-----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, O3QZWv9EDx1303I1pX/p2t4u+TYMukiOznz+8V1Ib4FY08BmPmXkingLQidZ+yRW TJJSXN7Cby1iHYUvdrHh4w== 0000919574-03-000986.txt : 20030428 0000919574-03-000986.hdr.sgml : 20030428 20030428164248 ACCESSION NUMBER: 0000919574-03-000986 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20030428 EFFECTIVENESS DATE: 20030501 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: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-35566 FILM NUMBER: 03667159 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 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: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-01976 FILM NUMBER: 03667160 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 485BPOS 1 d397941_485-b.txt As filed with the Securities and Exchange Commission on April 28, 2003 File No. 2-35566 811-1976 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / / Pre-Effective Amendment No._______________________ / / Post-Effective Amendment No. 49 /x / ---------------------- and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / / Amendment No. 27 /x / ---------------------- Sequoia Fund, Inc. --------------------------------------------------------- (Exact Name of Registrant as Specified in Charter) 767 Fifth Avenue, New York, New York 10153 --------------------------------------------------------- (Address of Principal Executive Office) (Zip Code) Registrant's Telephone Number including Area Code: (800) 686-6884 Robert D. Goldfarb c/o Ruane, Cunniff & Co., Inc. 767 Fifth Avenue New York, New York 10153 (Name and Address of Agent for Service) It is proposed that this filing will become effective (check appropriate box) / / immediately upon filing pursuant to paragraph (b) /X/ on May 1, 2003 pursuant to paragraph (b) / / 60 days after filing pursuant to paragraph (a)(1) / / on pursuant to paragraph (a)(1) / / 75 days after filing pursuant to paragraph (a)(2) / / on (date) pursuant to paragraph (a)(2) of Rule 485. If appropriate, check the following box: / / This post-effective amendment designates a new effective date for a previously filed post-effective amendment. PROSPECTUS [GRAPHIC] May 1, 2003 Sequoia Fund, Inc. 767 Fifth Avenue New York, N.Y. 10153 (800) 686-6884 THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRE- SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. TABLE OF CONTENTS PAGE RISK/RETURN SUMMARY .............................. 3 FEES AND EXPENSES OF THE FUND .................... 4 DESCRIPTION OF THE FUND .......................... 5 INVESTMENT OBJECTIVE AND STRATEGIES .......... 5 RISK CONSIDERATIONS FOR THE FUND ............. 5 MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE .............................. 5 MANAGEMENT OF THE FUND ........................... 6 PURCHASE AND SALE OF SHARES ...................... 6 HOW THE FUND VALUES ITS SHARES ............... 6 HOW TO BUY SHARES ............................ 7 HOW TO REDEEM SHARES ......................... 7 DIVIDENDS, DISTRIBUTIONS AND TAXES ............... 8 FINANCIAL HIGHLIGHTS ............................. 10 RISK/RETURN SUMMARY The following is a summary of certain key information about the Fund. You will find additional information about the Fund, including a description of the principal risks of an investment in the Fund, after this summary. OBJECTIVE: The Fund's investment objective is long-term growth of capital. PRINCIPAL INVESTMENT STRATEGY: The Fund invests primarily in common stocks. The Fund invests in the securities of a limited number of companies that it believes have attractive long-term economic prospects relative to their market price. While the Fund normally invests in U.S. companies, it also may make limited investments in foreign securities (typically the Fund does not hold any significant investment in foreign securities and in no event will it invest more than 15% of the Fund's assets in foreign securities). The Fund usually invests cash reserves in U. S. Government securities. PRINCIPAL RISKS: The principal risks of investing in the Fund are: - MARKET RISK. This is the risk that the value of the Fund's investments will fluctuate as the stock markets fluctuate and that prices overall will decline, perhaps severely, over short or longer-term periods. You may lose money by investing in the Fund. - FOCUSED PORTFOLIO RISK. The Fund is "non-diversified" meaning that it invests its assets in a smaller number of companies than many other funds. As a result, your investment has the risk that changes in the value of a single security may have a significant effect, either negative or positive, on the Fund's net asset value. BAR CHART AND PERFORMANCE INFORMATION The bar chart and the table shown below provide an indication of the historical risk of an investment in the Fund by showing changes in the Fund's performance from year to year over a 10-year period and by showing how the Fund's average annual returns for 1, 5, and 10 years and over the life of the Fund compare to the Standard & Poor's 500 Index ("S&P 500"), a broad-based securities market index. The Fund's past performance, of course, does not necessarily indicate how it will perform in the future. BAR CHART EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC 1993 10.78% 1994 3.34% 1995 41.38% 1996 21.74% 1997 43.20% 1998 35.25% 1999 -16.54% 2000 20.06% 2001 10.52% 2002 -2.64% During the period shown in the bar chart, the highest return for a quarter was 21.49% (quarter ending 6/97) and the lowest return for a quarter was -14.38% (quarter ending 9/99).
PERFORMANCE TABLE 1 Year 5 Years 10 Years SEQUOIA FUND Return Before Taxes -2.64% 7.83% 15.19% Return After Taxes on Distributions only(1) -2.67% 6.20% 13.53% Return After Taxes on Distributions and Redemption of Fund Shares(1) -1.60% 6.17% 12.59% S&P 500(2) (reflects no deduction for fees, expenses or taxes) -22.10% -0.59% 9.34%
(1) After-tax returns are an estimate, which is calculated using the highest historical individual federal marginal income tax rates, and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an individual investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. (2) The S&P 500 Index is composed of 500 widely held common stocks. One cannot invest directly in the Index. FEES AND EXPENSES OF THE FUND 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) and EXAMPLE ANNUAL FUND OPERATING EXPENSES Management Fees 1.00% Other Expenses 0.02% Total Annual Fund Operating Expenses 1.02% Expense Reimbursement* 0.02% Net Expenses 1.00% * Reflects Ruane, Cunniff & Co., Inc.'s ("Ruane Cunniff") contractual reimbursement of a portion of the Fund's operating expenses. This reimbursement is a provision of Ruane Cunniff'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. The Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It assumes that you invest $10,000 in the Fund for the periods indicated and then redeem all your shares at the end of those periods. It also assumes that your investment has a 5% return each year and that the Fund's operating expenses stay the same. Your actual costs may be higher or lower. 1 Year* 3 Years 5 Years 10 Years $104 $325 $563 $1,248 * The Board of Directors must approve Ruane Cunniff's investment advisory agreement each year. These examples assume that Ruane Cunniff's agreement to reimburse operating expenses is not extended beyond the first year. DESCRIPTION OF THE FUND This section of the Prospectus provides a more complete description of the Fund's investment objective and principal strategies and risks. There can, of course, be no assurance that the Fund will achieve its investment objectives. INVESTMENT OBJECTIVE AND STRATEGIES The Fund's investment objective is long-term growth of capital. In pursuing this objective the Fund focuses principally on common stocks that it believes are undervalued at the time of purchase and have the potential for growth. A guiding principle is the consideration of common stocks as units of ownership of a business and the purchase of them when the price appears low in relation to the value of the total enterprise. No weight is given to technical stock market studies. The balance sheet and earnings history and prospects of each investment are extensively studied to appraise fundamental value. While the Fund normally invests in U.S. companies, it also may invest in foreign securities (typically the Fund does not hold any significant investment in foreign securities and in no event will it invest more than 15% of the Fund's assets in foreign securities). The Fund is not required to be fully invested in common stocks. RISK CONSIDERATIONS FOR THE FUND MARKET RISK - The value of the Fund's investments may change, and possibly decrease, perhaps severely, in response to fluctuations in the stock markets generally. FOCUSED PORTFOLIO RISK - The Fund is non-diversified and invests in the securities of a limited number of issuers. As a result, changes in the market value of a single issuer could cause greater fluctuations in the value of the Fund's shares than would occur in a more diversified fund. OTHER INVESTMENT INFORMATION - Ordinarily, the Fund's portfolio will be invested primarily in common stocks. However, the Fund is not required to be fully invested in common stocks and, in fact, usually maintains certain cash reserves. Depending upon market conditions, cash reserves may be a significant percentage of the Fund's net assets. The Fund usually invests its cash reserves principally in U.S. Government securities. PORTFOLIO TURNOVER RATE - The portfolio turnover rate for the Fund is included in the Financial Highlights section. Normally, the Fund purchases and holds securities for sufficient periods to realize long-term capital appreciation and to qualify for long-term capital gain tax treatment. This means that the Fund's portfolio turnover rate is usually lower than many other funds. Portfolio turnover, however, will not be a limiting factor when management deems changes appropriate and the Fund's portfolio turnover in such cases may exceed 50%. A higher rate of portfolio turnover increases brokerage and other expenses and may affect the Fund's returns. A higher portfolio turnover rate also may result in the realization of net short-term capital gains, which, when distributed, are taxable to the Fund's shareholders. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE The Fund's total return for the year 2002, including the reinvestment of dividends, was -2.64%, compared to a decline of 22.10% for the S & P 500. The Fund's investment philosophy is to make concentrated investments in a limited number of companies whose long-term economic prospects, relative to the acquisition price of the stock, are deemed to be attractive. As a result of this portfolio concentration, the performance of the Fund over time should correlate more closely with the specific financial performance of its limited number of portfolio companies than with price movements in the stock market in general. Many of the Fund's holdings were impacted to some degree by the weak economic conditions that prevailed in 2002. The market prices of the four largest positions in the Fund, which accounted for 64% of total assets at the beginning of 2002, declined modestly during the year. Berkshire Hathaway's share price declined by 3.8%. The performance of the company's insurance operations improved substantially over the course of 2002, although Berkshire continued to add to reserves for prior years' business. The company's non-insurance businesses produced a substantial increase in earnings, reflecting both acquisitions and fixed-income trading gains. Fifth Third Bancorp's share price declined by 4.5% in 2002. The company reported a 13% increase in earnings for the year, driven by strong growth in deposits and earning assets, continued strength in the electronic payment processing business, modest growth in investment advisory revenues, and stable credit performance, partly offset by a modest decline in net interest margin. Progressive Corporation's share price declined by 0.3% in 2002. Progressive generated very strong results in 2002. Operating earnings per share (which excludes realized investment gains) increased by 49%, reflecting strong revenue growth and a substantial increase in the company's underwriting margin. TJX's share price declined by 2.1%. Despite a generally weak economy and increased promotional activity by competing retailers, TJX generated an 11% increase in earnings per share from continuing operations, reflecting 12% sales growth and a modest decline in margins. The positions that made the largest positive contributions to the Fund's performance in 2002 were Mohawk, which posted a 25% gain in share price from the Fund's average purchase price, and Fastenal, which posted a 13% increase in share price for the year. The share prices of some of the Fund's smaller positions declined substantially in 2002. These included Household International (52% decline), Tiffany (24% decline), Dover (21% decline) and Ethan Allen (17%). These share price declines generally reflected the weak economic conditions that prevailed throughout the year. In the case of Household International the decline also reflected regulatory scrutiny of the company that led to a large fine, as well as deteriorating credit performance and reduced demand for the company's bonds among fixed-income investors. During 2002, the Fund initiated a new position in Mohawk Industries, as well as one other position that was included in miscellaneous securities at year-end. During 2002, the Fund sold its holdings of Household International, International Speedway and Molex, and reduced its Dover holdings. Equity investments accounted for 83% of Sequoia's net assets at year-end 2002, compared to 80% at year-end 2001. MANAGEMENT OF THE FUND