As filed with the Securities and Exchange Commission on March 5, 2004
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
Sound Shore Management, Inc.
8 Sound Shore Drive
P.O. Box 1810
Greenwich, CT 06836
Date of fiscal year end: DECEMBER 31, 2003
Date of reporting period: JANUARY 1, 2003 THROUGH DECEMBER 31, 2003
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, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORT TO STOCKHOLDERS.
- --------------------------------------------------------------------------------
SOUND SHORE FUND
TWO PORTLAND SQUARE, PORTLAND, ME 04101 - 1-800-754-8758
================================================================================
December 31, 2003
Dear Shareholder:
The Sound Shore Fund (the "Fund") ended 2003 with a net asset value of
$33.51, following a year-end distribution of income and capital gains of
$0.46902. Over the past five and ten years, the Fund has grown at a compound
annual rate of 5.85% and 12.63%, besting the S&P 500 Index's rate of -0.57% and
11.07%, respectively. The Fund gained 13.11% for the fourth quarter of 2003,
outpacing the S&P 500 Index and approximating the Dow Jones Industrial Average,
which advanced 12.18% and 13.32%, respectively. 2003 annual results were
similarly robust, with the Fund gaining 31.74%, versus 28.68% and 28.21% for
these two broad benchmarks. In addition, the Fund has earned Morningstar's
highest five star overall rating for the period ended December 31. Morningstar
rated the Fund against a universe of 655 large value funds based on the weighted
average of the historical performance of the Fund for specific time periods.*
What a difference a year makes! Investor sentiment entering 2003 was
extremely gloomy reflecting three negative market years, the worst consecutively
in 70 years, and facing the uncertainties of impending hostilities in the war
against terrorism. However, liquidity provided by aggressive monetary and fiscal
policies kept the consumer in a spending mode. The tepid economic recovery held
together early in the year, and accelerated as some uncertainties, notably Iraq,
diminished. Corporate earnings advanced accordingly and S&P 500 operating
earnings per share (EPS) rose an estimated 12% for 2003 - up 19% year-over-year
in the second half. Inflation remained subdued, with short interest rates at 45
year lows and longer-term Treasury yields, while volatile, ending little changed
for the year at low levels. The stock market soared.
Of course, as the year ended, market commentators turned their attention to
2004 and began to opine on a host of potential concerns. These include growing
fiscal and trade deficits, the effect on interest rates from a stronger than
expected economy, renewed terrorist alerts, the weakness of the dollar, and the
overall valuation of the stock market. In contrast, we have always concentrated
on finding individual companies whose stocks are attractively priced on an
absolute and relative basis and have spent comparatively little time speculating
on, or worrying about, variables that cannot be forecasted with any degree of
accuracy or consistency. The Fund's investment in Aetna, Inc. ("Aetna") is a
good illustration of our approach. Since initiating our position in late 2001,
Aetna has appreciated approximately 100% while the S&P 500 has declined about
2%.
Aetna, one of the nation's largest health insurers, faltered badly in 1999
and 2000 as inadequate systems and controls lead to severely mis-priced
insurance contracts, and ultimately, mounting operating losses. Late in 2000,
new management, lead by Dr. Jack Rowe, began to fundamentally restructure Aetna
through a series of initiatives which included eliminating unprofitable
customers and lines of business, streamlining costs, strengthening the balance
sheet, and improving systems and controls. The results have been dramatic.
- --------------------------------------------------------------------------------
1
- --------------------------------------------------------------------------------
================================================================================
Following a loss in 2001, Aetna earned $2.26 per share in 2002 and should report
earnings of over $5.00 in 2003. Throughout the course of the restructuring
effort, analysts have chronically underestimated the earnings power of the
company and Aetna has consistently exceeded expectations. Our analysis, company
visits, and competitor checks enabled us to overcome analyst and investor doubts
about Aetna's management, the strength and sustainability of its recovery,
rising loss cost trends, and the competitive price environment. Aetna's stock
price appreciated over 60% in 2003, more than twice the return of market, yet
the stock still sells for about 13 times trailing and 11 times 2004 consensus
EPS estimates that we believe are still conservative.
In many ways Aetna provides a blueprint of our investment process. We try
to minimize the maddening market noise by investing in undervalued,
out-of-favor, and misunderstood companies where we can make reasoned judgments
about the dynamics which will drive their financial performance. Aetna's
financial, and ultimately its stock price performance, were driven by company
specific factors which we could observe and continually measure. This same
approach, which governs all our activity, also produced very favorable outcomes
in 2003 for a number of our positions, such as Omnicare, Inc., SPX Corp.,
Georgia-Pacific Corp., Countrywide Financial Corp., McDonald's, Corp., and
Watson Pharmaceuticals, Inc.
Changing gears, we want to address the adverse publicity buffeting the
mutual fund industry. Recent disclosures and ongoing regulatory investigations
have surfaced three principle issues: late trading, market timing, and excessive
fees. At Sound Shore, and we believe at most firms, late trading is unacceptable
- - period. The Fund has never had any agreements with anyone permitting late
trading, as only individuals who have submitted their purchase orders before
4:00 p.m. are allowed to participate in that day's closing Net Asset Value. In
addition, all of the Funds' agreements with intermediaries (including
broker-dealers and others) require that the intermediaries submit for processing
by the Fund only trades they received at or before 4:00 p.m., the cut-off time
stated in the Fund's current prospectus. All investors have had the same
information upon which to base their decisions.
The market timing issue surfaced primarily in certain international funds
where some investors were attempting to take advantage of stale securities
prices, which arise due to the earlier closing times of various foreign markets
relative to the 4:00 p.m. U.S. market close. Since the Sound Shore Fund is a
domestic equity fund, whose securities are priced every day at the 4:00 p.m.
