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: 811-01976
Sequoia Fund, Inc.
(Exact name of registrant as specified in charter)
767 Fifth Avenue, Suite 4701, New York, NY 10153-4798
(Address of principal executive offices) (Zip code)
Robert D. Goldfarb
Ruane, Cunniff & Co., Inc.
767 Fifth Avenue
Suite 4701
New York, New York 10153-4798
(Name and address of agent for service)
Registrant's telephone number, including area code: (212) 832-5280
Date of fiscal year end: December 31
Date of reporting period: December 31, 2003
ITEM 1. REPORTS TO STOCKHOLDERS.
[SEQUOIA FUND, INC. LOGO]
SEQUOIA FUND, INC.
ANNUAL REPORT
DECEMBER 31, 2003
SEQUOIA FUND, INC.
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
WITH INCOME DIVIDENDS REINVESTED AND CAPITAL GAINS
DISTRIBUTIONS ACCEPTED IN SHARES
The table below covers the period from July 15, 1970 (the date Fund shares were
first offered to the public) to December 31, 2003. This period was one of widely
fluctuating common stock prices. The results shown should not be considered as a
representation of the dividend income or capital gain or loss which may be
realized from an investment made in the Fund today.
<Table>
<Caption>
VALUE OF VALUE OF VALUE OF
INITIAL CUMULATIVE CUMULATIVE TOTAL
$10,000 CAPITAL GAINS REINVESTED VALUE OF
PERIOD ENDED: INVESTMENT DISTRIBUTIONS DIVIDENDS SHARES
- ------------- ---------- ------------- ---------- -------------
July 15, 1970 $ 10,000 $ -- $ -- $ 10,000
May 31, 1971 11,750 -- 184 11,934
May 31, 1972 12,350 706 451 13,507
May 31, 1973 9,540 1,118 584 11,242
May 31, 1974 7,530 1,696 787 10,013
May 31, 1975 9,490 2,137 1,698 13,325
May 31, 1976 12,030 2,709 2,654 17,393
May 31, 1977 15,400 3,468 3,958 22,826
Dec. 31, 1977 18,420 4,617 5,020 28,057
Dec. 31, 1978 22,270 5,872 6,629 34,771
Dec. 31, 1979 24,300 6,481 8,180 38,961
Dec. 31, 1980 25,040 8,848 10,006 43,894
Dec. 31, 1981 27,170 13,140 13,019 53,329
Dec. 31, 1982 31,960 18,450 19,510 69,920
Dec. 31, 1983 37,110 24,919 26,986 89,015
Dec. 31, 1984 39,260 33,627 32,594 105,481
Dec. 31, 1985 44,010 49,611 41,354 134,975
Dec. 31, 1986 39,290 71,954 41,783 153,027
Dec. 31, 1987 38,430 76,911 49,020 164,361
Dec. 31, 1988 38,810 87,760 55,946 182,516
Dec. 31, 1989 46,860 112,979 73,614 233,453
Dec. 31, 1990 41,940 110,013 72,633 224,586
Dec. 31, 1991 53,310 160,835 100,281 314,426
Dec. 31, 1992 56,660 174,775 112,428 343,863
Dec. 31, 1993 54,840 213,397 112,682 380,919
Dec. 31, 1994 55,590 220,943 117,100 393,633
Dec. 31, 1995 78,130 311,266 167,129 556,525
Dec. 31, 1996 88,440 397,099 191,967 677,506
Dec. 31, 1997 125,630 570,917 273,653 970,200
Dec. 31, 1998 160,700 798,314 353,183 1,312,197
Dec. 31, 1999 127,270 680,866 286,989 1,095,125
Dec. 31, 2000 122,090 903,255 289,505 1,314,850
Dec. 31, 2001 130,240 1,002,955 319,980 1,453,175
Dec. 31, 2002 126,630 976,920 311,226 1,414,776
Dec. 31, 2003 147,610 1,146,523 362,790 1,656,923
</Table>
The total amount of capital gains distributions accepted in shares was $620,263,
the total amount of dividends reinvested was $116,740.
