As filed with the Securities and Exchange Commission on September 6, 2005
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, Connecticut 06836
203-629-1980
Date of fiscal year end: December 31, 2005
Date of reporting period: June 30, 2005
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
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[LOGO]
TWO PORTLAND SQUARE, PORTLAND, ME 04101 1-800-754-8758
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June 30, 2005
Dear Shareholder:
The Sound Shore Fund ended June 30, 2005 with a net asset value of $36.24
per share after a dividend distribution of $0.015. For the second quarter, the
Fund posted a total return of 1.75% versus a 1.37% gain for the Standard and
Poor's 500 Index ("S&P 500") and a 1.62% loss for the Dow Jones Industrial
Average ("Dow Jones"). The Fund's year-to-date loss of 1.21% is marginally
behind the S&P 500's decline of 0.81% and a bit ahead of the Dow Jones' drop of
3.65%. Over the last twelve months, the Fund has gained 8.45% versus the S&P
500 and the Dow Jones, which are up 6.32% and 0.66%, 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
COMPOUND ANNUAL TOTAL RETURN RATES FOR THE PERIODS ENDING JUNE 30, 2005 WERE
8.45%, 8.92%, 12.26%, AND 12.49%, RESPECTIVELY. FOR THE MOST RECENT MONTH-END
PERFORMANCE, PLEASE CALL (800) 551-1980 OR VISIT THE FUND'S WEBSITE AT
WWW.SOUNDSHOREFUND.COM.
Stock indices continued to mark time in the second quarter with much
discussion and debate over the ultimate direction of volatile, albeit rising,
oil prices and the sustainability of housing strength in many markets.
Longer-term interest rates were notable beneficiaries of an evolving consensus
that the energy "tax" and the Federal Reserve's measured resolve to contain
asset inflation via federal funds target rate hikes might have a dampening
effect on a leveraged consumer. For example, the 30 Year U.S.Treasury Bond
yield dropped from 4.75% to 4.19% in the quarter. While 2005 earnings estimates
for the S&P 500 rose slightly during the second quarter, the double digit
quarterly gains in 2005 are forecast to decelerate to only 5% later this year,
and growth for 2006 is estimated at 5% as well.
The less robust economic outlook impacted our more manufacturing sensitive
holdings in the second quarter. Tyco International, Ltd. reversed earlier gains
as expected capital spending rates remained moderate. Georgia-Pacific Corp.
lagged along with much of the materials sector as global inventory de-stocking
occurred in papers, packaging, and chemicals. Higher gasoline prices did not
prevent McDonald's Corp. domestic monthly sales gains from beating
expectations, but the stock was impacted by its exposure to a weaker euro and
also a weaker European consumer. We are hopeful that a recent management change
in Europe will help that division.
Genworth Financial, Inc., Chubb Corp., and UnumProvident Corp. were among
the Fund's best performers for the quarter. They are each in very different
segments of the insurance industry, but we are encouraged by the improving
business plan execution that each is showing. Other top contributors were in
the health care area where CIGNA Corp. continues to make strong top line and
bottom line progress and Baxter International, Inc.'s product pipeline and
financial improvement remain in place. While energy stocks generally treaded
water in the quarter, the announcement of significant asset sales and the
approval
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of its share unification with Shell Transport and Trading helped Royal Dutch
Petroleum Co. solidly outperform its peers and the market.
We continue to adhere to our company-by-company value investment framework,
seeking to identify companies that can exceed market expectations and welcome
the opportunity to answer any questions you may have.
As always, we appreciate your investment alongside us in the Fund.
Sincerely,
SOUND SHORE FUND
HARRY BURN, III
JOHN P. DEGULIS
T. GIBBS KANE, JR.
CO-PORTFOLIO MANAGERS
THE FUND'S AVERAGE ANNUAL TOTAL RETURN ASSUMES 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 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 6/30/05 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.