INVESTMENT ADVISER The Fund's investment adviser is Ruane, Cunniff & Co., Inc., 767 Fifth Avenue, New York, New York 10153. Ruane Cunniff is a registered investment adviser and a registered broker-dealer and member corporation of the New York Stock Exchange, Inc. (the "Exchange"). Ruane Cunniff furnishes investment advisory services for the Fund. For these services, the Fund paid Ruane Cunniff 1% of the Fund's average daily net assets for the fiscal year ended December 31, 2002. This payment amounted to .98% of the Fund's average daily net assets for the fiscal year ended December 31, 2002, after subtracting certain Fund operating expenses that Ruane Cunniff reimbursed to the Fund. PORTFOLIO MANAGER The following individuals serve as portfolio managers for the Fund and are primarily responsible for the day-to-day management of the Fund's portfolio: - - William J. Ruane, Chairman. Mr. Ruane has been the Chairman of the Board of Directors and a Director of Ruane Cunniff for more than 30 years. - - Richard T. Cunniff, Vice Chairman. Mr. Cunniff is a Director of Ruane Cunniff and, prior to 1998, was President of Ruane Cunniff for more than 30 years. - - Robert D. Goldfarb, President. Mr. Goldfarb is President and CEO of Ruane Cunniff with which he has been associated for more than 25 years. PURCHASE AND SALE OF SHARES HOW THE FUND VALUES ITS SHARES The Fund calculates its net asset value or NAV at the close of the Exchange (normally 4:00 p.m. New York time) each day the Exchange is open for business. Generally this means any weekday exclusive of New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day and Good Friday. To calculate NAV, the Fund's assets are valued and totaled, liabilities are subtracted, and the balance, called net assets, is divided by the number of shares outstanding. The Fund values its assets at their current market value determined on the basis of market quotations, or if such quotations are not readily available, such other methods as the Fund's directors believe accurately reflect fair market value. Your order for purchase of shares is priced at the next NAV per share calculated after your order is received by the Fund. If you purchase or redeem shares on a day when the Exchange is closed, the net asset value will be determined as of the close of business on the next following day that the Exchange is open for trading. The Fund reserves the right to reject any order to purchase shares (including additional investments by existing stockholders). HOW TO BUY SHARES The Fund has discontinued indefinitely the sale of its shares to new investors. The Fund will continue to accept additional investments from existing stockholders, and will continue to reinvest dividends and capital gains distributions for the accounts of existing stockholders who have elected those options. The decision to discontinue sales to new investors reflects management's belief that unrestrained growth in the Fund's net assets might impair investment flexibility and would not be in the best interests of existing stockholders. When deemed to be in the Fund's best interests, the Fund reserves the right in appropriate cases to extend the offering of the Fund's shares to other persons including employees and clients of the Adviser, to restrict sales further, or to withdraw the offering altogether, all without notice. ADDITIONAL INVESTMENTS - - Minimum Amounts (except if waived for IRA and Keogh accounts): $50.00 - - Forward Orders to: DST Systems, Inc. Post Office Box 219477 Kansas City, Missouri 64121 - - Orders are accepted for fractional shares. - - The Fund will not accept third-party checks (i.e., any checks which are not made payable to the order of the Fund, DST or a retirement account custodian). - - You may make fixed, periodic investments into the Fund by means of automatic money transfers from your bank checking accounts. To establish automatic money transfers, you may contact the Fund. INDIVIDUAL RETIREMENT ACCOUNTS You also may purchase shares for an individual retirement account, or IRA, including a Roth IRA. IRA investments are available for regular contributions as well as for qualified rollover contributions of distributions received from certain employer-sponsored pension and profit-sharing plans and from other IRAs. All assets in the IRA are automatically invested in Fund shares, including all dividends and capital gain distributions paid on Fund shares held in the IRA. There is an annual fee of $12.00 for an IRA account. KEOGH PLANS If you are self-employed, you may purchase Fund shares through a self-employment retirement plan (often referred to as a Keogh or HR-10 plan) covering yourself and your eligible employees. HOW TO REDEEM SHARES You may redeem your shares (i.e., sell your shares to the Fund) on any day the Exchange is open. Your redemption price is the next NAV per share calculated after your order is received by the Fund. There is no redemption charge. BY MAIL - - You may send a written request for redemption to: DST Systems Inc. Post Office Box 219477 Kansas City, Missouri 64121 - - If you chose to have your shares issued in certificate form, your request must be accompanied by the outstanding certificates representing such shares together with a standard form of stock power signed by the registered owner or owners of such shares. - - If your shares are represented by a Stockholder's Open Account, your redemption request must include a signature guaranteed by a national or state bank or by a member firm of a national stock exchange. - - If your shares are represented by stock certificates, the signature on the stock power must be guaranteed as above. An acknowledgment by a notary public is not acceptable. BY TELEPHONE You may make an oral redemption request of $25,000 or less, which does not require a signature guarantee unless your address has changed within the 60 days prior to the request. All other redemption requests must have signature guarantees. Certain shareholders, such as corporations, trusts and estates, may be required to submit additional documents. PAYMENT - - THE FUND, AT THE DISCRETION OF THE BOARD OF DIRECTORS, MAY PAY THE REDEMPTION PRICE TO YOU IN CASH OR IN PORTFOLIO SECURITIES, OR PARTLY IN CASH AND PARTLY IN PORTFOLIO SECURITIES. - - IT IS POSSIBLE THAT THE FUND'S MANAGEMENT WILL PAY YOU IN SECURITIES OR PARTLY IN SECURITIES IF THE AMOUNT OF SHARES YOU REDEEM IS SIGNIFICANT (E.G., $250,000 OR MORE). - - IT IS HIGHLY LIKELY THAT THE FUND'S MANAGEMENT WILL PAY YOU IN SECURITIES OR PARTLY IN SECURITIES IF YOU MAKE A REDEMPTION (OR SERIES OF REDEMPTIONS) IN THE AMOUNT OF $1 MILLION OR GREATER. - - IF THE FUND PAYS YOUR REDEMPTION WHOLLY OR PARTLY IN PORTFOLIO SECURITIES, YOU WILL NEED A BROKERAGE ACCOUNT IN WHICH TO RECEIVE THE SECURITIES AND YOU WILL INCUR BROKERAGE COSTS IN CONVERTING THE SECURITIES TO CASH. - - YOU SHOULD UNDERSTAND THAT, AS A RESULT OF SUBSEQUENT MARKET VOLATILITY, THE NET PROCEEDS FROM THE ULTIMATE SALE OF ANY SECURITIES THAT YOU RECEIVE UPON A REDEMPTION MAY VARY, EITHER POSITIVELY OR NEGATIVELY, AND PERHAPS SIGNIFICANTLY, FROM THE REDEMPTION VALUE OF YOUR SHARES. IF PROVIDED WITH NOTICE IN ADVANCE OF YOUR CHOSEN REDEMPTION DATE, THE FUND'S MANAGEMENT WILL ASSIST YOU TO THE EXTENT POSSIBLE TO MINIMIZE THIS POTENTIAL MARKET EXPOSURE BY PROVIDING YOU IN ADVANCE WITH A LIST OF THE APPROXIMATE NUMBER AND VALUE OF THE PORTFOLIO SECURITIES THAT YOU WILL RECEIVE. AUTOMATIC WITHDRAWAL PLAN - - You may elect a Withdrawal Plan, at no cost, if you own or purchase shares of the Fund valued at $10,000 or more. - - Under the Plan, you may designate fixed payment amounts that you will receive monthly or quarterly from a Withdrawal Plan Account consisting of shares of the Fund that you deposit. - - Any cash dividends and capital gains distributions on shares held in a Withdrawal Plan Account are automatically reinvested. - - Sufficient shares will be redeemed at NAV to provide the cash necessary for each withdrawal payment. - - Redemptions for the purpose of withdrawals are made on or about the 15th day of the month at that day's NAV, and checks are mailed promptly thereafter. - - If shares are registered in the name of a trustee or other fiduciary, payment will be made only to the fiduciary. - - As withdrawal payments may include a return of principal, they cannot be considered a guaranteed annuity or actual yield of income to the investor. Continued withdrawals in excess of income will reduce and possibly exhaust invested principal, especially in the event of a market decline. Consult your own financial advisers about whether the Withdrawal Plan is appropriate for you. DIVIDENDS, DISTRIBUTIONS AND TAXES Dividends and capital gains distributions, if any, declared by the Fund on its outstanding shares will, at the election of each stockholder, be paid in cash or in additional whole or fractional shares of the Fund. If paid in additional shares, the shares will have an aggregate NAV equal to the cash amount of the dividend or distribution. You may elect to receive dividends and distributions in cash or in shares at the time you order shares. You may change your election at any time prior to the record date for a particular dividend or distribution by written request to the Fund's Dividend Disbursing Agent, DST Systems, Inc., Post Office Box 219477, Kansas City, Missouri 64121. There is no sales or other charge in connection with the reinvestment of dividends and capital gains distributions. For federal income tax purposes, distributions of net income (including any short-term capital gains) by the Fund are taxable to you as ordinary income. Distributions of long-term capital gains are taxable to you as long-term capital gains. The Fund's distributions also may be subject to state and local taxes. The Fund holds portfolio securities longer than most other funds typically hold securities. As a result, unrealized capital gains represent a significant portion of the value of your investment in the Fund. AS OF DECEMBER 31, 2002, THE NET UNREALIZED APPRECIATION OF THE FUND'S PORTFOLIO WAS APPROXIMATELY 55% OF THE FUND'S NET ASSET VALUE. If the Fund sells appreciated securities and distributes the profit, the distributed appreciation may be taxable to you as capital gains. You should carefully consider the tax effect of the Fund's substantial unrealized capital gains on your investment in the Fund. Dividends and distributions are taxable to you whether you receive the amount in cash or reinvest the amount in additional shares of the Fund. In addition, the redemption of Fund shares is a taxable transaction for federal income tax purposes whether paid in cash or in kind. If you buy shares just before the Fund deducts a distribution from its NAV, you will pay the full price for the shares and then receive a portion of the price back as a taxable distribution. Each year shortly after December 31, the Fund will send you tax information stating the amount and type of all its distributions for the year. You should consult your tax adviser about the federal, state and local tax consequences of an investment in the Fund in your particular situation. FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand the Fund's financial performance for the past 5 years. Certain information reflects financial results for a single share of the Fund. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been audited by the Fund's independent accountants, PricewaterhouseCoopers, LLP, for fiscal years 2002, 2001, 2000 and 1999 and by other independent accountants for the fiscal year ended 1998. The report of PricewaterhouseCoopers, LLP, along with the Fund's financial statements, is included in the Fund's Annual Report, which is available upon request.
YEAR ENDED DECEMBER 31, ---------------------------------------------------- 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- Per Share Operating Performance (for a share outstanding throughout each year) Net asset value, beginning of year........ $ 130.24 $ 122.09 $ 127.27 $ 160.70 $ 125.63 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS: Net investment income..................... (0.41) 0.97 1.66 0.84 0.39 Net realized and unrealized gains (losses) on investments............................ (3.03) 11.52 23.33 (26.83) 43.07 -------- -------- -------- -------- -------- Total from investment operations....... (3.44) 12.49 24.99 (25.99) 43.46 -------- -------- -------- -------- -------- LESS DISTRIBUTIONS: Dividends from net investment income...... (0.01) (0.97) (1.66) (0.85) (0.37) Distributions from net realized gains..... (0.16) (3.37) (28.51) (6.59) (8.02) -------- -------- -------- -------- -------- Total distributions.................... (0.17) (4.34) (30.17) (7.44) (8.39) -------- -------- -------- -------- -------- Net asset value, end of year.............. $ 126.63 $ 130.24 $ 122.09 $ 127.27 $ 160.70 ======== ======== ======== ======== ======== TOTAL RETURN.............................. (2.6)% 10.52% 20.06% (16.54)% 35.25% RATIOS/SUPPLEMENTAL DATA: Net assets, end of year (in millions)..... $3,905.1 $4,230.1 $3,943.9 $3,896.9 $5,001.9 Ratio to average net assets: Expenses................................. 1.0% 1.0% 1.0% 1.0% 1.0% Net investment income.................... (0.3)% 0.8% 1.2% 0.6% 0.3% Portfolio turnover rate................... 8% 7% 36% 12% 21%
