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As filed with the Securities and Exchange Commission on August 31, 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
Date of reporting period: January 1, 2007 - June 30, 2007
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ITEM 1. REPORT TO STOCKHOLDERS.
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[LOGO]
Sound Shore Fund
TWO PORTLAND SQUARE, PORTLAND, ME 04101 1-800-754-8758
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June 30, 2007
Dear Shareholder:
The Sound Shore Fund ended June 30, 2007 with a net asset value of $41.63.
The second quarter total return of 6.74% was ahead of the Standard & Poor's 500
Index ("S&P 500") which gained 6.28%, but behind the Dow Jones Industrials
Average ("Dow Jones") which outpaced most indexes, up 9.11%. Over the first two
quarters the Fund is up 6.52% versus 6.96% and 8.76% for the S&P 500 and Dow
Jones, respectively.
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 JUNE 30, 2007 WERE 22.28%,
13.12%, 9.33%, AND 13.33%, RESPECTIVELY. AS STATED IN THE CURRENT PROSPECTUS,
THE FUND'S ANNUAL OPERATING GROSS EXPENSE RATIO IS .93%. FOR THE MOST RECENT
MONTH-END PERFORMANCE, PLEASE VISIT THE FUND'S WEBSITE AT
WWW.SOUNDSHOREFUND.COM.
After a lackluster first quarter in which stocks were held back by slowing
economic growth, volatile energy prices, and weakness in sub-prime mortgages,
equity markets rose steadily in April and May. The S&P 500, for example, gained
nearly 8% as first quarter earnings exceeded consensus (the S&P posted its 15th
consecutive period of double-digit earnings growth), share repurchase
announcements accelerated, and record levels of mergers and acquisitions
dominated financial headlines. According to THE ECONOMIST, more than $1
trillion of US transactions were announced in the first half of 2007 alone.
Amazingly, this represents more than 7% of the S&P 500 aggregate market
capitalization and 8% of our Gross Domestic Product (GDP). The penchant for
deals was truly global with $2.7 trillion world-wide, of which 465 were for
amounts greater than $1 billion. European M&A levels reportedly surpassed the
US for the first time in four years. Deal driven optimism gave way in June,
however, as the 10-year US Treasury yield topped 5% and sub-prime mortgage
fears re-surfaced causing equity markets to end the quarter on a cautious note,
giving back 20% of the first two months' gains.
Regardless of the yin and the yang of the macro backdrop, Sound Shore
continues to invest in out-of-favor stocks, priced below historic norms, where
through our fundamental research, we conclude the earnings potential is at
least in line with consensus expectations. And indeed, strong earnings progress
drove several of our best performers in the second quarter. Texas Instruments,
up 25% and our biggest contributor, posted better than expected results as its
market share leading digital signal processor and analog business benefited
from strong end-user demand for mobile handsets, which could top 1.1 billion
this year. Education service provider Apollo Group, a new second quarter
holding that had declined by 50% since 2005, advanced after reporting better
than expected student enrollment trends. Apollo has a strong competitive
position in a growing industry, a debt-free balance sheet, 5% free cash flow
yield, and encouraging early results in accelerating revenue growth with
improving operating margins. Within energy, the market's best sector for the
quarter, Royal Dutch Shell's increase of 24% handily outdistanced its peer
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1
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group as its earnings gains from ongoing restructuring efforts, an unrivaled
global position in liquefied natural gas, and record refining margins continued
to surprise. This quarter we bid farewell to Aetna, an outperformer for us over
the past four years as well as in the second quarter given less earnings upside
relative to consensus and a fair valuation versus the market.
A few stocks offset these strong performers including Interpublic Group,
our biggest detractor for the quarter, where their financial progress was
slowed by higher costs as they intensified their marketing efforts. Within
financials, one of the worst performing sectors for the quarter, US Bancorp and
Bank of America lagged, as earnings for both were slightly below consensus
estimates due to pressure on net interest income and higher credit costs. Both
banks have solid management teams, high market densities, strong fee
businesses, and healthy returns on equity.
