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 & Goldfarb 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, 2004
ITEM 1. REPORTS TO STOCKHOLDERS.
[SEQUOIA FUND, INC. LOGO]
SEQUOIA FUND, INC.
ANNUAL
REPORT
DECEMBER 31, 2004
<Page>
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, 2004. 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
Dec. 31, 2004 154,270 1,200,687 379,159 1,734,116
</Table>
The total amount of capital gains distributions accepted in shares was $622,656,
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>
[CHART]
COMPARISON OF A CHANGE IN VALUE OF A $10,000 INVESTMENT IN SEQUOIA FUND AND THE
S&P 500 INDEX*
<Table>
<Caption>
SEQUOIA FUND S&P 500*
1/1/1995 $ 10,000 $ 10,000
12/31/1995 $ 14,138 $ 13,753
12/30/1996 $ 17,212 $ 16,915
12/31/1997 $ 24,647 $ 22,554
12/31/1998 $ 33,335 $ 28,998
12/31/1999 $ 27,821 $ 35,099
12/31/2000 $ 33,402 $ 31,905
12/31/2001 $ 36,916 $ 28,112
12/31/2002 $ 35,942 $ 21,899
12/31/2003 $ 42,095 $ 28,180
12/31/2004 $ 44,057 $ 31,245
</Table>
(From 1/1/95 to 12/31/04)
* The S&P 500 Index is an unmanaged, capitalization-weighted index of the common
stocks of 500 major US corporations.
The information presented for the Fund assumes reinvestment of dividends and
capital gains distributions and does not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.
Past performance is not indicative of future results.
TO THE SHAREHOLDERS OF SEQUOIA FUND, INC.
Dear Shareholder:
Sequoia Fund's results for the quarter and year ended December 31, 2004
appear below along with comparable results for the major market indexes:
TO DECEMBER 31, 2004
<Table>
<Caption>
SEQUOIA DOW JONES STANDARD &
FUND INDUSTRIALS POOR'S 500
------- ----------- ----------
Fourth Quarter 3.83% 7.55% 9.22%
1 Year 4.66% 5.34% 10.92%
5 Years (Annualized) 9.65% 0.67% -2.33%
10 Years (Annualized) 16.02% 13.13% 12.07%
</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.
We do not normally provide you with an early estimate of Sequoia's year-end
capital gains distributions. However, due to the magnitude of this distribution
in 2005, we felt we should alert our tax-paying shareholders that it is likely
to be approximately $10 per share. We recommend that you keep this in mind for
your tax planning. We will provide updated information in our March report.
Sincerely,
<Table>
/s/ Richard T. Cunniff /s/ David M. Poppe /s/ William J. Ruane /s/ Robert D. Goldfarb
Richard T. Cunniff David M. Poppe William J. Ruane Robert D. Goldfarb
Vice Chairman Executive Vice President Chairman President
February 18, 2005
</Table>
<Page>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
The Fund's total return for the year 2004 was 4.7%, including reinvestment
of dividends. This compares to the 10.9% return of the S&P 500. Our investment
philosophy is to make concentrated investments in a limited number of companies
that have superior long-term economic prospects and that sell at what we believe
are attractive prices. We do not own a broad basket of stocks, and as a result
the performance of the Fund will often vary significantly from that of the
overall market in any given year.
The table below shows the stock price performance of the Fund's major
positions for 2004:
<Table>
<Caption>
% OF ASSETS PRICE % OF ASSETS
POSITION 12/31/03 CHANGE 12/31/04
- -------- -------- ------ -----------
Berkshire Hathaway 34.7% 4.3% 35.2%
Progressive Corp. 12.8% 1.5% 12.6%
Mohawk Industries 6.6% 29.4% 8.4%
TJX 7.2% 14.0% 8.0%
Fifth Third Bancorp 10.8% -20.0% 5.6%
Fastenal 2.9% 23.7% 3.6%
------ -----
Top six positions 75.0% 73.4%
====== =====
</Table>
We're less concerned with the annual movement in share prices than we are
with the earnings progress exhibited by our holdings. If earnings grow, the
stock price eventually follows.
