-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BVr3j7JkfsLRkL8i2fqpGSJhhGeWevxE1uksrNsY9zyw8X4Uu3KGcPVUaoPELEdv ksoUMUQBCq0BMs0+DZ0uRw== 0000089043-06-000003.txt : 20060307 0000089043-06-000003.hdr.sgml : 20060307 20060307160943 ACCESSION NUMBER: 0000089043-06-000003 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20051231 FILED AS OF DATE: 20060307 DATE AS OF CHANGE: 20060307 EFFECTIVENESS DATE: 20060307 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEQUOIA FUND INC CENTRAL INDEX KEY: 0000089043 IRS NUMBER: 132663968 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-01976 FILM NUMBER: 06670305 BUSINESS ADDRESS: STREET 1: 767 FIFTH AVE STREET 2: SUITE 4701 CITY: NEW YORK STATE: NY ZIP: 10153-4798 BUSINESS PHONE: 2128325280 MAIL ADDRESS: STREET 1: 767 FIFTH AVE STREET 2: SUITE 4701 CITY: NEW YORK STATE: NY ZIP: 10153-4798 FORMER COMPANY: FORMER CONFORMED NAME: CIMARRON FUND INC DATE OF NAME CHANGE: 19700625 0000089043 S000012155 SEQUOIA FUND INC C000033159 SEQUOIA FUND INC SEQUX N-CSR 1 ncsr.txt 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, 2005 ] ITEM 1. REPORTS TO STOCKHOLDERS. ANNUAL REPORT DECEMBER 31, 2005 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, 2005. 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
The total amount of capital gains distributions accepted in shares was $744,103, 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.
Date Seq S&P - ---------- ------- ------- 12/31/1995 $10,000 $10,000 12/31/1996 12,174 12,299 12/31/1997 17,433 16,399 12/31/1998 23,578 21,084 12/31/1999 19,678 25,521 12/31/2000 23,626 23,198 12/31/2001 26,111 20,440 12/31/2002 25,422 15,923 12/31/2003 29,774 20,489 12/31/2004 31,162 22,719 12/31/2005 33,586 23,834
COMPARISON OF A CHANGE IN VALUE OF A $10,000 INVESTMENT IN SEQUOIA FUND AND THE S&P 500 INDEX* * The S&P 500 Index is an unmanaged, capitalization-weighted index of the common stocks of 500 major US corporations. The information presented for the Fund assumes reinvestment of dividends and capital gains distributions and does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Past performance is not indicative of future results. TO THE SHAREHOLDERS OF SEQUOIA FUND, INC. Dear Shareholder: Sequoia Fund's results for the quarter and year ended December 31, 2005 appear below along with comparable results for the market indexes: To December 31, 2005
SEQUOIA DOW JONES STANDARD & FUND INDUSTRIALS POOR'S 500 ------- ----------- ---------- Fourth Quarter 9.02% 2.06% 2.09% 1 Year 7.78% 1.72% 4.91% 5 Years (Annualized) 7.29% 2.01% 0.54% 10 Years (Annualized) 12.88% 9.76% 9.07%
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. 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 23, 2006 THE RUANE, CUNNIFF & GOLDFARB INC./SEQUOIA FUND, INC. ANNUAL INVESTOR DAY WILL BE HELD AT 10A.M., NEW YORK CITY TIME, ON FRIDAY, MAY 19, 2006 AT THE ST. REGIS HOTEL, 20TH FLOOR, TWO EAST 55TH STREET, NEW YORK, NEW YORK 10022. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE The total return for Sequoia Fund was 7.78% for 2005, including the reinvestment of dividends. This compares to the 4.91% 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 the performance of the Fund will often vary significantly from that of the commonly cited indexes. The table below shows the stock price performance of the Fund's major positions for 2005:
% OF ASSETS PRICE % OF ASSETS POSITION 12/31/04 CHANGE 12/31/05 - -------- ----------- ------ ----------- Berkshire Hathaway 35.2% 0.8% 33.8% Progressive Corp. 12.6% 37.6% 17.4% Mohawk Industries 8.4% -4.7% 8.0% TJX 8.0% -7.6% 7.4% Fastenal 3.6% 27.3% 4.4% Expeditors International 2.8% 20.8% 3.4% ----------- ----------- Top six positions 70.6% 74.4% =========== ===========
We're less concerned with the annual movement in share prices than we are with the earnings progress exhibited by our holdings. If earnings grow, the stock price eventually follows. As of this writing Berkshire Hathaway had not yet reported fourth quarter and full year 2005 earnings. However, Berkshire's earnings were likely down from 2004, due to an estimated $3.4 billion of large insurance losses stemming from the three major hurricanes that hit US landfall during the year. Even after this year's losses, we believe that underwriting profits at Berkshire's supercat operations will still most likely average out to about 25% of premiums over the cycle since 1990. For