As filed with the Securities and Exchange Commission on March 6, 2007
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-4244
SOUND SHORE FUND, INC.
Two Portland Square
Portland, Maine 04101
(207) 879-1900
T. Gibbs Kane, Jr., President
8 Sound Shore Drive
Greenwich, CT 06830
(203) 629-1980
Date of fiscal year end: December 31, 2006
Date of reporting period: January 1, 2006 - December 31, 2006
Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its
regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORT TO STOCKHOLDERS
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Sound Shore Fund
TWO PORTLAND SQUARE, PORTLAND, ME 04101 1-800-754-8758
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December 31, 2006
Dear Shareholder:
The Sound Shore Fund ended December 31, 2006 with a net asset value of
$39.19, following year-end per share distributions of $0.12557 in dividends,
$0.30134 in short-term capital gains, and $2.99814 in long-term capital gains.
The fourth quarter return of 7.27% was slightly ahead of the Standard & Poor's
500 Index ("S&P 500") which gained 6.70%, and marginally less than the Dow
Jones Industrial Average ("Dow Jones") which rose 7.39%. For 2006, the Fund
gained 16.56%, versus increases of 15.79% and 19.05%, respectively, for the S&P
500 and Dow Jones.
We are required by the SEC to say that: PERFORMANCE DATA QUOTED REPRESENTS
PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY
BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY
BE WORTH MORE OR LESS THAN ORIGINAL COST. THE FUND'S 1, 5, 10, AND 15-YEAR
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED DECEMBER 31, 2006 WERE
16.56%, 9.85%, 10.51%, AND 13.17%, RESPECTIVELY. FOR THE MOST RECENT MONTH-END
PERFORMANCE, PLEASE CALL (800) 551-1980 OR VISIT THE FUND'S WEBSITE AT
WWW.SOUNDSHOREFUND.COM.
Domestic stock markets advanced in 2006 at the fastest rate in several
years. However, halfway through the year that positive outcome seemed decidedly
less likely (the S&P 500 was down 1% in mid-July) as higher commodity prices
led by $77 oil, continuing increases in the Federal Reserve target interest
rates (17/th/ consecutive) and notable housing weakness provided cause for
angst. Additionally, prognostications of another terrible hurricane season,
military concern in the Middle East and North Korea, and upcoming elections all
added pressure to the markets. Nearly all these apprehensions abated as the
year progressed and, together with renewed takeover enthusiasm, provided
comfort to a more risk tolerant investor.
Despite apparent cost headwinds, corporations fared well financially as
consumer demand did not evaporate, corporate spending grew, and productivity
gains and a weak dollar permitted most companies to meet or exceed
expectations. S&P 500 earnings appear to have advanced at a mid-teen percentage
rate, or roughly double the consensus forecast at the year's onset, and in line
with share price gains. High P/E stocks continued to lag more moderately priced
ones.
As long-term investors in the Fund are aware, we construct our portfolio
through careful valuation and fundamental research at the individual stock
level, and not based upon top-down, macro predictions of the world or markets
(or hurricanes). Rather we research and own stocks whose current valuation
seems to imbed more modest expectations than we feel are probable to occur over
a 1- to 3-year time frame. We believe our strong 2006 (and long-term) stock
selection reflects the merits of this approach: Nine of our holdings had a
total return of 35% or more - AES Corp., CSX Corp. ("CSX"), DIRECTV Group, Inc.
("DIRECTV), Freescale Semiconductor, Inc. ("Freescale"), Walt Disney Co.,
Hewlett Packard Co., Honda Motor Co., Ltd., Morgan Stanley, and The Mosaic Co.
- - and 21 gained at least 20%.
Freescale was the portfolio's biggest contributor in 2006, gaining 59% as
it ignored the market lagging trends for semiconductor and, more broadly,
technology stocks. We initially invested in the shares
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in 2005 when they were less than $20 per share and valued at 5x EBITDA, 14x
P/E, and 1.3x sales, multiples which were at 25% to 50% discounts to
semiconductor peers Intel Corp. and Texas Instruments, Inc. Our thesis for
Freescale was that management of this former Motorola subsidiary could leverage
its strong wireless technology and substantial cost cutting potential to
deliver results well in excess of consensus expectations. Over the ensuing 18
months, Freescale improved operating margins by 10%, closed the bulk of the
return on equity gap to its competitors, and was positioned to win significant
new accounts. Freescale was acquired during the fourth quarter by a Blackstone
Group-led private equity consortium for $40 per share.
Improving returns from a below normal level was the catalyst for rail
operator CSX, which advanced 37% for the year, significantly outpacing its
railroad peer group. We first invested in CSX in 2004 after the company had
underperformed for three years, was down more than 20% from its peak, and was
valued at 6.5x cash flow. Our research concluded that the company's new
leadership team, including Chief Operating Officer Tony Ingram who had led a
successful turnaround at Norfolk Southern Corp., was focused on the right
variables to deliver improvement. Over the past 24 months, management's
complete overhaul of operations, benchmarks, and capital allocation has
produced a steady and dramatic improvement. As a result, profit margins have
doubled and return on equity has increased from 5% in 2004 to almost 12% last
year, all of which has produced a total return of over 100% on our initial
purchase price.
Another top contributor was DIRECTV, which gained 77% during 2006. We
started our position in this satellite television provider in 2004 based in
part on its 50% per subscriber valuation discount to cable competitors. Our
analysis of DIRECTV found it was capturing the majority of all video subscriber
growth at cable's expense, its move to a leased set-top model might highlight
the steep valuation discount versus cable operators, and that it had
significant free cash flow potential on a debt-free balance sheet. Their
ensuing fundamental progress combined with a major change in the company's
shareholder base (Liberty Media Capital will be the largest holder, following
an exchange with News Corp) provided the basis for DIRECTV's strong gains.
On the flip side, we had several poor performers in 2006, including medical
device manufacturer Boston Scientific Corp. ("Boston"), our biggest detractor
for the year. Our original 2005 investment in Boston, which preceeded its
acquisition of Guidant, followed an almost 50% decline in the stock due to
concerns about the company's market share in drug coated stents. Despite solid
stent market share in 2006, the stock remained under pressure due to
difficulties with the acquisition and a general slow down in cardiac device
demand. From here, we believe Boston's market leading positions in stents and
internal cardiac devices and its recently consolidated business lines should
produce substantial earnings and cash flow growth in the 2008-2009 time frame,
a year later than we had anticipated. Senior management's extensive experience
and alignment with shareholders (including 17% ownership), combined with
Boston's share price decline that has effectively reduced the Guidant purchase
price by 50%, all contribute to our patience in what has been a difficult
investment so far.