No adjustment has been made for any taxes payable by shareholders on capital
gain distributions, dividends reinvested in shares or sale of fund shares.
<Page>
TO THE SHAREHOLDERS OF SEQUOIA FUND, INC.
Dear Shareholder:
Sequoia Fund's results for the quarter and year ended December 31, 2003
appear below, along with comparable figures for the major market indices.
<Table>
<Caption>
TO DECEMBER 31,2003 SEQUOIA DOW JONES STANDARD &
FUND INDUSTRIALS POOR'S 500
------- ----------- ----------
Fourth Quarter 10.39% 13.31% 12.18%
1 Year 17.12% 28.36% 28.69%
5 Years (Annualized) 4.78% 4.55% -0.57%
10 Years (Annualized) 15.84% 13.06% 11.07%
</Table>
The S&P 500 Index is an unmanaged, capitalization-weighted index of the
common stocks of 500 major US corporations. The Dow Jones Industrial Average is
an unmanaged, price-weighted index of 30 actively traded blue chip stocks. The
performance data quoted represents past performance and assumes reinvestment of
dividends. The 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.
While we aim to exceed the performance of the major indices over long
periods of time, we do not pay much attention to relative results in any given
year (a convenient point of view, given our underperformance this year!). We do,
however, pay very close attention to the annual operating results of the
businesses we own. And we pay even closer attention to developments that may
cause the intrinsic value of our businesses to increase more quickly or slowly
than properly calculated per-share earning power. Such developments might
include a structural shift in competitive position, an adjustment in our
assessment of management's ability to execute effectively or a change in the
long-term prospects of an industry in which one of our companies participates.
When positive in nature, any of these developments might lead us to conclude
that one of our investees has the ability to earn higher returns on capital or
invest more capital at existing rates of return than we previously thought. You
might call this the Sequoia Fund equivalent of the "positive earnings surprises"
with which Wall Street often seems so obsessed.
During 2003, we are pleased to report that the per-share earning power and
intrinsic value of our major holdings overall increased at a satisfactory rate.
But as we mentioned in our third quarter report, none of our largest
holdings--or our smaller ones, for that matter--trade cheaply. While this may
sound odd to some shareholders, we wish that they did. As net buyers of stocks,
and as investors in businesses that are generally net buyers of their own
stocks, we're prepared to act aggressively - and hopefully profit handsomely -
in an environment of low share values. We only hope for high prices on the rare
occasion when we'd like to sell one of our positions.
Given this philosophy, some shareholders may wonder why we continue to hold
positions that they (or perhaps we) consider fully valued or even momentarily
overvalued. In response, we would note that the truly exceptional businesses we
prefer are frustratingly hard to find. If we sold our interests in these
companies every time their share prices rose above our estimates of true
business value, we would make this task even more demanding. And while we
certainly enjoy a challenge, the sad fact is that we make life difficult enough
on ourselves as it is. Indeed, most of our biggest mistakes over the years have
involved the sale of interests in wonderful businesses on account of temporary
changes in valuation, rather than permanent changes in intrinsic worth and
long-term competitive prospects. Had we kept these stakes for longer periods,
your Fund shares would surely be worth much more than they are today.
These past lessons in the pitfalls of impatience make us wary of liquidating
a position for reasons other than (1) truly extraordinary overvaluation, (2) a
discernable decline in intrinsic business value or (3) the emergence of
alternative opportunities that we think are simply too good to pass up. While
the year is still very young and things can change quickly in today's world, we
do not currently think that any of these circumstances apply to our present
collection of major holdings. In many cases, our portfolio companies trade at or
near the valuation of the market averages. In some smaller cases, they trade
meaningfully in excess of the broader market's valuation. In all cases, however,
we believe the quality of our major investees' operations and prospects
materially exceeds that of the average American business, as represented by the
major indices. Just as importantly, our companies have achieved these results
without the use of undue financial leverage, the assumption of over-optimistic
pension plan returns, the establishment of misleading "restructuring" reserves
or the issuance of excessive amounts of equity to option holders.