For more information about the Fund, the following documents are available upon request: ANNUAL/SEMI-ANNUAL REPORTS TO STOCKHOLDERS The Fund's annual and semi-annual reports to stockholders contain additional information on the Fund's investments. The Fund's current annual/semi-annual and quarterly reports are available on the Fund's website: http://www.sequoiafund.com. STATEMENT OF ADDITIONAL INFORMATION (SAI) The Fund has an SAI, which contains more detailed information about the Fund, including its operations and investment policies. The Fund's SAI is incorporated by reference into (and is legally part of) this Prospectus. You may request a free copy of the current annual/ semi-annual report or the SAI, by contacting your broker or other financial intermediary, or by contacting the Fund: BY MAIL: Sequoia Fund, Inc. 767 Fifth Avenue New York, N.Y. 10153 BY PHONE: (800) 686-6884 Or you may view or obtain these documents from the Securities and Exchange Commission ("Commission"): - - Call the Commission at 1-202-942-8090 for information on the operation of the Public Reference Room. - - Reports and other information about the Fund are available on the EDGAR Database on the Commission's Internet site at http://www.sec.gov - - Copies of the information may be obtained, after paying a duplicating fee, by electronic request at publicinfo@sec.gov, or by writing the Commission's Public Reference Section, Washington, DC 20549-0102 SEQUOIA FUND, INC. [GRAPHIC] PROSPECTUS May 1, 2003 SEQUOIA FUND, INC. 767 Fifth Avenue New York, New York 10153 (Telephone 800-686-6884) STATEMENT OF ADDITIONAL INFORMATION May 1, 2003 --------------------- Sequoia Fund, Inc. (the "Fund") is a no-load, non-diversified, open-end investment company seeking long-term growth of capital. Ordinarily the Fund's portfolio will be primarily invested in common stocks and securities convertible into or exchangeable for common stocks. The Fund may invest to limited extents in foreign securities, restricted securities and special situations. --------------------- This Statement of Additional Information ("SAI") is not a prospectus and is only authorized for distribution when preceded or accompanied by the Fund's Prospectus dated May 1, 2003 (the "Prospectus"). This SAI contains additional and more detailed information than that set forth in the Prospectus and should be read in conjunction with the Prospectus, additional copies of which may be obtained without charge by writing or telephoning the Fund at the address and telephone number set forth above or on the Fund's website: http:///www.sequoiafund.com. --------------------- Table of Contents Investment Policies.................................................. Management........................................................... Investment Adviser and Investment Advisory Contract.................. Allocation of Portfolio Brokerage.................................... Net Asset Value...................................................... Redemption of Shares................................................. Tax Considerations................................................... Common Stock......................................................... Custodian, Counsel and Independent Accountants....................... Financial Statements and Report of Independent Accountants.......................................................... INVESTMENT POLICIES - ------------------- (a) Foreign Securities ------------------ Investments may be made in both domestic and foreign companies. While the Fund has no present intention to invest any significant portion of its assets in foreign securities, it reserves the right to invest not more than 15% of the value of its net assets (at the time of purchase and after giving effect thereto) in the securities of foreign issuers and obligors. Investors should recognize that investments in foreign companies involve certain considerations which are not typically associated with investing in domestic companies. An investment may be affected by changes in currency rates and in exchange control regulations. There may be less publicly available information about a foreign company than about a domestic company. Foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards comparable to those applicable to domestic companies. Foreign stock markets have substantially less volume than the New York Stock Exchange, Inc. (the "Exchange") and securities of some foreign companies may be less liquid and more volatile than securities of comparable domestic companies. There is generally less government regulation of stock exchanges, brokers and listed companies than in the United States. In addition, with respect to certain foreign countries there is a possibility of expropriation or confiscatory taxation, political or social instability or diplomatic developments which could affect investments in those countries. Individual foreign economies may differ favorably or unfavorably from the United States' economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. As of December 31, 2002, no foreign securities were held by the Fund. (b) Restricted or Not Readily Marketable Securities ----------------------------------------------- The Fund may invest in securities acquired in a privately negotiated transaction from the issuer or a holder of the issuer's securities and which may not be distributed publicly without registration under the Securities Act of 1933 ("Securities Act"). Such restricted securities may not thereafter ordinarily be sold by the Fund except in another private placement or under an effective registration statement filed pursuant to the Securities Act. The Fund will not invest in any restricted securities which will cause the then aggregate value of all of such restricted securities, as valued on the books of the Fund, to exceed 10% of the value of the Fund's net assets (at the time of such investment and after giving effect thereto). Restricted securities are valued in such manner as the Board of Directors in good faith deems appropriate to reflect their fair value. The purchase price and subsequent valuations of restricted securities normally reflect a discount from the price at which such securities trade when they are not restricted, since the restriction makes them less liquid. The amount of the discount from the prevailing market price is expected to vary depending upon the type of security, the character of the issuer, the party who will bear the expenses of registering the restricted securities and prevailing supply and demand conditions. The Fund may not make loans or invest in any restricted securities or other illiquid assets which will cause the then aggregate value of all such restricted securities and other illiquid assets to exceed 10% of the value of the Fund's net assets (at the time of such investment and after giving effect thereto). As of December 31, 2002, no such securities were held by the Fund. If, pursuant to the foregoing policy, the Fund were to assume substantial positions in particular securities with a limited trading market, the activities of the Fund could have an adverse effect on the liquidity and marketability of such securities, and the Fund may not be able to dispose of its holdings in these securities at reasonable price levels. There are other investment companies and other investment media engaged in operations similar to those of the Fund, and, to the extent that these organizations trade in the same securities, the Fund may be forced to dispose of its holdings at prices lower than otherwise would be obtained. (c) Special Situations ------------------ The Fund intends to invest in special situations from time to time. A special situation arises when, in the opinion of the Fund's management, the securities of a particular company will, within a reasonably estimable period of time, be accorded market recognition at an appreciated value solely by reason of a development particularly or uniquely applicable to that company and regardless of general business conditions or movements of the market as a whole. Developments creating special situations might include, among others, the following: liquidations, reorganizations, recapitalizations or mergers; material litigation; technological breakthroughs; and new management or management policies. Although large and well-known companies may be involved, special situations often involve much greater risk than is inherent in ordinary investment securities. The Fund will not, however, purchase securities of any company with a record of less than three years' continuous operation (including that of predecessors) if such purchase would cause the Fund's investments in all such companies to exceed 25% of the value of the Fund's total assets. (d) Other Investment Policies ------------------------ The Fund will not seek to realize profits by anticipating short-term market movements and intends to purchase securities for growth of capital, in particular long-term capital appreciation. In any event, under ordinary circumstances, securities will be held for sufficient periods to qualify for long-term capital gain treatment for tax purposes. While the rate of portfolio turnover will not be a limiting factor when management deems changes appropriate, it is anticipated that given the Fund's investment objectives, its annual portfolio turnover generally should not exceed 75%. (Portfolio turnover is calculated by dividing the lesser of the Fund's purchases and sales of portfolio securities during the period in question by the monthly average of the value of the Fund's portfolio securities during that period. Excluded from consideration in the calculation are U.S. Government securities and all other securities with maturities of one year or less when purchased by the Fund.) A diversified investment company may not invest more than 5% of its total assets in the securities of any one issuer and may not own more than 10% of the outstanding voting securities of any one issuer. While the Fund is a non-diversified investment company and therefore is not subject to any statutory diversification requirements, it will be required to meet certain diversification tests each year in order to qualify as a regulated investment company under the Internal Revenue Code, as it intends to do. See "Tax Considerations, page 20. The Fund will not acquire more than 25% of any class of the securities of any issuer. The Fund reserves the right, without stockholder action, to diversify its investments to any extent it deems advisable or to become a diversified company, but once the Fund becomes a diversified company, it could not thereafter change its status to that of a non-diversified company without the approval of its stockholders. The Fund has adopted certain investment restrictions as a matter of fundamental investment policy, which may not be changed without a stockholder vote of a majority of the outstanding voting securities as defined in Section 2(a)(42) of the Investment Company Act of 1940 ("1940 Act"). The Fund may not: 1. Underwrite the securities of other issuers, except the Fund may, as indicated above (see "Restricted or Not Readily Marketable Securities," page 2), acquire restricted securities under circumstances where, if such securities are sold, the Fund might be deemed to be an underwriter for purposes of the Securities Act. 2. Purchase or sell real estate or interests in real estate, but the Fund may purchase marketable securities of companies holding real estate or interests in real estate. 3. Purchase or sell commodities or commodity contracts. 4. Make loans to other persons except by the purchase of a portion of an issue of publicly distributed bonds, debentures or other debt securities, except that the Fund may purchase privately sold bonds, debentures or other debt securities immediately convertible into equity securities subject to the restrictions applicable to the purchase of not readily marketable securities. (See "Restricted or Not Readily Marketable Securities," page 2.) 5. Borrow money except for temporary or emergency purposes and then only from banks and in an aggregate amount not exceeding 5% of the value of the Fund's total assets at the time any borrowing is made, provided that the term "borrow" shall not include the short-term credits referred to in paragraph 6 below. 6. Purchase securities on margin, but it may obtain such short-term credits as may be necessary for the clearance of purchases and sales of securities. 7. Make short sales of securities. 8. Purchase or sell puts and calls on securities. 9. Participate on a joint or joint and several basis in any securities trading account. 10. Purchase the securities of any other investment company except (1) in the open market where to the best information of the Fund no commission, profit or sales charge to a sponsor or dealer (other than the customary broker's commission) results from such purchase, or (2) if such purchase is part of a merger, consolidation or acquisition of assets. 11. Invest in companies for the purpose of exercising management or control. 12. Invest more than 25% of the value of its net assets (at the time of purchase and after giving effect thereto) in the securities of any one issuer. 