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2
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A new year always seems to compel fresh, albeit often contradictory,
economic expectations and trepidations. Corporations are generating large
amounts of cash and record returns on equity. The market's risk tolerance
appears to have increased with the recent strong price gains and continuing
deal activity, trumping the surprising number of stock option tainted companies
- - now about 200. The consensus for a moderating economy and subdued inflation
should not be harmful to the market overall and would continue to present many
individual challenges and opportunities. In all, though there should be
continued surprises, 2007 could prove to be another good year for our
disciplined selectivity.
We are pleased to report that we redesigned and enhanced the content of our
website which we encourage you to visit at WWW.SOUNDSHORE.COM. Many thanks, as
always, for your investment with Sound Shore.
Sincerely,
SOUND SHORE FUND
HARRY BURN, III
JOHN P. DEGULIS
T. GIBBS KANE, JR.
CO-PORTFOLIO MANAGERS
FUND RETURNS ASSUME THE REINVESTMENT OF ALL DIVIDEND AND CAPITAL GAIN
DISTRIBUTIONS. THE DOW JONES CONSISTS OF 30 STOCKS THAT ARE CONSIDERED TO BE
MAJOR FACTORS IN THEIR INDUSTRIES AND THAT ARE WIDELY HELD BY INDIVIDUALS AND
INSTITUTIONAL INVESTORS. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX OR
AVERAGE. PRICE TO EARNINGS RATIO IS THE VALUE OF A COMPANY'S STOCK PRICE
RELATIVE TO COMPANY EARNINGS. PRICE TO SALES IS THE RATIO OF A STOCK'S LATEST
CLOSING PRICE DIVIDED BY REVENUE PER SHARE. REVENUE PER SHARE IS DETERMINED BY
DIVIDING REVENUE FOR THE PAST 12 MONTHS BY THE NUMBER OF SHARES OUTSTANDING.
PRICE TO CASH FLOW IS THE RATIO OF A STOCK'S LATEST CLOSING PRICE DIVIDED BY
CASH FLOW PER SHARE FOR THE PAST 12 MONTHS. EBITDA REPRESENTS EARNINGS BEFORE
INTEREST, TAXES, DEPRECIATION, AND AMORTIZATION.
THE VIEWS IN THIS LETTER WERE THOSE OF THE FUND MANAGERS AS OF 12/31/06 AND
MAY NOT NECESSARILY REFLECT THEIR VIEWS ON THE DATE THIS LETTER IS FIRST
PUBLISHED OR ANYTIME THEREAFTER. THESE VIEWS (I) ARE INTENDED TO ASSIST
SHAREHOLDERS IN UNDERSTANDING THE FUND'S PRESENT INVESTMENT METHODOLOGY AND
(II) DO NOT CONSTITUTE INVESTMENT ADVICE. THIS LETTER MUST BE PRECEDED OR
ACCOMPANIED BY A CURRENT FUND PROSPECTUS. DISTRIBUTED BY FORESIDE FUND
SERVICES, LLC.
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The following chart reflects a ten-year comparison in the change in value
of a hypothetical $10,000 investment in Sound Shore Fund, Inc. (the "Fund")
including reinvested dividends and distributions, compared with a broad-based
securities market index. The Standard and Poor's 500 Index (the "S&P 500") is a
market-weighted index composed of 500 large capitalization companies and
reflects the reinvestment of dividends. The Fund is professionally managed,
while the S&P 500 is unmanaged and is not available for investment. The S&P 500
excludes the effect of any expenses, which have been deducted from the Fund's
return. The performance table and graph do not reflect the deduction of taxes
that a shareholder would pay on Fund distributions or the redemption of Fund
shares. During the period, certain fees were waived and/or expenses reimbursed;
otherwise, returns would have been lower. PAST PERFORMANCE CANNOT PREDICT NOR
GUARANTEE FUTURE RESULTS. 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. RESULTS OF AN
INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE FUND'S HISTORICAL
PERFORMANCE. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE
DATA QUOTED. FOR THE MOST RECENT MONTH END PERFORMANCE, PLEASE VISIT THE FUND'S
WEBSITE AT WWW.SOUNDSHORE.COM.
SOUND SHORE FUND VS.S&P 500 INDEX
AVERAGE ANNUAL TOTAL RETURN
---------------------------
One Year Five Year Ten Year
-------- ---------- --------
Sound Shore Fund 16.56% 9.85% 10.51%
S&P 500 Index 15.79% 6.19% 8.42%
Value on 12/31/06
Sound Shore Fund:$27,170
S&P 500 Index :$22,447
[CHART]
SOUND SHORE S&P 500
FUND INDEX
----------- -------
12/31/1996 $10,000 $10,000
1/31/1997 10,493 10,625
2/28/1997 10,603 10,708
3/31/1997 10,212 10,268
4/30/1997 10,631 10,881
5/31/1997 11,331 11,544
6/30/1997 11,866 12,061
7/31/1997 12,937 13,020
8/31/1997 12,886 12,291
9/30/1997 13,782 12,964
10/31/1997 13,200 12,531
11/30/1997 13,315 13,111
12/31/1997 13,640 13,336
1/31/1998 13,588 13,484
2/28/1998 14,605 14,456
3/31/1998 15,106 15,197
4/30/1998 15,201 15,350
5/31/1998 14,576 15,086
6/30/1998 14,317 15,698
7/31/1998 13,657 15,531
8/31/1998 11,838 13,286
9/30/1998 12,245 14,137
10/31/1998 13,571 15,287
11/30/1998 13,939 16,213
12/31/1998 14,241 17,148
1/31/1999 13,972 17,865
2/28/1999 13,380 17,310
3/31/1999 13,640 18,002
4/30/1999 14,698 18,699
5/31/1999 14,722 18,258
6/30/1999 15,150 19,271
7/31/1999 14,639 18,669
8/31/1999 13,727 18,577
9/30/1999 13,279 18,068
10/31/1999 13,838 19,211
11/30/1999 13,891 19,601
12/31/1999 14,248 20,756
1/31/2000 13,678 19,713
2/29/2000 13,310 19,340
3/31/2000 14,915 21,232
4/30/2000 14,587 20,593