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SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS
JUNE 30, 2005 (UNAUDITED)
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SHARE MARKET
AMOUNT VALUE
--------- --------------
COMMON STOCK (95.3%)
---------------------------------------------------------------
AUTO (2.9%)
Dana Corp. 1,278,000 $ 19,182,780
Honda Motor Co., Ltd. ADR 1,507,000 37,087,270
--------------
56,270,050
--------------
BANKS (3.3%)
U.S. Bancorp 2,138,000 62,429,600
--------------
ENERGY (7.8%)
Devon Energy Corp. 239,000 12,112,520
El Paso Corp. 3,273,500 37,710,720
Royal Dutch Petroleum Co. ADR 873,500 56,690,150
Williams Cos., Inc. 2,303,500 43,766,500
--------------
150,279,890
--------------
HEALTH CARE (13.4%)
Aetna, Inc. 459,500 38,055,790
Baxter International, Inc. 1,306,000 48,452,600
Cigna Corp. 580,500 62,130,915
Laboratory Corp. of America Holdings + 976,000 48,702,400
Thermo Electron Corp. + 2,185,500 58,724,385
--------------
256,066,090
--------------
INDUSTRIALS (11.8%)
CSX Corp. 1,146,500 48,909,690
Southwest Airlines Co. 3,532,500 49,207,725
Tyco International, Ltd. 2,211,500 64,575,800
Waste Management, Inc. 2,218,000 62,858,120
--------------
225,551,335
--------------
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SEE NOTES TO FINANCIAL STATEMENTS.
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SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
JUNE 30, 2005 (UNAUDITED)
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SHARE MARKET
AMOUNT VALUE
--------- --------------
INSURANCE (18.3%)
AMBAC Financial Group, Inc. 798,500 $ 55,703,360
Aon Corp. 2,007,000 50,255,280
Berkshire Hathaway, Inc., Class A + 813 67,885,500
Chubb Corp. 677,500 58,000,775
Genworth Financial, Inc. 1,992,000 60,218,160
UnumProvident Corp. 3,251,500 59,567,480
--------------
351,630,555
--------------
MATERIALS (3.9%)
Georgia-Pacific Corp. 1,561,000 49,639,800
Lyondell Chemical Co. 969,000 25,600,980
--------------
75,240,780
--------------
MEDIA (13.5%)
DIRECTV Group, Inc. + 4,003,500 62,054,250
Interpublic Group of Cos., Inc. + 4,722,000 57,513,960
Liberty Media Corp., Class A + 6,418,000 65,399,420
Time Warner, Inc. + 4,404,500 73,599,195
--------------
258,566,825
--------------
PHARMACEUTICALS (5.7%)
Chiron Corp. + 1,579,000 55,091,310
Watson Pharmaceuticals, Inc. + 1,824,500 53,932,220
--------------
109,023,530
--------------
RESTAURANTS (2.2%)
McDonald's Corp. 1,527,500 42,388,125
--------------
TECHNOLOGY (10.4%)
Agilent Technologies, Inc. + 1,978,500 45,545,070
Flextronics International, Ltd. + 3,068,000 40,528,280
Freescale Semiconductor, Inc., Class A + 1,880,500 39,509,305
Hewlett Packard Co. 1,696,500 39,884,715
Texas Instruments, Inc. 1,226,000 34,413,820
--------------
199,881,190
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SEE NOTES TO FINANCIAL STATEMENTS.
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SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
JUNE 30, 2005 (UNAUDITED)
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SHARE MARKET
AMOUNT VALUE
---------- --------------
TELECOMMUNICATIONS (2.1%)
CenturyTel, Inc. 1,166,500 $ 40,395,895
--------------
TOTAL COMMON STOCK (COST $1,568,847,709) $1,827,723,865
--------------
MONEY MARKET FUND (4.8%)
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Citi/SM/ Institutional Liquid Reserves, Class A (cost $92,107,524) 92,107,524 $ 92,107,524
--------------
TOTAL INVESTMENTS (100.1%) (COST $1,660,955,233) $1,919,831,389
OTHER ASSETS LESS LIABILITIES (-0.1%) (2,880,368)
--------------
NET ASSETS (100.0%) (52,893,727 SHARES OUTSTANDING) $1,916,951,021
==============
NET ASSET VALUE (OFFERING AND REDEMPTION PRICE PER SHARE) $ 36.24
==============
+ 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 $267,815,644
Gross Unrealized Depreciation (8,939,488)
------------
Net Unrealized Appreciation $258,876,156
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SEE NOTES TO FINANCIAL STATEMENTS.
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SOUND SHORE FUND, INC.
STATEMENT OF NET ASSETS (CONCLUDED)
JUNE 30, 2005 (UNAUDITED)
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AT JUNE 30, 2005 NET ASSETS CONSISTED OF:
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Par Value (100,000,000 shares authorized) $ 52,894
Paid in Capital 1,576,978,252
Accumulated Undistributed Net Investment Income 10,040
Unrealized Appreciation on Investments 258,876,156
Accumulated Net Realized Gain from Investments 81,033,679
--------------
NET ASSETS $1,916,951,021
==============
PORTFOLIO HOLDINGS
% OF NET ASSETS
Auto 2.9%
Banks 3.3%
Energy 7.8%
Health Care 13.4%
Industrials 11.8%
Insurance 18.3%
Materials 3.9%
Media 13.5%
Pharmaceuticals 5.7%
Restaurants 2.2%
Technology 10.4%
Telecommunications 2.1%
Short-Term Investments 4.8%
Other Assets less Liabilities (0.1)%
------
100.0%
======
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SEE NOTES TO FINANCIAL STATEMENTS.