NYSE closing price, we do not believe there has been an opportunity to market
time the Fund. Nevertheless, we are reviewing short-term trading activity in the
Fund. For example, in the fourth quarter we began to screen for purchases and
sales made within a relatively short period of time, as well as multiple trades
over larger periods. And we are currently reviewing the merits of a redemption
fee for more active traders, as other funds are considering. Another current
topic is fund costs. Many fund families offer different classes of the same fund
with different (i.e. higher) fee structures (e.g., front-end or back-end "loads"
or commissions) and also 12b-1 marketing fees,
- --------------------------------------------------------------------------------
2
- --------------------------------------------------------------------------------
================================================================================
which can be used to compensate brokers for selling their funds. The Fund is a
"no-load" fund, has only one share class, and has no 12b-1 fee. The Fund's
expense ratio, just under 1%, is well below the average equity fund expense
ratio of 1.5%, according to Morningstar.
We think the disclosure of industry abuses highlights several key, related
strengths of the Fund and Sound Shore Management. First, Sound Shore Management
is independently owned and managed by its employees. The Fund's managers are
significant shareholders of the Fund and virtually all of the employees' profit
sharing at Sound Shore Management is invested in the Fund. Also, we only offer
one fund product so there is no incentive to offer a select group of investors'
special trading privileges or return opportunities as an inducement for them to
invest in other products or funds. This also means our investment and management
focus is not diluted over multiple products. The priority at Sound Shore has
always been to achieve above average long-term investment returns. We believe
our clients' and our interests are very well-aligned.
We approach this New Year as any other in the past eighteen of our
stewardship of the Sound Shore Fund and remain alert to economic and corporate
changes that will affect the prospects of our holdings. Our value focused
approach has tended to fare well in many different economic and market
environments over the years and we strive for no less in 2004.
We thank you for your continued support and send our best wishes to you for
a healthy, happy, and prosperous New Year. Sincerely,
SOUND SHORE FUND
Harry Burn, III
John P. DeGulis
T. Gibbs Kane, Jr.
CO-PORTFOLIO MANAGERS
* THE 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. FOR THE MOST RECENT MONTH END PERFORMANCE, PLEASE CALL
1-800-551-1980 OR VISIT THE FUND'S WEBSITE AT WWW.SOUNDSHOREFUND.COM. THE FUND'S
AVERAGE ANNUAL TOTAL RETURN ASSUMES REINVESTMENT OF ALL DIVIDEND AND CAPITAL
GAIN DISTRIBUTIONS. DURING THE PERIOD, SOME OF THE FUND'S FEES WERE WAIVED OR
EXPENSES REIMBURSED. IN THE ABSENCE OF THESE WAIVERS AND REIMBURSEMENTS,
PERFORMANCE FIGURES WOULD HAVE BEEN LOWER. BEFORE INVESTING YOU SHOULD CAREFULLY
CONSIDER THE FUND'S INVESTMENT OBJECTIVES, RISKS, FEES AND EXPENSES. THIS AND
OTHER INFORMATION IS IN THE PROSPECTUS, A COPY OF WHICH
- --------------------------------------------------------------------------------
3
- --------------------------------------------------------------------------------
================================================================================
MAY BE OBTAINED BY CALLING 1-800-551-1980 OR VISITING THE FUND'S WEBSITE. PLEASE
READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST. PLEASE SEE PAGE FIVE FOR
ADDITIONAL FUND PERFORMANCE RELATED INFORMATION.
FOR EACH FUND WITH AT LEAST A THREE-YEAR HISTORY, MORNINGSTAR CALCULATES A
MORNINGSTAR RATINGTM BASED ON A MORNINGSTAR RISK-ADJUSTED RETURN MEASURE THAT
ACCOUNTS FOR VARIATION IN A FUND'S MONTHLY PERFORMANCE (INCLUDING THE EFFECTS OF
SALES CHARGES, LOADS, AND REDEMPTION FEES), PLACING MORE EMPHASIS ON DOWNWARD
VARIATIONS AND REWARDING CONSISTENT PERFORMANCE. THE TOP 10% OF FUNDS IN EACH
CATEGORY RECEIVE 5 STARS, THE NEXT 22.5% RECEIVE 4 STARS, THE NEXT 35% RECEIVE 3
STARS, THE NEXT 22.5% RECEIVE 2 STARS AND THE BOTTOM 10% RECEIVE 1 STAR. (EACH
SHARE CLASS IS COUNTED AS A FRACTION OF ONE FUND WITHIN THIS SCALE AND RATED
SEPARATELY, WHICH MAY CAUSE SLIGHT VARIATIONS IN THE DISTRIBUTION PERCENTAGES.)
THE OVERALL MORNINGSTAR RATING FOR A FUND IS DERIVED FROM A WEIGHTED-AVERAGE OF
THE PERFORMANCE FIGURES ASSOCIATED WITH ITS THREE-, FIVE- AND TEN-YEAR (IF
APPLICABLE) MORNINGSTAR RATING METRICS. SOUND SHORE WAS RATED AGAINST THE
FOLLOWING NUMBERS OF U.S.-DOMICILED LARGE VALUE FUNDS OVER THE FOLLOWING TIME
PERIODS: 655 FUNDS IN THE LAST THREE YEARS, 516 FUNDS IN THE LAST FIVE YEARS,
AND 190 FUNDS IN THE LAST TEN YEARS. WITH RESPECT TO THESE LARGE VALUE FUNDS,
SOUND SHORE RECEIVED A MORNINGSTAR RATING OF 4 STARS, 5 STARS AND 5 STARS FOR
THE THREE-, FIVE- AND TEN-YEAR PERIODS, RESPECTIVELY.
