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, 2006
<Page>]
ITEM 1. REPORTS TO STOCKHOLDERS.
ANNUAL REPORT
DECEMBER 31, 2006
<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, 2006. 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.
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
Dec. 31, 2005 155,450 1,331,529 382,059 1,869,038
Dec. 31, 2006 152,750 1,496,788 375,422 2,024,960
The total amount of capital gains distributions accepted in shares was $931,732,
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, 2006
appear below along with comparable results for the market indexes:
DOW JONES STANDARD &
TO DECEMBER 31, 2006 SEQUOIA FUND INDUSTRIALS* POOR'S 500*
------------ ------------ -----------
Fourth Quarter 3.40% 7.39% 6.70%
1 Year 8.34% 19.05% 15.80%
5 Years (Annualized) 6.86% 6.81% 6.19%
10 Years (Annualized) 11.57% 8.91% 8.42%
The performance shown above represents past performance and does not
guarantee future results. Current performance may be lower or higher than the
performance information shown.
Comparison of a change in value of a $10,000 Investment in Sequoia Fund and the
S&P 500 Index*
[CHART]
<Table>
<Caption>
SEQUOIA
FUND S&P 500
1/1/1997 $10,000 $10,000
12/31/1997 $14,320 $13,334
12/31/1998 $19,368 $17,144
12/31/1999 $16,165 $20,751
12/31/2000 $19,407 $18,862
12/31/2001 $21,449 $16,620
12/31/2002 $20,883 $12,947
12/31/2003 $24,458 $16,660
12/31/2004 $25,598 $18,472
12/31/2005 $27,589 $19,379
12/31/2006 $29,890 $22,441
</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.
YEAR TO DATE PERFORMANCE AS OF THE MOST RECENT MONTH END CAN BE OBTAINED BY
CALLING DST SYSTEMS, INC. AT (800) 686-6884.
----------
Sincerely,
/s/ Richard T. Cunniff /s/ Robert D. Goldfarb /s/ David M. Poppe
- ------------------------ -------------------------- ------------------------
Richard T. Cunniff Robert D. Goldfarb David M. Poppe
Vice Chairman President Executive Vice President
February 21, 2007
THE RUANE, CUNNIFF & GOLDFARB INC./SEQUOIA FUND INC. ANNUAL INVESTOR DAY WILL BE
HELD AT 10A.M., NEW YORK CITY TIME, ON FRIDAY, MAY 18, 2007 AT THE ST. REGIS
HOTEL, TWO EAST 55TH STREET, NEW YORK, NEW YORK 10022
<Page>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
The total return for Sequoia Fund was 8.34% for 2006, including the
reinvestment of dividends. This compares with the 15.80% return of the S&P 500.
As it has been for many years, our investment philosophy is to make concentrated
commitments of capital in a limited number of companies that have superior
long-term economic prospects and that sell at what we believe are attractive
prices. Because Sequoia is deliberately not representative of the overall
market, in any given year or years the performance of the Fund will often vary
significantly from that of the broad market indices.
We are less concerned with the annual returns from each of the stocks we
own than with their returns over time. We have a similar attitude towards
earnings: we pay much more heed to earnings growth over a number of years rather
than over a single year, much less a quarter.
The table below shows the twelve month stock total return for the Fund's
major positions at the beginning of 2006:
% OF ASSETS TOTAL % OF ASSETS
POSITION 12/31/05 RETURN 12/31/06
- -------- ----------- ------ -----------
Berkshire Hathaway 33.8% 24.1% 27.0%
Progressive Corp. 17.4% -16.9% 14.3%
Mohawk Industries 8.0% -13.9% 6.8%
TJX 7.4% 24.1% 6.0%
Fastenal 4.4% -7.4% 4.0%
Expeditors International 3.4% 20.5% 3.4%
---- ----
Top six positions 74.4% 61.5%
==== ====
The largest reasons for our underperformance versus the S&P 500 were the
significant stock price declines at two of our largest holdings, Progressive
Corp. and Mohawk Industries.