At present, we have every reason to believe that our principal
"subsidiaries" will deliver similarly robust results in the future. We continue
to believe firmly that over long periods of time, strong business performance
translates into strong investment performance. As we have warned in the past,
though, present levels of valuation suggest that satisfactory investment
performance will mean something very different in the future than it has in the
past. In other words, you should not expect future results to remotely
approximate our historical rate of compound. In saying this, we mean to
underscore the simple fact that full valuations represent the enemy of high
investment returns. To borrow a phrase from the preeminent Midwesterner who runs
our largest holding, if you don't believe that, you should pursue a career in
sales, but not mathematics!
Career advice aside, we appreciate as always the trust you have placed in us
as stewards of your savings. We will continue to do our best to make it well
deserved during the coming year.
Sincerely,
/s/ Richard T. Cunniff /s/ Robert D. Goldfarb
Richard T. Cunniff Robert D. Goldfarb
Vice Chairman President
/s/ David M. Poppe /s/ William J. Ruane
David M. Poppe William J. Ruane
Executive Vice President Chairman
February 19, 2004
[SIDENOTE]
THE ANNUAL MEETING OF STOCKHOLDERS OF SEQUOIA FUND, INC. WILL BE HELD AT
10:00 A.M., NEW YORK CITY TIME, ON MAY 7, 2004 AT THE NEW YORK ATHLETIC CLUB,
180 CENTRAL PARK SOUTH, NEW YORK, NEW YORK 10019.
<Page>
SEQUOIA FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2003
COMMON STOCKS (85.59%)
<Table>
<Caption>
VALUE
SHARES (NOTE 1)
------ ----------------
BANK HOLDING COMPANIES (10.91%)
7,244,421 Fifth Third Bancorp $ 428,145,281
120,125 Mercantile Bankshares Corporation 5,475,298
----------------
433,620,579
----------------
BUILDING MATERIALS (2.96%)
2,354,087 Fastenal Company 117,563,105
----------------
DIVERSIFIED COMPANIES (34.67%)
16,342 Berkshire Hathaway Inc. Class A* 1,376,813,500
291 Berkshire Hathaway Inc. Class B* 819,165
----------------
1,377,632,665
----------------
FREIGHT TRANSPORTATION (1.97%)
2,077,550 Expeditors International of Washington, Inc. 78,240,533
----------------
HOME FURNISHINGS (2.12%)
2,007,740 Ethan Allen Interiors, Inc.+ 84,084,151
----------------
INSURANCE (12.76%)
6,064,432 Progressive Corporation -- Ohio 506,925,871
----------------
MANUFACTURING (0.24%)
200,018 Harley Davidson, Inc. 9,506,856
----------------
TEXTILE -- CARPETS (6.64%)
3,739,633 Mohawk Industries Inc.+* 263,793,712
----------------
PROCESS CONTROL INSTRUMENTS (0.51%)
219,361 Danaher Corporation 20,126,372
----------------
RETAILING (10.37%)
45,458 Costco Wholesale Corporation* 1,690,128
1,330,792 Tiffany & Company 60,151,798
13,033,883 TJX Companies, Inc. 287,397,120
1,738,662 Walgreen Company 63,252,524
----------------
412,491,570
----------------
Miscellaneous Securities (2.44%) 97,263,350
----------------
TOTAL COMMON STOCKS (COST $948,577,645) $ 3,401,248,764
----------------
</Table>
<Page>
<Table>
<Caption>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
--------- ----------------
U.S. GOVERNMENT OBLIGATIONS (14.41%)
$ 573,000,000 U.S. Treasury Bills due 01/22/04 through 02/05/04 $ 572,645,078
----------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $572,645,078) 572,645,078
----------------
TOTAL INVESTMENTS (100%)++
(Cost $1,521,222,723) $ 3,973,893,842
================
</Table>
- ----------
++ The cost for federal income tax purposes is identical.
* Non-income producing.
+ Refer to Note 7.
