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, 2009
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ITEM 1. REPORTS TO STOCKHOLDERS.
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ANNUAL REPORT
DECEMBER 31, 2009
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SEQUOIA FUND, INC.
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
WITH INCOME DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS REINVESTED 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, 2009. 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
Dec. 31, 2007 139,120 1,713,258 342,768 2,195,146
Dec. 31, 2008 95,270 1,265,238 241,397 1,601,905
Dec. 31, 2009 109,900 1,459,533 278,860 1,848,293
The total amount of capital gains distributions reinvested in shares was
$1,413,907, the total amount of dividends reinvested was $124,788.
No adjustment has been made for any taxes payable by shareholders on capital
gain distributions and dividends reinvested in shares.
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TO THE SHAREHOLDERS OF SEQUOIA FUND, INC.
Dear Shareholder:
Sequoia Fund's results for the quarter and year ended December 31, 2009
appear below with comparable results for the leading market index:
TO DECEMBER 31, 2009 SEQUOIA FUND STANDARD & POOR'S 500*
------------ ----------------------
Fourth Quarter 0.63% 6.04%
1 Year 15.38% 26.46%
5 Years (Annualized) 1.28% 0.42%
10 Years (Annualized) 5.37% -0.95%
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.
* THE S&P 500 INDEX IS AN UNMANAGED, CAPITALIZATION-WEIGHTED INDEX OF THE
COMMON STOCKS OF 500 MAJOR US CORPORATIONS. 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.
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The Fund significantly underperformed the S&P 500 Index for both the fourth
quarter and the year, as the stock market rebounded vigorously from its lows in
March and seemed by year-end to anticipate a full-throttled recovery from the
financial crisis that caused the worst recession in this country in 70 years.
After a horrible year in 2008, when the Index lost 37.0% of its value, the first
quarter of 2009 began ominously, with the Index declining another 10.9%.
Sequoia, meanwhile, lost 27.0% of its value in 2008 and another 8.4% in the
first quarter of 2009.
Subsequently, the market rose 42.0% over the next nine months, while
Sequoia lagged, rising 25.9%. Altogether the Fund's trough was shallower than
the market decline but our bounce off the bottom was less pronounced.
Ultimately, the Fund lost 15.81% of its value over two years while the S&P Index
lost 20.33%.
The federal government's massive intervention in the economy staved off
what might well have been another Depression. As financial institutions were
recapitalized, investors grew more confident the banking system would not
collapse and, not incidentally, Wall Street was flooded with cheap capital. Not
surprisingly, the price of stocks soared. Still, we found aspects of the rally
curious. The stocks that performed best in 2009 often seemed to have depressed
earnings, or no earnings, and no prospects of imminent recovery. The Fund owned
its share of cyclical companies with collapsing earnings, including Martin
Marietta Materials, Mohawk, Caterpillar and Cummins. As the rally in cyclical
stocks intensified, we sold a portion or, in some cases, all of these positions.
Meanwhile, the stocks that performed worst in 2009 often had stable,
predictable earnings and strong balance sheets. Wal-Mart's earnings rose during
the year but its stock price declined. Berkshire Hathaway's balance sheet is so
strong that in the depths of the crisis some of the country's best-known
corporations turned to it for financing. Yet investors accorded it little
respect. Berkshire shares declined 31.8% in 2008 and barely rebounded in 2009,
rising 2.7%.
Berkshire has an extremely diverse stream of earnings, with roughly half
tied to economically insensitive businesses like insurance and utilities. The
market generally discounted these kinds of stable earnings last year. But
Berkshire also gets about half its earnings in normal times from a number of
cyclical businesses that should enjoy substantial earnings growth as the economy
recovers. The market bid up all manner of cyclicals last year, but not
Berkshire.
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Berkshire's decision to sell equity option puts in 2008 put it at financial risk
if world equity markets suffered severe long-term price declines. This led to
anxiety during the crisis. As stock prices rose in 2009, those equity puts began
to look like winners. Again, this wasn't reflected in Berkshire's share price.
In any event, Berkshire began 2009 as 22.8% of the Fund's portfolio and its weak
performance was a major factor in the Fund's lagging result.
The second important reason for our 2009 underperformance was the Fund's
large cash balance. For the year, cash averaged 16.5% of the Fund's assets. It
was not our goal to hold this much cash. In fact, we purchased 10 new positions
during the year, which qualifies as a lot for us. But we were too tentative in
allocating capital and failed to invest enough in new ideas to offset our
consistent sales of cyclical stocks. The Berkshire and cash positions amounted
to nearly 40% of the Fund's assets when the year began and account for nearly
all of the Fund's underperformance in 2009.
Given the low stock prices available at the bottom of the market last
spring and the subsequent ferocity of the rally our failure to deploy capital
warrants criticism. We found plenty of good ideas, but we were extremely
cautious buyers and sometimes ended up with tiny positions in stocks like
Canadian Natural Resources, Mettler-Toledo and Verisk that we purchased near
52-week lows (Verisk was an initial public offering and we were allocated a
minuscule number of shares. The stock opened well above the IPO price). These
three performed very well after our purchases, but at year-end amounted to just
0.3% of the Fund's assets. In retrospect, we should have paid higher prices to
own more shares of Canadian Natural or Mettler-Toledo.
Our larger purchases included Advance Auto Parts, Becton Dickinson,
Omnicom, Praxair, Precision Castparts and W.R. Berkley. To be sure, some of
these businesses suffered earnings declines in 2009, but in nearly every case we
paid a low multiple of our estimate of 2009 earnings. Omnicom, for example, saw
earnings per share decline from $3.14 in 2008 to $2.53 in 2009, down 19%. The
Fund paid $25.03 for shares in the business. The world's largest advertising
agency network, Omnicom generates enormous amounts of free cash flow and
requires very little capital reinvestment. We paid a low multiple of trough
earnings and, more importantly, of free cash flow. We are pleased with the
performance so far of the 'Class of 2009' and already regret not buying more
shares at the prices offered to us last year.