We expect Berkshire Hathaway will turn in satisfactory results for 2004
that were somewhat obscured by several one-time events. In the third quarter,
the Florida hurricanes produced $816 million after-tax in losses in the
insurance businesses. Berkshire also booked a one-time non-cash charge of $255
million, its share of a write-down taken by MidAmerican in connection with the
termination of a mineral extraction project. And a number of high-yield and
investment grade securities matured in 2004, with the proceeds going into
low-yielding cash. Berkshire's reported earnings took a short-term hit, but its
earning power didn't change. It's worth noting that Berkshire also earned
significant foreign currency trading profits in 2004, as it did on fixed-income
arbitrage in 2003. Accounting conventions do not allow including these gains in
operating earnings.
Despite the downward pressures on reported profits this year, we believe
that Berkshire is continuing to make steady progress in increasing its earning
power over the long run. One measure of that growth is the burgeoning investment
portfolio at Berkshire's insurance subsidiaries: At September 30, it was $97.0
billion, up nearly 30% over the last two years. Additionally if there were ever
a significant stress in the financial system, Berkshire, with its ample
liquidity, has the potential to step its current earnings power up even higher
than the current trend line.
Progressive's operating results were strong in 2004. Net premiums earned
rose 16% for the year and the company's underwriting margin was an impressive
14.9%. Earnings per share rose 34% to $7.63. To be sure, growth in premiums
decelerated during the year and the underwriting margin is not likely to remain
so robust in 2005. The auto insurance industry is cyclical. Rates inevitably
tend to soften in response to improving underwriting margins. Still, we believe
Progressive's margins will remain healthy and written premiums will keep
growing, albeit at a slower pace. The company recently bought back 8% of its
shares outstanding, which will also boost earnings per share this year.
Progressive has just 7% of the U.S. car insurance market, and over time we
believe consumers will find Progressive a great value and drive its market share
higher.
The third-largest position in the Fund is now Mohawk Industries, the
country's largest flooring business. Mohawk and its rival, Shaw Industries,
which is owned by Berkshire Hathaway, have spent many years consolidating a
highly fragmented and inefficient industry down to two strong players.
Simultaneously, Mohawk has benefited from the U.S. housing boom, which has kept
demand for flooring products quite high. As a result, Mohawk's results over the
past few years have been terrific. It earned $3.00 per share in 2000. In 2005,
we believe earnings per share could exceed $6. That 15% growth rate has come
despite big increases in the price of oil, the main source of raw material for
carpet. Mohawk's management has wisely deployed its growing earnings back into
the business, buying up other flooring companies and some suppliers. We believe
Mohawk has a bright future.
TJX continues to perform as we expected when we bought the stock in 2000.
Since then, its earnings per share have grown at a 10% annual rate. The stock
has appreciated faster than earnings, but still trades at a discount to the S&P
500. The retail apparel business is difficult. Over the past four years, the
number of units sold in the U.S. has barely risen, while pricing has declined
slightly. The result is a stagnant industry. Indeed, several U.S. department
stores earned less in 2004 than they did four years earlier. That makes TJX's
steady growth look even better.
That said, TJX is at something of a crossroads. Its core Marmaxx business,
which consists of TJ Maxx and Marshalls stores, continues to perform well but is
clearly maturing. The same is true of the Canadian division, Winners. In coming
years, investors will need to see better performance at the company's younger
divisions, which include TK Maxx in the UK and Ireland, HomeGoods and AJ Wright.
All three younger concepts stumbled in 2004, which is worrisome. We expect to
see significant progress in 2005.
Fifth Third Bancorp represented a major drag on results at the Fund in both
2003 and 2004, coming after years of stalwart
<Page>
performance. What went wrong? As interest rates reached generational lows, Fifth
Third could not reduce its already low cost of deposits. Yet to stay competitive
with other lenders it had to reduce the interest rates it charged borrowers.