We believed that Progressive's stock price at the beginning of 2006 was
justified by its historical record and long-term prospects together with its
exceptional management. Although we worried that Progressive's profit margins
were unsustainably high, we were confident the company would gradually reduce
prices and grow policies and revenue at satisfactory levels. We did not expect
that over the course of 2006 Progressive's revenue growth would decelerate to
zero and policies-in-force would begin to decline. Nor did we expect margins to
expand and earnings per share to grow 20%. Yet, that is what happened, although
we do not believe it was management's goal to harvest extra earnings in 2006 at
the expense of the future growth rate.
For most of its history, Progressive's aim has been to earn at least a 4%
operating margin and grow as fast as possible. In 2006, it earned a 14% margin.
This windfall occurred largely because of a number of structural changes that
cumulatively have significantly reduced the frequency of automobile accidents.
When Progressive tested lower rates in recent years, it found little
elasticity of demand. Therefore, at the risk of holding a pricing umbrella over
less efficient competitors, the company opted to preserve higher margins.
Although it anticipated that such pricing would reduce growth, it did not
contemplate that the growth would cease altogether.
Looking ahead, Progressive may be forced to cut rates more aggressively to
attract policyholders, as more surgical price cuts have not worked. This almost
certainly will lead to lower profits for shareholders.
Progressive is an outstanding company that currently faces two great
challenges: 1) increasing retention or policy lives through a number of
measures; and 2) improving both its brand proposition and its marketing and
advertising. Fortunately, management embraces change and the company could not
have a better change agent than CEO Glenn Renwick.
Mohawk Industries' stock price fell 14% in 2006. Reported earnings rose 17%
for the year, reflecting earnings accretion from the purchase of Unilin, a large
European-based laminate flooring manufacturer, in late 2005. Absent the
acquisition of Unilin, net income would have been flattish as lower interest
expense from debt pay-down would have offset a modest decline in operating
profits at Mohawk's business units. The decline in operating income reflected
high oil prices, which increased the cost of the raw materials used to make
flooring products, and a slump in both new home construction and home
remodeling, which reduced demand for residential flooring. In this difficult
environment, Mohawk successfully managed operating costs and the acquisition of
Unilin. It also dramatically reduced the debt taken on to make the acquisition.
We do not know how long the housing slump will last, or how long raw
materials prices will remain high. We do know Mohawk has been passing on raw
<Page>
materials price increases for some time, which speaks to its position in the
marketplace. At the end of 2006, Mohawk sold for less than 12 times forward
earnings estimates, which strikes us as an attractive price for a business that
has grown its earnings at a 17% compound average annual rate the last five
years.
Berkshire Hathaway enjoyed a terrific year, though it received more than a
little help from Mother Nature. After two years which saw multiple hurricanes
wreak havoc on the Gulf Coast, writers of "supercat" reinsurance raised premiums
significantly, then saw no major storms hit the U.S. mainland in 2006. This
fortuitous circumstance helped Berkshire more than double its reported earnings
per share through the first nine months of the year. As a major writer of
"supercat" reinsurance, there will be years when Berkshire gets lucky, like
2006, and years when it pays out billions of dollars in claims, like 2004 and
2005. A prudent forecast for 2007 would include a more normalized level of
catastrophe claims, and thus a lower level of earnings in the reinsurance
business.
Berkshire's good performance was not simply a matter of good weather. GEICO
is knocking the cover off the ball. The company's fantastic advertising,
together with its very aggressive entry into New Jersey, are driving very
satisfactory growth. Gen Re posted its best results in many years in 2006.
NetJets showed improved results. Most pleasingly, through the first three
quarters of the year Berkshire invested $14 billion in stock investments and
acquisitions of private companies. The favorable economics of these investments
gives us confidence that they will produce a very satisfactory return.