most of the rest of Berkshire's operations, 2005 was a relatively strong year. GEICO's combined ratio was likely below 90, even after hurricane losses. And premiums and policies in force were likely up more than 12%, several times the industry growth. Through nine months, organic earnings of Berkshire Hathaway's wholly owned non-insurance businesses grew at high single digit rates, good performance for these operations. The building products unit turned in particularly strong results, thanks to the residential housing boom and a recovery in commercial construction. Other strong contributors to earnings growth included Clayton Homes and the leasing operations. Berkshire deployed over $7 billion in acquisitions of whole companies and purchases of publicly traded stocks in 2005. It completed deals to buy a recreational vehicle manufacturer, a professional liability insurer, and a nylon carpet fiber operation for an estimated combined $1.9 billion. Through nine months, Berkshire purchased a net $5.2 billion worth of common stocks, with new stakes in Anheuser-Busch and Wal-Mart and additions to its Procter and Gamble and Wells Fargo positions accounting for the lion's share of the growth. In addition, Berkshire's 81%-owned subsidiary, Midamerican, negotiated an agreement to spend about $5 billion to purchase the equity of a large utility company operating in several Western states. That deal is scheduled to close by the end of March, 2006. Berkshire still had over $41 billion in cash on its balance sheet as of last September, up $1 billion from year end. However, increasing short term interest rates through 2005 gave Berkshire's investment income a natural lift last year and will do so again in 2006. Progressive managed well through market conditions that were tougher than those of the year before. The auto insurance industry entered a down cycle in 2005, and competition increased during the year, which put downward pressure on prices. Growth in written premiums at Progressive slowed and its profit margins narrowed. Profitability was also affected by the Gulf storms, which hit states where Progressive has disproportionately high market shares. When 2005 closed, Progressive's combined ratio had increased three percentage points. Even with that jump, however, the insurer finished the year with a still excellent combined ratio of 88. And while the company's net income fell 15%, share repurchases provided an updraft. Earnings per share slipped only 9%, resulting in far and away the second-best year in the company's history. Earnings growth at Mohawk Industries, the country's largest flooring business, suffered from continual increases in raw material costs during the year. Not only did oil prices climb throughout the year, disruptions caused by the Gulf storms further restricted the supply of Mohawk's raw materials. Inevitably, the company's profit margins contracted. Management moved quickly to raise prices to recover its increased costs, but it takes several months for price increases to show up on the bottom line. Last fall, Mohawk closed on its largest acquisition to date when it purchased Unilin, a privately-owned manufacturer of laminate flooring, for about $2.6 billion. While the market for broadloom carpet grows slowly, the demand for laminate flooring has been increasing at double-digit rates in the US. Unilin, which has both proprietary technology and an excellent brand name, positions Mohawk well to capture a large share of this growing market. We expect the acquisition to be accretive to Mohawk's earnings in 2006. TJX struggled early in 2005, but regained its footing as the year wore on. Last fall, the founder and chairman of TJX, Ben Cammarata, returned as interim CEO. He quickly closed a failing Internet retail venture and vowed to slow the pace of expansion at other new store concepts. The company refocused its efforts on its best businesses, its core off-price apparel retailing formats. Holiday sales were strong. and the company finished the year on a vigorous note. Earnings per share were up 24%. Revenue and profits at the fifth and sixth largest positions in the Fund grew at excellent rates in 2005. Sales at Fastenal rose by 23%, better than three times the rate of growth of its largest competitor, and earnings per share jumped 27%. Credit the hard-work ethic and frugal spirit of this unusual company for that performance as