Inevitably, its net interest margin tightened. This is an obvious problem. In an
attempt to preserve its net interest income, it entered into a series of
off-balance sheet interest rate swaps to protect it against the possibility that
the Federal Reserve would lower interest rates still further. When the Fed began
raising short-term rates during the year, the bank paid a dear price to
terminate the swaps.
The bank's unsuccessful effort to acquire National Commerce Financial as
well as its successful effort to acquire First National Bankshares of Florida
highlighted the challenge of continuing to grow rapidly in the mature markets of
the Midwest.
We sold a substantial portion of the Fund's position, but we regret that we
didn't act sooner. Nevertheless, over our 11-year holding period, Fifth Third
provided us with a compound annual total return of 17.8%. We want to thank
George Schaefer, Neal Arnold and their hard-working team for enriching our
shareholders.
Fastenal continues to impress us with its culture of enterprise and hard
work. Sales rose by 24.5% and earnings per share by 55.0% for the year. The
stock currently trades for nearly 30 times this year's estimated earnings. At
times, it can be tempting to sell shares at such lofty levels. But we continue
to believe that Fastenal has very significant long-term growth opportunities. We
also have great respect for management's capabilities and integrity. These
factors give us the confidence to maintain our holdings.
We could make similar remarks about Expeditors International and Walgreen.
Both stocks trade at high price-to-earnings ratios. But both companies have
uniquely competitive cultures and strong market positions. Expeditors has an
exceptionally strong presence in the surging trade lane between China and the
U.S. Walgreen fills more daily prescriptions per store than any other major
retailer, giving it significant economies of scale. For the year, Expeditors
rose 48.4% and Walgreen 5.5%.
One of our most disappointing stocks in 2004 was Tiffany & Co. It lost
29.3% of its value during the year, and it continues to struggle to reverse
declining earnings in its highly profitable Japanese business.
During the year, the Fund reduced its holdings in Fifth Third Bancorp from
10.8% of assets to 5.6%. The Fund added to three positions: Gtech Holdings,
Walgreen and Idexx Laboratories. The Fund initiated three small positions,
Wal-Mart Stores, Petsmart and O'Reilly Automotive. The Fund also bought and sold
two small positions during the year, AutoZone and Jacobs Engineering. The Fund
suffered losses on both stocks.
At the end of the year, Sequoia was 90.8% invested in stocks, compared to
85.6% a year earlier. In both years, the remainder of Sequoia's assets was held
in cash and cash equivalents.
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 Example is
based on an investment of $1,000 invested at the beginning of the period and
held for the entire period (July 1, 2004 to December 31, 2004).
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 costs 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.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only and will not help you determine the relative total costs
of owning different funds.
<Table>
<Caption>
EXPENSES
ENDING PAID DURING
BEGINNING ACCOUNT PERIOD*
ACCOUNT VALUE JULY 1, 2004
VALUE DECEMBER 31, TO DECEMBER 31,
JULY 1, 2004 2004 2004
------------ ------------ ---------------
Actual $ 1,000 $ 1,014.13 $ 5.06
Hypothetical
(5% return
per year
before
expenses) $ 1,000 $ 1,020.11 $ 5.08
</Table>
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.00%,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
184/366 (TO REFLECT THE ONE-HALF YEAR PERIOD).