Based on Berkshire's 2006 performance, our decision to reduce our ownership
position during the year could be second-guessed. It remains our single largest
investment but, given Mr. Buffett's age and our level of concentration, we felt
it prudent to reduce our exposure. We expect Mr. Buffett will continue to do a
masterful job deploying Berkshire's vast capital and we intend to benefit from
that performance over many years.
TJX reported a fine year that highlighted the inherent strength of its
off-price business model. The company saw its earnings per share, absent
one-time charges, grow by more than 20%. In recent years, TJX had committed a
succession of gaffes, including the failed launch of a dot com business and the
rapid expansion of several unproven start-up concepts. Finally, in late 2005 the
board of directors tapped chairman of the board and founder Ben Cammarata to
return as interim CEO. Cammarata achieved almost immediate results by
re-focusing TJX on its core businesses, TJ Maxx, Marshall's and Winners, the TJ
Maxx of Canada. He replaced a number of senior managers and closed stores that
had little potential for earning a satisfactory return. Perhaps most importantly
he lured long-time executive Carol Meyrowitz, who had left the business earlier
in 2005, back to the company.
Meyrowitz, a respected apparel merchant, was instrumental in the turnaround
and recently was appointed CEO. She should have a stronger supporting cast of
senior managers than existed 18 months ago. We trimmed TJX in 2006 after the
stock rose during the year, but it remains a large position and we are
encouraged by the changes made over the past five quarters.
Other major holdings such as Brown & Brown, Expeditors, Fastenal, Idexx
Labs, O'Reilly, Porsche and Walgreen turned in strong earnings years, with all
of them growing net income at double-digit rates. Porsche shares rose 80% in
U.S. dollars. The stock price performance of the other six companies was more
mixed, but their earnings performance was on target. We are optimistic about the
prospects for solid earnings growth at all seven businesses in 2007 and beyond.
We are pleased to report that we made a number of new investments in
high-quality businesses in 2006. Our largest new investment was Bed, Bath &
Beyond. This unusual company -- management rarely speaks to Wall Street, does
not belong to any industry trade groups and otherwise keeps its own counsel --
was founded in the early 1970s and today is a very successful purveyor of
kitchen, bath and home decor items. It is distinguished from its competitors by
its breadth of product offering and superior financial returns. The company has
a terrific balance sheet with an enormous amount of cash on hand and no debt.
Other new investments by the Fund in 2006 included Target, Lowe's, Knight
Transportation, MasterCard and Apollo Group. During the year, the Fund sold its
holdings in Gtech and IGT.
At the end of the year, Sequoia was 94.3% invested in stocks, compared to
95.2% a year earlier. In both years, the remainder of the Fund's assets was held
in cash and cash equivalents.
<Page>
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, 2006 to December 31, 2006).
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.
EXPENSES
PAID DURING
ENDING PERIOD*
BEGINNING ACCOUNT JULY 1,
ACCOUNT VALUE 2006 TO
VALUE DECEMBER 31, DECEMBER 31,
JULY 1, 2006 2006 2006
------------ ------------ ------------
Actual $1,000 $1,075.05 $5.23
Hypothetical (5% return
per year before
expenses) $1,000 $1,020.16 $5.09
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.00%,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
184/365 (TO REFLECT THE ONE-HALF YEAR PERIOD).