We think the new additions to Sequoia will generate more predictable cash
flows than the positions we exited with less economic sensitivity. Importantly,
we believe demand across the U.S. economy is currently bolstered by a need to
restock inventories after a dramatic destocking last year. That phenomenon
creates a temporary burst of economic activity, but once inventories reach
equilibrium we are not sure natural demand will be strong enough to propel the
kind of earnings recovery the market seems to expect. Caterpillar, for example,
says that in a strong economic environment it should earn $8 to $10 per share.
Management suggests this could happen as soon as 2012. For 2010, however,
Caterpillar expects to earn about $2.50 per share amid anemic demand. With the
stock price above $50 recently, investors seem to believe a demand-driven
recovery is coming fairly soon. While we have great respect for the CAT
franchise, we do not expect strong demand for CAT machines and engines by 2012
and this informed our decision to sell the stock. We made a similar decision to
reduce our exposure to Cummins Engine, Knight Transportation, Martin Marietta
Materials and Mohawk Industries. We believe earnings will recover for these
businesses, but question whether the magnitude of recovery will justify the
prices at which we sold shares.
Perhaps counter intuitively, some of our best performing positions in 2009
were retailers. While high unemployment, declining home prices and tighter
credit continue to weigh on the U.S. consumer, the Fund tends to favor retailers
with extremely strong value propositions, including TJX, Wal-Mart, Target and
Costco. These value-oriented stores for the most did well in 2009.
As of this writing, TJX has not reported full-year results, but earnings
per share likely rose 45%-50% for the year. The stock returned more than 80%,
including the dividend. Yet TJX still trades for a forward price-to-earnings
multiple of less than 13 times, well below the multiple for the Index overall.
It is one of very few retailers aggressively opening stores right now and it has
a huge budget for buying back stock in 2010.
<Page>
Target shares rose 40% in 2009 as its earnings soundly exceeded
expectations. While Target suffered from weak customer traffic all year, it
managed expenses exceptionally well and by year-end started to see renewed
shopper interest. Its stock also trades well below the market multiple. As
mentioned, Wal-Mart generated a predictable earnings increase in the high-single
digits and saw its stock decline a bit. With a tremendous competitive position
in all three North American countries and a growing overseas business, Wal-Mart
trades for 13.5 times the consensus 2010 earnings estimate, which calls for 10%
growth. In an uncertain world, this price seems quite attractive.
We get a good question from time to time asking why we don't simply own
blue chips. Clearly, stocks like Johnson & Johnson, Procter & Gamble, Coca-Cola
and Exxon are attractive relative to the Index. Our stock selection tends to be
driven by research, and we strongly prefer to own businesses where we believe --
not always correctly -- that we have an edge in information. Simply put, we try
to know more about our portfolio companies than other investors do. That helps
us make good decisions. We don't own many mega-cap businesses in large part
because we don't think we could have an advantage in research. Johnson & Johnson
has 22 businesses that generate more than $1 billion a year in revenue. It would
be nearly impossible for us to know more than "Mr. Market" does about JNJ, and
so we tend to avoid the stock (we avoid technology stocks for similar set of
reasons). This is not a commentary on JNJ so much as on our investment process.
Even when blue chips are tempting, we know that our discipline has helped us
avoid mistakes over the years. We might in the future own specific blue chip
stocks, just as we own Berkshire or Wal-Mart, but we probably won't ever buy a
basket of stocks because they appear cheap.
Looking ahead, we believe we have positioned Sequoia to perform well in an
uncertain world. If the U.S. economy turns robust, our reduced exposure to
cyclical stocks, avoidance of leveraged financial companies and large cash
balance could all hurt performance. But most of the positions in the portfolio
today generate high returns on capital even in weak economic environments. They
generate free cash flows sufficient to self-fund growth and then return excess
cash to owners in the form of dividends or repurchase. Most of our companies are
gaining market share in their industries. We continue to believe that we are
with few exceptions invested alongside high quality management teams.
While our 2009 results were disappointing, we know that a concentrated
portfolio of stocks will not track the results of the S&P Index closely from
year to year. Over time, a well selected portfolio should outperform the Index.
We believe the current portfolio will generate satisfactory future returns for
Sequoia shareholders.
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 12, 2010
THE RUANE, CUNNIFF & GOLDFARB INC./SEQUOIA FUND, INC. ANNUAL INVESTOR DAY WILL
BE HELD AT 10A.M., NEW YORK CITY TIME, ON FRIDAY, MAY 14, 2010 AT THE ST. REGIS
HOTEL, TWO EAST 55TH STREET, NEW YORK, NEW YORK 10022.
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MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE (UNAUDITED)
The total return for the Sequoia Fund was 15.4% in 2009. This compares with
the 26.5% return of the S&P 500. 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 the performance of the Fund may vary
significantly from that of the broad market indices.
The table below shows the 12-month stock total return for the Fund's major
positions at the end of 2009.
% OF ASSETS TOTAL % OF ASSETS
POSITION 12/31/09 RETURN 12/31/08
- -------- ----------- ------ -----------
Berkshire Hathaway 20.2% 2.7% 22.8%
Idexx Laboratories 6.8% 48.1% 5.3%
TJX 6.3% 80.5% 4.1%
Fastenal 5.1% 21.9% 5.7%
Mohawk 4.4% 10.8% 5.7%
Martin Marietta 4.0% -6.1% 6.9%
The lower relative performance in 2009 vs. the Index was driven largely by
two factors: 1) the Fund's large cash position throughout the year, which
averaged 16.5% of the portfolio during the period and produced a negligible
return; and 2) the Fund's large investment in Berkshire Hathaway, which averaged
21.6% of the portfolio during the period and generated a modest 2.7% return.
The last twelve months have been eventful for Berkshire Hathaway. After
seeing the value of its equity portfolio and book value severely pressured in
the first quarter, it likely finished the year with $85,000 per share of book
value and $94,000 of securities per share, both records. It purchased a 10%
share of BYD, the fastest growing and fourth largest auto manufacturer in China,
quadrupling the value of its investment in a matter of months. It announced the
largest acquisition in corporate history -- a $26 billion buyout of the 77% of
Burlington Northern that it didn't already own -- adding another wholly owned
large business with a deep and durable competitive moat to its portfolio. During
the tight credit conditions of the first quarter, Berkshire privately negotiated
$4 billion of high-yielding loans with strong corporate borrowers such as
Tiffany, Harley Davidson, Sealed Air, Swiss Re, and Vulcan Materials. Berkshire
replaced the CEO of its troubled fractional jet subsidiary and aims to return
that unit to profitability as soon as this year. And in one of the worst years
for the US and global economy, it managed to post look through earnings of about
$10 billion, as solid results from its large stable of recession resistant
businesses kept overall earnings healthy. In 2010 and 2011, we expect continued
steady results from those businesses while the more cyclical businesses, whose
earnings were compressed in 2009, should see a profit rebound, driving
double-digit annual earnings growth for Berkshire over the next two years.