5/31/2000 14,543 20,171
6/30/2000 14,064 20,668
7/31/2000 14,365 20,345
8/31/2000 15,537 21,608
9/30/2000 15,867 20,468
10/31/2000 16,550 20,381
11/30/2000 15,886 18,774
12/31/2000 17,124 18,866
1/31/2001 16,407 19,535
2/28/2001 16,682 17,754
3/31/2001 16,773 16,629
4/30/2001 16,971 17,922
5/31/2001 17,505 18,042
6/30/2001 17,234 17,603
7/31/2001 17,346 17,429
8/31/2001 17,157 16,338
9/30/2001 15,997 15,019
10/31/2001 15,747 15,309
11/30/2001 16,582 16,479
12/31/2001 16,985 16,624
1/31/2002 16,535 16,381
2/28/2002 16,546 16,065
3/31/2002 17,407 16,669
4/30/2002 17,180 15,659
5/31/2002 17,346 15,543
6/30/2002 15,626 14,436
7/31/2002 14,192 13,311
8/31/2002 14,592 13,398
9/30/2002 13,070 11,942
10/31/2002 13,731 12,993
11/30/2002 14,659 13,758
12/31/2002 14,364 12,950
1/31/2003 13,907 12,611
2/28/2003 13,329 12,421
3/31/2003 13,368 12,542
4/30/2003 14,336 13,575
5/31/2003 15,855 14,298
6/30/2003 16,273 14,474
7/31/2003 16,451 14,728
8/31/2003 17,013 15,027
9/30/2003 16,729 14,856
10/31/2003 17,409 15,701
11/30/2003 17,815 15,848
12/31/2003 18,923 16,662
1/31/2004 19,454 16,970
2/29/2004 19,759 17,206
3/31/2004 19,595 16,947
4/30/2004 19,171 16,681
5/31/2004 19,375 16,909
6/30/2004 19,881 17,238
7/31/2004 19,305 16,668
8/31/2004 19,243 16,735
9/30/2004 19,898 16,916
10/31/2004 19,870 17,175
11/30/2004 20,983 17,870
12/31/2004 21,826 18,478
1/31/2005 21,094 18,027
2/28/2005 21,683 18,407
3/31/2005 21,189 18,081
4/30/2005 20,696 17,738
5/31/2005 21,374 18,302
6/30/2005 21,561 18,328
7/31/2005 22,417 19,010
8/31/2005 22,578 18,836
9/30/2005 23,310 18,989
10/31/2005 22,751 18,672
11/30/2005 23,298 19,379
12/31/2005 23,311 19,385
1/31/2006 23,667 19,899
2/28/2006 23,928 19,953
3/31/2006 24,055 20,201
4/30/2006 24,558 20,472
5/31/2006 23,998 19,883
6/30/2006 23,670 19,910
7/31/2006 23,938 20,033
8/31/2006 24,658 20,510
9/30/2006 25,328 21,038
10/31/2006 26,004 21,724
11/30/2006 26,559 22,137
12/31/2006 27,170 22,447
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4
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SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS
DECEMBER 31, 2006
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SHARE MARKET
AMOUNT VALUE
--------- --------------
COMMON STOCK (96.7%)
------------------------------------------------------
AUTO (3.0%)
Honda Motor Co., Ltd. ADR 2,196,900 $ 86,865,426
--------------
BANKS (5.9%)
Bank of America Corp. 1,531,500 81,766,785
U.S. Bancorp 2,398,500 86,801,715
--------------
168,568,500
--------------
CONSUMER STAPLES (4.7%)
Unilever NV ADR 3,358,600 91,521,850
Wal-Mart Stores, Inc. 940,900 43,450,762
--------------
134,972,612
--------------
DIVERSIFIED FINANCIALS (1.7%)
Morgan Stanley 607,300 49,452,439
--------------
ENERGY (8.6%)
Apache Corp. 861,700 57,311,667
ConocoPhillips 1,114,300 80,173,885
El Paso Corp. 4,291,200 65,569,536
Royal Dutch Shell plc ADR 623,800 44,158,802
--------------
247,213,890
--------------
HEALTH CARE (10.9%)
Aetna, Inc. 1,342,800 57,982,104
Baxter International, Inc. 1,557,100 72,233,869
Boston Scientific Corp. + 3,560,000 61,160,800
Cigna Corp. 533,000 70,126,810
Kinetic Concepts, Inc. + 1,302,000 51,494,100
--------------
312,997,683
--------------
INDUSTRIALS (8.6%)
CSX Corp. 1,025,000 35,290,750
General Electric Co. 1,917,300 71,342,733
Southwest Airlines Co. 5,365,400 82,197,928
Waste Management, Inc. 1,588,100 58,394,437
--------------
247,225,848
--------------
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SEE NOTES TO FINANCIAL STATEMENTS.
5
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SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
DECEMBER 31, 2006
================================================================================
SHARE MARKET
AMOUNT VALUE
--------- --------------
INSURANCE (15.5%)
AON Corp. 2,411,100 $ 85,208,274
Berkshire Hathaway, Inc., Class A + 925 101,740,750
Chubb Corp. 1,484,600 78,550,186
Genworth Financial, Inc. 2,206,300 75,477,523
Marsh & McLennan Cos., Inc. 1,414,500 43,368,570
UnumProvident Corp. 3,010,600 62,560,268
--------------
446,905,571
--------------
MATERIALS (3.7%)
Lyondell Chemical Co. 2,772,500 70,892,825
The Mosaic Co. + 1,678,800 35,859,168
--------------
106,751,993
--------------
MEDIA (14.7%)
Interpublic Group of Cos., Inc. + 7,095,600 86,850,144
Liberty Media Holding Corp., Class A + 950,900 93,169,182
Time Warner, Inc. 5,312,400 115,704,072
Walt Disney Co. 2,684,000 91,980,680
Washington Post, Class B 46,783 34,881,405
--------------
422,585,483
--------------
PHARMACEUTICALS (4.0%)
Pfizer, Inc. 3,428,700 88,803,330
Watson Pharmaceuticals, Inc. + 996,200 25,931,086
--------------
114,734,416
--------------
TECHNOLOGY (11.4%)
Flextronics International, Ltd. + 6,941,200 79,684,976
Hewlett Packard Co. 1,431,900 58,979,961
Motorola, Inc. 2,785,200 57,263,712
Symantec Corp. + 3,950,100 82,359,585
Texas Instruments, Inc. 1,682,900 48,467,520
--------------
326,755,754
--------------
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SEE NOTES TO FINANCIAL STATEMENTS.