6
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SOUND SHORE FUND, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED)
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INVESTMENT INCOME
Income:
Dividends (net of foreign withholding taxes $219,516) $ 9,549,711
Interest 910
-------------
Total Income 9,550,621
-------------
Expenses:
Adviser fee (Note 3) 6,677,479
Administrator fee (Note 3) 880,089
Transfer Agency fee 890,324
Custodian fee 91,207
Accountant fee 31,160
Professional fees 75,855
Directors' fees and expenses (Note 3) 18,046
Compliance services fees (Note 3) 11,112
Miscellaneous 85,556
-------------
Total Expenses 8,760,828
-------------
Net Investment Income 789,793
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments sold 81,943,085
Net change in unrealized appreciation (depreciation) on investments (100,814,012)
-------------
Net realized and unrealized gain (loss) on investments (18,870,927)
-------------
Net decrease in net assets from operations $ (18,081,134)
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SEE NOTES TO FINANCIAL STATEMENTS.
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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, 2005 DECEMBER 31, 2004
---------------- -----------------
Operations:
Net investment income $ 789,793 $ 4,252,745
Net realized gain on investments sold 81,943,085 82,959,662
Net change in unrealized appreciation (depreciation)
on investments (100,814,012) 117,631,508
-------------- --------------
Increase (decrease) in net assets from operations (18,081,134) 204,843,915
Dividends to shareholders from:
Net investment income (780,801) (4,251,686)
Net realized gains -- (81,293,529)
Capital share transactions (Note 6) 237,581,008 564,521,230
-------------- --------------
Total increase 218,719,073 683,819,930
Net assets:
Beginning of the year 1,698,231,948 1,014,412,018
-------------- --------------
End of the year (Including line (A)) $1,916,951,021 $1,698,231,948
============== ==============
(A) Accumulated undistributed net investment income $ 10,040 $ 1,048
-------------- --------------
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SEE NOTES TO FINANCIAL STATEMENTS.
8
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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, 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.
Investments in other open-ended regulated investment companies are valued at
net asset value.
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").
B) SECURITY TRANSACTIONS AND INVESTMENT INCOME
Dividend income is recorded on the ex-dividend date. Interest income is
recorded on an accrual basis. Security transactions are recorded on a trade
date basis. Realized gain and loss on investments sold are recorded on the
basis of identified cost.
C) DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income, if any, are declared and paid
semi-annually. Capital gains, if any, are distributed to shareholders at
least annually. The Fund determines its net investment income and capital
gains distributions in accordance with income tax regulations, which may
differ from accounting principles generally
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
================================================================================
accepted in the United States of America. 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.
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 $1,180,312 are payable at June 30,
2005.
OTHER SERVICES
Citigroup Fund Services, LLC ("Citigroup") provides certain administration,
portfolio accounting and transfer agency services to the Fund.
Citigroup 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
the Fund's average daily net assets through April 30, 2006. There were no fees
waived for the period January 1, 2005 through June 30, 2005.
Foreside Fund Services, LLC is the Fund's distributor (the "Distributor").
Prior to March 1, 2005, the Distributor was known as Forum Fund Services, LLC.
The Distributor receives no compensation from the Fund for its distribution
services. The Distributor is not affiliated with the Adviser, Citigroup, or
their affiliates.
Under a Compliance Services Agreement with the Fund, the Distributor provides a
Chief Compliance Officer and Treasurer to the Fund as well as certain
additional compliance support functions. The Treasurer of the Fund is also a
principal of the Distributor.
The Fund pays each Director who is unaffiliated with the Adviser, Citigroup or
any of their affiliates, $1,000 per meeting attended, plus $750 per quarter.
Certain Officers and Directors of the Fund are Officers, Directors, or
employees of the aforementioned companies.
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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4. PURCHASES AND SALES OF SECURITIES
The cost of securities purchased and the proceeds from sales of securities
(excluding short-term investments) for the period ended June 30, 2005
aggregated $672,300,534 and $459,169,382 respectively.