<Page>
SEQUOIA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2003
<Table>
ASSETS:
Investments in securities, at value (cost $1,521,222,723) (Note 1) $ 3,973,893,842
Cash on deposit with custodian 2,313,235
Receivable for capital stock sold 650,756
Dividends receivable 2,172,906
Other assets 40,410
----------------
Total assets 3,979,071,149
----------------
LIABILITIES:
Payable for capital stock repurchased 1,457,993
Payable for investments securities purchased unsettled 536,720
Accrued investment advisory fee 3,368,043
Accrued other expenses 121,226
----------------
Total liabilities 5,483,982
----------------
Net assets applicable to 26,919,939 shares of capital stock outstanding (Note 4) $ 3,973,587,167
================
Net asset value, offering price and redemption price per share $ 147.61
================
</Table>
The accompanying notes form an integral part of these Financial Statements.
<Page>
SEQUOIA FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2003
<Table>
INVESTMENT INCOME:
Income:
Dividends:
Unaffiliated companies $ 13,435,918
Affiliated companies (Note 7) 607,274
Interest 6,133,135
Other income 8,003
----------------
Total income 20,184,330
----------------
Expenses:
Investment advisory fee (Note 2) 36,760,026
Legal and auditing fees 184,498
Stockholder servicing agent fees 421,389
Custodian fees 80,000
Directors fees and expenses (Note 6) 180,599
Other 152,538
----------------
Total expenses 37,779,050
Less expenses reimbursed by Investment Adviser (Note 2) 869,000
----------------
Net expenses 36,910,050
----------------
Net investment (loss) (16,725,720)
----------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Realized gain on investments:
Unaffiliated companies 297,612,034
Affiliated companies (Note 7) 10,395,524
----------------
Net realized gain on investments $ 308,007,558
Net increase in unrealized appreciation on investments 292,183,274
----------------
Net realized and unrealized gain on investments 600,190,832
----------------
Increase in net assets from operations $ 583,465,112
================
</Table>
The accompanying notes form an integral part of these Financial Statements.
<Page>
SEQUOIA FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------------------
2003 2002
---------------- ----------------
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment (loss) $ (16,725,720) $ (12,720,703)
Net realized gains 308,007,558 137,518,447
Net increase/(decrease) in unrealized appreciation 292,183,274 (237,620,489)
---------------- ----------------
Net increase/(decrease) in net assets from operations 583,465,112 (112,822,745)
Distributions to shareholders from:
Net investment income -- (352,691)
Net realized gains (16,944,455) (4,996,914)
CAPITAL SHARE TRANSACTIONS (NOTE 4) (498,069,470) (206,821,129)
---------------- ----------------
Total increase/(decrease) 68,451,187 (324,993,479)
NET ASSETS:
Beginning of year 3,905,135,980 4,230,129,459
---------------- ----------------
End of year $ 3,973,587,167 $ 3,905,135,980
================ ================
NET ASSETS CONSIST OF:
Capital (par value and paid in surplus) $ 1,515,277,416 $ 1,727,724,465
Undistributed net realized gains (Note 5) 5,638,632 16,923,670
Unrealized appreciation 2,452,671,119 2,160,487,845
---------------- ----------------
Total Net Assets $ 3,973,587,167 $ 3,905,135,980
================ ================
</Table>
The accompanying notes form an integral part of these Financial Statements.
<Page>
SEQUOIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Sequoia Fund, Inc. is registered under the Investment Company Act of 1940,
as amended, as a non-diversified, open-end management company. The investment
objective of the Fund is growth of capital from investments primarily in common
stocks and securities convertible into or exchangeable for common stock. The
following is a summary of significant accounting policies, consistently followed
by the Fund in the preparation of its financial statements.
A. VALUATION OF INVESTMENTS: Investments are carried at market value or at fair
value as determined by the Board of Directors. Securities traded on a
national securities exchange are valued at the last reported sales price on
the principal exchange on which the security is listed on the last business
day of the period; securities traded in the over-the-counter market are
valued in accordance with NASDAQ Official Closing Price on the last business
day of the period; listed securities and securities traded in the
over-the-counter market for which no sale was reported on that date are
valued at the mean between the last reported bid and asked prices; U.S.