<Page>
SEQUOIA FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
COMMON STOCKS (94.30%)
SHARES VALUE (a)
- ---------- --------------
AUTO PARTS (1.52%)
1,699,697 O'Reilly Automotive Inc. * $ 54,492,286
--------------
AUTOMOTIVE MANUFACTURING (3.36%)
95,028 Porsche AG (Germany) (a) 120,919,614
--------------
CASUALTY INSURANCE (14.32%)
21,236,852 Progressive Corporation 514,356,556
--------------
DIVERSIFIED COMPANIES (27.08%)
8,844 Berkshire Hathaway Inc. Class A* 972,751,560
101 Berkshire Hathaway Inc. Class B* 370,266
--------------
973,121,826
--------------
EDUCATION (0.79%)
730,356 Apollo Group, Inc. * 28,461,973
--------------
FINANCE (1.03%)
376,378 MasterCard Inc. 37,069,469
--------------
FREIGHT TRANSPORTATION (5.28%)
2,997,624 Expeditors International Inc. 121,403,772
4,000,000 Knight Transportation Inc. 68,200,000
--------------
189,603,772
--------------
INDUSTRIAL & CONSTRUCTION SUPPLIES (4.05%)
4,053,623 Fastenal Company 145,443,993
--------------
INSURANCE BROKERS (2.27%)
2,888,441 Brown & Brown Inc. 81,482,921
--------------
MEDICAL EQUIPMENT (0.12%)
120,075 Patterson Companies Inc. * 4,263,863
--------------
PROCESS CONTROL INSTRUMENTS (0.77%)
384,088 Danaher Corporation 27,823,335
--------------
<Page>
SHARES VALUE (a)
- ---------- --------------
RETAILING (23.52%)
4,999,694 Bed Bath & Beyond Inc. * $ 190,488,342
39,797 Costco Wholesale Corporation 2,104,067
1,840,388 Lowe's Companies, Inc. 57,328,086
2,212,730 Target Corporation 126,236,247
1,145,572 Tiffany & Company 44,952,245
7,629,153 TJX Companies, Inc. 217,583,444
2,119,715 Walgreen Company 97,273,721
2,359,006 Wal-Mart Stores, Inc. 108,938,897
--------------
844,905,049
--------------
TEXTILE - CARPETS (6.82%)
3,273,926 Mohawk Industries Inc. * 245,086,100
--------------
VETERINARY DIAGNOSTICS (3.37%)
1,528,744 Idexx Laboratories Inc. * 121,229,399
--------------
TOTAL COMMON STOCKS (COST $1,371,494,565) $3,388,260,156
--------------
PRINCIPAL
AMOUNT
- ------------
U.S. GOVERNMENT OBLIGATIONS (5.70%)
$206,000,000 U.S. Treasury Bills due 2/8/2007 through
2/22/2007 204,763,836
--------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $204,763,836) 204,763,836
--------------
TOTAL INVESTMENTS (100%)++
(Cost $1,576,258,401) $3,593,023,992
==============
- ----------
++ The cost for federal income tax purposes is identical.
* Non-income producing.
(a) The Fund is invested in preference shares of Porsche AG which possess the
same economic interest as Porsche common stock but have no voting rights.
The accompanying notes are an integral part of these Financial Statements.
<Page>
SEQUOIA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2006
ASSETS:
Investments in securities, at value (cost $1,576,258,401)
(Note 1) $3,593,023,992
Cash on deposit with custodian 1,104,963
Receivable for capital stock sold 569,006
Dividends receivable 703,206
Receivable for investment securities sold unsettled 8,257,925
Other assets 34,005
--------------
Total assets 3,603,693,097
--------------
LIABILITIES:
Payable for capital stock repurchased 866,658
Accrued investment advisory fee 2,811,935
Accrued other expenses 204,476
--------------
Total liabilities 3,883,069
--------------
Net assets applicable to 23,567,382 shares of capital stock
outstanding (Note 4) $3,599,810,028
==============
Net asset value, offering price and redemption price per
share $ 152.75
==============
The accompanying notes are an integral part of these Financial Statements.
<Page>
SEQUOIA FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2006
INVESTMENT INCOME:
Income:
Dividends, net of $121,180 of foreign tax withheld $ 11,007,934
Interest 8,160,288
Other income 36,846
-------------
Total income 19,205,068
-------------
Expenses:
Investment advisory fee (Note 2) 35,499,566
Legal and auditing fees 213,402
Stockholder servicing agent fees 502,420
Custodian fees 80,000
Directors fees and expenses (Note 6) 242,010
Other 214,869
-------------
Total expenses 36,752,267
Less expenses reimbursed by Investment Adviser (Note 2) 1,102,000
-------------
Net expenses 35,650,267
-------------
Net investment (loss) (16,445,199)
-------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Realized gain on investments:
Unaffiliated companies 541,624,961
Foreign currency transactions (5,174)
-------------
Net realized gain on investments and foreign
currencies 541,619,787
Net (decrease) in unrealized appreciation on investments (239,222,412)
-------------
Net realized and unrealized gain on investments and
foreign currencies 302,397,375
-------------
Increase in net assets from operations $ 285,952,176
=============
The accompanying notes are an integral part of these Financial Statements.