5. FEDERAL INCOME TAX AND INVESTMENT TRANSACTIONS
Reclassifications are made to the Fund's capital accounts to reflect income and
gains available for distribution (or available capital loss carryforward) under
income tax regulations. The tax character of distributions paid during the year
and the tax components of net assets will be updated at the Fund's fiscal
year-end.
As of December 31, 2004, the components of distributable earnings on a tax
basis were as follows:
Undistributed Ordinary Income $ 1,049
Unrealized Appreciation 358,780,762
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
sale timing differences.
6. CAPITAL STOCK
As of June 30, 2005, 100,000,000 shares of $.001 par value stock were
authorized and capital paid in amounted to $1,577,031,146. Transactions in
capital stock were as follows:
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31, 2004
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- -------------
Sale of shares 10,235,173 $ 366,619,341 18,634,585 $ 652,994,174
Reinvestment of dividends 20,918 760,520 2,281,067 83,710,748
Redemption of shares (3,627,537) (129,798,853) (4,923,307) (172,183,692)
---------- ------------- ---------- -------------
Net increase from capital transactions 6,628,554 $ 237,581,008 15,992,345 $ 564,521,230
========== ============= ========== =============
Of the 52,893,727 shares outstanding as of June 30, 2005, the Employees' Profit
Sharing Plan of the Adviser owned 363,756 shares.
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
================================================================================
7. PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine
how to vote proxies relating to securities held in the Fund's portfolio is
available, without charge and upon request, by calling (800) 551-1980 or by
visiting the Fund's web site at http://www.soundshorefund.com. This information
is also available from the EDGAR database on the SEC's Web site at
http://www.sec.gov.
The Fund's proxy voting record for the 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.
8. 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.
9. 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, 2005 through June 30,
2005.
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.
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
================================================================================
Expenses shown in the table are meant to highlight your ongoing costs only and
do not reflect any transactional costs. Therefore, the second line of the table
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these
transactional costs were included, your costs would have been higher.
BEGINNING ENDING
ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID
JANUARY 1, 2005 JUNE 30, 2005 DURING PERIOD*
--------------- ------------- --------------
Actual Return $1,000.00 $ 987.87 $4.83
Hypothetical Return $1,000.00 $1,019.93 $4.91
* Expenses are equal to the Fund's annualized expense ratio of 0.98%,
multiplied by the average account value over the period, multiplied by the
number of days in most recent fiscal half-year/365 (to reflect the half-year
period).
10. ADVISORY AGREEMENT APPROVAL
At the January 27, 2005 meeting of the Fund's Board, the Board, including the
Independent Directors, considered 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 Board then discussed the Fund's advisory fee of 75 basis points and noted
that (1) the Fund's advisory fee was consistent with the mean advisory fee of
the Comparison Group; (2) many of the mutual funds within the Comparison Group
maintained advisory fees of 100 basis points; and (3) the Fund's overall strong
performance.
The Board also discussed the difference in the management fee charged to the
Fund and the fee charged to the Adviser's other clients. The Board noted the
Adviser's rationale for the Fund's higher advisory fee including that more time
and attention was required to manage the Fund and that the Fund was subject to
more trading activity than the Adviser's other accounts due to daily cash flow
movements into and out of the Fund by shareholders. The Board also noted the
Adviser's representation that the additional trading activity required the Fund
portfolio managers to review the portfolio positions on a daily basis and that
more time and attention was required to service the Fund due to web site
requirements, quarterly Board meeting requirements, the maintenance of proxy
voting records; and the coordination of Citigroup services to the Fund. The
Board then noted the Adviser's work ethic and responsiveness to the Directors,
and the Adviser's clean disciplinary history and comprehensive Compliance
Program. The Board then discussed the Adviser's business contingency plan and
noted that Mr. John P. DeGulis was in a position to implement the Adviser's
investment philosophy in the case of the absence of Messrs. Kane and Burn. The
Board reviewed the Adviser's financial statements and noted that the Adviser
was solvent. The Board then considered information provided by the Adviser
regarding its profitability with respect to the Fund.
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SOUND SHORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONCLUDED)
================================================================================
The Independent Directors then met separately with Fund Counsel and reviewed
and considered the written materials provided to them, which included the terms
of the Advisory Agreement, the long-, mid-, and short-term performance of the
Fund measured against the Fund's benchmarks, information concerning revenue the
Adviser receives from the Fund and the costs the Adviser incurs in connection
with the services it renders to the Fund. The materials also included a
comparative analysis of contractual expenses borne by the Fund and its peer
group consisting of U.S. diversified equity funds reporting no load and no
12b-1 fees with assets of $500 million to $2 billion on an aggregate basis, as
well as with respect to advisory, administration, transfer agent and fund
accounting fees.