6
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SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
DECEMBER 31, 2006
================================================================================
SHARE MARKET
AMOUNT VALUE
----------- --------------
TELECOMMUNICATIONS (1.7%)
Sprint Nextel Corp. 2,614,200 $ 49,382,238
--------------
UTILITIES (2.3%)
AES Corp. + 2,994,300 65,994,372
--------------
TOTAL COMMON STOCK (COST $2,260,942,415) $2,780,406,225
--------------
MONEY MARKET FUND (3.6%)
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Citi/SM/ Institutional Liquid Reserves, Class A, 4.93% 104,978,567 $ 104,978,567
--------------
TOTAL MONEY MARKET FUND (COST $104,978,567) $ 104,978,567
--------------
TOTAL INVESTMENTS (100.3%) (COST $2,365,920,982)* $2,885,384,792
OTHER ASSETS LESS LIABILITIES (-0.3%) (9,049,301)
--------------
NET ASSETS (100.0%) (SHARES OUTSTANDING 73,399,620) $2,876,335,491
==============
NET ASSET VALUE (OFFERING AND REDEMPTION PRICE PER SHARE) $ 39.19
==============
+ Non-income producing security.
ADR -- American Depository Receipt.
* Cost for Federal income tax purposes is $2,367,048,032 and net unrealized
appreciation consists of:
Gross Unrealized Appreciation $531,503,487
Gross Unrealized Depreciation (13,166,727)
------------
Net Unrealized Appreciation $518,336,760
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SEE NOTES TO FINANCIAL STATEMENTS.
7
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SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS (CONCLUDED)
DECEMBER 31, 2006
================================================================================
AT DECEMBER 31, 2006 NET ASSETS CONSISTED OF:
---------------------------------------------------------------
Par Value (100,000,000 shares authorized) $ 73,400
Paid in Capital 2,357,912,707
Accumulated Undistributed Net Investment Income 12,624
Accumulated Net Realized Loss from Investments (1,127,049)
Unrealized Appreciation on Investments 519,463,809
--------------
NET ASSETS $2,876,335,491
==============
PORTFOLIO HOLDINGS
% OF NET ASSETS
Auto 3.0%
Banks 5.9%
Consumer Staples 4.7%
Diversified Financials 1.7%
Energy 8.6%
Health Care 10.9%
Industrials 8.6%
Insurance 15.5%
Materials 3.7%
Media 14.7%
Pharmaceuticals 4.0%
Technology 11.4%
Telecommunications 1.7%
Utilities 2.3%
Short-Term Investments 3.6%
Other Assets less Liabilities (0.3)%
------
100.0%
======
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SEE NOTES TO FINANCIAL STATEMENTS.
8
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SOUND SHORE FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
================================================================================
INVESTMENT INCOME
Income:
Dividends (net of foreign withholding taxes $1,044,252) $ 38,031,300
Interest 7,277
------------
Total Income 38,038,577
------------
Expenses:
Adviser fee (Note 3) 19,478,570
Administrator fee (Note 3) 991,926
Transfer Agency fee 2,597,124
Custodian fee 222,196
Accountant fee 60,058
Professional fees 103,911
Directors' fees and expenses (Note 3) 124,607
Compliance services fees (Note 3) 157,614
Miscellaneous 225,408
------------
Total Expenses 23,961,414
------------
Net Investment Income 14,077,163
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments sold 223,926,028
Net change in unrealized appreciation (depreciation) on investments 168,531,226
------------
Net realized and unrealized gain on investments 392,457,254
------------
Net increase in net assets from operations $406,534,417
============
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SEE NOTES TO FINANCIAL STATEMENTS.
9
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SOUND SHORE FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
INCREASE (DECREASE) IN NET ASSETS
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2006 2005
-------------- --------------
Operations:
Net investment income $ 14,077,163 $ 3,813,702
Net realized gain on investments sold 223,926,028 145,757,145
Net change in unrealized appreciation (depreciation) on
investments 168,531,226 (8,757,585)
-------------- --------------
Increase in net assets from operations 406,534,417 140,813,262
Dividends to shareholders from net investment income (14,075,600) (3,803,327)
Dividends to shareholders from net realized gains (224,129,404) (145,771,774)
-------------- --------------
Total distributions to shareholders (238,205,004) (149,575,101)
Capital share transactions (Note 6) 439,772,270 578,763,699
-------------- --------------
Total increase 608,101,683 570,001,860
Net assets:
Beginning of the year 2,268,233,808 1,698,231,948
-------------- --------------
End of the year (Including line (A)) $2,876,335,491 $2,268,233,808
============== ==============
(A) Accumulated undistributed net investment income $ 12,624 $ 11,423
-------------- --------------
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SEE NOTES TO FINANCIAL STATEMENTS.
10
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. ORGANIZATION
Sound Shore Fund, Inc. (the "Fund") was incorporated under the laws of the
State of Maryland on February 19, 1985 and is registered as a no-load,
diversified, open-end management investment company under the Investment
Company Act of 1940 (the "Act"), as amended. The investment objective of the
Fund is growth of capital.
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America ("generally
accepted accounting principles"), which require management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent 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
Exchange traded securities and over-the-counter securities are valued at the
last sale or official closing price, as provided by independent pricing
services as of the close of trading on the market or exchange for which they
are primarily traded, on each Fund business day. In the absence of a sale,
such securities are valued at the mean of the last bid and asked price.
Non-exchange traded securities for which quotations are available are
generally valued at the mean between the current bid and asked prices
provided by independent pricing services. Fixed income securities may be
valued at prices supplied by a Fund's pricing agent based on broker or
dealer supplied valuations or matrix pricing, a method of valuing securities
by reference to the value of other securities with similar characteristics,
such as rating, interest rate and maturity. Investments in other investment
companies are valued at net asset value. Money market instruments that
mature in sixty days or less are valued at amortized cost.
Securities (including restricted securities) for which market quotations are
insufficient or not readily available, or in the judgment of the Fund's
investment adviser, the prices or values available do not represent the fair
value of the instrument, are valued in good faith, pursuant to procedures
adopted by the Fund's Board of Directors (the "Board"). Fair valuation is
based on subjective factors and as a result, the fair value price of an
asset may differ from the asset's market price and may not be the price at
which the asset may be sold. Fair valuation could result in a different net
asset value ("NAV") than a NAV determined by using market quotes.
B) SECURITY TRANSACTIONS AND INVESTMENT INCOME
Dividend income is recorded on the ex-dividend date. Interest income is
recorded on an accrual basis. Foreign dividend income is recorded on the
ex-dividend date or as soon as practical after the Fund determines the
existence of a dividend declaration after exercising reasonable due
diligence. Income and capital gains on some foreign securities may be
subject to foreign withholding tax, which is accrued as applicable. Security
transactions
- --------------------------------------------------------------------------------
11
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
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. The Fund determines its net investment income and capital
gains distributions in accordance with 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.