Treasury Bills with remaining maturities of 60 days or less are valued at
their amortized cost. U.S. Treasury Bills that when purchased have a
remaining maturity in excess of sixty days are stated at their discounted
value based upon the mean between the bid and asked discount rates until the
sixtieth day prior to maturity, at which point they are valued at amortized
cost.
B. ACCOUNTING FOR INVESTMENTS: Investment transactions are accounted for on the
trade date and dividend income is recorded on the ex-dividend date. Interest
income is accrued as earned. Premiums and discounts on fixed income
securities are amortized over the life of the respective security. The net
realized gain or loss on security transactions is determined for accounting
and tax purposes on the specific identification basis.
C. FEDERAL INCOME TAXES: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its stockholders.
Therefore, no federal income tax provision is required.
D. USE OF ESTIMATES: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of increases and decreases in net assets from operations during the
reporting period. Actual results could differ from those estimates.
E. GENERAL: Dividends and distributions to shareholders are recorded by the
Fund on the ex-dividend date.
NOTE 2--INVESTMENT ADVISORY CONTRACTS AND PAYMENTS TO INTERESTED PERSONS:
The Fund retains Ruane, Cunniff & Co., Inc. as its investment adviser.
Ruane, Cunniff & Co., Inc. (Investment Adviser) provides the Fund with
investment advice, administrative services and facilities.
Under the terms of the Advisory Agreement, the Investment Adviser receives a
management fee equal to 1% per annum of the Fund's average daily net asset
values. This percentage will not increase or decrease in relation to increases
or decreases in the net asset value of the Fund. Under the Advisory Agreement,
the Investment Adviser is obligated to reimburse the Fund for the amount, if
any, by which the operating expenses of the Fund (including the management fee)
in any year exceed the sum of 1-1/2% of the average daily net asset values of
the Fund
<Page>
during such year up to a maximum of $30,000,000, plus 1% of the average daily
net asset values in excess of $30,000,000. The expenses incurred by the Fund
exceeded the percentage limitation during the year ended December 31, 2003 and
the Investment Adviser reimbursed the Fund $869,000.
For the year ended December 31, 2003, there were no amounts accrued or paid
to interested persons, including officers and directors, other than advisory
fees of $36,760,026 and brokerage commissions of $186,821 to Ruane, Cunniff &
Co., Inc. Certain officers of the Fund are also officers of the Investment
Adviser and the Fund's distributor. Ruane, Cunniff & Co., Inc., the Fund's
distributor, received no compensation from the Fund on the sale of the Fund's
capital shares during the year ended December 31, 2003.
NOTE 3--PORTFOLIO TRANSACTIONS:
The aggregate cost of purchases and the proceeds from the sales of
securities, excluding U.S. government obligations, for the year ended December
31, 2003 were $99,591,705 and $528,152,540, respectively. Included in proceeds
of sales is $436,224,694 representing the value of securities distributed as
in-kind payment of redemptions, resulting in realized gains of $302,348,141.
At December 31, 2003 the aggregate gross unrealized appreciation of
securities was $2,452,671,119.
NOTE 4--CAPITAL STOCK:
At December 31, 2003 there were 100,000,000 shares of $.10 par value capital
stock authorized. Transactions in capital stock were as follows:
<Table>
<Caption>
2003 2002
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
---------- --------------- ---------- ---------------
Shares sold 1,275,248 $ 166,839,514 1,287,555 $ 166,163,172
Shares issued to stockholders on reinvestment of:
Net investment income -- -- 1,886 249,990
Net realized gain on investments 111,262 14,470,754 34,266 4,358,369
---------- --------------- ---------- ---------------
1,386,510 181,310,268 1,323,707 170,771,531
Shares repurchased 5,304,441 679,379,738 2,964,295 377,592,660
---------- --------------- ---------- ---------------
Net decrease (3,917,931) $ (498,069,470) (1,640,588) $ (206,821,129)
========== =============== ========== ===============
</Table>
NOTE 5--DISTRIBUTIONS TO SHAREHOLDERS:
Distributions to shareholders are determined in accordance with federal tax
regulations and may differ from those determined for financial statement
purposes. To the extent these differences are permanent such amounts are
reclassified within the capital accounts based on federal tax regulations.