In general, investors seem willing to await the next corporate acquisition,
leveraged buyout (LBO), or mega-share repurchase encouraged by abundant
liquidity, profit margins at 60-year peaks and corporate free cash flow yields
in excess of money market rates. However, recently rising interest rates,
deepening mortgage and housing woes, and signs of oil and wage inflation should
remind us that risk and volatility remain relevant. Accordingly, we continue to
emphasize our company-by-company stock selection process that includes
examining the downside possibilities, keeping in mind, as London Business
School professor Elroy Dimson has posited, that "risk means more things can
happen than will happen."
As always, we thank you 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 S&P 500 IS AN UNMANAGED INDEX REPRESENTING THE AVERAGE
PERFORMANCE OF 500 WIDELY HELD, PUBLICLY TRADED, LARGE CAPITALIZATION STOCKS.
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 (P/E) RATIO IS THE VALUE OF A COMPANY'S STOCK PRICE
RELATIVE TO COMPANY EARNINGS. FREE CASH FLOW YIELD IS THE OVERALL RETURN
EVALUATION RATIO OF A STOCK, WHICH STANDARDIZES THE FREE CASH FLOW PER SHARE A
COMPANY IS EXPECTED TO EARN AGAINST ITS MARKET PRICE PER SHARE. PERCENT OF NET
ASSETS AS OF 6/30/07: AETNA, INC.: 0.00%; APOLLO GROUP, INC.: 2.40%; BANK OF
AMERICA CORP.: 2.73%; INTERPUBLIC GROUP OF COS., INC.: 2.71%; ROYAL DUTCH SHELL
PLC ADR: 2.05%; TEXAS INSTRUMENTS, INC.: 2.17%; AND US BANCORP: 1.46%.
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2
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THE VIEWS IN THIS LETTER WERE THOSE OF THE FUND MANAGERS AS OF 6/30/07 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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3
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SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS
JUNE 30, 2007 (UNAUDITED)
================================================================================
SHARE MARKET
AMOUNT VALUE
--------- --------------
COMMON STOCK (97.2%)
----------------------------------------------------------
AUTO (3.9%)
Goodyear Tire & Rubber Co. + 1,302,700 $ 45,281,852
Honda Motor Co., Ltd. ADR 1,958,100 71,059,449
--------------
116,341,301
--------------
BANKS (4.2%)
Bank of America Corp. 1,673,400 81,812,526
U.S. Bancorp 1,332,200 43,895,990
--------------
125,708,516
--------------
CONSUMER DISCRETIONARY (16.3%)
Apollo Group, Inc. Class A + 1,232,400 72,009,132
Comcast Corp., Class A + 2,138,000 60,120,560
Interpublic Group of Cos., Inc. + 7,127,700 81,255,780
Time Warner, Inc. 5,114,500 107,609,080
Walt Disney Co. 2,239,400 76,453,116
Washington Post, Class B 117,320 91,050,879
--------------
488,498,547
--------------
CONSUMER STAPLES (2.6%)
Unilever NV ADR 2,496,300 77,435,226
--------------
DIVERSIFIED FINANCIALS (4.2%)
Citigroup, Inc. 1,437,700 73,739,633
Invesco PLC ADR 2,103,800 54,383,230
--------------
128,122,863
--------------
ENERGY (9.9%)
Apache Corp. 369,000 30,106,710
ConocoPhillips 770,500 60,484,250
El Paso Corp. 5,440,100 93,732,923
Halliburton Co. 1,453,100 50,131,950
Royal Dutch Shell PLC ADR 756,400 61,419,680
--------------
295,875,513
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SEE NOTES TO FINANCIAL STATEMENTS.