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.
NEW ACCOUNTING PRONOUNCEMENTS - In June 2006, the Financial Accounting
Standards Board ("FASB") issued Financial Interpretation No. 48, "ACCOUNTING
FOR UNCERTAINTY IN INCOME TAXES" ("FIN48") which is effective for fiscal years
beginning after December 15, 2006, and is to be applied to all open tax years
no later than June 30, 2007. FIN48 prescribes a minimum threshold for financial
statement recognition of the benefit of a tax position taken or expected to be
taken in a tax return, and requires certain expanded disclosures. Management
has recently begun to evaluate the application of FIN48, and has not at this
time determined the impact, if any, resulting from its adoption on the Fund's
financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157 "FAIR VALUE MEASUREMENTS" ("SFAS 157") which is effective for fiscal
years beginning after November 15, 2007 and interim periods within those fiscal
years. SFAS 157 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosures
about fair value measurements. Management has recently begun to evaluate the
application of SFAS 157, and has not at this time determined the impact, if
any, resulting from its adoption on the Fund's future financial statements.
3. INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
The Fund's investment adviser is Sound Shore Management, Inc. (the "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.
Fees due to the Adviser in the amount of $1,819,487 are payable at December 31,
2006.
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12
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
OTHER SERVICES
Citigroup Fund Services, LLC ("Citigroup") provides certain administration,
portfolio accounting and transfer agency services to the Fund.
Foreside Fund Services, LLC is the Fund's distributor (the "Distributor"). The
Distributor is not affiliated with the Adviser, Citigroup or its affiliated
companies. The Distributor receives no compensation from the Fund for its
distribution services.
Under a Compliance Services Agreement with the Fund, the Distributor provided a
Chief Compliance Officer, Treasurer and Anti-Money Laundering Officer to the
Fund as well as certain additional compliance support functions ("Compliance
Services") during the fiscal year ended December 31, 2006. Since January 25,
2007, the Compliance Services have been provided by Foreside Compliance
Services, LLC ("FCS"), an affiliate of the Distributor, pursuant to a
Compliance Services Agreement between Citigroup and the Fund. The Treasurer of
the Fund is also a principal of the Distributor and FCS. Neither the
Distributor nor Citigroup has any role in determining the investment policies
or which securities are to be purchased or sold by the Fund.
Compliance Services fees due to the Distributor in the amount of $25,397 are
payable at December 31, 2006.
The Fund pays each director who is not an "interested person" of the Fund as
defined in Section 2(a)(19) of the 1940 Act ("Independent Director") $5,000 per
year, payable quarterly, plus $5,000 for each Board meeting attended in person
and $2,000 for each Board meeting attended by telephone. Prior to that, each
Independent Director received $3,000 per year, paid quarterly and $1,500 per
Board meeting attended. Fees due to the Independent Directors in the amount of
$1,131 are payable at December 31, 2006.
Certain Officers and Directors of the Fund are officers, directors, or
employees of the aforementioned companies.
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, 2006
aggregated $1,903,780,360 and $1,650,411,904, respectively. Securities
purchased in the amount of $14,075,971 are payable at December 31, 2006.
Securities sold in the amount of $4,361,137 are receivable by the Fund at
December 31, 2006.
5. FEDERAL INCOME TAX AND INVESTMENT TRANSACTIONS
Distributions during the fiscal years ended as noted were characterized for tax
purposes as follows:
DECEMBER 31, DECEMBER 31,
2006 2005
------------ ------------
Ordinary Income $ 34,545,453 $ 20,217,803
Long-Term Capital Gain 203,659,551 129,357,298
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13
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
================================================================================
As of December 31, 2006, the components of distributable earnings on a tax
basis were as follows:
Undistributed Ordinary Income $ 12,624
Unrealized Appreciation 518,336,760
------------
Total $518,349,384
============
The difference between components of distributable earnings on a tax basis and
the amounts reflected in the Statements of Net Assets are primarily due to wash
sales.
On the Statement of Net Assets, as a result of permanent book to tax
differences, certain amounts have been reclassified for the year ended
December 31, 2006. The following was the result of a reclassification of
distributions and has no impact on the net assets of the Fund.
Accumulated Net Investment Income $(362)
Undistributed Net Realized Loss 362
6. CAPITAL STOCK
As of December 31, 2006, 100,000,000 shares of $.001 par value stock were
authorized and capital paid in amounted to $2,357,986,107. Capital shares
redeemed in the amount of $8,728,355 are payable at December 31, 2006. Capital
shares sold in the amount of $6,586,238 are receivable by the Fund at
December 31, 2006. Transactions in capital stock were as follows:
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
-------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ---------- -------------
Sale of shares 19,715,944 $ 753,490,576 19,589,475 $ 725,072,192
Reinvestment of dividends 5,945,394 233,674,228 3,982,023 146,687,611
Redemption of shares (14,181,752) (547,392,534) (7,916,637) (292,996,104)
----------- ------------- ---------- -------------
Net increase from capital transactions 11,479,586 $ 439,772,270 15,654,861 $ 578,763,699
=========== ============= ========== =============
Of the 73,399,620 shares outstanding as of December 31, 2006, the Employees'
Profit Sharing Plan of the Adviser owned 438,080 shares.
7. OTHER INFORMATION
On December 31, 2006, three shareholders held approximately 73% of the
outstanding shares of the Fund. These shareholders are comprised of omnibus
accounts, Charles Schwab, National Financial Services Corp., and JPMorgan Chase
Bank, which are held on behalf of numerous individual shareholders.
- --------------------------------------------------------------------------------
14
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SOUND SHORE FUND, INC.
FINANCIAL HIGHLIGHTS
================================================================================
These financial highlights reflect selected data for a share outstanding
throughout each period.