<Page>
SEQUOIA FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------
2006 2005
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment (loss) $ (16,445,199) $ (17,228,982)
Net realized gain on investments and foreign currencies 541,619,787 378,898,763
Net increase / (decrease) in unrealized appreciation (239,222,412) (89,974,201)
-------------- --------------
Net increase / (decrease) in net assets from operations 285,952,176 271,695,580
Distributions to shareholders from:
Net investment income -- --
Net realized gains (340,945,549) (245,091,727)
Capital share transactions (Note 4) 81,492,062 (225,675,415)
-------------- --------------
Total increase / (decrease) 26,498,689 (199,071,562)
NET ASSETS:
Beginning of year 3,573,311,339 3,772,382,901
-------------- --------------
End of year $3,599,810,028 $3,573,311,339
============== ==============
NET ASSETS CONSIST OF:
Capital (par value and paid in surplus) $1,456,986,196 $1,316,344,778
Undistributed net realized gains (Note 5) 126,058,241 978,558
Unrealized appreciation 2,016,765,591 2,255,988,003
-------------- --------------
Total Net Assets $3,599,810,028 $3,573,311,339
============== ==============
</Table>
The accompanying notes are an integral part of these Financial Statements.
<Page>
SEQUOIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Sequoia Fund, Inc. (the "Fund") 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 or on a foreign 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.
FOREIGN CURRENCIES: Investment securities and other assets and liabilities
denominated in foreign currencies are translated into U.S. dollar amounts
at the date of valuation. Purchases and sales of foreign portfolio
securities are translated into U.S. dollars at the rates of exchange
prevailing when such securities are acquired or sold. Income and expenses
are translated into U.S. dollars at the rates of exchange prevailing when
accrued. The Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments
from the fluctuations arising from changes in market prices of securities
held. Such fluctuations are included with the net realized and unrealized
gain or loss from investments. Reported net realized foreign exchange gains
or losses arise from the sales of foreign currencies, currency gains or
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books and
the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign exchange gains and losses arise from changes in the fair
values of assets and liabilities, other than investments in securities at
fiscal period end, resulting from changes in exchange rates.
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.
<Page>
NOTE 2--INVESTMENT ADVISORY CONTRACTS AND PAYMENTS TO INTERESTED PERSONS:
The Fund retains Ruane, Cunniff & Goldfarb Inc. as its investment adviser.
Ruane, Cunniff & Goldfarb Inc. (the "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 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, 2006 and the Investment Adviser reimbursed the Fund $1,102,000.
Such reimbursement is not subject to recoupment by the Investment Adviser.
For the year ended December 31, 2006, there were no amounts accrued or paid
to interested persons, including officers and directors, other than advisory
fees of $35,499,566 to Ruane, Cunniff & Goldfarb Inc. and brokerage commissions
of $974,717 to Ruane, Cunniff & Goldfarb LLC., the Fund's distributor. Certain
officers of the Fund are also officers of the Investment Adviser and the Fund's
distributor. Ruane, Cunniff & Goldfarb LLC received no compensation from the
Fund on the sale of the Fund's capital shares during the year ended December 31,
2006.
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, 2006 were $460,370,370 and $775,697,004, respectively. Included in proceeds
of sales is $83,884,949 representing the value of securities distributed as
in-kind payment of redemptions, resulting in realized gains of $73,394,058.
At December 31, 2006 the aggregate gross unrealized appreciation and
depreciation of securities for federal income tax purposes were $2,029,724,548
and $12,958,957, respectively.