Pet spending by consumers was affected by the global recession in 2009,
impacting Idexx's customer base of veterinarians. While veterinary clinic
revenues grew in the mid-to-high single digits for most of the last decade, they
declined about 2% last year. Despite this weakness in its core companion animal
health market, Idexx still grew its overall revenues 5% in 2009 (after adjusting
for currency changes and the divestment of its pharmaceutical business in 2008).
This was driven by relatively strong results in the company's companion animal
instruments business, helped by the launch of the company's new Catalyst Dx
in-clinic blood chemistry analyzer, and reference laboratory services business.
Earnings at Idexx grew 6% in 2009.
A year ago we worried that the weak economy would pressure earnings at TJX
in 2009. We couldn't have been more wrong. After a modest start to the year, TJX
quickly gained momentum. It received increasingly good deals on branded
merchandise from vendors, enabling it to offer exceptional values to shoppers.
Growth in customer traffic accelerated as the year progressed, and it appears
TJX will report an earnings increase of nearly 50% for 2009, including a gain of
more than 90% for the fourth quarter. The stock returned 80% this year, but
remains attractively priced at roughly 13 times the estimate of 2010 earnings.
TJX has an extremely strong balance sheet and ample free cash flows, which
should allow it to grow its store base by about 5% in 2010 while also buying
back $1 billion in stock.
<Page>
In late 2008 and much of 2009, falling industrial production resulted in a
sharp contraction in demand for Fastenal's products, which caused the company's
earnings to decline for the first time since 2001. Fastenal management responded
with admirable alacrity by slowing new store growth, reducing headcount, and
reining in other costs. Despite its cyclical exposure, Fastenal remains a
secular growth company, and management is already responding to the easing of
pressures in the industrial economy. In December 2009, Fastenal opened 15 new
stores, more than the combined total for the previous six months.
Management at Mohawk Industries continued to manage well through the very
difficult conditions in its end markets. During 2009, the company further
reduced its work force, managed its expenses tightly, and cut its working
capital. While the company reported losses during the year, in large part due to
charges from restructuring actions and asset write downs, the free cash it
produced rose smartly. Management used the cash to invest judiciously in the
business and pay down debt. As a result, Mohawk entered 2010 with a sturdier
capital structure, promising new products, and more efficient manufacturing
operations. While the commercial construction and remodeling business continues
to be weak, the residential housing market, Mohawk's largest source of demand,
appears to have bottomed out.
Demand for crushed stone and sand in the United States continued to decline
in 2009, which reduced Martin Marietta's shipment volume by 22.6% and
significantly impacted the company's earnings. Martin Marietta owns well located
quarries that generally face limited competition, and as a result the company
managed to raise prices by an average of 2%, even while facing the most severe
contraction in demand for aggregate this country has seen since the Great
Depression. However, production levels in the industry are now far below
capacity, and we expect that both pricing and earnings will remain under
pressure until construction activity normalizes. We reduced the size of this
position during the year but continue to believe Martin Marietta owns an
irreplaceable collection of quarries that should generate earnings for many
decades.
Porsche's core business sold 75,000 cars and earned a 10% operating margin
in 2010, making it once again the world's most profitable car maker. But
Porsche's relatively good results were a sideshow compared to the drama
involving Volkswagen. Porsche intended to take over Volkswagen and accumulated
options that would give it 75% control of a company ten times its size. Porsche
borrowed heavily to buy the options and, after the car market crashed, it lacked
the wherewithal to pay off its debt. Unable to find a partner to assist it with
financing the takeover, it chose to surrender to Volkswagen rather than unwind
its ownership stake. It sold half of its car making business to Volkswagen and
agreed to sell the rest, as well as some other assets, in 2011. If the merger
goes through as planned, Porsche shareholders should end up with about 30%
ownership of Volkswagen. We certainly never invested in Porsche in the hopes
that our stock in one of the world's great brands would one day convert to an
interest in a volume car company. But Volkswagen was the world's most profitable
volume car maker in 2009 and in a recovery its earnings should grow rapidly. The
current price of Porsche seems to discount any hope of a recovery at Volkswagen.
Precision Castparts is a global maker of complex metal components
(including castings, forgings and fasteners) that are used in aerospace, power
generation and other industrial applications. Aerospace is the company's largest
end market and, in 2009, in anticipation of a decline in aircraft builds,
aerospace suppliers reduced orders to those further down the supply chain. Since
Precision's sales foreshadow aircraft builds by 6-12 months, the company
experienced a steep decline in revenues. But its results defied gravity thanks
to cost cutting and efficiency gains that pushed the recent operating margin to
an all-time high of close to 26%. Consensus earnings expectations are for
earnings to fall only 10% in the current fiscal year (ending March 31, 2010).
Inventory destocking has run its course and normalized order patterns should
combine with incremental orders from Boeing's new 787 to bring improved earnings
in fiscal 2011. Precision's other markets also showed weakness although sales of
seamless extruded pipes to Chinese makers of power plants held up because of a
strong
<Page>
backlog. Precision made two major acquisitions in recent months that strengthen
its competitive position. It bought Carlton Forge, a leader in ring rolled
forging for the aerospace industry, and a 49% interest in Chengdu, a Chinese
maker of boiler pipe.
Rolls-Royce performed well in a tough civil aviation market in 2009,
growing its order book, revenue and earnings. Rolls' civil aerospace business
posted stable results with higher engine deliveries offsetting lower aftermarket
revenues. The company's non-civil aerospace businesses continued to perform
strongly, with exceptional revenue and profit growth in the company's energy
businesses and strong growth in its defense aerospace and marine businesses.