4
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SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
JUNE 30, 2007 (UNAUDITED)
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SHARE MARKET
AMOUNT VALUE
--------- --------------
HEALTH CARE (7.5%)
Baxter International, Inc. 797,100 $ 44,908,614
Boston Scientific Corp. + 5,276,000 80,933,840
Cigna Corp. 818,700 42,752,514
Kinetic Concepts, Inc. + 1,084,900 56,382,253
--------------
224,977,221
--------------
INDUSTRIALS (9.5%)
General Electric Co. 2,894,900 110,816,772
Southwest Airlines Co. 5,881,100 87,687,201
Waste Management, Inc. 2,249,800 87,854,690
--------------
286,358,663
--------------
INSURANCE (12.0%)
American International Group 1,240,700 86,886,221
AON Corp. 1,753,100 74,699,591
Berkshire Hathaway, Inc., Class A + 278 30,434,050
Chubb Corp. 547,900 29,663,306
Marsh & McLennan Cos., Inc. 2,507,500 77,431,600
Unum Group 2,289,000 59,765,790
--------------
358,880,558
--------------
MATERIALS (3.6%)
Barrick Gold Corp. 2,916,700 84,788,469
Cytec Industries, Inc. 380,700 24,277,239
--------------
109,065,708
--------------
PHARMACEUTICALS (4.8%)
Barr Pharmaceuticals, Inc. + 1,716,700 86,229,841
Pfizer, Inc. 2,321,800 59,368,426
--------------
145,598,267
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SEE NOTES TO FINANCIAL STATEMENTS.
5
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SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
JUNE 30, 2007 (UNAUDITED)
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SHARE MARKET
AMOUNT VALUE
---------- --------------
TECHNOLOGY (13.4%)
Flextronics International, Ltd. + 8,761,100 $ 94,619,880
Hewlett Packard Co. 1,519,100 67,782,241
Motorola, Inc. 3,318,500 58,737,450
Symantec Corp. + 4,542,500 91,758,500
Texas Instruments, Inc. 1,729,600 65,084,848
Western Digital Corp. + 1,190,700 23,040,045
--------------
401,022,964
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TELECOMMUNICATIONS (2.1%)
Sprint Nextel Corp. 3,007,200 62,279,112
--------------
UTILITIES (3.2%)
AES Corp. + 4,412,600 96,547,688
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TOTAL COMMON STOCK (COST $2,488,964,668) $2,916,712,147
--------------
MONEY MARKET FUND (2.4%)
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Citi/SM/ Institutional Liquid Reserves, Class A, 5.26% 70,821,941 $ 70,821,941
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TOTAL MONEY MARKET FUND (COST $70,821,941) $ 70,821,941
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TOTAL INVESTMENTS (99.6%) (COST $2,559,786,609) * $2,987,534,088
OTHER ASSETS LESS LIABILITIES (0.4%) 11,994,163
--------------
NET ASSETS (100.0%) (SHARES OUTSTANDING 72,046,617) $2,999,528,251
==============
NET ASSET VALUE (OFFERING AND REDEMPTION PRICE PER SHARE) $ 41.63
==============
+ Non-income producing security.
ADR -- American Depository Receipt.
* Cost for Federal income tax purposes is substantially the same as for
financial statement purposes and net unrealized appreciation consists of:
Gross Unrealized Appreciation $457,776,843
Gross Unrealized Depreciation (3,002,964)
------------
Net Unrealized Appreciation $454,773,879
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SEE NOTES TO FINANCIAL STATEMENTS.
6
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SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS (CONCLUDED)
JUNE 30, 2007 (UNAUDITED)
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AT JUNE 30, 2007 NET ASSETS CONSISTED OF:
--------------------------------------------------------------
Par Value (100,000,000 shares authorized) $ 72,047
Paid in Capital 2,300,745,444
Accumulated Undistributed Net Investment Income 6,173
Accumulated Net Realized Gain from Investments 270,957,108
Unrealized Appreciation on Investments 427,747,479
--------------
NET ASSETS $2,999,528,251
==============
PORTFOLIO HOLDINGS
% OF NET ASSETS
Auto 3.9%
Banks 4.2%
Consumer Discretionary 16.3%
Consumer Staples 2.6%
Diversified Financials 4.2%
Energy 9.9%
Health Care 7.5%
Industrials 9.5%
Insurance 12.0%
Materials 3.6%
Pharmaceuticals 4.8%
Technology 13.4%
Telecommunications 2.1%
Utilities 3.2%
Short-Term Investments 2.4%
Other Assets less Liabilities 0.4%
------
100.0%
======
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SEE NOTES TO FINANCIAL STATEMENTS.