<Page>
SEQUOIA FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2004
COMMON STOCKS (90.79%)
<Table>
<Caption>
VALUE
SHARES (NOTE 1)
------ -----------------
AUTO & HOME SUPPLY STORES (1.07%)
896,915 O'Reilly Automotive Inc.* $ 40,406,021
-----------------
BANK HOLDING COMPANIES (5.62%)
4,455,511 Fifth Third Bancorp 210,656,560
9,921 Mercantile Bankshares Corporation 517,876
-----------------
211,174,436
-----------------
BUILDING MATERIALS (3.56%)
2,175,067 Fastenal Company 133,897,125
-----------------
COMPUTER PROGRAMMING SERVICES (1.52%)
2,203,879 GTECH Holdings Corporation 57,190,660
-----------------
CHEMICAL DIAGNOSTIC SUBSTANCES (2.31%)
1,589,551 IDEXX Laboratories Inc* 86,773,589
-----------------
DIVERSIFIED COMPANIES (35.31%)
15,104 Berkshire Hathaway Inc. Class A* 1,327,641,600
126 Berkshire Hathaway Inc. Class B* 369,936
-----------------
1,328,011,536
-----------------
FREIGHT TRANSPORTATION (2.83%)
1,905,533 Expeditors International of Washington, Inc. 106,481,184
-----------------
HOME FURNISHINGS (1.97%)
1,855,059 Ethan Allen Interiors, Inc.+ 74,239,461
-----------------
INSURANCE AGENTS & BROKERS (1.76%)
1,524,207 Brown & Brown Inc. 66,379,215
-----------------
INSURANCE (12.64%)
5,603,253 Progressive Corporation -- Ohio 475,379,985
-----------------
MANUFACTURING (0.51%)
314,531 Harley Davidson, Inc. 19,107,758
-----------------
MEDICAL & HOSPITAL EQUIPMENT (0.15%)
126,726 Patterson Companies Inc.* 5,498,641
-----------------
TEXTILE -- CARPETS (8.38%)
3,455,247 Mohawk Industries Inc.+* 315,291,289
-----------------
</Table>
<Page>
<Table>
<Caption>
VALUE
SHARES (NOTE 1)
------ -----------------
PROCESS CONTROL INSTRUMENTS (0.62%)
405,360 Danaher Corporation $ 23,271,718
-----------------
RETAILING (12.54%)
42,001 Costco Wholesale Corporation 2,033,268
97,260 Petsmart Inc. 3,455,648
1,229,591 Tiffany & Company 39,310,024
12,042,702 TJX Companies, Inc. 302,633,101
724,603 Wal-Mart Stores Inc. 38,273,530
2,237,113 Walgreen Company 85,838,026
-----------------
471,543,597
-----------------
TOTAL COMMON STOCKS (COST $1,068,684,011) $ 3,414,646,215
-----------------
<Caption>
PRINCIPAL
AMOUNT
---------
U.S. GOVERNMENT OBLIGATIONS (9.21%)
$ 347,000,000 U.S. Treasury Bills due 01/13/05 through 02/10/05 346,596,120
-----------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $346,596,120) 346,596,120
-----------------
TOTAL INVESTMENTS (100%)++
(Cost $1,415,280,131) $ 3,761,242,335
=================
</Table>
- ----------
++ The cost for federal income tax purposes is identical.
* Non-income producing.
+ Refer to Note 7.
The accompanying notes form an integral part of these Financial Statements.
<Page>
SEQUOIA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2004
<Table>
ASSETS:
Investments in securities, at value (cost $1,415,280,131) (Note 1) $ 3,761,242,335
Cash on deposit with custodian 6,254,519
Receivable for capital stock sold 590,714
Dividends receivable 1,764,016
Receivable for investments securities sold unsettled 11,338,360
Other assets 40,605
-----------------
Total assets 3,781,230,549
-----------------
LIABILITIES:
Payable for capital stock repurchased 485,896
Payable for investments securities purchased unsettled 4,990,319
Accrued investment advisory fee 3,214,319
Accrued other expenses 157,114
-----------------
Total liabilities 8,847,648
-----------------
Net assets applicable to 24,452,419 shares of capital stock outstanding (Note 4) $ 3,772,382,901
=================
Net asset value, offering price and redemption price per share $ 154.27
=================
</Table>
The accompanying notes form an integral part of these Financial Statements.