We made a number of new investments in 2009, including Advance Auto Parts,
Becton Dickinson, Canadian Natural Resources, Mettler Toledo, Omnicom, Praxair,
Precision Castparts, Verisk Analytics and W.R. Berkley. With the exception of
Advance Auto Parts and Precision Castparts, each of these was a relatively small
investment (about 1% or less). Advance Auto Parts is a distributor of automotive
aftermarket products to the consumer and commercial markets. The company
operates over 3,300 stores in the U.S. and should benefit from the growing
desire of many Americans to drive their cars longer than in the past.
<Page>
Comparison of a change in value of a $10,000 Investment in Sequoia Fund and the
S&P 500 Index*
[CHART]
* THE S&P 500 INDEX IS AN UNMANAGED, CAPITALIZATION-WEIGHTED INDEX OF THE
COMMON STOCKS OF 500 MAJOR US CORPORATIONS.
SECTOR BREAKDOWN (UNAUDITED)
PERCENT OF
AS OF DECEMBER 31, 2009 NET ASSETS
- ----------------------- ----------
Diversified Companies 20.23
U.S. Government Obligations 15.17
Retailing 13.16
Aerospace/Defense 7.02
Veterinary Diagnostics 6.78
Industrial & Construction Supplies 5.05
Building Materials 4.80
Auto Parts 4.44
Flooring Products 4.41
Automotive Manufacturing 3.78
Information Processing 2.66
Freight Transportation 1.89
Advertising 1.27
Miscellaneous Securities 1.24
Construction Equipment 1.19
Healthcare 1.15
Printing 1.06
Truck Manufacturing 1.06
Industrial Gases 1.01
Other 2.63
------
100.00
======
<Page>
FEES AND EXPENSES OF THE FUND
(UNAUDITED)
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES (fees paid directly from your investment)
The Fund does not impose any sales charges, exchange fees or redemption fees.
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
ANNUAL FUND OPERATING EXPENSES
Management Fees 1.00%
Other Expenses 0.05%
----
Total Annual Fund Operating Expenses 1.05%
Expense Reimbursement* 0.04%
----
Net Expenses 1.01%
====
* REFLECTS RUANE, CUNNIFF & GOLDFARB INC.'S ("RUANE, CUNNIFF & GOLDFARB")
CONTRACTUAL REIMBURSEMENT OF A PORTION OF THE FUND'S OPERATING EXPENSES.
THIS REIMBURSEMENT IS A PROVISION OF RUANE, CUNNIFF & GOLDFARB'S INVESTMENT
ADVISORY AGREEMENT WITH THE FUND AND THE REIMBURSEMENT WILL BE IN EFFECT
ONLY SO LONG AS THAT INVESTMENT ADVISORY AGREEMENT IS IN EFFECT.
----------
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, 2009 to December 31, 2009).
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, 2009
ACCOUNT VALUE TO
VALUE DECEMBER 31, DECEMBER 31,
JULY 1, 2009 2009 2009
------------ ------------ ------------
Actual $1,000 $1,129.30 $5.42
Hypothetical (5% return per year
before expenses) $1,000 $1,020.11 $5.14
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.01%,
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, 2009
COMMON STOCKS (84.74%)
VALUE
SHARES (NOTE 1)
- ------------ --------------
ADVERTISING (1.27%)
933,743 Omnicom Group Inc. $ 36,556,038
--------------
AEROSPACE/DEFENSE (7.02%)
947,406 Precision Castparts Corp. 104,546,252
12,376,114 Rolls-Royce Group plc (United Kingdom) 96,694,579
--------------
201,240,831
--------------
AUTO PARTS (4.44%)
1,549,400 Advance Auto Parts, Inc. 62,719,712
1,694,139 O'Reilly Automotive Inc. * 64,580,579
--------------
127,300,291
--------------
AUTOMOTIVE MANUFACTURING (3.78%)
1,729,657 Porsche Automobil Holding SE (Germany) (a) 108,292,095
--------------
BUILDING MATERIALS (4.80%)
1,293,000 Martin Marietta Materials Inc. 115,607,130
418,626 Vulcan Materials Company 22,049,031
--------------
137,656,161
--------------
CONSTRUCTION EQUIPMENT (1.19%)
1,520,736 Ritchie Bros. Auctioneers Incorporated 34,110,108
--------------
CRUDE OIL & GAS PRODUCTION (0.23%)
89,754 Canadian Natural Resources Limited 6,457,800
--------------
DIVERSIFIED COMPANIES (20.23%)
5,776 Berkshire Hathaway Inc. Class A * 572,979,200
2,220 Berkshire Hathaway Inc. Class B * 7,294,920
--------------
580,274,120
--------------
DIVERSIFIED MANUFACTURING (1.00%)
382,832 Danaher Corporation 28,788,966
--------------
FLOORING PRODUCTS (4.41%)
2,657,723 Mohawk Industries Inc. * 126,507,615
--------------
FREIGHT TRANSPORTATION (1.89%)
1,560,933 Expeditors International Inc. 54,211,203
--------------
HEALTHCARE (1.15%)
418,000 Becton, Dickinson and Company 32,963,480
--------------
<Page>
VALUE
SHARES (NOTE 1)
- ------------ --------------
INDUSTRIAL & CONSTRUCTION SUPPLIES (5.05%)
3,475,384 Fastenal Company $ 144,714,990
--------------
INDUSTRIAL GASES (1.01%)
359,017 Praxair, Inc. 28,832,655
--------------
INFORMATION PROCESSING (2.66%)
298,457 MasterCard Inc. 76,399,023
--------------
INSURANCE BROKERS (0.70%)
1,124,830 Brown & Brown Inc. 20,213,195
--------------
LABORATORY SUPPLIES (0.07%)
19,247 Mettler-Toledo International Inc. * 2,020,743
--------------
PRINTING (1.06%)
1,912,072 De La Rue plc (United Kingdom) 30,526,229
--------------
PROPERTY AND CASUALTY INSURANCE (0.54%)
605,000 W. R. Berkley Corporation 14,907,200
21,000 Verisk Analytics, Inc. * 635,880
--------------
15,543,080
--------------
RETAILING (13.16%)
39,666 Costco Wholesale Corporation 2,347,037
1,368,875 Target Corporation 66,212,484
4,934,190 TJX Companies, Inc. 180,344,645
2,112,783 Walgreen Company 77,581,392
949,032 Wal-Mart Stores, Inc. 50,725,760
--------------
377,211,318
--------------
TRUCK MANUFACTURING (1.06%)
838,277 PACCAR Inc. 30,404,307
--------------
VETERINARY DIAGNOSTICS (6.78%)
3,636,178 Idexx Laboratories Inc. + * 194,317,352
--------------
Miscellaneous Securities (1.24%) (b) 35,586,689
--------------
TOTAL COMMON STOCKS (Cost $1,517,261,928) $2,430,128,289
--------------
<Page>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- ------------ --------------
U.S. GOVERNMENT OBLIGATIONS (15.17%)
$435,000,000 U.S. Treasury Bills, 0.005% due 2/18/2010 through
2/25/2010 $ 434,996,789
--------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $434,996,789) 434,996,789
--------------
TOTAL INVESTMENTS (99.91%)
(Cost $1,952,258,717)++ 2,865,125,078
OTHER ASSETS LESS LIABILITIES (0.09%) 2,646,885
--------------
NET ASSETS (100.00%) $2,867,771,963
==============
- ----------
+ Refer to Note 7.