THE DOW JONES INDUSTRIAL AVERAGE 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.
THE VIEWS IN THIS LETTER WERE THOSE OF THE FUND MANAGERS AS OF 12/31/03 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. (2/04)
- --------------------------------------------------------------------------------
4
- --------------------------------------------------------------------------------
================================================================================
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. 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. 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. PAST PERFORMANCE CANNOT PREDICT NOR GUARANTEE FUTURE
RESULT. MARKET VOLATILITY CAN SIGNIFICANTLY IMPACT SHORT-TERM PERFORMANCE.
CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED.
SOUND SHORE FUND VS. S&P 500 INDEX
- --------------------------------------------------- Value on 12/31/03
AVERAGE ANNUAL TOTAL RETURN Sound Shore Fund: $32,849
- --------------------------------------------------- S&P 500 Index: $28,549
One Year Five Year Ten Year
Sound Shore Fund 31.74% 5.85% 12.63%
S&P 500 Index 28.68% (0.57)% 11.07%
- ---------------------------------------------------
[EDGAR REPRESENTATION OF GRAPH CHART
DATE SOUND SHORE FUND S&P 500 INDEX
12/31/1993 10,000 10,000
1/31/1994 10,358 10,340
2/28/1994 10,218 10,059
3/31/1994 9,945 9,622
4/30/1994 9,976 9,745
5/31/1994 9,994 9,904
6/30/1994 9,842 9,662
7/31/1994 9,995 9,979
8/31/1994 10,391 10,387
9/30/1994 10,184 10,134
10/31/1994 10,208 10,361
11/30/1994 9,940 9,984
12/31/1994 10,030 10,132
1/31/1995 10,211 10,394
2/28/1995 10,600 10,799
3/31/1995 10,821 11,117
4/30/1995 10,905 11,444
5/31/1995 11,457 11,901
6/30/1995 11,775 12,177
7/31/1995 12,010 12,580
8/31/1995 12,153 12,612
9/30/1995 12,389 13,144
10/31/1995 12,199 13,097
11/30/1995 12,774 13,671
12/31/1995 13,026 13,935
1/31/1996 13,227 14,408
2/29/1996 13,485 14,542
3/31/1996 13,829 14,682
4/30/1996 14,374 14,898
5/31/1996 15,048 15,282
6/30/1996 14,840 15,340
7/31/1996 14,265 14,663
8/31/1996 14,790 14,973
9/30/1996 15,545 15,815
10/31/1996 15,955 16,251
11/30/1996 17,293 17,478
12/31/1996 17,359 17,132
1/31/1997 18,215 18,201
2/28/1997 18,407 18,344
3/31/1997 17,727 17,592
4/30/1997 18,455 18,641
5/31/1997 19,670 19,776
6/30/1997 20,598 20,661
7/31/1997 22,457 22,305
8/31/1997 22,369 21,056
9/30/1997 23,924 22,208
10/31/1997 22,914 21,468
11/30/1997 23,115 22,461
12/31/1997 23,679 22,846
1/31/1998 23,588 23,098
2/28/1998 25,353 24,763
3/31/1998 26,223 26,031
4/30/1998 26,389 26,292
5/31/1998 25,303 25,841
6/30/1998 24,853 26,890
7/31/1998 23,707 26,604
8/31/1998 20,551 22,762
9/30/1998 21,257 24,220
10/31/1998 23,558 26,188
11/30/1998 24,197 27,775
12/31/1998 24,722 29,374
1/31/1999 24,254 30,602
2/28/1999 23,228 29,652
3/31/1999 23,678 30,838
4/30/1999 25,515 32,032
5/31/1999 25,556 31,277
6/30/1999 26,299 33,011
7/31/1999 25,412 31,981
8/31/1999 23,830 31,823
9/30/1999 23,052 30,951
10/31/1999 24,023 32,909
11/30/1999 24,115 33,578
12/31/1999 24,734 35,555
1/31/2000 23,744 33,769
2/29/2000 23,106 33,130
3/31/2000 25,892 36,369
4/30/2000 25,322 35,275
5/31/2000 25,246 34,551
6/30/2000 24,415 35,403
7/31/2000 24,936 34,850
8/31/2000 26,972 37,013
9/30/2000 27,544 35,060
10/31/2000 28,729 34,911
11/30/2000 27,577 32,161
12/31/2000 29,726 32,319
1/31/2001 28,482 33,464
2/28/2001 28,958 30,415
3/31/2001 29,117 28,489
4/30/2001 29,461 30,701
5/31/2001 30,387 30,907
6/30/2001 29,917 30,155
7/31/2001 30,111 29,859
8/31/2001 29,784 27,991
9/30/2001 27,769 25,731
10/31/2001 27,336 26,222
11/30/2001 28,785 28,233
12/31/2001 29,485 28,480
1/31/2002 28,704 28,065
2/28/2002 28,724 27,524
3/31/2002 30,218 28,559
4/30/2002 29,823 26,828
5/31/2002 30,112 26,631
6/30/2002 27,126 24,735
7/31/2002 24,637 22,807
8/31/2002 25,332 22,957
9/30/2002 22,689 20,464
10/31/2002 23,836 22,264
11/30/2002 25,447 23,573
12/31/2002 24,935 22,189
1/31/2003 24,142 21,608
2/28/2003 23,138 21,284
3/31/2003 23,205 21,490
4/30/2003 24,886 23,259
5/31/2003 27,524 24,483
6/30/2003 28,248 24,796
7/31/2003 28,558 25,234
8/31/2003 29,534 25,725
9/30/2003 29,041 25,452
10/31/2003 30,221 26,891
11/30/2003 30,926 27,128
12/31/2003 32,849 28,549]
- --------------------------------------------------------------------------------
5
- --------------------------------------------------------------------------------
SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS
DECEMBER 31, 2003
================================================================================
SHARE MARKET
AMOUNT VALUE
COMMON STOCK - 94.6% ------ -----
- ----------------------------------------------------------------------------------------------
BANKS (9.6%)
Comerica, Inc. .......................................... 313,000 $ 17,546,780
Countrywide Financial Corp. ............................. 114,000 8,646,900
Federal Home Loan Mortgage Corp. ........................ 568,500 33,154,920
U.S. Bancorp ............................................ 327,000 9,738,060