<Page>
SEQUOIA FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2004
<Table>
INVESTMENT INCOME:
Income:
Dividends:
Unaffiliated companies $ 14,651,546
Affiliated companies (Note 7) 6,828,323
Interest 4,010,882
Other income 7,309
----------------
Total income 25,498,060
----------------
Expenses:
Investment advisory fee (Note 2) 39,539,826
Legal and auditing fees 168,623
Stockholder servicing agent fees 441,850
Custodian fees 80,000
Directors fees and expenses (Note 6) 194,565
Other 195,936
----------------
Total expenses 40,620,800
Less expenses reimbursed by Investment Adviser (Note 2) 931,000
----------------
Net expenses 39,689,800
----------------
Net investment (loss) (14,191,740)
----------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Realized gain on investments:
Unaffiliated companies 283,983,148
Affiliated companies (Note 7) 12,785,984
----------------
Net realized gain on investments $ 296,769,132
Net (decrease) in unrealized appreciation on investments (106,708,915)
Net realized and unrealized gain on investments 190,060,217
----------------
Increase in net assets from operations $ 175,868,477
================
</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,
-------------------------------------
2004 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment (loss) $ (14,191,740) $ (16,725,720)
Net realized gains 296,769,132 308,007,558
Net (decrease)/increase in unrealized appreciation (106,708,915) 292,183,274
----------------- -----------------
Net increase/(decrease) in net assets from operations 175,868,477 583,465,112
Distributions to shareholders from:
Net investment income 0 0
Net realized gains (5,637,360) (16,944,455)
Capital share transactions (Note 4) (371,435,383) (498,069,470)
----------------- -----------------
Total (decrease)/increase (201,204,266) 68,451,187
NET ASSETS:
Beginning of year 3,973,587,167 3,905,135,980
----------------- -----------------
End of year $ 3,772,382,901 $ 3,973,587,167
================= =================
NET ASSETS CONSIST OF:
Capital (par value and paid in surplus) $ 1,347,326,752 $ 1,515,277,416
Undistributed net realized gains (Note 5) 79,093,945 5,638,632
Unrealized appreciation 2,345,962,204 2,452,671,119
----------------- -----------------
Total Net Assets $ 3,772,382,901 $ 3,973,587,167
================= =================
</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 investment 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 & Goldfarb Inc., (formerly Ruane, Cunniff &
Co., Inc.), as its investment adviser. Ruane, Cunniff & Goldfarb 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
<Page>
investment advisory fee) in any year exceed the sum of 1-1/2% of the average
daily net asset values of the Fund 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, 2004 and the Investment Adviser
reimbursed the Fund $931,000. Such reimbursement is not subject to recoupment by
the Investment Adviser.
For the year ended December 31, 2004, there were no amounts accrued or paid
to interested persons, including officers and directors, other than advisory
fees of $39,539,826 to Ruane, Cunniff & Goldfarb Inc. and brokerage commissions
of $336,123 to Ruane, Cunniff & Goldfarb LLC. Certain officers of the Fund are
also officers of the Investment Adviser and the Fund's distributor. Ruane,
Cunniff & Goldfarb LLC, 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, 2004.
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, 2004 were $361,180,596 and $537,871,098, respectively. Included in proceeds
of sales is $307,677,376 representing the value of securities distributed as
in-kind payment of redemptions, resulting in realized gains of $217,676,459.
At December 31, 2004 the aggregate gross unrealized appreciation of
securities was $2,345,962,204.
NOTE 4--CAPITAL STOCK:
At December 31, 2004 there were 100,000,000 shares of $.10 par value
capital stock authorized. Transactions in capital stock were as follows:
<Table>
<Caption>
2004 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
---------- -------------- ---------- --------------
Shares sold 937,018 $ 142,174,969 1,275,248 $ 166,839,514
Shares issued to stockholders on reinvestment of:
Net investment income -- -- -- --
Net realized gain on investments 31,351 4,737,104 111,262 14,470,754
---------- -------------- ---------- --------------
968,369 146,912,073 1,386,510 181,310,268
Shares repurchased 3,435,889 518,347,456 5,304,441 679,379,738
---------- -------------- ---------- --------------
Net (decrease) (2,467,520) $ (371,435,383) (3,917,931) $ (498,069,470)
========== ============== ========== ==============
</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, 2004 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 investment loss of $14,191,740 and undistributed net realized
gains of $217,676,459 with a corresponding increase in paid in surplus of
$203,484,719. These reclassifications had no effect on net assets.