++ The cost for federal income tax purposes is identical.
* Non-income producing.
(a) The Fund is invested in preference shares of Porsche Automobil Holding SE
which possess the same economic interest as Porsche common stock but have
no voting rights.
(b) "Miscellaneous Securities" include holdings in their initial period of
acquisition that have not previously been publicly disclosed.
Various inputs are used in determining the value of the Fund's investments.
These inputs are summarized in the three broad levels listed below:
Level 1 - quoted prices in active markets for identical securities
Level 2 - other significant observable inputs (including quoted prices for
similar securities, interest rates, prepayment speeds, credit
risk, etc.)
Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities.
The following is a summary of the inputs used to value the Fund's investments as
of December 31, 2009:
U.S. GOVERNMENT
VALUATION INPUTS COMMON STOCKS OBLIGATIONS TOTAL
- ---------------- -------------- --------------- --------------
Level 1 - Quoted Prices $2,430,128,289 -- $2,430,128,289
Level 2 - Other Significant
Observable Inputs * -- $434,996,789 434,996,789
-------------- ------------ --------------
Total $2,430,128,289 $434,996,789 $2,865,125,078
============== ============ ==============
* REPRESENTS U.S. TREASURY BILLS WITH REMAINING MATURITIES OF 60 DAYS OR LESS
WHICH ARE VALUED AT THEIR AMORTIZED COST.
The accompanying notes form an integral part of these Financial Statements.
<Page>
SEQUOIA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2009
ASSETS
Investments in securities, at value (Note 1)
Unaffiliated companies (cost $1,861,102,327) $2,670,807,726
Affiliated companies (cost $91,156,390) (Note 7) 194,317,352
--------------
Total investments in securities (cost $1,952,258,717) 2,865,125,078
Cash on deposit with custodian 1,259,453
Receivable for capital stock sold 1,524,833
Dividends receivable 2,341,204
Receivable for investment securities sold 1,543,404
Other assets 35,555
--------------
Total assets 2,871,829,527
--------------
LIABILITIES
Payable for capital stock repurchased 814,349
Payable for investment securities purchased 650,911
Accrued investment advisory fee 2,426,268
Accrued other expenses 166,036
--------------
Total liabilities 4,057,564
--------------
Net assets applicable to 26,095,503 shares of capital stock
outstanding (Note 4) $2,867,771,963
==============
Net asset value, offering price and redemption price per share $ 109.90
==============
NET ASSETS CONSIST OF
Capital (par value and paid in surplus) $.10 par value
capital stock, 100,000,000 shares authorized $2,022,784,060
Accumulated net realized losses on investments (Note 5) (67,878,458)
Unrealized appreciation 912,866,361
--------------
Total Net Assets $2,867,771,963
==============
The accompanying notes form an integral part of these Financial Statements.
<Page>
SEQUOIA FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2009
INVESTMENT INCOME
Income
Dividends, net of $996,884 foreign tax withheld $ 25,685,066
Interest 585,466
------------
Total income 26,270,532
------------
Expenses
Investment advisory fee (Note 2) 25,947,249
Legal and auditing fees 204,083
Stockholder servicing agent fees 520,999
Custodian fees 80,000
Directors fees and expenses (Note 6) 255,399
Other 181,270
------------
Total expenses 27,189,000
Less expenses reimbursed by Investment Adviser (Note 2) 1,091,000
------------
Net expenses 26,098,000
------------
Net investment income 172,532
------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Realized gain on
Investments
Unaffiliated companies 7,155,159
Affiliated companies (Note 7) 296,217
Foreign currency transactions 202,173
------------
Net realized gain on investments and foreign
currencies 7,653,549
------------
Net increase in unrealized appreciation on
Investments
Unaffiliated companies 307,991,811
Affiliated companies (Note 7) 62,977,969
------------
Net increase in unrealized appreciation on investments 370,969,780
------------
Net realized and unrealized gain on investments and
foreign currencies 378,623,329
------------
Net increase in net assets from operations $378,795,861
============
The accompanying notes form an integral part of these Financial Statements.
<Page>
SEQUOIA FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
--------------------------------
2009 2008
-------------- ---------------
INCREASE/(DECREASE) IN NET ASSETS
From operations
Net investment income $ 172,532 $ 10,236,582
Net realized gain on investments and
foreign currencies 7,653,549 239,644,000
Net increase (decrease) in unrealized
appreciation on investments 370,969,780 (1,186,236,559)
-------------- ---------------
Net increase (decrease) in net
assets from operations 378,795,861 (936,355,977)
Distributions to shareholders from
Net investment income (582,316) (10,628,918)
Net realized gains (5,604) (168,718,205)
Capital share transactions (Note 4) 3,371,424 88,409,150
-------------- ---------------
Total increase (decrease) 381,579,365 (1,027,293,950)
NET ASSETS
Beginning of period 2,486,192,598 3,513,486,548
-------------- ---------------
End of period (including undistributed net
investment income of $0 and $180,925,
respectively) $2,867,771,963 $ 2,486,192,598
============== ===============
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. (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 under the supervision of 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 the NASDAQ Official
Closing Price on the last business day of the period; securities traded in
the over-the-counter market and listed securities for which no sale was
reported on that date are valued at the mean between the last reported bid
and asked prices.