13. Issue senior securities, except as permitted by the 1940 Act. In connection with the qualification or registration of the Fund's shares for sale under the State securities laws of certain States, the Fund has agreed, in addition to the investment restrictions set forth above, that it will not (i) purchase material amounts of restricted securities, (ii) invest more than 5% of the value of its total assets in securities of unseasoned issuers (including their predecessors) which have been in operation for less than three years, and equity securities of issuers which are not readily marketable, (iii) invest any part of its assets in interests in oil, gas or other mineral or exploration or development programs (excluding readily marketable securities), (iv) purchase or retain any securities of another issuer of which those persons affiliated with the Fund or Ruane, Cunniff & Co., Inc., the Fund's investment adviser (the "Investment Adviser"), owning, individually, more than one-half of one percent of said issuer's outstanding stock (or securities convertible into stock) own, in the aggregate, more than five percent of said issuer's outstanding stock (or securities convertible into stock) and (v) invest in warrants (other than warrants acquired by the Fund as a part of a unit or attached to securities at the time of purchase), if as a result such warrants valued at the lower of cost or market, would exceed 5% of the value of the Fund's assets at the time of purchase provided that not more than 2% of the Fund's net assets at the time of purchase may be invested in warrants not listed on the Exchange or the American Stock Exchange. The Fund may from time to time agree to additional investment restrictions for purposes of compliance with the securities laws of those States where the Fund intends to sell or offer for sale its shares. Any such additional restrictions that would have a material bearing on the Fund's operations will be reflected in supplements to this SAI or related Prospectus. MANAGEMENT - ---------- BOARD OF DIRECTORS INFORMATION The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund's Board of Directors is set forth below. Dollar Range of Equity Securities Other Of the Principal Director- Corporation Position(s) Years of Occupation(s) ships as of Name, Address* Held with Service as During Past Held by December and Age the Fund a Director 5 Years Director 31, 2002 - ----------- ---------- ------------- ------------- ----------- ------------ INTERESTED DIRECTORS** Chairman of 33 Chairman of None Over William J. the Board the Board of $100,000 Ruane, 77 of Directors Directors (1)(2) and Director and Director, Ruane, Cunniff & Co., Inc. (member firm of the New York Stock Exchange, Inc.), with which he has been associated for more than five years. Richard T. Vice 33 Vice Sturm, Over Cunniff, 80 Chairman Chairman and Ruger & $100,000 and Director Director, Company, (2)(3) Ruane, Inc. Cunniff & Co., Inc., with which he has been associated for more than five years. Robert D. President 22 President None Over Goldfarb, 58 and Director and $100,000 Director, (2)(4) Ruane, Cunniff & Co., Inc., with which he has been associated for more than five years. David M. Executive Effective Research None None Poppe, 38 Vice 1/1/03 Analyst of President Ruane, and Director Cunniff & Co., Inc., Business reporter Miami Herald [need dates] DISINTERESTED DIRECTORS Vinod Ahooja, Director 2 Currently None None 51, ***, + retired. Mr. Ahooja was a Partner with Goldman Sachs & Co. from 1990 to 1993. Roger Director 4 A writer who None Over Lowenstein, regularly $100,000 (5) 49, ***, + contributes to major financial and news publications; he was a writer for the Wall Street Journal from 1979 to 1991 and 1995 to 1997. Francis P. Director 30 Currently None Over Matthews, retired. $100,000 (6) 81, ***, + Mr. Matthews was Of Counsel to Matthews & Cannon, P.C. (law firm) from 1986 to 1990. C. William Director 28 Currently None Over Neuhauser, retired. $100,000 (7) 77, ***, + Mr. Neuhauser was Executive Secretary of National Maritime Council from 1979 to 1981. Robert L. Director 32 Currently None Over Swiggett, retired. $100,000 81, ***, + Mr. Swiggett was Chairman of the Board of Directors and Director of Kollmorgen Corporation (electro-optical instruments, direct-drive motor and control devices and systems) from 1983 to 1990. - ----------------------- * The address for each of the Fund's Directors is 767 Fifth Avenue, New York, New York 10153. ** "Interested person," as defined in the 1940 Act, of the Fund because of an affiliation with the Fund's investment adviser. *** Member of the Audit Committee + Member of the Nominating Committee of the Fund. (1) In addition, (a) 178,921 shares of such stock are owned by Mr. Ruane's relatives or by trusts in which Mr. Ruane's relatives have beneficial interests and (b) Mr. Ruane is Trustee of the Carmel Hill Fund, the assets of which include 256,416 shares of such stock; however, beneficial ownership by Mr. Ruane of such shares shall not be deemed to be hereby admitted. (2) Messrs. Ruane, Cunniff and Goldfarb are officers, directors and voting stockholders of Ruane, Cunniff & Co., Inc., which is the owner of 26,685 shares of the Fund's Common Stock. (See "Investment Adviser and Investment Advisory Contract" below). In addition, Messrs. Ruane, Cunniff and Goldfarb are trustees and beneficiaries of the Profit-Sharing and Money Purchase Plans of Ruane, Cunniff & Co., Inc., which own 172,846 shares of the Fund's Common Stock. (3) In addition, 88,762 shares of such stock are owned by Mr. Cunniff's relatives but beneficial ownership by Mr. Cunniff of such shares shall not be deemed to be hereby admitted. (4) In addition, 53,424 shares of such stock are owned by Mr. Goldfarb's relatives, but beneficial ownership by Mr. Goldfarb of such shares shall not be deemed to be hereby admitted. (5) In addition, 347 shares of such stock are owned by Mr. Lowenstein's relatives, but beneficial ownership by Mr. Lowenstein of such shares shall not be deemed to be hereby admitted. (6) In addition, 1,693 shares of such stock are owned by Mr. Matthews' relatives, but beneficial ownership by Mr. Matthews of such shares shall not be deemed to be hereby admitted. (7) In addition, 1,075 shares of such stock are owned by Mr. Neuhauser's relatives, but beneficial ownership by Mr. Neuhauser of such shares shall not be deemed to be hereby admitted. OFFICER INFORMATION Certain information concerning the Fund's officers is set below. Position(s) - (Month and Principal Occupation Name, Address and Age Year First Elected) during the past 5 years - --------------------- ------------------- ----------------------- Robert D. Goldfarb (58) President (7/98) See biography above. David M. Poppe (38) Executive Vice President See biography above. (1/03) Joseph Quinones, Jr. (57) Vice President, Secretary Vice President, Secretary and Treasurer (6/95) and Treasurer, Ruane Cunniff & Co., Inc., with which he has been associated for more than five years. - ----------------------- * The address for each of the Fund's officers is 767 Fifth Avenue, New York, New York 10153. As of the close of business on April 1, 2003, the directors and officers of the Fund collectively owned approximately 1.07%, or, including shares owned by their respective relatives and affiliates, approximately 3.88%, of the total number of the outstanding shares of the Fund's Common Stock. Each of the directors and officers disclaims beneficial ownership of the shares owned by such relatives and affiliates. The Fund's Board of Directors has two standing committees of the board - an Audit Committee and a Nominating Committee. The members of the Audit and Nominating Committees are identified above. The function of the Audit Committee is to assist the Board of Directors in its oversight of the Fund's financial reporting process. The Audit Committee met one time during the Fund's most recently completed fiscal year, on March 4, 2002. The function of the Nominating Committee is to nominate persons to fill any vacancies on the Board of Directors. The Nominating Committee will consider for nomination candidates proposed by shareholders for election as Directors. The Nominating Committee met one time during the Fund's most recently completed fiscal year, on December 9, 2002, to consider the appointment of Mr. David M. Poppe to the Board of Directors to replace Ms. Carol L. Cunniff. The Fund does not pay any fees to, or reimburse expenses of, its Directors who are considered "interested persons" of the Fund. The aggregate compensation for the fiscal year ended December 31, 2002 paid by the Fund to each of the Directors is set forth below. The Investment Adviser does not provide investment advisory services to any investment companies registered under the 1940 Act other than the Fund. Pension or Estimated Retirement Annual Aggregate Benefits Benefits Total Compensation Accrued As Part Upon Compensation Name of Director from Fund of Fund Expenses Retirement From Fund - ---------------- --------- ---------------- ---------- --------- William J. Ruane $0 $-0- $-0- $0 Richard T. Cunniff $0 -0- -0- $0 Robert D. Goldfarb $0 -0- -0- $0 David M. Poppe $0 -0- -0- $0 Vinod Ahooja $34,000 -0- -0- $34,000 Roger Lowenstein $31,500 -0- -0- $31,500 Francis P. Matthews $34,000 -0- -0- $34,000 C. William Neuhauser $34,000 -0- -0- $34,000 Robert L. Swiggett $34,000 -0- -0- $34,000 The Investment Adviser and the Fund have adopted a Code of Ethics that permits the Investment Adviser's employees and Fund personnel to invest in securities, including securities that may be held or purchased by the Fund. The Code of Ethics contains trading restrictions, pre-clearance procedures and reporting procedures designed to detect and prevent potential conflicts of interest. INVESTMENT ADVISER AND INVESTMENT ADVISORY CONTRACT - --------------------------------------------------- The terms of the Investment Advisory Contract (the "Contract") provide that it is to remain in force until December 31, 1993 and thereafter for successive twelve-month periods computed from each January 1, provided that such continuance is specifically approved annually by vote of a majority of the Fund's outstanding voting securities or by the Fund's Board of Directors; and by a majority of the Fund's Board of Directors who are not parties to the Contract or interested persons of any such party, by vote cast in person at a meeting called for the purpose of voting on such approval. Renewal of the Contract through December 31, 2003 was so approved by the Board of Directors and by the disinterested directors at a meeting of the Board of Directors on December 9, 2002 at which meeting the Board of Directors also approved the submission to stockholders of the Fund of the renewal of the Contract for the period commencing January 1, 2003, pursuant to the provisions of the 1940 Act and the terms of the Contract described above. In approving the renewal of the Contract, the Directors considered all information they deemed reasonably necessary to evaluate the terms of the Contract. The Directors' evaluation of the quality of the Investment Adviser's services took into account written analyses of the profitability of the Fund for the ten-month period ended October 31, 2002, and of the portfolio brokerage commissions paid by the Fund to Ruane Cunniff during the first ten months of the fiscal year. In addition, the Board of Directors considered written calculations of the Fund's net asset value per share at December 9, 2002, the cost and market value of the Fund's investments and a survey prepared by management of the Fund of open-end, no load mutual funds currently paying investment advisory fees of 1% or more. The income and expenses of the Fund and the profitability of the Fund to the Investment Adviser were considered by the Directors in their analysis. The performance of the Fund was also considered, in light of the Investment Adviser's compliance with investment policies and applicable laws and regulations and of related reports by management and the Fund's independent auditors in periodic meetings with the Fund's Audit Committee. The Directors also reviewed the fees payable under the Contract, comparing the fees and overall expense level of the Fund to those of competitive funds and other funds with similar investment objectives. Pursuant to the terms of the Contract, the Investment Adviser furnishes advice and recommendations with respect to the Fund's portfolio of securities and investments and provides persons satisfactory to the Fund's Board of Directors to act as officers and employees of the Fund. Such officers and employees, as well as certain directors of the Fund, may be directors, officers or employees of the Investment Adviser or its affiliates. In addition, the Investment Adviser is obligated under the Contract to pay or reimburse the Fund for the following expenses incurred by the Fund: (i) the compensation of any of the Fund's directors, officers and employees who are interested persons of the Investment Adviser or its affiliates (other than by reason of being directors, officers or employees of the Fund), (ii) fees and expenses of registering the Fund's shares under the appropriate federal securities laws and of qualifying its shares under applicable State Blue Sky laws, including expenses attendant upon renewing and increasing such registrations and qualifications, and (iii) expenses of printing and distributing the Fund's prospectuses and sales and advertising materials. The Fund is responsible and has assumed the obligation for payment of all of its other expenses including (a) brokerage and commission expenses, (b) Federal, State or local taxes, including issue and transfer taxes, incurred by or levied on the Fund, (c) interest charges on borrowings, (d) compensation of any of the Fund's directors, officers or employees who are not interested persons of the Investment Adviser or its affiliates (other than by reason of being directors, officers or employees of the Fund), (e) charges and expenses of the Fund's custodian, transfer agent and registrar, (f) costs of proxy solicitations, (g) legal and auditing expenses, and (h) payment of all investment advisory fees (including the fee payable to the Investment Adviser under the Contract). The Contract is terminable on 60 days' written notice by vote of a majority of the Fund's outstanding shares or by vote of majority of the Fund's entire Board of Directors, or by the Investment Adviser on 60 days' written notice and automatically terminates in the event of its assignment. The Contract provides that in the absence of willful misfeasance, bad faith or gross negligence on the part of the Investment Adviser, or of reckless disregard of its obligations thereunder, the Investment Adviser is not liable for any action or failure to