7
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SOUND SHORE FUND, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
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INVESTMENT INCOME
Income:
Dividends (net of foreign withholding taxes $550,182) $ 21,749,926
Interest 996
------------
Total Income 21,750,922
------------
Expenses:
Adviser fee (Note 3) 11,055,848
Administrator fee (Note 3) 528,874
Transfer Agency fee 1,474,102
Custodian fee 123,068
Accountant fee 30,199
Professional fees 57,493
Directors' fees and expenses (Note 3) 67,769
Compliance services fees (Note 3) 87,003
Miscellaneous 101,642
------------
Total Expenses 13,525,998
------------
Net Investment Income 8,224,924
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments sold 272,084,157
Net change in unrealized appreciation (depreciation) on investments (91,716,330)
------------
Net realized and unrealized gain (loss) on investments 180,367,827
------------
Net increase in net assets from operations $188,592,751
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SEE NOTES TO FINANCIAL STATEMENTS.
8
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SOUND SHORE FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
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INCREASE (DECREASE) IN NET ASSETS
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31,
(UNAUDITED) 2006
---------------- --------------
Operations:
Net investment income $ 8,224,924 $ 14,077,163
Net realized gain on investments sold 272,084,157 223,926,028
Net change in unrealized appreciation (depreciation) on
investments (91,716,330) 168,531,226
-------------- --------------
Increase in net assets from operations 188,592,751 406,534,417
Dividends to shareholders from net investment income (8,231,375) (14,075,600)
Dividends to shareholders from net realized gains -- (224,129,404)
-------------- --------------
Total distributions to shareholders (8,231,375) (238,205,004)
Capital share transactions (Note 6) (57,168,616) 439,772,270
-------------- --------------
Total increase 123,192,760 608,101,683
Net assets:
Beginning of the year 2,876,335,491 2,268,233,808
-------------- --------------
End of the year (Including line (A)) $2,999,528,251 $2,876,335,491
============== ==============
(A) Accumulated undistributed net investment income $ 6,173 $ 12,624
-------------- --------------
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SEE NOTES TO FINANCIAL STATEMENTS.
9
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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1. ORGANIZATION
Sound Shore Fund, Inc. (the "Fund") was incorporated 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 (including those traded on the National
Association of Securities Dealers' Automated Quotation System) not subject
to restrictions against resale are valued at the last sale 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 over-the-counter market quotations are readily available are generally
valued at the mean between the current bid and asked prices provided by
independent pricing services. Debt 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 are recorded on a trade date basis. Realized gain and loss on
investments sold are recorded on the basis of identified cost.
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10
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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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" ("FIN 48") 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. FIN 48 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. Fund management has determined that the Fund did not have any
unrecognized tax benefits as a result of tax positions taken in the current or
prior reporting periods that would require reporting under FIN 48.
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 $1,864,340 are payable at June 30,
2007.
OTHER SERVICES
Citigroup Fund Services, LLC ("Citigroup") provides certain administration,
custody services portfolio accounting and transfer agency services to the Fund.
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11
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
================================================================================
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 some additional compliance support functions ("Compliance
Services") until January 24, 2007. 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 FCS and the Fund. The Treasurer of the Fund is an affiliate of the
Distributor due to his ownership interest in the Distributor. Neither the
Distributor nor FCS 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 FCS in the amount of $15,027 are payable at
June 30, 2007.
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.
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 six months ended June 30, 2007
aggregated $1,134,723,964 and $1,178,785,868, respectively. Securities
purchased in the amount of $33,536,047 are payable at June 30, 2007. Securities
sold in the amount of $43,519,790 are receivable by the Fund at June 30, 2007.