2006 2005 2004 2003 2002
---------- ---------- ---------- ---------- --------
Net Asset Value, Beginning of Period $ 36.63 $ 36.71 $ 33.51 $ 25.81 $ 30.58
---------- ---------- ---------- ---------- --------
Investment Operations
Net investment income 0.21(a) 0.07(a) 0.10 0.05 0.05
Net realized and unrealized
gain (loss) on investments 5.86 2.43 5.05 8.14 (4.77)
---------- ---------- ---------- ---------- --------
Total from Investment Operations 6.07 2.50 5.15 8.19 (4.72)
---------- ---------- ---------- ---------- --------
Distributions from
Net investment income (0.21) (0.07) (0.10) (0.05) (0.05)
Net realized gains (3.30) (2.51) (1.85) (0.44) --
---------- ---------- ---------- ---------- --------
Total Distributions (3.51) (2.58) (1.95) (0.49) (0.05)
---------- ---------- ---------- ---------- --------
Net Asset Value, End of Period $ 39.19 $ 36.63 $ 36.71 $ 33.51 $ 25.81
========== ========== ========== ========== ========
Total Return 16.56% 6.81% 15.37% 31.74% (15.43)%
Ratio/Supplementary Data
Net Assets at End of Period (in thousands) $2,876,335 $2,268,234 $1,698,232 $1,014,412 $759,674
Ratios to Average Net Assets:
Expenses (net of reimbursement) 0.92% 0.98% 0.98% 0.98% 0.98%
Expenses (gross)(b) 0.92% 0.99% 0.99% 1.00% 0.99%
Net Investment Income 0.54% 0.20% 0.33% 0.18% 0.17%
Portfolio Turnover Rate 66% 62% 50% 62% 72%
(a)Calculated using the average shares outstanding for the period.
(b)Reflects expense ratio in the absence of expense waiver and reimbursement.
- --------------------------------------------------------------------------------
15
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
================================================================================
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF SOUND SHORE FUND:
We have audited the accompanying statement of net assets of Sound Shore Fund
(the "Fund"), as of December 31, 2006, and the related statement of operations
for the year then ended, the statements 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 standards of the Public Company
Accounting Oversight Board (United States). 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. The Fund is not required to have, nor were we engaged to perform
an audit of its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Fund's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of December 31, 2006, by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Sound
Shore Fund as of December 31, 2006, the results of its operations for the year
then ended, the changes in its 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, in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 26, 2007
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16
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SOUND SHORE FUND, INC.
DECEMBER 31, 2006 (UNAUDITED)
================================================================================
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine
how to vote proxies relating to securities held in the Fund's portfolio is
available, without charge and upon request, by calling (800) 551-1980 or by
visiting the Fund's web site at http://www.soundshorefund.com. This information
is also available from the EDGAR database on the SEC's Web site at
http://www.sec.gov.
The Fund's proxy voting record for the most recent 12-month period ended
June 30 is available, without charge and upon request, by calling
(800) 551-1980 or by visiting the Fund's web site at
http://www.soundshorefund.com. This information is also available from the
EDGAR database on the SEC's Web site at http://www.sec.gov.
AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULE
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Form N-Q
is available on the SEC's website at http://www.sec.gov or may be reviewed and
copied at the SEC's Public Reference Room in Washington, DC. Information on the
operation of the Public Reference Room may be obtained by calling
(800) SEC-0330.
SHAREHOLDER EXPENSE EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management
fees and other Fund expenses. This example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The following example is based on $1,000 invested at the beginning of the
period and held for the entire period from July 1, 2006 through December 31,
2006.
ACTUAL EXPENSES - The first line of the table below provides information about
actual account values and actual expenses. You may use the information in this
line, together with the amount you invested, to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.6), then multiply the result by
the number in the first line under the heading entitled "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES - The second line of the table
below provides information about hypothetical account values and hypothetical
expenses based on the Fund's actual expense ratio and an assumed rate of return
of 5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use this
information to compare the ongoing cost of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds.
- --------------------------------------------------------------------------------
17
- --------------------------------------------------------------------------------
SOUND SHORE FUND, INC.
DECEMBER 31, 2006 (UNAUDITED) (CONTINUED)
================================================================================
Expenses shown in the table are meant to highlight your ongoing costs only and
do not reflect any transactional costs. Therefore, the second line of the table
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these
transactional costs were included, your costs would have been higher.
BEGINNING ENDING
ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID
JULY 1, 2006 DECEMBER 31, 2006 DURING PERIOD*
------------- ----------------- --------------
Actual Return $1,000.00 $1,147.91 $4.98
Hypothetical Return $1,000.00 $1,020.57 $4.69
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.92%,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY THE
NUMBER OF DAYS IN MOST RECENT FISCAL HALF-YEAR DIVIDED BY 365 TO REFLECT THE
HALF-YEAR PERIOD.
FEDERAL TAX STATUS OF DIVIDENDS DECLARED DURING THE FISCAL YEAR
INCOME DIVIDENDS - For Federal income tax purposes, dividends from short-term
capital gains are classified as ordinary income. All net investment income
dividends were ordinary income. The Fund paid income dividends of $34,545,236
for the tax year ended December 31, 2006, of which $20,469,636 were short term
capital gain dividends. The Fund designates 74.31% of its income dividend
distributed as qualifying for the corporate dividends-received deduction (DRD)
and 96.56% for the qualified dividend rate (QDI) as defined in Section 1(h)(11)
of the Internal Revenue Code. The Fund also designates 0.03% of its income
dividends as qualified interest income (QII) and 100.00% as qualified
short-term capital gain dividends exempt from U.S. tax for foreign shareholders
(QSD).
CAPITAL GAIN DIVIDENDS - The Fund paid long-term capital gain dividends of
$203,659,768 for the tax year ended December 31, 2006.
DIRECTORS AND OFFICERS OF THE FUND
The following is relevant information regarding each Director and Officer of
the Fund:
NAME, ADDRESS POSITION(S) LENGTH OF TIME PRINCIPAL OCCUPATION(S)
AND DATE OF BIRTH WITH THE FUND SERVED/(1)/ DURING THE PAST FIVE YEARS
- ----------------- -------------------- -------------- ------------------------------------------
INDEPENDENT DIRECTORS
Dr. D. Kenneth Baker Director, Audit March 1987 Retired, since 1999; Consultant, Princeton
Two Portland Square Committee (member); to present University, 1990 - 1998;
Portland, ME 04101 Nominating Committee Consultant, University of Pennsylvania,
Born: October 1923 (Chair); Valuation 1992 - 1998
Committee (member)
- --------------------------------------------------------------------------------
18
- --------------------------------------------------------------------------------
SOUND SHORE FUND, INC.