act in accordance with its duties thereunder. For the services provided by the Investment Adviser under the Contract, the Investment Adviser receives from the Fund a management fee equal to 1% per annum of the Fund's average daily net asset values. The management fee is accrued daily in computing the net asset value of a share for the purpose of determining the offering and redemption price per share, and is paid to the Investment Adviser at the end of each month. However, under the terms of the Contract, the Investment Adviser will reimburse the Fund for the amount, if any, by which the operating expenses of the Fund in any year, including the management fee, exceed 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. Operating expenses for the purposes of the Contract do not include the expenses listed in clauses (a), (b) and (c) above. Computation of this limitation is made monthly during the Fund's fiscal year, on the basis of the average daily net asset values and operating expenses to that point during such year, and the amount of the excess, if any, over the prorated amount of the expense limitation is paid by the Investment Adviser to the Fund (or, where such amount of the excess is less than the monthly payment by the Fund to the Investment Adviser of the management fee, is deducted from such monthly payment of the management fee), after taking into account, however, any previous monthly payments under the operating expense limitation during such fiscal year. The amount of operating expenses incurred by the Fund during the fiscal year ended December 31, 2002, was $42,560,900 of which the Investment Adviser reimbursed the Fund $793,000. During the fiscal year ended December 31, 2001, the fund incurred operating expenses of $40,506,200 of which the Investment Adviser reimbursed the Fund $836,000 pursuant to the expense limitation described above. During the fiscal year ended December 31, 2000, the Fund incurred operating expenses of $37,528,400 of which the Investment Adviser reimbursed the Fund $691,000. The Investment Adviser may act as an investment adviser to other persons, firms or corporations (including investment companies), and has numerous advisory clients besides the Fund, none of which, however, is a registered investment company. The Investment Adviser is a registered investment adviser and a registered broker-dealer and member corporation of the Exchange. The Investment Adviser has also been and may in the future be the Fund's regular broker. The Investment Adviser also serves without compensation as the Fund's distributor and as such is authorized to solicit orders from the public to purchase shares of the Fund's common stock. The distributor acts in this capacity merely as the Fund's agent, and all subscriptions must be accepted by the Fund as principal. Mr. William J. Ruane, Mr. Richard T. Cunniff and Mr. Robert D. Goldfarb are the controlling shareholders of the Investment Adviser. Management Fee - -------------- The following chart sets forth, for each of the last three years, (i) the management fee which was received by the Investment Adviser, (ii) the portion, if any, of such fee reimbursed to the Fund pursuant to the expense limitation described above and (iii) the net amount received by the Investment Adviser from the Fund. Management Amount Net Amount Year Ended Fee Reimbursed Received - ---------- --- ---------- -------- December 31, 2000 $36,687,368 $691,000 $35,996,368 December 31, 2001 $39,520,181 $836,000 $38,684,181 December 31, 2002 $41,617,894 $793,000 $40,824,894 ALLOCATION OF PORTFOLIO BROKERAGE - --------------------------------- The Fund and the Investment Adviser generally do not direct the Fund's portfolio transactions to persons or firms because of research services provided by such person or firm. While neither the Fund nor the Investment Adviser has a present intention of doing so, the Investment Adviser may execute transactions in the Fund's portfolio securities through persons or firms which supply investment information to the Fund or the Investment Adviser, but only when consistent with the Fund's policy to seek the most favorable markets, prices and executions in its securities transactions. The Fund may invest in some instances in securities which are not listed on a national securities exchange but are traded in the over-the-counter market or the third market. It may also execute transactions in listed securities through the third market. Where transactions are executed in the over-the-counter market or the third market, the Investment Adviser seeks to deal with primary market makers and to execute transactions on the Fund's own behalf, except in those circumstances where, in the opinion of management, better prices and executions may be available elsewhere. The Fund does not allocate brokerage business in return for sales of the Fund's shares. The following chart sets forth figures pertaining to the Fund's brokerage during the last three years: Brokerage Commissions Total Paid to Brokerage Ruane, Commissions Cunniff Year Ended Paid & Co., Inc. - ---------- ---- ----------- December 31, 2000 $1,826,430 $1,804,650 December 31, 2001 $ 230,029 $ 178,290 December 31, 2002 $ 450,458 $ 447,773 During the year ended December 31, 2002, the brokerage commissions paid to the Investment Adviser represented approximately 99.4% of the total brokerage commissions paid by the Fund during such year and were paid on account of transactions having an aggregate dollar value equal to approximately 99.5% of the aggregate dollar value of all portfolio transactions of the Fund during such year for which commissions were paid. INDIVIDUAL RETIREMENT ACCOUNTS - ------------------------------ Individuals generally may make regular contributions to a traditional IRA of up to $3,000 annually. Individuals age 50 or over may make an additional contribution of $500. The deductibility for Federal income tax purposes of such contributions may be reduced if the individual is an active participant in an employer-sponsored retirement plan. For 2003, if an individual is an active participant, the deduction will not be available if, (i) the individual has adjusted gross income above $50,000, (ii) the individual files a joint return with his or her spouse and they have adjusted gross income above $70,000, or (iii) the individual is married, files separately and has adjusted gross income above $10,000. Further, in the case of a married individual who is not an active participant but whose spouse is an active participant, the deduction will not be available if the couple files a joint return and has adjusted gross income above $160,000 (or, if such individual files separately and has adjusted gross income above $10,000). Below these income levels, some or all of the contributions may be deductible. In addition, an individual with a non-working spouse generally may establish a separate IRA for the spouse and annually contribute a total of up to $6,000 to the two IRAs, provided that generally no more than $3,000 may be contributed to the IRA of either spouse. As noted above, the deductibility of contributions may be reduced if either spouse is an active participant in an employer-sponsored retirement plan. No regular contribution may be made to a traditional IRA for any year if by the end of such year the IRA owner has attained the age 70 1/2. ROTH IRAS - --------- Eligible individuals also may elect to make contributions to a Roth IRA of up to $3,000 annually. Individuals age 50 or over may make an additional contribution of $500. Contributions to a Roth IRA are not deductible for Federal income tax purposes. Investment earnings accumulate in a Roth IRA tax-free, and if certain criteria are met, distributions from the account will not be taxed. Contributions may not be made to a Roth IRA by an individual with adjusted gross income above $110,000, a married couple filing a joint return with adjusted gross income above $160,000, or a married individual filing separately with adjusted gross income above $10,000. Below these income levels, a taxpayer may make contributions to a Roth IRA, although the allowable contribution may be less than $3,000. The total amount contributed by an individual to all IRAs (both traditional and Roth) in a year may not exceed $3,000. Contributions to a Roth IRA may generally be made even if the IRA owner has attained the age 70 1/2. KEOGH PLANS - ----------- Generally, the annual amount which a self-employed individual may deduct for contributions to his own account under a self-employment retirement plan (often referred to as a Keogh or HR-10 plan) may be up to 100% of his or her net earnings from self-employment (depending on the particular type of plan or plans involved), up to a maximum contribution of $40,000. The Fund does not have a form of Keogh plan available for adoption. NET ASSET VALUE The net asset value of each share of the Fund's Common Stock on which the subscription and redemption prices are based is determined once each Fund Business Day as of the close of the Exchange by the value of the securities and other assets owned by the Fund less its liabilities, computed in accordance with the Articles of Incorporation and By-Laws of the Fund. Fund Business Day for this purpose means any weekday exclusive of New Year's Day, Martin Luther King, Jr. Day, President's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day and Good Friday. The net asset value of a share is the quotient obtained by dividing the net assets of the Fund (i.e., the value of the assets of the Fund less its liabilities, including expenses payable or accrued but excluding capital stock and surplus) by the total number of shares of Common Stock outstanding. For purposes of this computation, readily marketable portfolio securities listed on the Exchange are valued at the last sales price on the Exchange on the business day as of which such value is being determined. If there has been no sale on the Exchange on such day, the security is valued at the mean of the closing bid and asked prices on such day. If no bid and asked prices are quoted on the Exchange on such day, then the security is valued by such method as the Board of Directors of the Fund shall determine in good faith to reflect its fair market value. Readily marketable securities not listed on the Exchange but listed on other national securities exchanges are valued in like manner. Securities traded on the Nasdaq Stock Market, Inc. ("NASDAQ") are valued in accordance with NASDAQ Official Closing Price. Treasury Bills with remaining maturities of 60 days or less are valued at their amortized cost. Under the amortized cost method of valuation, an instrument is valued at cost and the interest payable at maturity upon the instrument is accrued as income, on a daily basis, over the remaining life of the instrument. A Treasury Bill that when purchased had a remaining maturity in excess of sixty days is valued on the basis of market quotations and estimates as described above until the sixtieth day prior to maturity, at which point it is valued at amortized cost. In that event, the "cost" of the security is deemed to be the security's stated market value on the sixty-first day prior to maturity. All other assets of the Fund, including restricted and not readily marketable securities, are valued in such manner as the Board of Directors of the Fund in good faith deems appropriate to reflect their fair value. The net asset value for each share of Common Stock on which the subscription and redemption prices are based is determined as of the close of business on the Exchange next following the receipt by the Fund of the subscription or request for redemption. REDEMPTION OF SHARES - -------------------- The right of redemption may not be suspended or (other than by reason of a stockholder's delay in furnishing the required documentation following certain oral redemption requests) the date of payment upon redemption postponed for more than seven days after a stockholder's redemption request in accordance with the procedures set forth in the Prospectus, except for any period during which the Exchange is closed (other than customary week-end and holiday closings) or during which the Securities and Exchange Commission determines that trading thereon is restricted, or for any period during which an emergency (as determined by the Securities and Exchange Commission) exists as a result of which disposal by the Fund of securities owned by it is not reasonably practicable or as a result of which it is not reasonably practicable for the Fund fairly to determine the value of its net assets, or for such other period as the Securities and Exchange Commission may by order permit for the protection of security holders of the Fund. TAX CONSIDERATIONS - ------------------ The Fund is a "non-diversified" investment company, which means the Fund is not limited (subject to the investment restrictions set forth on pages 4-5) in the proportion of its assets that may be invested in the securities of a single issuer. However, for the fiscal year ended December 31, 2002 the Fund has qualified, and for each fiscal year thereafter, the Fund intends to conduct its operations so as to qualify to be taxed as a "regulated investment company" for purposes of the Internal Revenue Code of 1986, as amended, which will relieve the Fund of any liability for Federal income tax on that part of its net ordinary taxable income and net realized long-term capital gain which it distributes to stockholders. Such qualification does not involve supervision of management or investment practices or policies by any government agency. To so qualify, among other requirements, the Fund will limit its investments so that, at the close of each quarter of the taxable year, (i) not more than 25 percent