Securities traded on a foreign exchange are valued at the last reported
sales price on the principal exchange on which the security is primarily
traded. The value is then converted into its U.S. dollar equivalent at the
foreign exchange rate in effect at the close of the New York Stock Exchange
on that day.
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.
When reliable market quotations are insufficient or not readily available
at time of valuation or when the Investment Adviser determines that the
prices or values available do not represent the fair value of a security,
such security is valued as determined in good faith by the Investment
Adviser, in conformity with guidelines adopted by and subject to review by
the Board of Directors.
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.
<Page>
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 of
America 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 are recorded by the Fund on the
ex-dividend date.
F. INDEMNIFICATION: The Fund's officers, directors and agents are indemnified
against certain liabilities that may arise out of performance of their
duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification
clauses. The Fund's maximum exposure under these arrangements is unknown as
this would involve future claims that may be made against the Fund that
have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts and expects the risk of loss thereunder to be
remote.
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, 2009 and the Investment Adviser reimbursed the Fund $1,091,000.
Such reimbursement is not subject to recoupment by the Investment Adviser.
For the year ended December 31, 2009, there were no amounts accrued or paid
to interested persons, including officers and directors, other than advisory
fees of $25,947,249 to Ruane, Cunniff & Goldfarb Inc. and brokerage commissions
of $391,202 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,
2009.
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, 2009 were $318,789,920 and $310,351,737, respectively. Included in proceeds
of sales is $78,607,277 representing the value of securities disposed of in
payment of redemptions in-kind, resulting in realized gains of $56,678,988.
At December 31, 2009 the aggregate gross tax basis unrealized appreciation
and depreciation of securities were $1,064,223,733 and $151,357,372,
respectively.
<Page>
NOTE 4--CAPITAL STOCK
At December 31, 2009 there were 100,000,000 shares of $.10 par value
capital stock authorized. Transactions in capital stock for the years ended
December 31, 2009 and 2008 were as follows:
<Table>
<Caption>
2009 2008
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ --------- ------------
Shares sold 3,033,183 $296,063,317 2,890,902 $341,191,851
Shares issued to stockholders on reinvestment of
Net investment income 4,351 463,286 81,004 7,832,313
Net realized gains on investments 35 3,490 1,157,417 128,898,150
--------- ------------ --------- ------------
3,037,569 296,530,093 4,129,323 477,922,314
Shares repurchased 3,039,271 293,158,669 3,287,506 389,513,164
--------- ------------ --------- ------------
Net increase (decrease) (1,702) $ 3,371,424 841,817 $ 88,409,150
========= ============ ========= ============
</Table>
NOTE 5--FEDERAL INCOME TAXES
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, 2009 permanent differences primarily due to
realized gains on redemptions in kind not recognized for tax purposes and
different book and tax treatment of net realized gains on foreign currency
transactions resulted in a net decrease in undistributed net realized gains of
$56,904,161 with a corresponding increase in paid in surplus of $56,675,302, and
an increase to undistributed net investment income of $228,859. These
reclassifications had no effect on net assets.
The tax character of distributions paid during 2009 and 2008 was as
follows:
2009 2008
-------- ------------
Distributions paid from
Ordinary income $583,480 $ 10,628,918
Long-term capital gains 4,440 168,718,205
-------- ------------
Total distributions $587,920 $179,347,123
======== ============
As of December 31, 2009, the components of distributable earnings on a tax
basis were as follows:
Undistributed ordinary income $ --
Capital loss carryovers (61,261,516)
Deferred post-October losses (6,616,942)
Unrealized appreciation 912,866,361
------------
$844,987,903
============
The difference between book basis and tax basis distributions is a result
of different book and tax treatments of short-term capital gain distributions.
As of December 31, 2009, the Fund had $61,261,516 of capital loss carryforwards
for federal income tax purposes. These capital loss carryforwards may be
utilized in future years to offset net realized capital gains, if any, prior to
distributing such gains to shareholders and expire December 31, 2017. The Fund
had net realized losses of $6,616,942 during the period November 1, 2009
<Page>
through December 31, 2009, which are treated for federal income tax purposes as
arising during the Fund's tax year ending December 31, 2010. These
"post-October" losses may be utilized in future years to offset net realized
capital gains, if any, prior to distributing such gains to shareholders.
The Fund recognizes the tax benefits or expenses of uncertain tax positions
only when the positions are "more likely than not" to be sustained assuming
examination by tax authorities. Management has reviewed the Fund's tax positions
taken on federal income tax returns for all open years (tax years ended December
31, 2006 through December 31, 2009) and has concluded that no provision for
unrecognized benefits or expenses is required in these financial statements.
NOTE 6--DIRECTORS FEES AND EXPENSES
Directors who are not deemed "interested persons" receive fees of $10,000
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, 2009 was $255,399.
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, 2009 aggregated $194,317,352 and $91,156,390, respectively. The
summary of transactions for each affiliate during the period of their
affiliation for the year ended December 31, 2009 is provided below:
PURCHASES SALES
------------- ----------------- REALIZED DIVIDEND
AFFILIATE SHARES COST SHARES COST GAIN INCOME
- --------- ------ ---- ------ -------- -------- --------
Idexx Laboratories Inc. -- -- 9,956 $213,132 $296,217 --
NOTE 8--SUBSEQUENT EVENTS
Accounting principles generally accepted in the United States of America
require the Fund to recognize in the financial statements the effects of all
subsequent events that provide additional evidence about conditions that existed
as of the date of the Statement of Assets and Liabilities. For non-recognized
subsequent events that must be disclosed to keep the financial statements from
being misleading, the Fund is required to disclose the nature of the event as
well as an estimate of its financial effect, or a statement that such an
estimate cannot be made. Management has evaluated subsequent events through the
issuance of these financial statements on February 17, 2010 and has noted no
such events.