much as a strengthening industrial economy. Expeditors International, now the sixth-largest position in the Fund due in significant part to its high rate of growth, generated a 17% rise in net revenue. Earnings per share leaped 39%. This performance reflects both the company's unusually strong competitive culture and its well-established presence in the trade lanes between the Far East and the US, where growth was unusually strong. During the year, the Fund sold its investments in Ethan Allen, Harley Davidson, Mercantile Bankshares, Petsmart, and the remainder of its position in Fifth Third Bancorp. We initiated positions in International Game Technology and Porsche AG. At the end of the year, Sequoia was 95.2% invested in stocks, compared to 90.8% a year earlier. In both years, the remainder of Sequoia's assets was held in cash and cash equivalents. SHAREHOLDER EXPENSE EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2005 to December 31, 2005). ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing 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 ENDING PAID DURING BEGINNING ACCOUNT PERIOD* ACCOUNT VALUE JULY 1, 2005 VALUE DECEMBER 31, TO DECEMBER 31, JULY 1, 2005 2005 2005 ------------ ------------ --------------- Actual $ 1,000 $ 1,083.90 $ 5.25 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). SEQUOIA FUND, INC. SCHEDULE OF INVESTMENTS DECEMBER 31, 2005 COMMON STOCKS (93.23%)
VALUE SHARES (NOTE 1) ------ --------------- AUTO & HOME SUPPLY STORES (1.52%) 1,699,998 O'Reilly Automotive Inc.* $ 54,416,936 --------------- CASUALTY INSURANCE (17.35%) 5,310,152 Progressive Corporation-- Ohio 620,119,551 --------------- CHEMICAL DIAGNOSTIC SUBSTANCES (3.08%) 1,529,015 IDEXX Laboratories Inc* 110,058,500 --------------- COMPUTER PROGRAMMING SERVICES (1.85%) 2,088,597 GTECH Holdings Corporation 66,292,069 --------------- DIVERSIFIED COMPANIES (33.79%) 13,625 Berkshire Hathaway Inc. Class A* 1,207,447,500 163 Berkshire Hathaway Inc. Class B* 478,486 --------------- 1,207,925,986 --------------- ELECTRONIC COMPUTER MANUFACTURING (2.28%) 2,648,247 International Game Technology 81,513,043 --------------- FREIGHT TRANSPORTATION (3.36%) 1,776,610 Expeditors International of Washington, Inc. 119,938,941 --------------- INDUSTRIAL & CONSTRUCTION SUPPLIES (4.44%) 4,054,341 Fastenal Company 158,889,624 --------------- INSURANCE AGENTS & BROKERS (2.47%) 2,888,952 Brown & Brown Inc. 88,228,594 --------------- MEDICAL & HOSPITAL EQUIPMENT (0.11%) 120,097 Patterson Companies Inc.* 4,011,240 --------------- PROCESS CONTROL INSTRUMENTS (0.60%) 384,157 Danaher Corporation 21,428,277 --------------- RETAILING (14.41%) 39,804 Costco Wholesale Corporation 1,969,104 1,145,775 Tiffany & Company 43,871,725 11,412,756 TJX Companies, Inc. 265,118,322 2,359,424 Wal-Mart Stores Inc 110,421,043 2,120,091 Walgreen Company 93,835,228 --------------- 515,215,422 ---------------
VALUE SHARES (NOTE 1) ------ --------------- TEXTILE - CARPETS (7.97%) 3,274,506 Mohawk Industries Inc.+* $ 284,816,531 --------------- TOTAL COMMON STOCK (COST $1,077,216,753) $ 3,332,854,714 --------------- PREFERRED STOCKS (1.91%) AUTOMOTIVE MANUFACTURING (1.91%) 95,045 Porsche AG -- Preferred (Germany) 68,292,779 --------------- TOTAL PREFERRED STOCKS (COST $67,942,737) $ 68,292,779 ---------------
PRINCIPAL AMOUNT --------- U.S. GOVERNMENT OBLIGATIONS (4.86%) $ 174,200,000 U.S. Treasury Bills due 2/6/2006 173,632,253 --------------- TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost $173,632,253) 173,632,253 --------------- TOTAL INVESTMENTS (100%)++ (Cost $1,318,791,7 $ 3,574,779,746 ===============
- ---------- ++ The cost for federal income tax purposes is identical. * Non-income producing. + Refer to Note 7. The accompanying notes form an integral part of these Financial Statements. SEQUOIA FUND, INC. STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2005 ASSETS: Investments in securities, at value (cost $1,318,791,743) (Note 1) $ 3,574,779,746 Cash on deposit with custodian 347,492 Receivable for capital stock sold 757,941 Dividends receivable 959,188 Other assets 34,005 --------------- Total assets 3,576,878,372 --------------- LIABILITIES: Payable for capital stock repurchased 391,206 Accrued investment advisory fee 3,013,834 Accrued other expenses 161,993 --------------- Total liabilities 3,567,033 --------------- Net assets applicable to 22,986,340 shares of capital stock outstanding (Note 4) $ 3,573,311,339 =============== Net asset value, offering price and redemption price per share $ 155.45 ===============