of the market value of the Fund's total assets will be invested in the securities of a single issuer ("the 25% test"), and (ii) with respect to 50 percent of the market value of its total assets, not more than five percent of the market value of its total assets will be invested in the securities of a single issuer and the Fund will not own more than 10 percent of the outstanding voting securities of a single issuer ("the 50% test"). The Fund's investments in U.S. Government securities are not subject to these limitations. The Fund will not lose its status as a regulated investment company if the Fund fails to meet the 25% test or the 50% test at the close of a particular quarter due to fluctuations in the market values of its securities. Investors should consult their own counsel for a complete understanding of the requirements the Fund must meet to qualify as a regulated investment company. The following discussion relates solely to the Federal income tax treatment of dividends and distributions by the Fund and assumes the Fund qualifies as a regulated investment company. Investors should consult their own counsel for further details and for the application of state and local tax laws to their particular situation. Distributions of net ordinary taxable income (including any realized short-term capital gain) by the Fund to its stockholders are taxable to the recipient stockholders as ordinary income and, to the extent determined each year, are eligible, in the case of corporate stockholders, for the 70 percent dividends-received deduction, subject to reduction of the amount eligible for deduction if the aggregate qualifying dividends received by the Fund from domestic corporations in any year are less than 100% of its gross income (excluding long-term capital gains from securities transactions). Under provisions of the current tax law, a corporation's dividends-received deduction will be disallowed, however, unless the corporation holds shares in the Fund at least 46 days during the 90-day period beginning 45 days before the date on which the corporation becomes entitled to receive the dividend. Furthermore, the dividends-received deduction will be disallowed to the extent a corporation's investment in shares of the Fund is financed with indebtedness. In view of the Fund's investment policies, dividends from domestic corporations may be a large part of the Fund's ordinary taxable income and, accordingly, a large part of such distributions by the Fund may be eligible for the dividends-received deduction; however, this is largely dependent on the Fund's investment policy for a particular year and therefore cannot be predicted with certainty. For the year ended December 31, 2002, 51.1% of the net ordinary taxable income distributed by the Fund was eligible for such deduction by corporate stockholders. For federal income tax purposes, dividends declared and payable to shareholders of record as of a date in October, November or December of a given year but actually paid during the immediately following January will be treated as if paid by the Fund on December 31 of that calendar year and will be taxable to such shareholders for the year declared and not for the year in which the shareholders actually receive the dividend. COMMON STOCK - ------------ The Articles of Incorporation of the Fund give the Fund the right to purchase for cash the shares of Common Stock evidenced by any stock certificate presented for transfer at a purchase price equal to the aggregate net asset value per share determined as of the next close of business of the Exchange after such certificate is presented for transfer, computed as in the case of a redemption of shares. The Fund's shares have non-cumulative voting rights, which means that the holders of more than 50% of the shares voting for the election of directors can elect 100% of the directors if they choose to do so, and in such event the holders of the remaining less than 50% of the shares voting for such election of directors will not be able to elect any person or persons to the Board of Directors. As of the close of business on April 1, 2003, Bankers Trust Company as Trustee for the Walt Disney Company Employees Master Retirement Plan (300 S. Grand Avenue, Los Angeles, CA 90071-3109) and Fidelity Management Trust Company as Trustee of the Walt Disney Company Employees Benefit Plan Trust Employees Profit Sharing Plan Trust (100 Magellan Way, Covington, Kentucky 41015-1999) together beneficially owned 2,572,777 shares of the Fund (representing 9.27% of the outstanding Common Stock of the Fund). No other person beneficially owned five percent or more of the Fund's Common Stock on such date. CUSTODIAN, COUNSEL AND INDEPENDENT ACCOUNTANTS - ---------------------------------------------- The Bank of New York, MF Custody Administration Department, 100 Church Street, 10th Floor, New York, New York 10286, acts as custodian for the Fund's securities portfolio and cash. Subject to the supervision of the Board of Directors, The Bank of New York may enter into sub-custodial agreements for the holding of the Fund's foreign securities. Seward & Kissel LLP, One Battery Park Plaza, New York, New York 10004, serves as counsel to the Fund. PricewaterhouseCoopers, LLP, 1177 Avenue of the Americas, New York, New York 10036 has been appointed independent accountants for the Fund. FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT ACCOUNTANTS - ---------------------------------------------------------- The financial statements and the report of PricewaterhouseCoopers, LLP of the Fund are incorporated herein by reference to its annual report filing made with the Securities and Exchange Commission pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder. The annual report is dated December 31, 2002 and was filed on March 1, 2003. It is available without charge upon request by contacting the Fund at 1-800-686-6884. 69900.0020 #396665 SEQUOIA FUND, INC. PART C - OTHER INFORMATION Item 23. Exhibits -------- The following Exhibits are filed as part of this Post-Effective Amendment to Registrant's Registration Statement: (a) (1) Articles of Incorporation - Incorporated by reference to Exhibit (1)(a) of Post-Effective Amendment No. 43 of the Registrant's Registration Statement on Form N-1A (File Nos. 2-35566 and 811-1976) filed with the Securities and Exchange Commission on April 17, 1998. (2) Articles of Amendment - Incorporated by reference to Exhibit (1)(b) of Post-Effective Amendment No. 43 of the Registrant's Registration Statement on Form N-1A (File Nos. 2-35566 and 811-1976) filed with the Securities and Exchange Commission on April 17, 1998. (3) Articles of Amendment - Incorporated by reference to Exhibit (1)(c) of Post-Effective Amendment No. 43 of the Registrant's Registration Statement on Form N-1A (File Nos. 2-35566 and 811-1976) filed with the Securities and Exchange Commission on April 17, 1998. (4) Articles of Amendment - Incorporated by reference to Exhibit (1)(d) of Post-Effective Amendment No. 43 of the Registrant's Registration Statement on Form N-1A (File Nos. 2-35566 and 811-1976) filed with the Securities and Exchange Commission on April 17, 1998. (5) Articles of Amendment - Incorporated by reference to Exhibit (1)(e) of Post-Effective Amendment No. 43 of the Registrant's Registration Statement on Form N-1A (File Nos. 2-35566 and 811-1976) filed with the Securities and Exchange Commission on April 17, 1998. (6) Articles Supplementary - Incorporated by reference to Exhibit (a)(6) of Post-Effective Amendment No. 48 of the Registrant's Registration Statement on Form N-1A (File Nos. 2-35566 and 811-1976) filed with the Securities and Exchange Commission on April 29, 2002. (b) By-Laws - Incorporated by reference to Exhibit (b) of Post-Effective Amendment No. 48 of the Registrant's Registration Statement on Form N-1A (File Nos. 2-35566 and 811-1976) filed with the Securities and Exchange Commission on April 29, 2002. (c) Advisory Agreement between the Registrant and Ruane, Cunniff & Co., Inc. - Incorporated by reference to Exhibit (5) of Post-Effective Amendment No. 43 of the Registrant's Registration Statement on Form N-1A (File Nos. 2-35566 and 811-1976) filed with the Securities and Exchange Commission on April 17, 1998. (d) Distribution Agreement between the Registrant and Ruane, Cunniff & Stires, Inc. - Incorporated by reference to Exhibit (6) of Post-Effective Amendment No. 43 of the Registrant's Registration Statement on Form N-1A (File Nos. 2-35566 and 811-1976) filed with the Securities and Exchange Commission on April 17, 1998. (e) Custody Agreement between the Registrant and The Bank of New York - Incorporated by reference to Exhibit (8) of Post-Effective Amendment No. 43 of the Registrant's Registration Statement on Form N-1A (File Nos. 2-35566 and 811-1976) filed with the Securities and Exchange Commission on April 17, 1998. (f) Services Agreement between the Registrant and DST Systems, Inc. - Incorporated by reference to Exhibit (9) of Post-Effective Amendment No. 43 of the Registrant's Registration Statement on Form N-1A (File Nos. 2-35566 and 811-1976) filed with the Securities and Exchange Commission on April 17, 1998. (g) Opinion and Consent of Seward & Kissel LLP - Filed herewith. (h) Consent of PricewaterhouseCoopers, LLP - Filed herewith. (i) Code of Ethics - Filed herewith. Other Exhibits: Powers of Attorney of Messrs. Harding, Matthews, Neuhauser and Swiggett - Incorporated by reference to Other Exhibits of Post-Effective Amendment No. 43 of the Registrant's Registration Statement on Form N-1A (File Nos. 2-35566 and 811-1976) filed with the Securities and Exchange Commission on April 17, 1998; Power of Attorney for Mr. Lowenstein - Incorporated by reference to Other Exhibits of Post-Effective Amendment No. 47 of the Registrant's Registration Statement on Form N-1A (File Nos. 2-35566 and 811-1976) filed with the Securities and Exchange Commission on April 20, 2001. Item 24. Persons Controlled by or Under Common Control with Registrant. ------------------------------------- No such persons. Item 25. Indemnification. The Registrant incorporates herein by reference the response to "Item 19. Indemnification of Directors and Officers" of Registrant's Form N-8B-1 Registration Statement under the Investment Company Act of 1940 (File No. 811-1976) and its response to Item 27 of Post-Effective Amendment No. 30 to this Registration Statement. Item 26. Business and Other Connections of Investment Adviser. ------------------------------ Ruane, Cunniff & Co., Inc., the Registrant's investment adviser and the distributor of the Registrant's shares, is a registered broker-dealer and member corporation of the New York Stock Exchange, Inc. Its investment advisory clients besides the Registrant include pension and profit-sharing trusts, corporations and individuals. Item 27. Principal Underwriters. (a) No such investment company. (b) The following are the directors and officers of Ruane, Cunniff & Co., Inc. The principal business address of each of these persons is 767 Fifth Avenue, New York, New York 10153. (1) (2) (3) Positions and Positions and Offices Offices with Name with Underwriters Registrant ---- --------------------- ------------- William J. Ruane Chairman of the Chairman of the Board of Directors Board of Directors and Director and Director Richard T. Cunniff Vice Chairman and Vice Chairman and Director Director Robert D. Goldfarb President and President Director and Director David M. Poppe Executive Executive Vice Vice President President and and Director Director Joseph Quinones, Jr. Vice President, Vice President, Secretary and Secretary and Treasurer Treasurer (c) Not applicable. Item 28. Location of Accounts and Records. --------------------------------- Accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940, as amended, and the rules promulgated thereunder are maintained in the physical possession of (i) the Registrant, (ii) The Bank of New York, 100 Church Street, 10th Floor, New York, New York 10286, the Registrant's custodian, or (iii) DST Systems, Inc., 21 West 10th Street, Kansas City, Missouri 64105, the Registrant's transfer agent and dividend disbursing agent. Item 29. Management Services. -------------------- No such management-related service contracts. Item 30. Undertakings. ------------- Not applicable. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Amendment to its Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, and State of New York, on the 28th day of April, 2003. SEQUOIA FUND, INC. By /s/ Robert D. Goldfarb ---------------------------- Robert D. Goldfarb President Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registrant's Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. Signature Capacity Date (1) Principal Executive Officer /s/ Robert D. Goldfarb President and 4/28/03 ------------------------ Director Robert D. Goldfarb (2) Principal Financial and Accounting Officer /s/ Joseph Quinones, Jr. Treasurer 4/28/03 ------------------------ Joseph Quinones, Jr. (3) All of the Directors /s/ William J. Ruane 4/28/03 ------------------------ William J. Ruane /s/ Richard T. Cunniff 4/28/03 ------------------------ Richard T. Cunniff /s/ David M. Poppe 4/28/03 ------------------------ David M. Poppe /s/ Robert D. Goldfarb 4/28/03 ------------------------ Robert D. Goldfarb Vinod Ahooja Roger Lowenstein Francis P. Matthews C. William Neuhauser Robert L. Swiggett By /s/ Robert D. Goldfarb 4/28/03 ---------------------- Robert D. Goldfarb Attorney-in-Fact INDEX TO EXHIBITS (i) Opinion and Consent of Seward & Kissel LLP (j) Consent of PricewaterhouseCoopers LLP (p) Code of Ethics 69900.0020 #397941 EX-99.I 3 d400941_ex99-i.txt SEWARD & KISSEL LLP ONE BATTERY PARK PLAZA NEW YORK, NEW YORK 10004 Telephone: (212) 574-1200 Facsimile: (212) 480-8421 April 28, 2003 Sequoia Fund, Inc. 767 Fifth Avenue New York, New York 10153 Dear Sirs: We have acted as counsel for Sequoia Fund, Inc., a Maryland corporation (the "Company"), in connection with the registration of an indefinite number of shares of the Company's common stock, par value $.10 per share (the "Common Stock"), under the Securities Act of 1933, as amended. As counsel for the Company we have participated in the preparation of Post-Effective Amendment No. 49 to the Company's Registration Statement on Form N-1A relating to such shares (File Nos. 2-35566 and 811-1976) (the "Registration Statement"). We have examined the Charter and By-Laws of the Company and have examined and relied upon such corporate records of the Company and such other documents as we have deemed to be necessary to render the opinion expressed herein. Based on such examination, we are of the opinion that the shares of Common Stock of the Company to be offered for sale pursuant to the Registration Statement are, to the extent of the number of shares authorized to be issued by the Company in its Charter, duly authorized and, when sold, issued and paid for as contemplated by the Registration Statement, will have been validly issued and will be fully paid and nonassessable shares of Common Stock of the Company under the laws of the State of Maryland. We do not express an opinion with respect to any laws other than the laws of Maryland applicable to the issuance of shares of common stock of a domestic business corporation. Accordingly, our opinion does not extend to, among other laws, the federal securities laws or the securities or "blue sky" laws of Maryland or any other jurisdiction. Members of this firm are admitted to the bar in the State of New York and the District of Columbia. We hereby consent to the filing of this opinion with the Securities and Exchange Commission as an exhibit to the Registration Statement and to the reference to our firm in the Statements of Additional Information included therein. In giving this consent, we do not thereby admit that we are included in the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission. Very truly yours, /s/ Seward & Kissel LLP 69900.0020 #400941 EX-99.J 4 d397941_ex99-j.txt CONSENT OF INDEPENDENT ACCOUNTANTS We herby consent to the incorporation by reference in this Registration Statement on Form N-1A of our report dated January 22, 2003, relating to the financial statements and financial highlights which appears in the December 31, 2002 Annual Report to Shareholders of Sequoia Fund, Inc. which is also incorporated by references to us under the headings "Financial Highlights", "Custodian, Counsel and Independent Accountants" and "Financial Statements and Report of Independent Accountants" in such Registration Statement. PricewaterhouseCoopers LLP New York, New York April 28, 2003 EX-99.P 5 d374342_ex99-p.txt Ruane, Cunniff & Co., Inc. and Sequoia Fund, Inc. Code of Ethics (Amended and Restated as of March 24, 2003) 1. Introduction Ruane, Cunniff & Co., Inc. ("Ruane Cunniff") believes that adherence to the highest ethical standards is essential to maintaining the continuing confidence of its clients. Therefore, Ruane Cunniff and the Sequoia Fund, Inc. (the "Fund") adopt the following Code of Ethics (the "Code") and Policies for Preventing Insider Trading (the "Insider Trading Policy") to ensure strict compliance by employees, including all members of the Board of Directors, of Ruane Cunniff and the Fund (collectively, "Covered Persons") regarding personal securities transactions that involve portfolio securities that are purchased and sold by Ruane Cunniff for its clients, including the Fund. 2. Definitions The following definitions of underlined terms apply for purposes of the Code and the Insider Trading Policy in addition to the definitions contained elsewhere herein. (a) "Advisers Act" means the Investment Advisers Act of 1940, as amended. (b) "Beneficial Ownership" means ownership by any person who has or shares a direct or indirect financial interest in a Covered Security. (c) "Client" means any person or entity for which Ruane Cunniff provides advisory services and for which Ruane Cunniff receives an advisory fee. [Independent Directors of the Fund who have Personal Accounts managed by Ruane Cunniff shall not be treated as "Clients" under the Code and the Insider Trading Policy.] (d) "Company Act" means the Investment Company Act of 1940, as amended. (e) "Covered Security" means the instruments commonly known as securities (as set forth in Section 2(a)(36) of the Company Act) and includes any derivative of a security, commodities, options or forward contracts, but does not include shares of open-end investment companies registered under the Company Act, direct obligations of the Government of the United States, bankers' acceptances, bank certificates of deposit, commercial paper, and high quality short term debt instruments, including repurchase agreements. (f) "Designated Supervisory Person" refers to Joe Quinones. (g) "Head of Trading" refers to Jim Berkery. (h) Initial Public Offering ("IPO") means an offering of securities registered under the Securities Act of 1933 (the "1933 Act"), the issuer of which, immediately before the registration, was not subject to the reporting requirements of the 1934 Act. (i) "Insider Trading Policy" means the "Policies for Preventing and Detecting Insider Trading" adopted by Ruane Cunniff. (j) "Limited Offering" means an offering that is exempt from registration under the 1933 Act. (k) "Personal Account" means an account in which a Covered Person has any Beneficial Ownership. The Covered Person's Personal Accounts include accounts of: (i) the Covered Person's spouse (other than a legally separated or divorced spouse) or minor children, (ii) any person who resides with the Covered Person, and (iii) any other account (except a Client account) managed by the Covered Person. Notwithstanding the above, for purposes of this Code, Acacia Partners, L.P., Acacia Partners II, L.P and Acacia Institutional Partners, L.P. will not be treated as "Personal Accounts". (l) Purchase or sale of a Covered Security includes, among other things, the writing of an option to purchase or sell a Covered Security. (m) A Covered Security is "Under Active Consideration" for purchase or sale when it is subject to active analytical review in anticipation of developing or refining an investment opinion or it may be a candidate to be purchased or sold at or about at the current market price on behalf of a Client as determined by the Head of Trading. 3. Objectives of the Code (a) The Code is designed to ensure that the personal securities transactions of Covered Persons are conducted in accordance with the following principles: (i) A duty at all times to place first the interests of Clients; (ii) The requirement that all personal securities transactions be conducted consistent with the Code and in such a manner as to avoid any actual or potential conflict of interest or any abuse of an individual's responsibility and position of trust; and (iii) The fundamental standard that Covered Persons not take inappropriate advantage of their positions. (b) Prohibited Conduct. Even if a transaction is otherwise permitted by the Code, all Covered Persons are prohibited from: (i) acting in any manner to defraud any Client; (ii) making to any Client, to the Head of Trading or to a Designated Supervisory Person any untrue statement of a material fact or omitting to state to such person a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading; (iii) engaging in any act, practice or course of business which does or could defraud or deceive any Client; (iv) engaging in any manipulative practice with respect to any Client; or (v) revealing to any other person (except in the normal course of his or her duties on behalf of a Client) any information regarding securities transactions by any Client or the consideration by any Client or Ruane Cunniff of any such securities transactions. 4. Personal Trading Restrictions and Procedures (a) Transactions in Covered Securities must be effected in accordance with the following provisions: (i) Preclearance. Generally, all personal transactions in Covered Securities must be precleared. The Head of Trading (assuming that he has no personal interest in the subject transaction, if so, then a Designated Supervisory Person [or any qualified and properly registered assistant trader]) may approve the transaction if he concludes that the transaction is not likely to have any adverse economic impact on a Client. A preclearance request is made by completing the "Preclearance Request," a copy of which is attached. (ii) Black Out Period. - Preclearance requests will not be granted if there is a pending buy or sell order in that same Covered Security for any Client or if the Covered Security is Under Active Consideration for purchase or sale on behalf of a Client. (iii) Two-Day Waiting Period. Once a Covered Security is no longer Under Active Consideration for purchase or sale by a Client, Covered Persons may be permitted to buy or sell that Covered Security after a waiting period of two business days. The two day waiting period may be waived, in the sole discretion of the Head of Trading or a Designated Supervisory Person, under the following circumstances: (a) if an order by a Covered Person to purchase or sell a Covered Security would represent less than 5% of the average daily market trading volume for that Covered Security for the preceding three months (as determined and documented by the Head of Trading) and (b) if the Covered Person's order is a sell order, all Client orders within the prior two business days have been sell orders and no Client currently owns such Covered Security. In the event a decision is made to waive the waiting period, the basis of the decision must be reflected in writing on the approval form. (iv) Commingling of Covered Person Trades with Client TradesOrders for Clients and Covered Persons for Covered Securities may not be commingled unless the Head of Trading has determined that commingling would not disadvantage any Client. (v) Board Service. Covered Persons who serve on the board of a publicly traded company or who have a material business relationship involving a Covered Security Under Active Consideration must disclose such board service or business relationship to the Head of Trading before recommending the purchase or sale of an affected Covered Security. 5. Exempted Transactions (a) The requirements of Section 4(i) through (iv) of the Code do not apply to: (i) purchases or sales of Covered Securities that are non-volitional on the part of either a Covered Person or a Client or are pursuant to a dividend reinvestment plan; and (ii) purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of the issuer's securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired. (b) Shareholders of Ruane Cunniff. A shareholder of Ruane Cunniff who is not an employee, officer or director of Ruane Cunniff shall not be subject to the provisions of this Code unless the shareholder owns 25% or more of the outstanding voting securities of Ruane Cunniff. 6. Reporting (a) Personal Accounts to be maintained at Neuberger Berman. Personal Accounts should be maintained at Neuberger Berman, LLC ("Neuberger Berman"). Neuberger Berman will provide monthly reports to Ruane Cunniff regarding Covered Person trading. Each Covered Person who maintains a Personal Account at a broker other than Neuberger Berman must receive written approval for such account from the Designated Supervisory Person and must direct the broker to submit to the Designated Supervisory Person a duplicate copy of the confirmation of each personal transaction in Covered Securities in such Personal Account and a copy of the Covered Person's monthly or quarterly statements for the account. (b) Statement of Security Ownership. Covered Persons must, within ten (10) days of commencement of employment with Ruane Cunniff or the Fund, and annually thereafter, submit a statement to the Designated Supervisory Person listing all of the (i) Covered Securities in which the Covered Person has any Beneficial Ownership, (ii) business activities in which the Covered Person has a significant role (including any service as a director of a publicly traded company) and (iii) the names of the brokerage firms or banks where the Covered Person maintains a securities account and the date the account was established. The statement must be current as of a date no more than 30 days before the statement is submitted. Statements under this Section shall carry the date when submitted to the Designated Supervisory Person. (c) Annual Certification of Code. Each person subject to the Code and the Insider Trading Policy must certify annually that he or she has read and understands them, recognizes that he or she is subject thereto and has complied with their provisions and disclosed or reported all personal securities transactions required to be disclosed or reported thereunder. Such certificates and reports are to be given to the Designated Supervisory Person. (d) Confidentiality of Reports. All reports furnished pursuant to this Section will be kept confidential, subject to the rights of inspection by a Designated Supervisory Person, the Securities and Exchange Commission or other regulatory bodies and by other third parties pursuant to applicable law. 7. Prohibited Purchases and Sales and Reporting Requirements For Non-Employee Directors of Ruane Cunniff and the Fund (a) The requirements in Section 4 (i) - (iv) above, apply to an independent director of Ruane Cunniff or the Fund only if the director had actual knowledge that during the 15-day period preceding or following a purchase or sale of a Covered Security in the director's Personal Account such Covered Security was Under Active Consideration for purchase or sale by a Client (for independent directors of Ruane Cunniff) or the Fund (for independent directors of the Fund). Nevertheless, the requirements of Section 4(ii)-(iv) above shall apply to transactions by or for any Personal Accounts of an independent director that are managed by Ruane Cunniff. (b) Independent directors of the Fund need not submit the confirmations and account statements described in Section 6(a) above unless the director knew or, in the ordinary course of fulfilling his or her official duties as a Fund director, should have known that during the 15-day period immediately before or after the director's transaction in a Covered Security, the Fund purchased or sold the Covered Security, or the Fund (or Ruane Cunniff on behalf of the Fund) considered purchasing or selling the Covered Security. (c) The statement described in Section 6(b) above shall not apply to independent directors of the Fund. 8. Sanctions Upon learning of a violation of the Code, Ruane Cunniff, may impose such sanctions as it deems appropriate, including, among other things, disgorgement of profits, censure, suspension or termination of service. Further, such violation may also be a violation of the federal securities laws or other federal and state laws. Any such person who is suspected of violating the Code should be reported immediately to a Designated Supervisory Person. 