During the year ended December 31, 2003 permanent differences due to a net
investment loss not deductible for tax purposes and realized gains on
redemptions in kind not recognized for tax purposes resulted in a net decrease
in net accumulated loss of $16,725,720 and undistributed net realized gains of
$302,348,141 with a corresponding increase in paid in surplus of $285,622,421.
These reclassifications had no effect on net assets.
<Page>
The tax character of distributions paid during 2002 and 2003 was as follows:
<Table>
<Caption>
2003 2002
------------- ------------
Distributions paid from:
Ordinary income $ -- $ 848,250
Long-term capital gains 16,944,455 4,501,355
------------- ------------
Total distributions $ 16,944,455 $ 5,349,605
============= ============
</Table>
As of December 31, 2003, the components of distributable earnings on a tax
basis were as follows:
<Table>
Undistributed long-term gain $ 5,638,632
Unrealized appreciation 2,452,671,119
----------------
$ 2,458,309,751
================
</Table>
NOTE 6--DIRECTORS FEES AND EXPENSES:
Directors who are not deemed "interested persons" receive fees of $6,000 per
quarter and $2,500 for each meeting attended, and are reimbursed for travel and
other out-of-pocket disbursements incurred in connection with attending
directors meetings. The total of such fees and expenses paid by the Fund to
these directors for the year ended December 31, 2003 was $180,599.
NOTE 7--AFFILIATED COMPANIES:
Portfolio companies 5% or more of whose outstanding voting securities are
held by the Fund are defined in the Investment Company Act of 1940 as
"affiliated companies." The total value and cost of investments in affiliates at
December 31, 2003 aggregated $347,877,863 and $222,524,851, respectively. The
summary of transactions for each affiliate during the period of their
affiliation for the year ended December 31, 2003 is provided below:
<Table>
<Caption>
PURCHASES SALES
----------------------------- ----------------------------- REALIZED DIVIDEND
AFFILIATE SHARES COST SHARES COST GAIN INCOME
- --------- ------------- ------------- ------------- ------------- ------------- -------------
Ethan Allen Interiors, Inc. -- -- 295,360 $ 7,224,242 $ 2,742,894 $ 607,274
Mohawk Industries Inc. -- -- 550,067 $ 24,675,722 7,652,630 --
------------- -------------
$ 10,395,524 $ 607,274
============= =============
</Table>
<Page>
NOTE 8--FINANCIAL HIGHLIGHTS:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- ----------
Per Share Operating Performance (for a share
outstanding throughout each year)
Net asset value, beginning of year $ 126.63 $ 130.24 $ 122.09 $ 127.27 $ 160.70
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment (loss)/income (0.62) (0.41) 0.97 1.66 0.84
Net realized and unrealized gains (losses) on
investments 22.21 (3.03) 11.52 23.33 (26.83)
---------- ---------- ---------- ---------- ----------
Total from investment operations 21.59 (3.44) 12.49 24.99 (25.99)
---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income (0.00) (0.01) (0.97) (1.66) (0.85)
Distributions from net realized gains (0.61) (0.16) (3.37) (28.51) (6.59)
---------- ---------- ---------- ---------- ----------
Total distributions (0.61) (0.17) (4.34) (30.17) (7.44)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 147.61 $ 126.63 $ 130.24 $ 122.09 $ 127.27
========== ========== ========== ========== ==========
Total Return 17.1% -2.6% 10.5% 20.1% -16.5%
Ratios/Supplemental data
Net assets, end of year (in millions) $ 3,973.6 $ 3,905.1 $ 4,230.1 $ 3,943.9 $ 3,896.9
Ratio to average net assets:
Expenses 1.0% 1.0% 1.0% 1.0% 1.0%
Net investment income (loss) -0.5% -0.3% 0.8% 1.2% 0.6%
Portfolio turnover rate 3% 8% 7% 36% 12%
</Table>
<Page>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Sequoia Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Sequoia Fund, Inc. (the "Fund") at
December 31, 2003, the results of its operations for the year then ended, and
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. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 6, 2004
<Page>
INFORMATION ABOUT SEQUOIA FUND OFFICERS AND DIRECTORS:
The SAI includes additional information about Fund directors and is
available, without charge, upon request. You may call toll-free 1-800-686-6884
to request the SAI.