5. FEDERAL INCOME TAX AND INVESTMENT TRANSACTIONS
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.
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12
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
================================================================================
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 June 30, 2007, 100,000,000 shares of $.001 par value stock were
authorized and capital paid in amounted to $2,300,817,491. Capital shares
redeemed in the amount of $1,347,522 are payable at June 30, 2007. Capital
shares sold in the amount of $2,560,959 are receivable by the Fund at June 30,
2007. Transactions in capital stock were as follows:
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31, 2006
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ----------- -------------
Sale of shares 7,604,744 $ 303,103,107 19,715,944 $ 753,490,576
Reinvestment of dividends 193,612 8,042,652 5,945,394 233,674,228
Redemption of shares (9,151,359) (368,314,375) (14,181,752) (547,392,534)
---------- ------------- ----------- -------------
Net increase from capital transactions (1,353,003) $ (57,168,616) 11,479,586 $ 439,772,270
========== ============= =========== =============
Of the 72,046,617 shares outstanding as of June 30, 2007, the Employees' Profit
Sharing Plan of the Adviser owned 446,226 shares.
7. OTHER INFORMATION
On June 30, 2007, three shareholders held approximately 74% 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.
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13
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SOUND SHORE FUND, INC.
FINANCIAL HIGHLIGHTS
================================================================================
These financial highlights reflect selected data for a share outstanding
throughout each period.
SIX MONTHS
ENDED
JUNE 30, 2007 2006 2005 2004 2003 2002
------------- ---------- ---------- ---------- ---------- --------
Net Asset Value, Beginning of
Period $ 39.19 $ 36.63 $ 36.71 $ 33.51 $ 25.81 $ 30.58
---------- ---------- ---------- ---------- ---------- --------
Investment Operations
Net investment income 0.11(a) 0.21(a) 0.07(a) 0.10 0.05 0.05
Net realized and unrealized
gain (loss) on investments 2.44 5.86 2.43 5.05 8.14 (4.77)
---------- ---------- ---------- ---------- ---------- --------
Total from Investment Operations 2.55 6.07 2.50 5.15 8.19 (4.72)
---------- ---------- ---------- ---------- ---------- --------
Distributions from
Net investment income (0.11) (0.21) (0.07) (0.10) (0.05) (0.05)
Net realized gains -- (3.30) (2.51) (1.85) (0.44) --
---------- ---------- ---------- ---------- ---------- --------
Total Distributions (0.11) (3.51) (2.58) (1.95) (0.49) (0.05)
---------- ---------- ---------- ---------- ---------- --------
Net Asset Value, End of Period $ 41.63 $ 39.19 $ 36.63 $ 36.71 $ 33.51 $ 25.81
========== ========== ========== ========== ========== ========
Total Return(b) 6.52% 16.56% 6.81% 15.37% 31.74% (15.43)%
Ratio/Supplementary Data
Net Assets at End of Period
(in thousands) $2,999,528 $2,876,335 $2,268,234 $1,698,232 $1,014,412 $759,674
Ratios to Average Net Assets:(c)
Expenses (net of
reimbursement) 0.92% 0.92% 0.98% 0.98% 0.98% 0.98%
Expenses (gross)(d) 0.92% 0.92% 0.99% 0.99% 1.00% 0.99%
Net Investment Income 0.56% 0.54% 0.20% 0.33% 0.18% 0.17%
Portfolio Turnover Rate 40% 66% 62% 50% 62% 72%
(a)Calculated using the average shares outstanding for the period.
(b)Not annualized for periods less than on year.
(c)Annualized for periods less than one year.
(d)Reflects expense ratio in the absence of expense waiver and reimbursement.
- --------------------------------------------------------------------------------
14
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SOUND SHORE FUND, INC.
JUNE 30, 2007 (UNAUDITED)
================================================================================
ADVISORY AGREEMENT APPROVAL
At the January 25, 2007 meeting of the Fund's Board, the Board, including the
Independent Directors, considered the renewal of the Investment Advisory
Agreement between the Fund and the Adviser (the "Advisory Agreement"). In
evaluating the Advisory Agreement, the Board discussed the Fund's total
expenses and noted that the expenses were less than 100 basis points and
consistent with the median expenses of the Fund's Lipper Inc. comparison group
(the "Comparison Group").