The accompanying notes form an integral part of these Financial Statements. SEQUOIA FUND, INC. STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2005 INVESTMENT INCOME: Income: Dividends: Unaffiliated companies, net of $32,209 of foreign tax withheld $ 9,822,939 Affiliated companies (Note 7) 802,615 Interest 8,703,394 Other income 40,170 --------------- Total income 19,369,118 --------------- Expenses: Investment advisory fee (Note 2) 36,448,117 Legal and auditing fees 125,717 Stockholder servicing agent fees 462,745 Custodian fees 80,000 Directors fees and expenses (Note 6) 244,950 Other 148,571 --------------- Total expenses 37,510,100 Less expenses reimbursed by Investment Adviser (Note 2) 912,000 --------------- Net expenses 36,598,100 --------------- Net investment (loss) (17,228,982) --------------- REALIZED AND UNREALIZED GAIN / (LOSS) ON INVESTMENTS: Realized gain on investments: Unaffiliated companies 357,662,429 Affiliated companies (Note 7) 21,234,848 Foreign currency transactions 1,486 --------------- Net realized gain on investments and foreign currencies $ 378,898,763 Net (decrease) in unrealized appreciation on investments (89,974,201) --------------- Net realized and unrealized gain on investments and foreign currencies 288,924,562 --------------- Increase in net assets from operations $ 271,695,580 ===============
The accompanying notes form an integral part of these Financial Statements. SEQUOIA FUND, INC. STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, ---------------------------------- 2005 2004 --------------- --------------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment (loss) $ (17,228,982) $ (14,191,740) Net realized gain on investments and foreign currencies 378,898,763 296,769,132 Net increase / (decrease) in unrealized appreciation (89,974,201) (106,708,915) --------------- --------------- Net increase / (decrease) in net assets from operations 271,695,580 175,868,477 Distributions to shareholders from: Net investment income -- -- Net realized gains (245,091,727) (5,637,360) Capital share transactions (Note 4) (225,675,415) (371,435,383) --------------- --------------- Total increase / (decrease) (199,071,562) (201,204,266) NET ASSETS: Beginning of year 3,772,382,901 3,973,587,167 --------------- --------------- End of year $ 3,573,311,339 $ 3,772,382,901 =============== =============== NET ASSETS CONSIST OF: Capital (par value and paid in surplus) $ 1,316,344,778 $ 1,347,326,752 Undistributed net realized gains (Note 5) 978,558 79,093,945 Unrealized appreciation 2,255,988,003 2,345,962,204 --------------- --------------- Total Net Assets $ 3,573,311,339 $ 3,772,382,901 =============== ===============
The accompanying notes form an integral part of these Financial Statements. 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. 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, 2005 and the Investment Adviser reimbursed the Fund $912,000. Such reimbursement is not subject to recoupment by the Investment Adviser. For the year ended December 31, 2005, there were no amounts accrued or paid to interested persons, including officers and directors, other than advisory fees of $36,448,117 to Ruane, Cunniff & Goldfarb Inc. and brokerage commissions of $338,214 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, 2005. In October 2005, the Advisory Agreement was terminated as a result of its assignment due to the death of a control person of the Investment Adviser, under the provisions of the Advisory Agreement and as required by the 1940 Act. The Fund's Board of Directors approved an interim advisory contract between the Fund and the Investment Adviser with substantially identical terms of the Advisory Agreement. On December 12, 2005, the Board of Directors approved a new investment advisory contract between the Fund and the Investment Adviser effective March 1, 2006, subject to stockholder approval, with substantially identical terms of the Advisory Agreement. 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, 2005 were $268,212,483 and $570,660,120, respectively. Included in proceeds of sales is $296,818,473 representing the value of securities distributed as in-kind payment of redemptions, resulting in realized gains of $211,919,666. At December 31, 2005 the aggregate gross unrealized appreciation and depreciation of securities for federal income tax purposes were $2,257,949,727 and $1,961,724, 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:
