (898,868,564)
----------- --------------- ----------- --------------
Net increase (decrease) from capital
transactions........................ (26,351,490) $ (765,334,753) 20,235,430 $ 618,454,819
=========== =============== =========== ==============
</TABLE>
Of the 39,863,725 shares outstanding as of December 31, 1999, the Employees'
Profit Sharing Plan of the Adviser owned 265,451 shares.
6. FEDERAL TAX STATUS OF DIVIDENDS DECLARED DURING THE FISCAL YEAR (UNAUDITED)
For federal income tax purposes, dividends from short-term capital gains are
classified as ordinary income. The percentage of qualifying dividends eligible
for the corporate dividends received deduction is 100.0%.
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13
<PAGE>
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SOUND SHORE FUND, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1999 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.................... 0.17 0.21 0.12 0.13 0.25
Net Realized and Unrealized Gain (Loss)
on Investments......................... (0.15) 1.05 7.75 5.90 4.33
---------- ---------- ---------- -------- -------
Total from Investment Operations........... 0.02 1.26 7.87 6.03 4.58
---------- ---------- ---------- -------- -------
Distributions
From Net Investment Income............. (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 Gain......... -- -- (0.02) -- --
From Return of Capital................. -- (0.01) -- -- --
---------- ---------- ---------- -------- -------
Total Distributions........................ (0.17) (0.21) (1.01) (2.48) (1.88)
---------- ---------- ---------- -------- -------
Net Asset Value, End of Period............. $ 29.47 $ 29.62 $ 28.57 $ 21.71 $ 18.16
========== ========== ========== ======== =======
Total Return............................... 0.05% 4.40% 36.40% 33.27% 29.87%
Ratio/Supplementary Data
Net Assets at End of Period (in
thousands)............................... $1,174,735 $1,961,487 $1,313,686 $132,862 $67,602
Ratios to Average Net Assets:
Expenses (net of reimbursement)........ 0.98% 0.99% 1.08% 1.15% 1.15%
Expenses (gross)(b).................... 0.98% 1.00% 1.10% 1.16% 1.15%
Net Investment Income.................. 0.50% 0.77% 0.62% 0.70% 1.41%
Portfolio Turnover Rate.................... 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) Reflects expense ratio in the absence of expense reimbursement.
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SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
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SOUND SHORE FUND, INC.
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
SOUND SHORE FUND, INC.
We have audited the accompanying statement of net assets of Sound Shore Fund,
Inc. (the "Fund") as of December 31, 1999, the related statement of operations
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Fund as of
December 31, 1999, the results of its operations, the changes in its net assets
and its financial highlights for the respective stated periods, in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
February 4, 2000
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15
<PAGE>
This report is submitted for the general information of the shareholders of
the Fund. It is not authorized for distribution to prospective investors in
the Fund unless preceded or accompanied by an effective prospectus, which
includes information regarding the Fund's objectives and policies, experience
of its management, marketability of shares, and other information.
SOUND SHORE FUND, INC.
Two Portland Square
Portland, ME 04101
http://www.soundshorefund.com
INVESTMENT ADVISOR
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
1-800-754-8758
ANNUAL REPORT
DECEMBER 31, 1999
SOUND
SHORE
FUND
[GRAPHIC]