Wells Fargo & Co. ....................................... 477,500 28,119,975
--------------
97,206,635
--------------
CONSUMER DISCRETIONARY (15.3%)
Dana Corp. ............................................. 1,142,000 20,955,700
Honda Motor Co., Ltd. ADR .............................. 935,500 21,048,750
Interpublic Group of Cos., Inc.+ ....................... 1,921,000 29,967,600
Liberty Media Corp., Class A+ .......................... 2,919,500 34,712,855
McDonald's Corp. ....................................... 812,500 20,174,375
Time Warner, Inc.+ ..................................... 1,548,500 27,857,515
--------------
154,716,795
--------------
CONSUMER STAPLES (0.8%)
Safeway, Inc.+ ......................................... 367,000 8,040,970
--------------
ENERGY (12.2%)
ConocoPhillips ......................................... 393,000 25,769,010
Devon Energy Corp. ..................................... 427,500 24,478,650
Halliburton Co. ........................................ 879,000 22,854,000
Marathon Oil Corp. ..................................... 805,500 26,653,995
Occidental Petroleum Corp. ............................. 366,000 15,459,840
Weatherford International Ltd.+ ........................ 247,500 8,910,000
--------------
124,125,495
--------------
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
6
- --------------------------------------------------------------------------------
SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
DECEMBER 31, 2003
================================================================================
HEALTHCARE (14.2%)
Aetna, Inc. ............................................ 393,500 $ 26,592,730
Baxter International, Inc. ............................. 1,046,000 31,923,920
Cigna Corp. ............................................ 415,500 23,891,250
Laboratory Corp. of America Holdings+ .................. 676,000 24,978,200
Omnicare, Inc. ......................................... 511,500 20,659,485
Quest Diagnostics, Inc. ................................ 213,000 15,572,430
--------------
143,618,015
--------------
INDUSTRIALS (14.8%)
Equifax, Inc. .......................................... 889,500 21,792,750
L-3 Communications Holdings, Inc.+ ..................... 464,000 23,831,040
Republic Services, Inc. ................................ 823,500 21,106,305
SPX Corp.+ ............................................. 507,500 29,846,075
Textron, Inc. .......................................... 406,500 23,194,890
Tyco International Ltd. ................................ 1,150,000 30,475,000
--------------
150,246,060
--------------
INSURANCE (10.5%)
AMBAC Financial Group, Inc. ............................ 204,500 14,190,255
Berkshire Hathaway, Inc., Class A+ ..................... 593 49,960,250
Chubb Corp. ............................................ 430,500 29,317,050
MBIA, Inc. ............................................. 226,000 13,385,980
--------------
106,853,535
--------------
MATERIALS (3.1%)
Georgia-Pacific Corp. .................................. 1,021,500 31,329,405
--------------
PHARMACEUTICALS (2.8%)
Watson Pharmaceuticals, Inc.+ .......................... 624,500 28,727,000
--------------
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
7
- --------------------------------------------------------------------------------
SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
DECEMBER 31, 2003
================================================================================
TECHNOLOGY (5.0%)
Nokia Corp. ADR ........................................ 1,322,500 $ 22,482,500
Thermo Electron Corp.+ ................................. 1,119,500 28,211,400
--------------
50,693,900
--------------
TELECOMMUNICATIONS (3.9%)
CenturyTel, Inc. ....................................... 644,000 21,007,280
Citizens Communications Co.+ ........................... 1,509,000 18,741,780
--------------
39,749,060
--------------
UTILITIES (2.4%)
TXU Corp. .............................................. 1,013,500 24,040,220
--------------
TOTAL COMMON STOCK (COST $717,288,430) $ 959,347,090
--------------
SHORT-TERM HOLDINGS (5.6%)
- ----------------------------------------------------------------------------------------------
Monarch Daily Assets Cash Fund ......................... 17,001,947 $ 17,001,947
Monarch Daily Assets Government Fund* .................. 31,763,353 31,763,353
Scudder Cash Management Fund ........................... 8,226,318 8,226,318
--------------
TOTAL SHORT-TERM HOLDINGS (COST $56,991,618) ........... $ 56,991,618
--------------
TOTAL INVESTMENTS (100.2%) (COST $774,280,048) ......... $ 1,016,338,708
OTHER ASSETS LESS LIABILITIES (-0.2%) .................. (1,926,690)
--------------
NET ASSETS (100.0%) (30,272,828 SHARES OUTSTANDING) $ 1,014,412,018
==============
NET ASSET VALUE (OFFERING AND REDEMPTION PRICE PER SHARE) $ 33.51
==============
+ Non-income producing security.
ADR - American Depositary Receipts.
* Investment held by Fund representing 8.47% of the outstanding shares of the
issuer. See Note 7.