The Independent Directors then met separately with Fund Counsel and reviewed
and the written materials provided to them, which included the terms of the
advisory agreement, the long, mid and short term performance of the Fund as
measured against relevant benchmarks, revenue received by the Adviser from the
Fund, and the costs incurred by the Adviser in connection with the services it
renders to the Fund. The materials also included comparative analyses of
advisory, administration, transfer agency fund accounting and total expenses
borne by the Fund to those mutual funds included in the Comparison Group, a
group consisting of U.S. diversified equity funds reporting no sales loads, no
12b-1 fees and assets of $1 billion to $3 billion.
The Independent Directors also took into account (1) the consistent quality of
services provided by the Adviser, including the Fund's long-term performance
record, (2) the reputation of the Adviser, and (3) the professional credentials
of its personnel and the efficiency and economy of its operations. The
Independent Directors noted that the Fund outperformed the S&P 500, its
benchmark, for the 1 year, 3 year, 5 year, 10 year, 15 year and 20 year periods
ended December 31, 2006 ("Periods"), as well as certain other indices during
all or most of those Periods. The Independent Directors also noted that the
Fund had received a stewardship rating of A from Morningstar and that the Fund
surpassed the median performance of the Morningstar domestic equity, large-cap
value and large cap growth peer groups for all Periods (20-year performance was
not presented for the Morningstar groups). The Independent Directors took into
account the fact that while the fees charged by the Adviser to private accounts
are lower than those charged to the Fund, the Adviser has additional
responsibilities in connection with its services to the Fund, including
compliance with the 1940 Act, preparation of Board and shareholder materials
and increased trading activity associated with daily inflows and outflows of
Fund assets.
While the Independent Directors did not identify any single factor as
controlling, the Independent Directors, after considering all the factors,
resolved to approve continuance of the Advisory Agreement as in the best
interests of the Fund and its shareholders. The Independent Directors then
reported their conclusions and vote to the full Board and, after further
discussion, the Independent Directors and the full Board approved the
continuance of the Advisory Agreement.
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.
- --------------------------------------------------------------------------------
15
- --------------------------------------------------------------------------------
SOUND SHORE FUND, INC.
JUNE 30, 2007 (UNAUDITED) (CONTINUED)
================================================================================
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 January 1, 2007 through June 30,
2007.
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.
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.
- --------------------------------------------------------------------------------
16
- --------------------------------------------------------------------------------
SOUND SHORE FUND, INC.
JUNE 30, 2007 (UNAUDITED) (CONCLUDED)
================================================================================
BEGINNING ENDING
ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID
JANUARY 1, 2007 JUNE 30, 2007 DURING PERIOD*
--------------- ------------- --------------
Actual Return $1,000.00 $1,065.19 $4.71
Hypothetical Return $1,000.00 $1,020.23 $4.61
* 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.
- --------------------------------------------------------------------------------
17
[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
SEMI-ANNUAL REPORT
(Unaudited)
JUNE 30, 2007
[LOGO]
Sound Shore Fund
[GRAPHIC]
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Included as part of report to stockholders under Item 1.
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 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 second fiscal quarter of the period
covered by this report that have materially affected, or are reasonably
likely to materially affect, the registrant's internal control over
financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Not applicable.
(a)(2) Certifications pursuant to Rule 30a-2(a) of the Investment Company Act
of 1940 as amended, and Section 302 of the Sarbanes-Oxley Act of 2002 (Exhibit
filed herewith).
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) of the Investment Company Act of
1940, as amended, and 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.
--------------------------------
T. Gibbs Kane, Jr., President
Date 8/27/2007
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 8/27/2007
By /s/ Simon D. Collier
--------------------------------
Simon D. Collier, Treasurer
Date 8/27/2007