<Page>
The tax character of distributions paid during 2003 and 2004 was as
follows:
<Table>
<Caption>
2004 2003
------------ --------------
Distributions paid from:
Ordinary income $ -- $ --
Long-term capital gains 5,637,360 16,944,455
------------ --------------
Total distributions $ 5,637,360 $ 16,944,455
============ ==============
</Table>
As of December 31, 2004, the components of distributable earnings on a tax
basis were as follows:
<Table>
Undistributed long-term gain $ 79,093,945
Unrealized appreciation 2,345,962,204
----------------
$ 2,425,056,149
================
</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, 2004 was $194,565.
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, 2004 aggregated $389,530,750 and $206,205,899, respectively. The
summary of transactions for each affiliate during the period of their
affiliation for the year ended December 31, 2004 is provided below:
<Table>
<Caption>
PURCHASES SALES
------------------- ----------------------- REALIZED DIVIDEND
AFFILIATE SHARES COST SHARES COST GAIN INCOME
- --------- ------ ---------- ------- ------------- ------------- ------------
Ethan Allen Interiors, Inc. 22,500 $ 838,700 175,181 $ 4,377,572 $ 2,178,762 $ 6,828,323
Mohawk Industries Inc. -- -- 284,386 $ 12,780,080 10,607,222 --
------------- ------------
$ 12,785,984 $ 6,828,323
============= ============
</Table>
<Page>
NOTE 8--FINANCIAL HIGHLIGHTS:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
Per Share Operating Performance (for a share
outstanding throughout each year)
Net asset value, beginning of year $ 147.61 $ 126.63 $ 130.24 $ 122.09 $ 127.27
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment (loss)/income (0.58) (0.62) (0.41) 0.97 1.66
Net realized and unrealized gains (losses) on
investments 7.45 22.21 (3.03) 11.52 23.33
---------- ---------- ---------- ---------- ----------
Total from investment operations 6.87 21.59 (3.44) 12.49 24.99
---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income (0.00) (0.00) (0.01) (0.97) (1.66)
Distributions from net realized gains (0.21) (0.61) (0.16) (3.37) (28.51)
---------- ---------- ---------- ---------- ----------
Total distributions (0.21) (0.61) (0.17) (4.34) (30.17)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 154.27 $ 147.61 $ 126.63 $ 130.24 $ 122.09
========== ========== ========== ========== ==========
Total Return 4.7% 17.1% -2.6% 10.5% 20.1%
Ratios/Supplemental data
Net assets, end of year (in millions) $ 3,772.4 $ 3,973.6 $ 3,905.1 $ 4,230.1 $ 3,943.9
Ratio to average net assets:
Expenses 1.0% 1.0% 1.0% 1.0% 1.0%
Net investment income (loss) -0.4% -0.5% -0.3% 0.8% 1.2%
Portfolio turnover rate 6% 3% 8% 7% 36%
</Table>
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2004, 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. 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 the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements 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, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 22, 2005
<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, 79 Chairman of the Term -- 1 Year & Chairman of the None
767 Fifth Avenue Board & Director Length of Time Board & Director of
New York, NY 10153 served -- 34 Years Ruane, Cunniff &
Goldfarb Inc.
Richard T. Cunniff, 81 Vice Chairman & Term -- 1 Year & Vice Chairman & Sturm,
767 Fifth Avenue Director Length of Time Director of Ruane, Ruger &
New York, NY 10153 served -- 34 Years Cunniff & Goldfarb Company, Inc.