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
8
- --------------------------------------------------------------------------------
SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS (CONCLUDED)
DECEMBER 31, 2003
================================================================================
MARKET
VALUE
AT DECEMBER 31, 2003 NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
Par Value $ 30,272
Paid in Capital 774,898,526
Unrealized Appreciation on Investments 242,058,660
Accumulated Net Realized Loss from Investments (2,575,440)
--------------
NET ASSETS $1,014,412,018
==============
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
9
- --------------------------------------------------------------------------------
SOUND SHORE FUND, INC.
STATEMENT OF OPERATIONS
DECEMBER 31, 2003
================================================================================
INVESTMENT INCOME
Income:
Dividends (net of foreign withholding taxes $5,917)*................. $ 9,619,348
-----------
Total Income 9,619,348
-----------
Expenses:
Investment Adviser fee (Note 3) ..................................... 6,217,639
Administrator fee (Note 3) .......................................... 830,499
Transfer agent fee (Note 3) ......................................... 829,012
Custodian fee (Note 3) .............................................. 95,464
Accounting fee (Note 3) ............................................. 60,536
Professional fees .................................................. 113,394
Directors' fees and expenses (Note 3) ............................... 35,449
Miscellaneous ....................................................... 85,068
------------
Total Expenses ................................................... 8,267,061
Expenses reimbursed and fees waived (Note 3) ........................ (109,743)
------------
Net Expenses ........................................................ 8,157,318
------------
Net Investment Income .................................................... 1,462,030
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments sold .................................... 19,612,501
Net change in unrealized appreciation (depreciation) on investments....... 216,250,966
------------
Net realized and unrealized gain on investments .......................... 235,863,467
------------
Net increase in net assets from operations ............................... $ 237,325,497
============
*Dividend income of $103,461 was earned from an affiliated issuer. See Note 7.
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
10
- --------------------------------------------------------------------------------
SOUND SHORE FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
INCREASE (DECREASE) IN NET ASSETS
For the For the
Year Ended Year Ended
December 31, December 31,
2003 2002
---------------------- ----------------------
Operations:
Net investment income ................................ $ 1,462,030 $ 1,558,173
Net realized gain (loss) on investments sold ......... 19,612,501 (6,631,540)
Net change in unrealized appreciation (depreciation)
on investments ................................... 216,250,966 (155,069,953)
---------------------- ----------------------
Increase (decrease) in net assets from operations .... 237,325,497 (160,143,320)
Dividends to shareholders from net investment income ..... (1,485,534) (1,534,643)
Dividends to shareholders from net realized gains ........ (13,164,975) -
Capital share transactions (Note 6) ...................... 32,063,487 (112,306,341)
---------------------- ----------------------
Total increase (decrease) ............................ 254,738,475 (273,984,304)
Net assets:
Beginning of the year ................................ 759,673,543 1,033,657,847
---------------------- ----------------------
End of the Period (Including line (A)) ............... $ 1,014,412,018 $ 759,673,543
====================== ======================
(A) Accumulated undistributed net investment income .. $ - $ 23,679
---------------------- ----------------------
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
11
- --------------------------------------------------------------------------------
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 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, which require management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of increase and decrease in net
assets from operations during the fiscal period. Actual results could differ
from those estimates.
The following represent significant accounting policies of the Fund:
A) SECURITY VALUATION
Exchange traded securities for which market quotations are readily
available are valued using the last reported sales price provided by
independent pricing services as of the close of trading on the New York
Stock Exchange (normally 4:00 p.m. Eastern time), on 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 quotations are available are generally valued at the mean
between the closing bid and asked prices. Money market instruments that
mature in 60 days or less may be valued at amortized cost, which
approximates market value, unless the Fund's Investment Adviser believes
another valuation is more appropriate.
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, at the direction of
the Fund's Board of Directors. Investments in other open-ended regulated
investment companies are valued at net asset value.
B) SECURITY TRANSACTIONS AND INVESTMENT INCOME
Dividend income is recorded on the ex-dividend date. Interest income is
recorded on an accrual basis. Security transactions are recorded on a trade
date basis. Realized gain and loss on investments sold are recorded on the
basis of identified cost.
C) DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income, if any, are declared and paid
semi-annually. Capital gains, if any, are
- --------------------------------------------------------------------------------
12
- --------------------------------------------------------------------------------
SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
distributed to shareholders at least annually. Distributions are based on
amounts calculated in accordance with applicable federal income tax
regulations, which may differ from generally accepted accounting
principles. These differences are due primarily to differing treatments of
income and gain on various investment securities held by the Fund, timing
differences and differing characterizations of distributions made by the
Fund.
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.
E) RECLASSIFICATION OF CAPITAL ACCOUNTS
On the Statement of Net Assets, as a result of permanent book-to-tax
differences, reclassification adjustments were made as follows:
Accumulated Net Investment Income $ (175)
Undistributed Net Realized Loss 187
Unrealized Appreciation (12)
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.
OTHER SERVICES
Forum Administrative Services, LLC (the "Administrator") and its affiliates
provide certain administration, portfolio accounting and transfer agency
services to the Fund.
Forum Fund Services, LLC is the Fund's distributor (the "Distributor"). The
Distributor is not affiliated with the Adviser or the Administrator. The
Distributor receives no compensation from the Fund for its distribution
services.
The Fund pays five Directors who are unaffiliated with the Adviser, the
Administrator or any of its affiliates, $1,000 per meeting attended, plus $750
per quarter.
Fees due to the Adviser in the amount of $626,766 are payable at December 31,
2003.
- --------------------------------------------------------------------------------
13
- --------------------------------------------------------------------------------
SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
The Administrator has agreed contractually to waive a portion of its fee and
reimburse certain expenses so that total annual operating expenses do not exceed
0.98% of average daily net assets through April 30, 2004. The Administrator has
contractually waived fees of $109,743 for the period from January 1, 2003 to
December 31, 2003.