The Independent Directors also took into account (1) the consistent quality of
services provided by the Adviser, (2) the reputation of the Adviser, (3) the
experience of its personnel and the efficiency and economy of its operations
and (4) 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.
- --------------------------------------------------------------------------------
14
- --------------------------------------------------------------------------------
SOUND SHORE FUND, INC.
FINANCIAL HIGHLIGHTS
================================================================================
These financial highlights reflect selected data for a share outstanding
throughout each period.
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2005 ----------------------------------------------------------
(UNAUDITED) 2004 2003 2002 2001 2000
------------- ---------- ---------- -------- ---------- ----------
Net Asset Value,
Beginning of Period $ 36.71 $ 33.51 $ 25.81 $ 30.58 $ 33.70 $ 29.47
---------- ---------- ---------- -------- ---------- ----------
Investment Operations
Net investment income 0.02(a) 0.10 0.05 0.05 0.10 0.14
Net realized and unrealized
gain (loss) on investments (0.48) 5.05 8.14 (4.77) (0.36) 5.79
---------- ---------- ---------- -------- ---------- ----------
Total from Investment Operations (0.46) 5.15 8.19 (4.72) (0.26) 5.93
---------- ---------- ---------- -------- ---------- ----------
Distributions from:
Net investment income (0.01) (0.10) (0.05) (0.05) (0.10) (0.14)
In excess of net investment
income -- -- -- -- -- --(b)
Net realized gains -- (1.85) (0.44) -- (2.76) (1.47)
In excess of net realized gains -- -- -- -- -- (0.09)(c)
---------- ---------- ---------- -------- ---------- ----------
Total Distributions (0.01) (1.95) (0.49) (0.05) (2.86) (1.70)
---------- ---------- ---------- -------- ---------- ----------
Net Asset Value,
End of Period $ 36.24 $ 36.71 $ 33.51 $ 25.81 $ 30.58 $ 33.70
========== ========== ========== ======== ========== ==========
Total Return(d) (1.21)% 15.37% 31.74% (15.43)% (0.81)% 20.18%
Ratio/Supplementary Data
Net Assets at End of Period
(in thousands) $1,916,951 $1,698,150 $1,014,412 $759,674 $1,033,658 $1,101,888
Ratios to Average Net Assets:(e)
Expenses (net of
reimbursement) 0.98% 0.98% 0.98% 0.98% 0.98% 0.98%
Expenses (gross)(f) 0.98% 0.99% 1.00% 0.99% 0.99% 0.99%
Net investment income 0.09% 0.33% 0.18% 0.17% 0.32% 0.44%
Portfolio Turnover Rate 27% 50% 62% 72% 104% 98%
(a)Calculated based on average shares outstanding for the period.
(b)Distributions in excess of net investment income are less than $0.01 per
share.
(c)Distributions in excess of realized gains are the result of timing issues.
(d)Not annualized for periods less than one year.
(e)Annualized for periods less than one year.
(f)Reflects expense ratio in the absence of expense waiver and reimbursement.
- --------------------------------------------------------------------------------
15
[LOGO]
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.soundshorefund.com
1-800-551-1980
SEMI-ANNUAL REPORT
(Unaudited)
JUNE 30, 2005
[LOGO]
[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
Not Applicable
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
Not Applicable
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not Applicable
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS
Not Applicable
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 11. CONTROLS AND PROCEDURES
(a) The registrant's President and Treasurer have concluded that the
registrant's disclosure controls and procedures (as defined in rule 30a-3(c)
under the Investment Company Act of 1940 (the "Act")) are effective, based on
their evaluation of these disclosure controls and procedures required by Rule
30a-3(b) as of a date within 90 days of the filing date of this report.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in rule 30a-3(d) under the Act) that occurred during the
registrant's last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control over
financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Not Applicable
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(Exhibit filed herewith).
(a)(3) Not Applicable
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Exhibit filed herewith).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant SOUND SHORE FUND, INC.
By /s/ T. Gibbs Kane, Jr.
---------------------------
T. Gibbs Kane, Jr., President
Date September 6, 2005
---------------------------
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 September 6, 2005
-----------------------------------
By /s/ Simon D. Collier
-----------------------------------
Simon D. Collier, Treasurer
Date September 6, 2005
-----------------------------------