2005 2004 -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares sold 676,222 $ 103,672,116 937,018 $ 142,174,969 Shares issued to stockholders on reinvestment of: Net investment income -- -- -- -- Net realized gain on investments 1,281,840 198,753,650 31,351 4,737,104 -------------- -------------- -------------- -------------- 1,958,062 302,425,766 968,369 146,912,073 Shares repurchased 3,424,141 528,101,181 3,435,889 518,347,456 -------------- -------------- -------------- -------------- Net (decrease) (1,466,079) $ (225,675,415) (2,467,520) $ (371,435,383) ============== ============== ============== ==============
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, 2005 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 $17,228,982 and undistributed net realized gains of $211,922,423 with a corresponding increase in paid in surplus of $194,693,441. These reclassifications had no effect on net assets. The tax character of distributions paid during 2004 and 2005 was as follows:
2005 2004 --------------- --------------- Distributions paid from: Ordinary income $ -- $ -- Long-term capital gains 245,091,727 5,637,360 --------------- --------------- Total distribution $ 245,091,727 $ 5,637,360 =============== ===============
As of December 31, 2005, the components of distributable earnings on a tax basis were as follows: Undistributed long-term gain $ 978,558 Unrealized appreciation 2,255,988,003 --------------- $ 2,256,966,561 ===============
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, 2005 was $244,950. 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." As of December 31, 2004, the Fund held two investments which were affiliated companies as defined above. The summary of transactions for each affiliate during the year ended December 31, 2005 is provided below:
PURCHASES SALES --------------------------- --------------------------- REALIZED DIVIDEND AFFILIATE SHARES COST SHARES COST GAIN INCOME - --------- ------------ ------------ ------------ ------------ ------------ ------------ Ethan Allen Interiors, Inc. -- -- 1,855,059 $ 48,080,846 $ 13,836,830 $ 802,615 Mohawk Industries Inc. -- -- 180,741 $ 8,122,356 7,398,018 -- ------------ ------------ $ 21,234,848 $ 802,615 ============ ============
As of December 31, 2005, the Fund had no investments in companies that would be deemed to be affiliated companies. NOTE 8--FINANCIAL HIGHLIGHTS:
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------- 2005 2004 2003 2002 2001 ---------- ---------- ---------- ---------- ---------- Per Share Operating Performance (for a share outstanding throughout each year) Net asset value, beginning of year $ 154.27 $ 147.61 $ 126.63 $ 130.24 $ 122.09 ---------- ---------- ---------- ---------- ---------- Income from investment operations: Net investment (loss)/income (0.75) (0.58) (0.62) (0.41) 0.97 Net realized and unrealized gains (losses) on investments 12.57 7.45 22.21 (3.03) 11.52 ---------- ---------- ---------- ---------- ---------- Total from investment operations 11.82 6.87 21.59 (3.44) 12.49 ---------- ---------- ---------- ---------- ---------- Less distributions: Dividends from net investment income (0.00) (0.00) (0.00) (0.01) (0.97) Distributions from net realized gains (10.64) (0.21) (0.61) (0.16) (3.37) ---------- ---------- ---------- ---------- ---------- Total distributions (10.64) (0.21) (0.61) (0.17) (4.34) ---------- ---------- ---------- ---------- ---------- Net asset value, end of year $ 155.45 $ 154.27 $ 147.61 $ 126.63 $ 130.24 ========== ========== ========== ========== ========== Total Return 7.78% 4.66% 17.12% -2.64% 10.52% Ratios/Supplemental data Net assets, end of year (in millions) $ 3,573.3 $ 3,772.4 $ 3,973.6 $ 3,905.1 $ 4,230.1 Ratio to average net assets: Expenses 1.0% 1.0% 1.0% 1.0% 1.0% Net investment income (loss) -0.5% -0.4% -0.5% -0.3% 0.8% Portfolio turnover rate 8% 6% 3% 8% 7%
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, 2005, 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, 2005 by correspondence with the custodian, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, New York February 17, 2006 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.