Certain Officers and Directors of the Fund are Officers or Directors 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, 2003,
aggregated $497,253,502 and $510,501,123 respectively.
5. FEDERAL INCOME TAX AND INVESTMENT TRANSACTIONS
For federal income tax purposes, the tax basis of investment securities owned as
of December 31, 2003 was $776,855,488 and the net unrealized appreciation of
investment securities was $239,483,220. The aggregate gross unrealized
appreciation for all securities in which there was an excess of market value
over tax cost was $240,173,457, and aggregate gross unrealized depreciation for
all securities in which there was an excess of tax cost over market value was
$690,237.
The Fund determines its net investment income and capital gains distributions in
accordance with income tax regulations, which may differ from accounting
principles generally accepted in the United States of America. Distributions
during the fiscal years ended as noted were characterized for tax purposes as
follows:
DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- -----------------
Ordinary Income ............... $ 9,345,418 $ 1,534,643
Capital Gains ................. 5,305,048 -
As of December 31, 2003, the components of distributable earnings on a tax basis
were as follows:
Unrealized Appreciation ...... $239,483,220
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.
- --------------------------------------------------------------------------------
14
- --------------------------------------------------------------------------------
SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
6. CAPITAL STOCK
As of December 31, 2003, 100,000,000 shares of $.001 par value stock were
authorized and capital paid in amounted to $774,928,798. Transactions in capital
stock were as follows:
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
----------------------------------- -------------------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
Sale of shares ............... 11,941,447 $ 331,929,160 11,542,703 $ 313,105,075
Reinvestment of dividends .... 429,480 14,318,176 46,138 1,156,666
Redemption of shares ......... (11,534,598) (314,183,849) (15,950,776) (426,568,082)
------------ ------------- ------------ -------------
Net increase (decrease)
from capital transactions 836,329 $ 32,063,487 (4,361,935) $(112,306,341)
============ ============= ============ =============
Of the 30,272,828 shares outstanding as of December 31, 2003, the Employees'
Profit Sharing Plan of Sound Shore Management, Inc. owned 330,891 shares.
7. AFFILIATED COMPANIES
As of December 31, 2003, the Fund owned 8.47% of the outstanding shares of
Monarch Daily Assets Government Fund and is, therefore, deemed an "affiliated"
issuer. Under the Act, an "affiliate" of a fund includes any issuer 5% or more
of whose outstanding voting securities are directly or indirectly owned by such
fund. The following summarizes transactions with the affiliate during the year
ended December 31, 2003:
PURCHASES SALES DIVIDEND INCOME MARKET VALUE
--------- ----- --------------- ------------
$89,079,692 $60,606,426 $103,461 $31,763,353
8. PROXY VOTING INFORMATION (UNAUDITED)
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. 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.
FINANCIAL HIGHLIGHTS
================================================================================
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Net Asset Value, Beginning
of Period ....................... $ 25.81 $ 30.58 $ 33.70 $ 29.47 $ 29.62
--------------- --------------- ------------ ----------- ------------
Investment Operations
Net investment income .......... 0.05 0.05 0.10 0.14 0.17
Net realized and unrealized
gain (loss) on investments . 8.14 (4.77) (0.36) 5.79 (0.15)
--------------- --------------- ------------ ----------- ------------
Total from Investment Operations .... 8.19 (4.72) (0.26) 5.93 0.02
--------------- --------------- ------------ ----------- ------------
Distributions From
Net investment income .......... (0.05) (0.05) (0.10) (0.14) (0.17)
In excess of net investment
income ..................... - - - - (a) - (a)
Net realized gains ............. (0.44) - (2.76) (1.47) -
In excess of net realized gain . - - - (0.09)(b) -
--------------- --------------- ------------ ----------- ------------
Total Distributions ................. (0.49) (0.05) (2.86) (1.70) (0.17)
--------------- --------------- ------------ ----------- ------------
Net Asset Value, End of Period ...... $ 33.51 $ 25.81 $ 30.58 $ 33.70 $ 29.47
=============== =============== ============ =========== ============
Total Return ........................ 31.74% (15.43)% (0.81)% 20.18% 0.05%
Ratio/Supplementary Data
Net Assets at End of Period
(in thousands) ................... $ 1,014,412 $ 759,674 $ 1,033,658 $ 1,101,888 $ 1,174,735
Ratios to Average Net Assets:
Expenses (net of
reimbursement) ............. 0.98% 0.98% 0.98% 0.98% 0.98%
Expenses (gross) (c) ......... 1.00% 0.99% 0.99% 0.99% 0.98%
Net Investment Income ........ 0.18% 0.17% 0.32% 0.44% 0.50%
Portfolio Turnover Rate 62% 72% 104% 98% 41%
- --------------------------------------------------------------------------------
(a) The Fund distributed an amount in excess of net investment income of less than $0.01 per share.
(b) Distributions in excess of realized gains are the result of timing issues.
(c) Reflects expense ratio in the absence of expense reimbursement.
- --------------------------------------------------------------------------------
16
- --------------------------------------------------------------------------------
SOUND SHORE FUND, INC.
INDEPENDENT AUDITORS' REPORT
================================================================================
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
SOUND SHORE FUND, INC.
We have audited the accompanying statement of net assets of Sound Shore Fund,
Inc. (the "Fund") as of December 31, 2003, 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Sound
Shore Fund, Inc. as of December 31, 2003, 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 13, 2004
- --------------------------------------------------------------------------------
17
- --------------------------------------------------------------------------------
SOUND SHORE FUND, INC.