NOTE 9--NEW ACCOUNTING PRONOUNCEMENT
In January 2010, the Financial Accounting Standards Board issued Accounting
Standards Update ("ASU") No. 2010-06 "Improving Disclosures about Fair Value
Measurements." ASU No. 2010-06 clarifies existing disclosure and requires
additional disclosures regarding fair value measurements. Effective for interim
and annual reporting periods beginning after December 15, 2009, entities will be
required to disclose significant transfers into and out of Level 1 and 2
measurements in the fair value hierarchy and the reasons for those transfers.
Effective for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years, entities will need to disclose information
about purchases, sales, issuances and settlements of Level 3 securities on a
gross basis, rather than as a net number as currently required. Management is
currently evaluating the impact ASU No. 2010-06 will have on its financial
statement disclosures.
<Page>
NOTE 10--FINANCIAL HIGHLIGHTS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2009 2008 2007 2006 2005
-------- -------- -------- -------- --------
Per Share Operating Performance (for a
share outstanding throughout the
period)
Net asset value, beginning of period $ 95.27 $ 139.12 $ 152.75 $ 155.45 $ 154.27
-------- -------- -------- -------- --------
Income from investment operations
Net investment income (loss) 0.00(a) 0.40 0.46 (0.70) (0.75)
Net realized and unrealized gains
(losses) on investments 14.65 (37.11) 13.48 13.60 12.57
-------- -------- -------- -------- --------
Total from investment operations 14.65 (36.71) 13.94 12.90 11.82
-------- -------- -------- -------- --------
Less distributions
Dividends from net investment income (0.02) (0.42) (0.45) (0.00) (0.00)
Distributions from net realized gains (0.00)(a) (6.72) (27.12) (15.60) (10.64)
-------- -------- -------- -------- --------
Total distributions (0.02) (7.14) (27.57) (15.60) (10.64)
-------- -------- -------- -------- --------
Net asset value, end of period $ 109.90 $ 95.27 $ 139.12 $ 152.75 $ 155.45
======== ======== ======== ======== ========
Total Return 15.38% -27.03% 8.40% 8.34% 7.78%
Ratios/Supplementary data
Net assets, end of period (in millions) $2,867.8 $2,486.2 $3,513.5 $3,599.8 $3,573.3
Ratio of expenses to average net assets
Before expense reimbursement 1.05% 1.04% 1.03% 1.03% 1.03%
After expense reimbursement 1.01% 1.00% 1.00% 1.00% 1.00%
Ratio of net investment income (loss) to
average net assets 0.01% 0.33% 0.29% -0.46% -0.47%
Portfolio turnover rate 15% 12% 13% 14% 8%
</Table>
- ----------
(a) Represents less than $0.01 per share.
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Sequoia Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Sequoia Fund, Inc. (the "Fund"), including the schedule of investments, as of
December 31, 2009, the related statement of operations for the year then ended,
the statements of changes in net assets for each of the years in the two year
period then ended and the financial highlights for each of the years in the
three year period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for each of the years in the two
year period ended December 31, 2006 were audited by other auditors whose report
dated February 21, 2007 expressed an unqualified opinion on such financial
highlights.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 2009 by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Sequoia Fund, Inc. as of December 31, 2009, the results of its operations for
the year then ended, the changes in its net assets for each of the years in the
two year period then ended, and its financial highlights for each of the years
in the three year period then ended, in conformity with accounting principles
generally accepted in the United States of America.
BBD, LLP
Philadelphia, Pennsylvania
February 17, 2010
<Page>
APPROVAL OF ADVISORY CONTRACT
(UNAUDITED)
At a meeting held on December 7, 2009, the Board of Directors of Sequoia
Fund, Inc. (the "Fund"), including a majority of the independent directors,
evaluated and approved the renewal of the advisory contract between the Fund and
Ruane, Cunniff & Goldfarb Inc. (the "Investment Adviser"). In approving the
renewal of the advisory contract, the directors considered all information they
deemed reasonably necessary to evaluate the terms of the contract.
NATURE AND QUALITY OF SERVICES. The directors reviewed the nature, extent
and quality of the services provided by the Investment Adviser to the Fund. They
considered the personnel responsible for the day-to-day management of the Fund,
the Investment Adviser's existing and planned staffing levels and the Investment
Adviser's research capability and overall reputation. The directors considered
the Investment Adviser's representation that it had no current plans to change
the manner in which it managed the Fund. They considered information concerning
the Investment Adviser's compliance policies and procedures, which are designed,
among other things, to ensure the Fund's compliance with its investment
objective, policies and restrictions and those regulatory requirements
applicable to the Fund and to address the Investment Adviser's conflicts of
interest in providing services to the Fund and its other advisory clients. Based
on these factors, the directors concluded that they were satisfied with the
nature, extent and quality of services provided to the Fund by the Investment
Adviser under the advisory contract.
INVESTMENT PERFORMANCE. The directors reviewed the Fund's performance under
the Investment Adviser's management. They considered the Fund's performance and
the performance of the S&P 500 Index for the first 10 months of 2009. They noted
that for the first 10 months of 2009, the Fund generated a return of 12.0%
versus a return for the S&P 500 Index of 17.1%. They discussed the current
market conditions and the Fund's performance in respect of those conditions.
They also considered the Fund's performance compared to the performance of
peer-group funds for the year-to-date, 5-year and 10-year periods ended October
31, 2009.
The directors reviewed specific securities that contributed positively and
negatively to the Fund's performance. The directors considered the Fund's
performance in light of information provided by the Investment Adviser
concerning the performance of the Investment Adviser's other advisory accounts.
They also considered the Fund's performance in light of the Fund's compliance
with its investment policies and legal and regulatory requirements. The
directors concluded that the Fund's overall performance was satisfactory.