DECEMBER 31, 2006 (UNAUDITED) (CONTINUED)
================================================================================
DIRECTORS AND OFFICERS OF THE FUND (CONTINUED)
NAME, ADDRESS POSITION(S) LENGTH OF TIME PRINCIPAL OCCUPATION(S)
AND DATE OF BIRTH WITH THE FUND SERVED/(1)/ DURING THE PAST FIVE YEARS
- ----------------- -------------------- ---------------- ---------------------------------------------
Harry W. Clark Director; Audit January 23, 2006 Managing Partner, Stanwich Group LLC
Two Portland Square Committee (member); to present (public policy consulting firm) since January
Portland, ME 04101 Nominating Committee 2001; Managing Partner, Clark &
Born: March 1949 (member); Valuation Weinstock (policy and communications
Committee (member) consulting firm) July 1987 - December 2001
H. Williamson Ghrisky Jr. Director; Audit January 23, 2006 Director/Portfolio Management, Trainer
Two Portland Square Committee (Chair); to present Wortham (investment counseling firm)
Portland, ME 04101 Nominating Committee September 1978 to present (Director since
Born: May 1944 (member); Valuation September 1997)
Committee (member)
David Blair Kelso Director; Audit January 23, 2006 Managing Partner, Kelso Advisory Services
Two Portland Square Committee (member); to present (consulting firm) since October 2003;
Portland, ME 04101 Nominating Committee Executive Vice President, Strategy &
Born: September 1952 (member); Valuation Finance, Aetna, Inc. (insurance firm)
Committee (member) September 2001 - September 2003); Chief
Financial Officer, Executive Vice President,
and Managing Director, Chubb, Inc.
(insurance firm) August 1996 - August
2001; Director, Aspen Holdings, Inc.
(insurance firm) June 2005 to present;
Director, Kelso Risk Management
(insurance brokerage) September 1990 to
present
John J. McCloy II Director; Audit April 1985 Director, Clean Diesel Technology, Inc.
Two Portland Square Committee (member, to present (environmental technology firm) since 2005;
Portland, ME 04101 previously Chair Director, Ashland Management (investment
Born: November 1937 through January 23, management) since 2003; Chairman,
2006); Nominating SpringerRun, Inc. (marketing) since 2002;
Committee (member); Director, American Council on Germany
Valuation Committee (non-profit entity) since 2002; Chairman,
(member) Gravitas Technologies, Inc. (information
technology) since 2001; Entrepreneur, J.J.
McCloy II, Inc. (investment management)
since 1980
- --------------------------------------------------------------------------------
19
- --------------------------------------------------------------------------------
SOUND SHORE FUND, INC.
DECEMBER 31, 2006 (UNAUDITED) (CONTINUED)
================================================================================
DIRECTORS AND OFFICERS OF THE FUND (CONTINUED)
NAME, ADDRESS POSITION(S) LENGTH OF TIME PRINCIPAL OCCUPATION(S)
AND DATE OF BIRTH WITH THE FUND SERVED/(1)/ DURING THE PAST FIVE YEARS
- ----------------- ----------------------- -------------- -----------------------------------------------
INTERESTED DIRECTORS
Harry Burn, III, M.B.A./(2)/ Chairman and Director; April 1985 Chairman and Director, Sound Shore
8 Sound Shore Drive Valuation Committee to present Management, Inc. since 1978; Chartered
Greenwich, Connecticut 06830 (member) (Chairman Financial Analyst.
Born: January 1944 September 1992
to present)
T. Gibbs Kane, Jr./(2)/ President and Director, April 1985 President and Director, Sound Shore
8 Sound Shore Drive Valuation Committee to present Management, Inc. since 1977; Chartered
Greenwich, Connecticut 06830 (member) Financial Analyst
Born: May 1947
OFFICERS
Shanna S. Sullivan Secretary; Valuation October 1985 Vice President, Treasurer, Secretary and
8 Sound Shore Drive Committee (Chair) to present Director, Sound Shore Management, Inc.
Greenwich, Connecticut 06830 since 1979
Born: August 1945
Simon D. Collier Treasurer April 2005 to Managing Director, Foreside Financial
Two Portland Square present Group, since 2005; President, Foreside
Portland, Maine 04101 Services, Inc. (a staffing services firm) since
Born: October 1961 January 2007; Chief Operating Officer and
Managing Director, Global Fund Services,
Citigroup 2003 - 2005; Managing Director,
Global Securities Services for Investors,
Citibank, N.A. 1999 - 2003
Leslie K. Klenk Chief November Director, Foreside Compliance Services,
Two Portland Square Compliance Officer 2006 - present LLC (mutual fund compliance services
Portland, Maine 04101 provider) since November 2006; Chief
Born: August 1964 Compliance Officer, Ironwood Series Trust
(mutual fund) since November 2006; Chief
Compliance Officer, Wintergreen Fund, Inc.
(mutual fund) since December 2006; Senior
Vice President and Counsel, Citigroup Fund
Services, LLC (mutual fund services
provider) (1998 - 2006).
- --------------------------------------------------------------------------------
20
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SOUND SHORE FUND, INC.
DECEMBER 31, 2006 (UNAUDITED) (CONCLUDED)
================================================================================
DIRECTORS AND OFFICERS OF THE FUND (CONCLUDED)
NAME, ADDRESS POSITION(S) LENGTH OF TIME PRINCIPAL OCCUPATION(S)
AND DATE OF BIRTH WITH THE FUND SERVED/(1)/ DURING THE PAST FIVE YEARS
- ----------------- ------------------- -------------- -----------------------------------------
Ellen S. Smoller Assistant Secretary October 1985 Equity Trader, Sound Shore Management,
8 Sound Shore Drive to present Inc. since 1984
Greenwich, Connecticut 06830
Born: April 1959
Sara M. Morris Assistant Secretary January 2004 Director and Relationship Manager,
Two Portland Square to present Citigroup since 2004; Chief Financial
Portland, ME 04101 Officer, The VIA Group, LLC, 1999 - 2003;
Born: September 1963 Chief Financial Officer, Forum,
1994 - 1999
Frederick Skillin Assistant Treasurer June 2004 Senior Vice President, Financial Control,
Two Portland Square to present Citigroup since 2003; Senior Manager,
Portland, ME 04101 Corporate Finance, Forum, 1994 - 2004
Born: May 1958
(1)TERM OF SERVICE IS UNTIL HIS/HER SUCCESSOR IS ELECTED OR QUALIFIED OR UNTIL
HIS/HER EARLIER RESIGNATION OR REMOVAL.
(2)HARRY BURN, III AND T. GIBBS KANE, JR. ARE "INTERESTED PERSONS" OF THE FUND
AS DEFINED IN SECTION 2(A)(19) OF THE 1940 ACT BY VIRTUE OF THEIR POSITION
AS SHAREHOLDERS, SENIOR OFFICERS, AND DIRECTORS OF THE ADVISER. EACH IS A
PORTFOLIO MANAGER OF THE FUND.