Inc.
Robert D. Goldfarb, 60 President & Director Term -- 1 Year & President & Director None
767 Fifth Avenue Length of Time of Ruane, Cunniff &
New York, NY 10153 served -- 26 Years Goldfarb Inc.
David M. Poppe, 40 Executive Vice Term -- 1 Year & Research Analyst of None
767 Fifth Avenue President & Director Length of Time Ruane, Cunniff &
New York, NY 10153 served -- 2 Years Goldfarb Inc.;
Business reporter
Miami Herald
Joseph Quinones, Jr., 59 Vice President, Term -- 1 Year & Vice President, None
767 Fifth Avenue Secretary, Length of Time Secretary,
New York, NY 10153 Treasurer & Chief served -- 9 Years Treasurer & Chief
Compliance Officer Compliance Officer of
Ruane, Cunniff &
Goldfarb Inc.
Francis P. Matthews, 82 Director Term -- 1 Year & Retired None
767 Fifth Avenue Length of Time
New York, NY 10153 served -- 32 Years
C. William Neuhauser, 78 Director Term -- 1 Year & Retired None
767 Fifth Avenue Length of Time
New York, NY 10153 served -- 30 Years
Robert L. Swiggett, 82 Director Term -- 1 Year & Retired None
767 Fifth Avenue Length of Time
New York, NY 10153 served -- 34 Years
Sharon Osberg, 55 Director Term -- 1 Year & Consultant Internet None
767 Fifth Avenue Length of Time Mobile Technology
New York, NY 10153 served -- 0 Years
</Table>
<Page>
<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
- ---------------------- ------------- ------------------ ----------------- -------------
Roger Lowenstein, 50 Director Term -- 1 Year & Writer major None
767 Fifth Avenue Length of Time Financial and News
New York, NY 10153 served -- 6 Years Publications
Vinod Ahooja, 53 Director Term -- 1 Year & Retired None
767 Fifth Avenue Length of Time
New York, NY 10153 served -- 4 Years
</Table>
OTHER INFORMATION
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. Form N-Q is
available on the SEC's web site at http://www.sec.gov. The Fund's Form N-Q may
also be reviewed and copied at the SEC's Public Reference Room in Washington,
DC. For information regarding the operation of the SEC's Public Reference Room,
call 1-800-SEC-0330. For a complete list of the Fund's portfolio holdings, view
the most recent quarterly, semiannual or annual report on Sequoia Fund's web
site at http://www.sequoiafund.com/fund_reports.htm.
You may obtain a description of the Fund's proxy voting policies and
procedures, and information regarding how the Fund voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30,
without charge. Visit Sequoia Fund's web site at www.sequoiafund.com and use the
"Shareholder Information" link to obtain all proxy information. This information
may also be obtained from the Securities and Exchange Commission's web site at
www.sec.gov.
<Page>
This page was intentionally left blank.
<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
Sharon Osberg
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 &
CHIEF COMPLIANCE OFFICER
INVESTMENT ADVISER
Ruane, Cunniff & Goldfarb Inc.
767 Fifth Avenue, Suite 4701
New York, New York 10153-4798
DISTRIBUTOR
Ruane, Cunniff & Goldfarb LLC
767 Fifth Avenue, Suite 4701
New York, New York 10153-4798
CUSTODIAN
The Bank of New York
MF Custody Administration Department
One Wall Street, 25th 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, 2004 December 31, 2003
----------------- -----------------
Audit Fees $39,000 $36,000
Audit-Related Fees n/a n/a
Tax Fees $4,000 $3,150
Other Fees n/a n/a
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 $75,000 and $54,120, 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 24, 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/ Robert D. Goldfarb
------------------------------
Robert D. Goldfarb
President and Principal Executive Officer
Date: February 24, 2005
By: /s/ Joseph Quinones, Jr.
---------------------------
Joseph Quinones, Jr.
Vice President, Secretary, Treasurer
Date: February 24, 2005