OTHER TERM OF OFFICE AND PRINCIPAL DIRECTORSHIPS POSITION HELD LENGTH OF TIME OCCUPATION DURING HELD BY NAME, AGE, AND ADDRESS WITH FUND SERVED PAST 5 YEARS DIRECTOR - ---------------------- --------- ------ ------------ -------- Richard T. Cunniff, 82 Vice Chairman & Term -- 1 Year & Vice Chairman & Sturm, 767 Fifth Avenue Director Length of Time Director of Ruane, Ruger & New York, NY 10153 served -- 35 Years Cunniff & Goldfarb Company, Inc. Inc. Robert D. Goldfarb, 61 President & Director Term -- 1 Year & Chairman & None 767 Fifth Avenue Length of Time Director of Ruane, New York, NY 10153 served -- 27 Years Cunniff & 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., 60 Vice President, Term -- 1 Year & Vice President, None 767 Fifth Avenue Secretary, Length of Time Secretary, New York, NY 10153 Treasurer & Chief served -- 10 Years Treasurer & Chief Compliance Officer Compliance Officer of Ruane, Cunniff & Goldfarb Inc. Francis P. Matthews, 83 Director Term -- 1 Year & Retired None 767 Fifth Avenue Length of Time New York, NY 10153 served -- 33 Years C. William Neuhauser, 79 Director Term -- 1 Year & Retired None 767 Fifth Avenue Length of Time New York, NY 10153 served -- 31 Years Robert L. Swiggett, 83 Director Term -- 1 Year & Retired None 767 Fifth Avenue Length of Time New York, NY 10153 served -- 35 Years Sharon Osberg, 56 Director Term -- 1 Year & Consultant Internet None 767 Fifth Avenue Length of Time Mobile Technology New York, NY 10153 served -- 2 Years Roger Lowenstein, 51 Director Term -- 1 Year & Writer major None 767 Fifth Avenue Length of Time Financial and News New York, NY 10153 served -- 7 Years Publications Vinod Ahooja, 54 Director Term -- 1 Year & Retired None 767 Fifth Avenue Length of Time New York, NY 10153 served -- 5 Years
APPROVAL OF ADVISORY CONTRACT The previous advisory contract between Sequoia Fund, Inc. (the "Corporation") and Ruane, Cunniff & Goldfarb Inc. (Adviser) terminated in early October 2005 as a result of its assignment due to the death of Mr. William J. Ruane, a control person of the Adviser. On October 14, 2005, the Board of Directors of the Corporation, including a majority of the independent directors, considered and approved an interim advisory contract between the Corporation and the Adviser at a special meeting convened for that purpose. At a meeting held on December 12, 2005, the Board of Directors of the Corporation, including a majority of the independent directors, evaluated and approved a new advisory contract between the Corporation and the Adviser that would replace the interim advisory contract. In order for this new contract to take effect, stockholders of the Corporation must approve the contract. A stockholders' meeting is scheduled for February 24, 2006. A proxy statement describing the reason for the stockholders' meeting and soliciting proxies for the meeting was sent to stockholders on or about December 22, 2005. BOARD CONSIDERATIONS IN APPROVING THE ADVISORY CONTRACT In approving the advisory contract, the directors considered all information they deemed reasonably necessary to evaluate the terms of the contract. The directors focused on the nature and quality of the services provided by the Adviser and the reasonableness of the fees charged for those services. The directors' evaluation of the quality of the Adviser's services took into account written analyses of the profitability of the Corporation and the Corporation's performance under the Adviser's management. The directors noted that the Corporation over short-term periods, specifically the 3-month, 9-month and 1-year periods ended September 30, 2005, underperformed as compared to the Standard & Poor's Composite 500(R) Index (the "S&P Index") and the Dow Jones Industrial Average ("DJIA"). The directors noted, however, that the Corporation performed well over longer periods of time as compared to the S&P Index and DJIA. The directors also reviewed the Corporation's performance in light of reports provided periodically by the Adviser in meetings with the Corporation's audit committee. And, the directors considered the Corporation's performance in light of the Adviser's compliance with investment policies and legal and regulatory requirements. The directors examined the fees to be paid to the Adviser under the contract and the Corporation's overall expense ratios. They noted that under the contract the Adviser would reimburse the Corporation for the amount, if any, by which the operating expenses of the Corporation exceeds the sum of 1-1/2% of the average daily net assets up to $30,000,000 plus 1.00% of the average daily net assets in excess of $30,000,000. They also took into consideration the fact that the Corporation is closed to new investors. The directors determined that the fees were reasonable in light of the services provided by the Adviser and the fees charged by other advisers to similar funds offering similar services. The directors considered that Mr. Robert D. Goldfarb and Mr. David M. Poppe would co-manage the Corporation. The directors further considered the Adviser's representation that it had no current plans to change the manner in which it managed the Corporation and the Adviser's assurances that it would continue to (i) have the expertise and resources necessary to provide the advisory and administrative services required by the Corporation and (ii) implement and refine its internal control and compliance program for the Corporation. The directors considered other benefits to the Adviser as a result of its relationship with the Corporation. The directors noted that Ruane, Cunniff & Goldfarb LLC, a wholly-owned subsidiary of the Adviser, serves as the Corporation's principal underwriter. The directors also reviewed the aggregate commissions paid to Ruane, Cunniff & Goldfarb LLC for executing securities transactions for the Corporation. In evaluating the aforementioned considerations, the directors did not identify any single factor as all-important or controlling in their evaluation of the contract. The directors, including the independent directors, concluded that the terms of the contract were fair and reasonable and that the Adviser's fees are reasonable in light of the services provided to the Corporation and the benefits received by the Adviser. Based upon such conclusions, the directors, including a majority of the independent directors, approved the contract and recommended that it be presented to stockholders for their approval at the meeting of stockholders to be held on February 24, 2006. 