<Table>
<Caption>
OTHER
TERM OF OFFICE AND PRINCIPAL DIRECTORSHIPS
POSITION HELD LENGTH OF TIME OCCUPATION DURING HELD BY
NAME, AGE, AND ADDRESS WITH FUND SERVED PAST 5 YEARS DIRECTOR
- ---------------------- -------------------------- --------------------- --------------------- ---------------
William J. Ruane, 78 Chairman of the Board & Term -- 1 Year & Chairman of the Board None
767 Fifth Avenue Director Length of Time served & Director of Ruane,
New York, NY 10153 -- 33 Years Cunniff & Co., Inc.
Richard T. Cunniff, 80 Vice Chairman & Director Term -- 1 Year & Vice Chairman & Sturm, Ruger &
767 Fifth Avenue Length of Time served Director of Ruane, Company, Inc.
New York, NY 10153 -- 33 Years Cunniff & Co., Inc.
Robert D. Goldfarb, 59 President & Director Term -- 1 Year & President & Director None
767 Fifth Avenue Length of Time served of Ruane, Cunniff &
New York, NY 10153 -- 25 Years Co., Inc.
David M. Poppe, 39 Executive Vice President & Term -- 1 Year & Research Analyst of None
767 Fifth Avenue Director Length of Time served Ruane, Cunniff & Co.,
New York, NY 10153 -- 1 Year Inc.; Business
reporter Miami Herald
Joseph Quinones,Jr., 58 Vice President, Term -- 1 Year & Vice President, None
767 Fifth Avenue Secretary & Treasurer Length of Time served Secretary & Treasurer
New York, NY 10153 -- 8 Years of Ruane, Cunniff &
Co., Inc.
Francis P. Matthews, 81 Director Term -- 1 Year & Retired None
767 Fifth Avenue Length of Time served
New York, NY 10153 -- 31 Years
C. William Neuhauser, 77 Director Term -- 1 Year & Retired None
767 Fifth Avenue Length of Time served
New York, NY 10153 -- 29 Years
Robert L. Swiggett, 81 Director Term -- 1 Year & Retired None
767 Fifth Avenue Length of Time served
New York, NY 10153 -- 33 Years
Roger Lowenstein, 49 Director Term -- 1 Year & Writer major None
767 Fifth Avenue Length of Time served Financial and News
New York, NY 10153 -- 5 Years Publications
Vinod Ahooja, 52 Director Term -- 1 Year & Retired None
767 Fifth Avenue Length of Time served
New York, NY 10153 -- 3 Years
</Table>
<Page>
SEQUOIA FUND, INC.
767 FIFTH AVENUE, SUITE 4701
NEW YORK, NEW YORK 10153-4798
WEBSITE: www.sequoiafund.com
DIRECTORS
William J. Ruane
Richard T. Cunniff
Robert D. Goldfarb
David M. Poppe
Vinod Ahooja
Roger Lowenstein
Francis P. Matthews
C. William Neuhauser
Robert L. Swiggett
OFFICERS
William J. Ruane -- CHAIRMAN OF THE BOARD
Richard T. Cunniff -- VICE CHAIRMAN
Robert D. Goldfarb -- PRESIDENT
David M. Poppe -- EXECUTIVE VICE PRESIDENT
Joseph Quinones, Jr. -- VICE PRESIDENT, SECRETARY & TREASURER
INVESTMENT ADVISER & DISTRIBUTOR
Ruane, Cunniff & Co., Inc.