NOTE 4-- CAPITAL STOCK:
At December 31, 2005 there were 100,000,000 shares of $.10 par value
capital stock authorized. Transactions in capital stock were as follows:
<Table>
<Caption>
2006 2005
------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ ---------- -------------
Shares sold 561,045 $ 88,910,655 676,222 $ 103,672,116
Shares issued to stockholders on reinvestment of:
Net investment income -- -- -- --
Net realized gain on investments 1,776,306 270,251,108 1,281,840 198,753,650
--------- ------------ ---------- -------------
2,337,351 359,161,763 1,958,062 302,425,766
Shares repurchased 1,756,309 277,669,701 3,424,141 528,101,181
--------- ------------ ---------- -------------
Net increase / (decrease) 581,042 $ 81,492,062 (1,466,079) $(225,675,415)
========= ============ ========== =============
</Table>
<Page>
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, 2006 permanent differences primarily 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 $16,445,199 and undistributed net realized
gains of $75,594,555 with a corresponding increase in paid in surplus of
$59,149,356. These reclassifications had no effect on net assets.
The tax character of distributions paid during 2006 and 2005 was as
follows:
2006 2005
------------ ------------
Distributions paid from:
Ordinary income $ -- $ --
Long-term capital gains 340,945,549 245,091,727
------------ ------------
Total distributions $340,945,549 $245,091,727
============ ============
As of December 31, 2006, the components of distributable earnings on a tax
basis were as follows:
Undistributed long-term gain $ 126,058,241
Unrealized appreciation 2,016,765,591
--------------
$2,142,823,832
==============
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, 2006 was $242,010.
NOTE 7--NEW ACCOUNTING PRONOUNCEMENTS:
In June 2006, the Financial Accounting Standards Board issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an
Interpretation of FASB Statement No. 109" (the "Interpretation"). The
Interpretation establishes a minimum threshold for financial statement
recognition of the benefit of positions taken in filing tax returns and requires
certain expanded tax disclosures. The Interpretation is effective for fiscal
years beginning after December 15, 2006, and is to be applied to all open tax
years as of the date of effectiveness. Management has not yet determined the
implication of the Interpretation to the Fund and its impact on the Fund's
financial statements.
In addition, in September 2006, Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" (SFAS 157), was issued and is effective for
fiscal years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management has not yet determined the impact the
adoption of SFAS 157 will have on the Fund's financial statement disclosures.
<Page>
NOTE 8--FINANCIAL HIGHLIGHTS:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
Per Share Operating Performance (for
a share outstanding throughout
each year)
Net asset value, beginning of year $ 155.45 $ 154.27 $ 147.61 $ 126.63 $ 130.24
-------- -------- -------- -------- --------
Income from investment operations:
Net investment (loss)/income (0.70) (0.75) (0.58) (0.62) (0.41)
Net realized and unrealized gains
(losses) on investments 13.60 12.57 7.45 22.21 (3.03)
-------- -------- -------- -------- --------
Total from investment operations 12.90 11.82 6.87 21.59 (3.44)
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.00) (0.00) (0.00) (0.00) (0.01)
Distributions from net realized gains (15.60) (10.64) (0.21) (0.61) (0.16)
-------- -------- -------- -------- --------
Total distributions (15.60) (10.64) (0.21) (0.61) (0.17)
-------- -------- -------- -------- --------
Net asset value, end of year $ 152.75 $ 155.45 $ 154.27 $ 147.61 $ 126.63
======== ======== ======== ======== ========
Total Return 8.34% 7.78% 4.66% 17.12% -2.64%
Ratios/Supplemental data
Net assets, end of year (in millions) $3,599.8 $3,573.3 $3,772.4 $3,973.6 $3,905.1
Ratio to average net assets:
Expenses 1.0% 1.0% 1.0% 1.0% 1.0%
Net investment income (loss) -0.5% -0.5% -0.4% -0.5% -0.3%
Portfolio turnover rate 14% 8% 6% 3% 8%
</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, 2006, 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, 2006 by
correspondence with the custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 21, 2007
<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>
TERM OF OFFICE AND OTHER
POSITION HELD LENGTH OF TIME PRINCIPAL OCCUPATION DIRECTORSHIPS
NAME, AGE, AND ADDRESS WITH FUND SERVED DURING PAST 5 YEARS HELD BY DIRECTOR
- ------------------------ -------------------- ------------------ -------------------- ----------------
Richard T. Cunniff, 83 Vice Chairman & Term -- 1 Year & Vice Chairman & Sturm, Ruger &