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. 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 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. 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, 2005 December 31, 2004 ----------------- ----------------- Audit Fees $45,000 $39,000 Audit-Related Fees n/a n/a Tax Fees $4,500 $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) No services included in (b)-(d) were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. (f) Not applicable. (g) The aggregate fees billed for the most recent fiscal year and the preceding fiscal year by the registrant's independent auditor for non-audit services rendered to the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant were $75,000 and $54,120, respectively. (h) The registrant's audit committee has considered the provision of non-audit services that were rendered to its investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant and that were not pre-approved and determined that those services are compatible with maintaining the independent auditor's independence. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. 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, 2006 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, 2006 By: /s/ Joseph Quinones, Jr. --------------------------- Joseph Quinones, Jr. Vice President, Secretary, Treasurer Date: February 28, 2006 EX-99.CERT 2 ex99cert.txt Exhibit 12(a)(2) CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER I, Robert D. Goldfarb, President and Principal Executive Officer of Sequoia Fund, Inc., certify that: 1. I have reviewed this report on Form N-CSR of Sequoia Fund, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal controls over financial reporting (as defined in Rule 30a-3(d) of the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 28, 2006 /s/ Robert D. Goldfarb ---------------------- Robert D. Goldfarb President and Principal Executive Officer Exhibit 12(a)(2) CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER I, Joseph Quinones, Jr., Vice President, Secretary & Treasurer of Sequoia Fund, Inc., certify that: 1. I have reviewed this report on Form N-CSR of Sequoia Fund, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 28, 2006 /s/ Joseph Quinones ------------------- Vice President, Secretary & Treasurer EX-99.906 CERT 3 ex99906.txt Exhibit 12(b) CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT Pursuant to 18 U.S.C. 1350, each of the undersigned, being the Principal Executive Officer and Principal Financial Officer of Sequoia Fund, Inc. (the "Registrant"), hereby certifies that, to the best of such officer's knowledge, the Registrant's report on Form N CSR for the period ended December 31, 2005 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant as of, and for, the periods presented in the Report. Date: February 28, 2006 By: /s/ Robert D. Goldfarb - ----------------------------------------- President and Principal Executive Officer By: /s/ Joseph Quinones, Jr. - ----------------------------------------- Vice President, Secretary and Treasurer This certification is furnished as an exhibit solely pursuant to Item 12(b) of Form N-CSR and is not deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. This certification is not deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates this certification by reference. EX-99.CODE ETH 4 ex99codeeth.txt SEQUOIA FUND, INC. CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS I. Covered Officers/Purpose of the Code This code of ethics (the "Code") for Sequoia Fund, Inc. (the "Fund") applies to the Fund's Principal Executive Officer, Principal Financial Officer and any other officer serving similar functions (the "Covered Officers," each of whom is set forth in Exhibit A) for the purpose of promoting: o honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; o full, fair, accurate, timely and understandable disclosure in reports and documents that the Fund files with, or submits to, the U.S. Securities and Exchange Commission ("SEC") and in other public communications made by the Fund; o compliance with applicable laws and governmental rules and regulations; o the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and o accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. II. Covered Officers Should Handle Ethically Actual and Apparent Conflicts of Interest Overview. A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his service to, the Fund. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of his position with the Fund. Certain conflicts of interest arise out of the relationships between Covered Officers and the Fund and already are subject to conflict of interest provisions in the Investment Company Act of 1940 (the "1940 Act") and the Investment Advisers Act of 1940 ("Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Fund because of their status as "affiliated persons" of the Fund. The Fund's and the investment adviser's compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the Fund and the investment adviser of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the Fund or for the adviser, or for both), be involved in establishing policies and implementing decisions that will have different effects on the adviser and the Fund. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Fund and the adviser and is consistent with the performance by the Covered Officers of their duties as officers of the Fund. Thus, if performed in conformity with the provisions of the 1940 Act and the Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the Fund's Board of Managers (the "Board") that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the 1940 Act and the Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Fund. * * * * Each Covered Officer must: o not use his personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Fund whereby the Covered Officer would benefit personally to the detriment of the Fund; o not cause the Fund to take action, or to fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit the Fund; o not use material non-public knowledge of portfolio transactions made or contemplated for the Fund to trade personally or cause others to trade personally in contemplation of the market effect of such transactions; o report at least annually any ownership interest in the Fund or its adviser. There are some conflict of interest situations that should always be discussed with the [Compliance Officer], if material. Examples of these include: o service as a director on the board of any public or private company; o the receipt of any gifts other than ones of de minimis value; o the receipt of any entertainment from any company with which the Fund has current or prospective business dealings unless such entertainment is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; o any ownership interest in, or any consulting or employment relationship with, any of the Fund's service providers, other than its investment adviser, principal underwriter, if any, administrator or any affiliated person thereof; o a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. III. Disclosure and Compliance o Each Covered Officer should familiarize himself with the disclosure requirements generally applicable to the Fund. o Each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about the Fund to others, whether within or outside the Fund, including to the Fund's directors and auditors, and to governmental regulators and self-regulatory organizations. o Each Covered Officer should, to the extent appropriate within his area of responsibility, consult with other officers and employees of the Fund and the adviser with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Fund files with, or submits to, the SEC and in other public communications made by the Fund. o It is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. IV. Reporting and Accountability Each Covered Officer must: o upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Board that he has received, read, and understands the Code; o annually thereafter affirm to the Board that he has complied with the requirements of the Code; o not retaliate against any other Covered Officer or any employee of the Fund or its affiliated persons for reports of potential violations that are made in good faith; and o notify the [Compliance Officer] promptly if he knows of any violation of this Code. Failure to do so is itself a violation of this Code. The [Compliance Officer] is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation.(1) However, any approvals or waivers(2) sought by the Principal Executive Officer will be considered by the Board. - -------- 1 The Compliance Officer is authorized to consult, as appropriate, with the Board and counsel to the Fund, and is encouraged to do so. 2 Item 2 of Form N-CSR defines "waiver" as "the approval by the registrant of a material departure from a provision of the code of ethics" and "implicit waiver," which must also be disclosed, as "the registrant's failure to take action within a reasonable period of time regarding a material departure from a provision of the code of ethics that has been made known to an executive officer" of the registrant. The Fund will follow these procedures in investigating and enforcing this Code: o The [Compliance Officer] will take all appropriate action to investigate any potential violations reported to him; o if, after such investigation, the [Compliance Officer] believes that no violation has occurred, the [Compliance Officer] is not required to take any further action; o any matter that the [Compliance Officer] believes is a violation will be reported to the Board; o if the Board concurs that a violation has occurred, it will consider appropriate action, which may include: (i) review of, and appropriate modifications to, applicable policies and procedures; (ii) notification to appropriate personnel of the investment adviser or its board; or (iii) a recommendation to dismiss the Covered Officer; o the Board will be responsible for granting waivers, as appropriate; and o any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. V. Other Policies and Procedures This Code shall be the sole code of ethics adopted by the Fund for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. If other policies or procedures of the Fund, the Fund's adviser or other service providers that govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code overlap or conflict with the provisions of this Code, the [Compliance Officer] will determine whether the provisions of this Code or such other policy or procedure will apply. The Fund's and its investment adviser's codes of ethics under Rule 17j-1 under the 1940 Act are separate requirements applying to the Covered Officers and others, and are not part of this Code. VI. Amendments Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of the Board, including a majority of independent directors. VII. Confidentiality All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Fund and its adviser. VIII. Internal Use The Code is intended solely for the internal use by the Fund and does not constitute an admission, by or on behalf of the Fund, as to any fact, circumstance, or legal conclusion. Adopted: September 8, 2003 Exhibit A Persons Covered by this Code of Ethics: --------------------------------------- Robert D. Goldfarb President David M. Poppe Executive Vice President Joseph Quinones, Jr. Vice President, Secretary & Treasurer -----END PRIVACY-ENHANCED MESSAGE-----