767 Fifth Avenue, Suite 4701
New York, New York 10153-4798
CUSTODIAN
The Bank of New York
MF Custody Administration Department
100 Church Street, 10th Floor
New York, New York 10286
REGISTRAR AND SHAREHOLDER SERVICING AGENT
DST Systems, Inc.
P.O. Box 219477
Kansas City, Missouri 64121
LEGAL COUNSEL
Seward & Kissel
One Battery Park Plaza
New York, New York 10004
This report has been prepared for the information of shareholders of
Sequoia Fund, Inc.
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, the registrant has adopted a
code of ethics, as defined in Item 2 of Form N-CSR, applicable to its principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. A copy of this code of
ethics is filed as an exhibit to this Form N-CSR. During the period covered by
this report, no substantive amendments were approved or waivers were granted to
the code of ethics.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Directors has determined that the registrant does not
have an audit committee financial expert serving on its audit committee. The
registrant's Board of Directors has determined that, based on the background and
extensive experience of each of the members of the audit committee in the
financial services industry, a designated audit committee financial expert is
unnecessary. The members of the audit committee are well-known and respected
members of the investment management industry and the registrant is satisfied
that their collective knowledge and experience is sufficient for them to perform
their duties as audit committee members.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) - (d) Aggregate fees billed to the registrant for the last two fiscal year
for professional services rendered by the registrant's independent auditor were
as follows:
December 31, 2003 December 31, 2002
----------------- -----------------
Audit Fees $36,000 $31,500
Audit-Related Fees $0 $0
Tax Fees $3,150 $3,150
Other Fees $0 $0
Audit fees include amounts related to the audit of the registrant's annual
financial statements and services normally provided by the auditor in connection
with statutory and regulatory filings. Tax fees include amounts related to tax
compliance and tax advice.
(e)(1) The registrant's audit committee has the responsibility to pre-approve
all audit and non-audit services provided to the registrant by its independent
auditor in advance at regularly scheduled audit committee meetings. The
registrant's audit committee also has the responsibility to pre-approve all
non-audit services provided by the registrant's independent auditor 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, if the engagement relates directly to the operations and
financial reporting of the registrant, in advance at regularly scheduled audit
committee meetings.
(e)(2) No services included in (b)-(d) were approved pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable.
(g) The aggregate fees billed for the most recent fiscal year and the preceding
fiscal year by the registrant's independent auditor for non-audit services
rendered to the registrant, its investment adviser, and any entity controlling,
controlled by, or under common control with the investment adviser that provides
ongoing services to the registrant were $54,120 and $22,500, respectively.
(h) The registrant's audit committee has considered the provision of non-audit
services that were rendered to its investment adviser and any entity
controlling, controlled by, or under common control with the investment adviser
that provides ongoing services to the registrant and that were not pre-approved
and determined that those services are compatible with maintaining the
independent auditor's independence.
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. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 10. CONTROLS AND PROCEDURES.
(a)(i) The registrant's principal executive officer and principal financial
officer have concluded that as of a date within 90 days of the filing of this
report there were no significant deficiencies in the design or operation of the
disclosure controls and procedures of the registrant which would have adversely
affected the ability of the registrant to record, process, summarize and report
the subject matter contained in this report.
(a)(ii) There were no significant changes in the registrant's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
ITEM 11. EXHIBITS.
(a)(1) The registrant's code of ethics pursuant to Item 2 of Form N-CSR is
attached.
(a)(2) Separate certifications by the registrant's principal executive officer
and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of
1940, are attached.
(b) A certification by the registrant's principal executive officer and
principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 and required by Rule 30a-2(b) under the Investment Company Act, is
attached.
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.
SEQUOIA FUND, INC.
By: /s/ Robert D. Goldfarb
------------------------------
Robert D. Goldfarb
President and Principal Executive Officer
Date: February 27, 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/ Robert D. Goldfarb
------------------------------
Robert D. Goldfarb
President and Principal Executive Officer
Date: February 27, 2004
By: /s/ Joseph Quinones, Jr.
---------------------------
Joseph Quinones, Jr.
Vice President, Secretary & Treasurer
Date: February 27, 2004