DECEMBER 31, 2003
================================================================================
FEDERAL TAX STATUS OF DIVIDENDS DECLARED DURING THE FISCAL YEAR
INCOME DIVIDENDS - The Fund paid income dividends of $9,345,461 for the tax year
ended December 31, 2003. The Fund designates 100.00% of its income dividend
distributed as qualifying for the corporate dividends-received deduction (DRD)
and 16.11% for the qualified dividend rate (QDI) as defined in Section 1(h)(11)
of the Internal Revenue Code.
CAPITAL GAIN DIVIDENDS - The Fund paid long-term capital gain dividends of
$5,305,048 for the tax year ended December 31, 2003.
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 Consultant, Princeton University,
3088 Fairway Woods Committee to present 1990 - 1998
Carolina Trace (member); Consultant, University of
Sanford, North Carolina 27330 Nominating Pennsylvania, 1992 - 1998
Born: October 1923 Committee
(Chairman)
Charles J. Hedlund Director, Audit April 1985 Member, Board of Trustees, American
58 Country Road South and Nominating to present University in Cairo
Village of Golf, Florida 33436 Committees Member, Board of Trustees,
Born: November 1917 (member) Conservation International of
Washington, D.C.
John L. Lesher Director, Audit April 1985 President, Resource Evaluation, Inc.
470 June Road Committee to present since March 1994
Stamford, Connecticut 06903 (Chairman); Member of the Board, Resource
Born: February 1934 Nominating Evaluation, Ltd.
Committee (member) Member of the Board, First Industrial
Real Estate Trust
John J. McCloy II Director, Audit April 1985 Director, Noise Cancellation
313 Stanwich Road and Nominating to present Technologies, Inc.
Greenwich, Connecticut 06830 Committees Director, Passenger Express
Born: November 1937 (member) Director, EPT Technologies
Director, Geo History
Trustee, American University in Cairo
Walter R. Nelson Director, Audit, September 1993 to President (retired), Nelson
60 Kirby Lane Nominating, and present Publications, an information provider
Rye, New York 10580 Valuation to the financial services and
Born: November 1932 Committees investment industry
(member)
- --------------------------------------------------------------------------------
18
- --------------------------------------------------------------------------------
SOUND SHORE FUND, INC.
DECEMBER 31, 2003
================================================================================
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 April 1985 Chairman and Director, Sound Shore
8 Sound Shore Drive Director, to present Management, Inc. since 1978
Greenwich, Connecticut 06836 Valuation September 1992 to He is a Chartered Financial Analyst.
Born: January 1944 Committee present
(member)
T. Gibbs Kane, Jr.(3) President and April 1985 President and Director, Sound Shore
8 Sound Shore Drive Director, to present Management, Inc. since 1977
Greenwich, Connecticut 06836 Valuation He is a Chartered Financial Analyst.
Born: May 1947 Committee (member)
OFFICERS
John Y. Keffer Vice President June 1993 to President, Citigroup Global
Two Portland Square present Transaction Services, Fund Services,
Portland, Maine 04101 ("Citigroup GTS") (a fund services
Born: July 1942 company) since 2003
President, Forum Financial Group
LLC ("Forum")(a fund services company
acquired by Citigroup GTS in 2003)
Stacey E. Hong Treasurer June 2002 Director, Fund Accounting, Citigroup
Two Portland Square to present GTS since 2003
Portland, ME 04101 Director, Forum Accounting Services,
Born: May 1966 LLC (fund accountant acquired by
Citigroup GTS in 2003) 1998 - 2003
- --------------------------------------------------------------------------------
19
- --------------------------------------------------------------------------------
SOUND SHORE FUND, INC.
DECEMBER 31, 2003
================================================================================
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
- ----------------- ------------- ---------- --------------------------
Shanna S. Sullivan Secretary October 1985 Vice President, Treasurer, Secretary
8 Sound Shore Drive to present and Director, Sound Shore
Greenwich, Connecticut Management, Inc. since 1979
06836
Born: August 1945
Ellen S. Smoller Assistant October 1985 Equity Trader, Sound Shore
8 Sound Shore Drive Secretary to present Management, Inc. since 1984
Greenwich, Connecticut 06836
Born: April 1959
Sara M. Morris (4) Assistant January 2004 Director, Relationship Management,
Two Portland Square Secretary to present Citigroup GTS since 2004
Portland, ME 04101 Chief Financial Officer,
Born: September 1963 The VIA Group, LLC, 1999 - 2003
Chief Financial Officer, Forum, 1994 - 1999
Cheryl O. Tumlin Assistant January 2002 Counsel, Citigroup GTS since 2003
Two Portland Square Secretary to present Counsel, Forum, 2001 - 2003
Portland, ME 04101 and 1996 - 1999
Born: June 1966 Counsel, I-many, Inc., 1999 - 2001
Troy M. Statczar (4) Assistant January 2004 Senior Manager, Fund Administration,
Two Portland Square Treasurer to present Citigroup GTS since 2003
Portland, ME 04101 Senior Manager, Fund Administration,
Born: August 1971 Forum, 2002 - 2003
Director, Financial Services,
BISYS Fund Services, 1998 - 2002
(1) TERM OF SERVICE IS INDEFINITE.
(2) MR. BURN OWNS A CONTROLLING INTEREST IN THE ADVISER FOR WHICH HE SERVES AS CHAIRMAN AND DIRECTOR. HE IS ONE OF THE PORTFOLIO
MANAGERS OF THE FUND.
(3) MR. KANE OWNS A CONTROLLING INTEREST IN THE ADVISER FOR WHICH HE SERVES AS PRESIDENT AND DIRECTOR. HE IS ONE OF THE PORTFOLIO
MANAGERS OF THE FUND.