FEES. Next, the directors examined the fees paid to the Investment Adviser
under the advisory contract and the Fund's overall expense ratio. They
considered the advisory fee compared to the fees charged by two sets of
peer-group funds. They noted that the Fund's expense ratio of 1.00% compared
favorably with the average expense ratio of both sets of peer-group funds (1.24%
for one set and 1.06% for the other set). They considered the Investment
Adviser's obligation under the contract to reimburse the Fund for the excess, if
any, in any year of the Fund's operating expenses over 1-1/2 % of the Fund's
average daily net asset values up to a maximum of $30 million, plus 1% of the
Fund's average daily net asset values in excess of $30 million. The directors
did not compare the fees charged to the Fund by the Investment Adviser with the
fees charged by the Investment Adviser to its other advisory accounts because
the services provided by the Investment Adviser to its other advisory accounts
are materially different from the services provided by the Investment Adviser to
the Fund. Based on these factors, the directors determined that the fees charged
to the Fund by the Investment Adviser under the advisory contract were
reasonable in light of the services provided by the Investment Adviser and the
fees charged by other advisers to similar funds offering similar services.
<Page>
PROFITABILITY AND OTHER BENEFITS TO THE INVESTMENT ADVISER. The directors
considered the income and expenses of the Fund and the profitability of the Fund
to the Investment Adviser. They reviewed a written analysis of the profitability
of the Fund to the Investment Adviser for the ten months ended October 31, 2009.
They also considered other benefits to the Investment Adviser and its affiliates
as a result of their relationship with the Fund, including a written analysis of
the amounts and rates of brokerage commissions paid by the Fund to Ruane,
Cunniff & Goldfarb LLC, a broker-dealer affiliate of the Investment Adviser,
during those months. Based on these factors, the directors concluded that the
Investment Adviser's profitability was not such as to prevent them from
approving the renewal of the contract.
ECONOMIES OF SCALE. The directors considered information concerning
economies of scale and whether the existing fees might require adjustment in
light of any economies of scale. The directors determined that no modification
of the existing fee level was necessary in light of the fact that, among other
things, the Fund's total annual expense ratio was less than the average expense
ratio of the mutual funds included in two different sets of peer-group funds.
In light of the Fund's performance, the Investment Adviser's provision of
advisory and other services, and the reasonableness of the Fund's overall
expenses compared to the expenses of the peer-group funds, the directors
concluded that retention of the Investment Adviser was in the best interest of
the Fund and its stockholders. Based upon such conclusions, the directors,
including a majority of the independent directors, approved the renewal of the
advisory contract.
<Page>
INFORMATION ABOUT SEQUOIA FUND OFFICERS AND DIRECTORS:
(UNAUDITED)
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 DIRECTORSHIPS
POSITION HELD LENGTH OF TIME PRINCIPAL OCCUPATION HELD BY
NAME, AGE, AND ADDRESS WITH FUND SERVED DURING PAST 5 YEARS DIRECTOR
- ---------------------- -------------------- ------------------ ---------------------------------- -------------
Richard T. Cunniff, 86 Vice Chairman & Term -- 1 Year & Vice Chairman & Director of Ruane, None
767 Fifth Avenue Director Length of Time Cunniff & Goldfarb Inc.
New York, NY 10153 served -- 39 Years
Robert D. Goldfarb, 65 President & Director Term -- 1 Year & Chairman & Director of Ruane, None
767 Fifth Avenue Length of Time Cunniff & Goldfarb Inc.
New York, NY 10153 served -- 31 Years
David M. Poppe, 44 Executive Vice Term -- 1 Year & President & Director of Ruane, None
767 Fifth Avenue President & Director Length of Time Cunniff & Goldfarb Inc.
New York, NY 10153 served -- 6 Years
Joseph Quinones, Jr., 64 Vice President, Term -- 1 Year & Vice President, Secretary, None
767 Fifth Avenue Secretary, Length of Time Treasurer & Chief Compliance
New York, NY 10153 Treasurer & Chief served -- 14 Years Officer of Ruane, Cunniff &
Compliance Officer Goldfarb Inc.
Michael Valenti, 40 Assistant Secretary Term -- 1 Year & Administrator of Ruane, Cunniff & None
767 Fifth Avenue Length of Time Goldfarb Inc.
New York, NY 10153 served -- 3 Years
C. William Neuhauser, 83 Director Term -- 1 Year & Retired None
767 Fifth Avenue Length of Time
New York, NY 10153 served -- 35 Years
Robert L. Swiggett, 87 Director Term -- 1 Year & Retired None
767 Fifth Avenue Length of Time
New York, NY 10153 served -- 39 Years
Sharon Osberg, 60 Director Term -- 1 Year & Consultant Internet Mobile None
767 Fifth Avenue Length of Time Technology
New York, NY 10153 served -- 6 Years
Roger Lowenstein, 55 Director Term -- 1 Year & Writer major Financial and News None
767 Fifth Avenue Length of Time Publications
New York, NY 10153 served -- 11 Years
Vinod Ahooja, 58 Director -- Term -- 1 Year & Retired None
767 Fifth Avenue Chairman of the Length of Time
New York, NY 1015 Board served -- 9 Years
</Table>
<Page>
OTHER INFORMATION (UNAUDITED)
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 Forms 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 or by calling DST Systems, Inc. at (800) 686-6884.
<Page>
SEQUOIA FUND, INC.
767 FIFTH AVENUE, SUITE 4701
NEW YORK, NEW YORK 10153-4798
(800) 686-6884
WEBSITE: www.sequoiafund.com
DIRECTORS
Richard T. Cunniff
Robert D. Goldfarb
David M. Poppe
Vinod Ahooja, Chairman of the Board
Roger Lowenstein
C. William Neuhauser
Sharon Osberg
Robert L. Swiggett
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
Michael Valenti -- ASSISTANT SECRETARY
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 LLP
One Battery Park Plaza
New York, New York 10004
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/si-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, 2009 December 31, 2008
----------------- -----------------
Audit Fees $30,000 $29,000
Audit-Related Fees n/a n/a
Tax Fees $4,000 $4,000
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) All 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 $12,000 and $14,500, respectively. Fees
paid to PricewaterhouseCoopers LLP were $ 0 and $2,500, respectively.
(h) Not applicable
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: March 1, 2010
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: March 1, 2010
By: /s/ Joseph Quinones, Jr.
---------------------------
Joseph Quinones, Jr.
Vice President, Secretary, Treasurer
Date: March 1, 2010