EACH DIRECTOR OVERSEES THE FUND, WHICH IS THE ONLY PORTFOLIO WITHIN THE
COMPLEX. NO DIRECTOR HOLDS OTHER DIRECTORSHIPS OR TRUSTEESHIPS. THE STATEMENT
OF ADDITIONAL INFORMATION ("SAI") CONTAINS ADDITIONAL INFORMATION ABOUT THE
FUND'S DIRECTORS. THE SAI IS AVAILABLE FOR FREE, BY CONTACTING THE FUND AT
(800) 551-1980.
- --------------------------------------------------------------------------------
21
[LOGO]
Sound Shore Fund
INVESTMENT ADVISER
Sound Shore Management, Inc.
Greenwich, Connecticut
ADMINISTRATOR
Citigroup Fund Services, LLC
Portland, Maine
DISTRIBUTOR
Foreside Fund Services, LLC
Portland, Maine
TRANSFER AND
DISTRIBUTION PAYING AGENT
Citigroup Fund Services, LLC
Portland, Maine
CUSTODIAN
Citibank, N.A.
New York, New York
COUNSEL
Dechert LLP
New York, New York
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
Boston, Massachusetts
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.soundshore.com
ANNUAL REPORT
DECEMBER 31, 2006
[LOGO]
Sound Shore Fund
[GRAPHIC]
ITEM 2. CODE OF ETHICS
As of the end of the period covered by this report, Sound Shore Fund, Inc. has
adopted a code of ethics, as defined in Item 2 of Form N-CSR, that applies to
its President and Treasurer. A copy of the code of ethics is filed as an
exhibit to this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
The Board of Directors (the "Board") determined that no member of the Audit
Committee is an "audit committee financial expert" as that term is defined
under applicable regulatory guidelines. The Board believed that the Audit
Committee, as a group, possesses many of the attributes of an "audit committee
financial expert."
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(a) The aggregate fees billed for each of the last two fiscal years (the
"Reporting Periods") for professional services rendered by the Registrant's
principal accountant for the audit of the Registrant's annual financial
statements, or services that are normally provided by the principal accountant
in connection with the statutory and regulatory filings or engagements for the
Reporting Periods, were $26,000 in 2005 and $31,400 in 2006.
(b) Audit-Related Fees - The aggregate fees billed in the Reporting Periods for
assurance and related services rendered by the principal accountant that were
reasonably related to the performance of the audit of the Registrant's
financial statements and are not reported under paragraph (a) of this Item 4
were $0 in 2005 and $0 in 2006.
(c) The aggregate fees billed in the Reporting Periods for professional
services rendered by the principal accountant to the Registrant for tax
compliance, tax advice and tax planning ("Tax Services") were $3,500 in 2005
and $3,500 in 2006. These services consisted of review or preparation of U.S.
federal, state, local and excise tax returns.
(d) There were no other fees billed in the Reporting Periods for products and
services provided by the principal accountant to the Registrant, other than the
services reported in paragraphs (a) through (c) of this Item.
(e) Pre-Approval Requirements for Audit and Non-Audit Services. The Audit
Committee reviews and approves in advance all audit and "permissible non-audit
services" (as defined under Rule 2-01(c)(4) of Regulation S-X) for the Fund. In
addition, the Audit Committee reviews and approves in advance all "permissible
non-audit services" to be provided to Sound Shore Management, Inc. ("Sound
Shore Management"), the Fund's investment adviser, by the Fund's independent
auditor if the engagement relates to the operations and financial reporting of
the Fund. The Audit Committee considers whether fees paid by Sound Shore
Management for audit and permissible non-audit services are consistent with the
independent auditor's independence. Pre-approval of any permissible non-audit
services provided to the Fund is not required so long as: (i) the aggregate
amount of all such permissible non-audit services provided to the Fund
constitutes not more than 5% of the total amount of revenues paid by the Fund
to its auditor during the fiscal year in which the permissible non-audit
services are provided; (ii) the permissible non-audit services were not
recognized by the Fund at the time of the engagement to be non-audit services;
and (iii) such services are promptly brought to the attention of the Audit
Committee and approved prior to the completion of the audit by the Audit
Committee or its authorized delegate(s). Pre-approval of permissible non-audit
services rendered to Sound Shore Management is not required if such services
constitute not more than 5% of the total amount of revenues paid by the Fund
and Sound Shore Management collectively to the Fund's independent auditor
during the fiscal year in which such services are provided. The Audit
Committee may delegate to one or more of its members authority to pre-approve
permissible non-audit services to be provided to the Fund. Any pre-approval
determination of a delegate will be presented to the full Audit Committee at
its next meeting.
(e) (2) No services included in (b) - (d) above were approved pursuant to
paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable as less than 50%.
(g) The aggregate fees billed in the Reporting Periods for Non-Audit Services
by the principal accountant to the Registrant and investment adviser, other
than the services reported in paragraphs (b) and (c) of this Item 4 were
$32,175 in 2005 and $32,500 in 2006.
(h) The Registrant's Audit Committee considers the provision of any non-audit
services rendered to the investment adviser, to the extent applicable, in
evaluating the independence of the Registrant's principal accountant. Any
services provided by the principal accountant to the Registrant or to the
investment adviser that require pre-approval were pre-approved.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS
Not Applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
Not Applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not Applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS
Not Applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 11. CONTROLS AND PROCEDURES
(a) The registrant's President and Treasurer have concluded that the
registrant's disclosure controls and procedures (as defined in rule 30a-3(c)
under the Investment Company Act of 1940 (the "Act")) are effective, based on
their evaluation of these disclosure controls and procedures required by Rule
30a-3(b) as of a date within 90 days of the filing date of this report.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in rule 30a-3(d) under the Act) that occurred during the
registrant's last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control over
financial reporting.
ITEM 12. EXHIBITS
(a)(1) A copy of the Code of Ethics (Exhibit filed herewith).
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(Exhibit filed herewith).
(a)(3) Not applicable.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Exhibit filed herewith).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant SOUND SHORE FUND, INC.
By /s/ T. Gibbs Kane, Jr.
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T. Gibbs Kane, Jr., President
Date 2/23/07
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ T. Gibbs Kane, Jr.
--------------------------------
T. Gibbs Kane, Jr., President
Date 2/23/07
--------------------------------
By /s/ Simon D. Collier
--------------------------------
Simon D. Collier, Treasurer
Date 2/23/07
--------------------------------