(4) SUBSEQUENT TO THE END OF THE FISCAL YEAR, BUT PRIOR TO THE ISSUANCE OF THIS REPORT, SARA M. MORRIS WAS ELECTED AS ASSISTANT
SECRETARY AND TROY M. STATCZAR WAS ELECTED AS ASSISTANT TREASURER.
EACH DIRECTOR OVERSEES THE FUND, WHICH IS THE ONLY PORTFOLIO WITHIN THE COMPLEX. NO DIRECTOR HOLDS OTHER DIRECTORSHIPS OR
TRUSTEESHIPS IN ANY COMPANY WITH A CLASS OF SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934
(THE "1934 ACT") OR SUBJECT TO THE REQUIREMENTS OF SECTION 15(D) OF THE 1934 ACT. 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.
- --------------------------------------------------------------------------------
20
SOUND SHORE FUND
INVESTMENT ADVISER
Sound Shore Management, Inc.
Greenwich, Connecticut
ADMINISTRATOR
Forum Administrative Services, LLC
Portland, Maine
DISTRIBUTOR
Forum Fund Services, LLC
Portland, Maine
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Forum Shareholder Services, LLC
Portland, Maine
CUSTODIAN
Forum Trust, LLC
Portland, Maine
COUNSEL
Dechert, LLP
New York, New York
INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Deloitte & Touche LLP
Boston, Massachusetts
This report is submitted for the general ANNUAL REPORT
information of the shareholders of the Fund.
It is not authorized for distribution to
prospective investors in the Fund unless DECEMBER 31, 2003
preceded or accompanied by an effective
prospectus, which includes information
regarding the Fund's objectives and policies, SOUND
experience of its management, marketability SHORE
of shares, and other information. FUND
SOUND SHORE FUND, INC.
Two Portland Square
Portland, ME 04101
http://www.soundshorefund.com
(LOGO)
ITEM 2. CODE OF ETHICS
As of the end of the period, December 31, 2003, 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.
AUDIT COMMITTEE FINANCIAL EXPERT DISCLOSURE
The Board of Directors determined that no member of the Audit Committee is an
"audit committee financial expert" as that term is defined under applicable
regulatory guidelines. In addition, the Board recognized that the experience of
the Directors that are members of the Audit Committee is appropriate and
sufficient for them to perform the services required of Audit Committee members.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES - SOUND SHORE FUND
(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 $24,500 in 2002 and $24,000 in 2003.
(b) There were no audit-related fees billed to the Registrant 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.
There were no fees billed in the Reporting Periods for assurance and related
services rendered by the principal accountant to the Registrant's investment
adviser and any entity controlling, controlled by or under common control with
the investment adviser that provides ongoing services to the Registrant
(collectively the "investment adviser") that are reasonably related to the
performance of the audit of the Registrant's financial statements, are not
reported under paragraph (a) of this Item 4 and were required to be pre-approved
by the audit committee as described in paragraph (e)(1) of this Item 4.
(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 $2,400 in 2002 and $800 in 2003.
These services consisted of review or preparation of U.S. federal, state, local
and excise tax returns.
(d) The aggregate 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, were $1,500 in
2002 and $1,500 in 2003. These services consisted of a review of fee analyses
prepared in connection with the Registrant's annual advisory contract renewal.
(e) (1) Pursuant to the relevant provisions of its Audit Committee Charter (the
"Charter"), the Audit Committee of the Board of Directors of the Registrant
reviews and approves in advance any audit engagement, and all proposals by
management of the Registrant or the investment adviser to the Registrant that
the Registrant, the investment adviser, or their affiliated persons employ the
independent auditor to render "permissible non-audit services" (as defined in
the Charter consistent with Rule 2-01(c)(4) of Regulation S-X) to the Registrant
and to consider whether such services are consistent with the independent
auditor's independence. The Charter also provides that pre-approval by the Audit
Committee of any permissible non-audit services is not required so long as: (i)
the aggregate amount of all such permissible non-audit services provided to the
Registrant constitutes not more than 5% of the total amount of revenues paid by
the Registrant 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 Registrant 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). 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 Registrant. Any pre-approval determination of a delegate
will be presented to the full Audit Committee at its next meeting. The Audit
Committee will communicate any pre-approval made by it or a delegate to the
Registrant's investment adviser, who will ensure that the appropriate disclosure
is made in the Registrant's periodic reports required by Section 13(a) of the
Securities Exchange Act of 1934, as amended, and other documents as required
under the federal securities laws.
(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 $7,450 in
2002 and $7,500 in 2003.
(h) The Registrant's Audit Committee has considered whether the provision of any
non-audit services rendered to the investment adviser, to the extent applicable,
that were not pre-approved (not requiring pre-
approval) is compatible with maintaining the Auditor's independence. Any
services provided by the principal accountant to the Registrant or to the
investment adviser requiring pre-approval were pre-approved as required.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. 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 Act) are effective in design and operation and are sufficient to form
the basis of the certifications required by Rule 30a-(2) under the Act, based on
their evaluation of these disclosure controls and procedures within 90 days of
the filing date of this report on Form N-CSR.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in rule 30a-3(d) under the Act), or the internal control
over financial reporting of its service providers during the last fiscal half
year (the registrant's second half year in the case of an annual report) that
have materially affected, or are reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 10. 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).
(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/ STACEY E. HONG
______________________________
Stacey E. Hong, Treasurer
Date February 23, 2004
_______________________
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 February 23, 2004
_______________________
By /S/ STACEY E. HONG
______________________________
Stacey E. Hong, Treasurer
Date February 23, 2004
_______________________