767 Fifth Avenue Director Length of Time Director of Ruane, Company, Inc.
New York, NY 10153 served -- 36 Years Cunniff & Goldfarb
Inc.
Robert D. Goldfarb, 62 President & Director Term -- 1 Year & Chairman & Director None
767 Fifth Avenue Length of Time of Ruane, Cunniff &
New York, NY 10153 served -- 28 Years Goldfarb Inc.
David M. Poppe, 41 Executive Vice Term -- 1 Year & President & Director None
767 Fifth Avenue President & Director Length of Time of Ruane, Cunniff &
New York, NY 10153 served -- 3 Years Goldfarb Inc.
Joseph Quinones, Jr., 61 Vice President, Term -- 1 Year & Vice President, None
767 Fifth Avenue Secretary, Treasurer Length of Time Secretary, Treasurer
New York, NY 10153 & Chief Compliance served -- 11 Years & Chief Compliance
Officer Officer of Ruane,
Cunniff & Goldfarb
Inc.
Francis P. Matthews, 84 Director Term -- 1 Year & Retired None
767 Fifth Avenue Length of Time
New York, NY 10153 served -- 34 Years
C. William Neuhauser, 80 Director Term -- 1 Year & Retired None
767 Fifth Avenue Length of Time
New York, NY 10153 served -- 32 Years
Robert L. Swiggett, 84 Director -- Chairman Term -- 1 Year & Retired None
767 Fifth Avenue of the Board Length of Time
New York, NY 10153 served -- 36 Years
Sharon Osberg, 57 Director Term -- 1 Year & Consultant Internet None
767 Fifth Avenue Length of Time Mobile Technology
New York, NY 10153 served -- 3 Years
Roger Lowenstein, 52 Director Term -- 1 Year & Writer major None
767 Fifth Avenue Length of Time Financial and News
New York, NY 10153 served -- 8 Years Publications
Vinod Ahooja, 55 Director Term -- 1 Year & Retired None
767 Fifth Avenue Length of Time
New York, NY 10153 served -- 6 Years
</Table>
<Page>
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>
SEQUOIA FUND, INC.
767 FIFTH AVENUE, SUITE 4701
NEW YORK, NEW YORK 10153-4798
WEBSITE: www.sequoiafund.com
DIRECTORS
Richard T. Cunniff
Robert D. Goldfarb
David M. Poppe
Vinod Ahooja
Roger Lowenstein
Francis P. Matthews
C. William Neuhauser
Sharon Osberg
Robert L. Swiggett, Chairman of the Board
OFFICERS
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, and also made available on the
Fund's website at: http://www.sequoiafund.com/code_of_ethics.htm. 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, 2006 December 31, 2005
----------------- -----------------
Audit Fees $49,000 $45,000
Audit-Related Fees n/a n/a
Tax Fees $8,000 $4,500
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 $58,300 and $75,000, 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. SCHEDULE OF INVESTMENTS - INCLUDED IN ITEM 1, REPORTS TO STOCKHOLDERS
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 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.
(b) 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 12. 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 28, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Robert D. Goldfarb
------------------------------
Robert D. Goldfarb
President and Principal Executive Officer
Date: February 28, 2007
By: /s/ Joseph Quinones, Jr.
---------------------------
Joseph Quinones, Jr.
Vice President, Secretary, Treasurer
Date: February 28, 2007