9. Recordkeeping (a) The Designated Supervisory Person will keep the following records: (i) a copy of each Code that is in effect, or at any time within the past five years was in effect, maintained in an easily accessible place; (ii) a record of any violation of the Code and of any action taken as a result of the violation, maintained in an easily accessible place for at least five years after the end of the fiscal year in which the violation occurs; (iii) a copy of each report made by Covered Persons maintained for at least five years after the end of the fiscal year in which the report is made, the first two years in an easily accessible place; (iv) a record of all persons currently or within the past five years, who are or were required to make reports or who are or were responsible for reviewing these reports, maintained in an easily accessible place; and (v) a copy of all preclearance request approvals. A copy of every report required by this Section of the Code must be maintained for at least five years after the end of the fiscal year in which it is made, the first two years in an easily accessible place. 10. Administration of the Code (a) The Head of Trading or the Designated Supervisory Person will be responsible for approving Preclearance Requests. (b) The Designated Supervisory Person will be responsible for reviewing reports of securities holdings, brokerage confirmations and periodic statements to determine whether all Covered Persons are complying with the Code. (c) The Designated Supervisory Person will inform Covered Persons of their reporting and other obligations under the Code. (d) The Designated Supervisory Person will maintain a current list of all Covered Persons subject to the Code. (e) The Designated Supervisory Person will periodically report to the President of Ruane Cunniff regarding the administration of the Code. (f) The Designated Supervisory Person will submit a written report annually to the Board of Directors of the Fund (i) describing any issues arising under the Code since the last such report, including, but not limited to, information about material violations of the Code and sanctions imposed in response to the material violations; and (ii) certifying that Ruane Cunniff has adopted procedures reasonably necessary to prevent its Covered Persons from violating the Code. 69900.020 #135363 v3 EXHIBIT A RUANE, CUNNIFF & CO., INC. Request Date: Ruane, Cunniff & Co., Inc. 767 Fifth Avenue, Suite 4701 New York, New York 10153-4798 PRECLEARANCE REQUEST I hereby request preclearance for the following trade(s) for the account of ----------------------------------------: (Please print name* ) (Note Purchase Security Number of Broker or Sale) Shares Please signify your approval by signing below. Approved: - ------------------------------- -------------------------------- Trading Desk Covered Person Signature - -------- * Self, spouse or other family members (including minor children and adults living in the same household). This trading intention applies to current strategy for near-term execution (within 5 business days), allowing for market conditions and in accordance with Ruane, Cunniff's and Sequoia Fund's Code of Ethics guidelines. Note: Waive (2) day waiting period due to daily trading volume (see attached): ( ) Waive (2) day waiting period; all customers' holdings in securities sold. ( ) EXHIBIT B RUANE, CUNNIFF & CO., INC. POLICIES FOR PREVENTING AND DETECTING INSIDER TRADING SECTION I. INSIDER TRADING POLICY A. Introduction Ruane, Cunniff & Co., Inc. (the "Firm") seeks to foster a reputation for integrity and professionalism. To further that goal, this Insider Trading Policy implements procedures to deter the misuse of material, nonpublic information in securities transactions. Trading securities while in possession of material, nonpublic information or improperly communicating that information to others may expose you to stringent penalties. Criminal sanctions may include a fine of up to $1,000,000 and/or ten years imprisonment. Finally, you may be sued by investors seeking to recover damages for insider trading violations. The Firm views seriously any violation of this Insider Trading Policy . Violations may constitute grounds for disciplinary sanctions, including dismissal. B. Scope of the Insider Trading Policy This Insider Trading Policy will be applied and interpreted broadly. This Insider Trading Statement applies to securities trading and information handling by directors, officers and employees of the Firm including family members, and extends to activities within and outside their duties at the Firm. The law of insider trading is unsettled; an individual legitimately may be uncertain about the application of the Insider Trading Policy in a particular circumstance. Often, asking a single question can forestall disciplinary action or complex legal problems. You should direct any questions relating to the Insider Trading Policy to the Designated Supervisory Person. You also must notify the Designated Supervisory Person immediately if you have any reason to believe that a violation of the Insider Trading Policy has occurred or is about to occur. C. Insider Trading Policy The Firm forbids any officer, director or employee from trading, either personally or on behalf of others, including accounts managed by the Firm, on material nonpublic information or communicating material nonpublic information to others in violation of the law. This conduct is frequently referred to as "insider trading." Every officer, director and employee must read and retain this Insider Trading Policy. Any questions regarding the Firm's policy and procedures should be referred to the Designated Supervisory Person. The term "insider trading" is not defined in the federal securities laws, but generally is used to refer to the use of material nonpublic information to trade in securities (whether or not one is an "insider") or to communications of material nonpublic information to others. While the law concerning insider trading is not static, it is generally understood that the law prohibits: a. trading by an insider, while in possession of material nonpublic information, or b. trading by a non-insider, while in possession of material nonpublic information, where the information either was disclosed to the non-insider in violation of an insider's duty to keep it confidential or was misappropriated, or c. communicating material nonpublic information to others. The elements of insider trading and the penalties for such unlawful conduct are discussed below. If, after reviewing this Policy Statement, you have any questions you should consult the Designated Supervisory Person. D. Who is an Insider? The concept of "insider" is broad. It includes officers, directors and employees of a company. In addition, a person can be a "temporary insider" if he or she enters into a special confidential relationship in the conduct of a company's affairs and as a result is given access to information solely for the company's purposes. A temporary insider can include, among others, a company's attorneys, accountants, consultants, bank lending officers, and the employees of such organizations. In addition, the Firm may become a temporary insider of a company it advises or for which it performs other services. According to the Supreme Court, the company must expect the outsider to keep the disclosed nonpublic information confidential and the relationship must at least imply such a duty before the outsider will be considered an insider. E. What is Material Information? Trading on insider information is not a basis for liability unless the information is material. Information is "material" when there is a substantial likelihood that a reasonable investor would consider it important in making his or her investment decisions, or if it is reasonably certain to have a substantial effect on the price of a company's securities. Information that officers, directors and employees should consider material includes, but is not limited to: dividend changes, earnings estimates, changes in previously released earnings estimates, significant merger or acquisition proposals or agreements, major litigation, liquidation problems, and extraordinary management developments. Material information does not have to relate to a company's business, but may also relate to the market for a company's securities. For example, in Carpenter v. U.S., 108 U.S. 316 (1987), the Supreme Court considered as material certain information about the contents of a forthcoming newspaper column that was expected to affect the market price of a security. In that case, a Wall Street Journal reporter was found criminally liable for disclosing to others the dates that reports on various companies would appear in the Journal and whether those reports would be favorable or not. No simple "bright line" test exists to determine when information is material; assessments of materiality involve a highly fact-specific inquiry. For this reason, you should direct any questions about whether information is material to the Designated Supervisory Person. F. Contacts with Public Companies. For the Firm, contacts with public companies represent an important part of our research efforts. The Firm may make investment decisions on the basis of the firm's conclusions formed through such contacts and analysis of publicly-available information. Difficult legal issues arise, however, when, in the course of these contacts, a Firm's employee or other person subject to this Insider Trading Policy becomes aware of material, nonpublic information. This could happen, for example, if a Firm employee serves as a director on the board of a publicly traded company, if a company's Chief Financial Officer prematurely discloses quarterly results to an analyst or if an investor relations representative makes a selective disclosure of adverse news to a handful of investors. In such situations, the Firm must make a judgment as to its further conduct. To protect yourself, our clients and the Firm, you should contact the Designated Supervisory Person immediately and before trading in the securities of a company on whose board you serve, if you believe that you may have received material, nonpublic information. G. Tender Offers. Tender offers represent a particular concern in the law of insider trading for two reasons. First, tender offer activity often produces extraordinary gyrations in the price of the target company's securities. Trading during this time period is more likely to attract regulatory attention (and produces a disproportionate percentage of insider trading cases). Second, the SEC has adopted a rule which expressly forbids trading and "tipping" while in possession of material, nonpublic information regarding a tender offer received from the tender offeror, the target company or anyone acting on behalf of either. Firm employees and others subject to this Insider Trading Policy should exercise particular caution any time they become aware of nonpublic information relating to a tender offer. H. What is Nonpublic Information? Information is nonpublic until it has been effectively communicated to the market place. One must be able to point to some fact to show that the information is generally public. For example, information found in a report filed with the SEC, or appearing in Dow Jones, Reuters Economic Services, The Wall Street Journal or other publications of general circulation would be considered public. I. Bases for Liability i. Fiduciary Duty Theory In 1980, the Supreme Court found that there is no general duty to disclose before trading on material nonpublic information, but that such a duty arises only where there is a fiduciary relationship. That is, there must be a relationship between the parties to the transaction such that one party has a right to expect that the other party will disclose any material nonpublic information or refrain from trading. Chiarella v. U.S., 445 U.S. 22 (1980). In Dirks v. SEC, 463 U.S. 646 (1983), the Supreme Court stated alternate theories under which non-insiders can acquire the fiduciary duties of insiders: they can enter into a confidential relationship with the company through which they gain information (e.g., attorneys, accountants), or they can acquire a fiduciary duty to the company's shareholders as "tippees" if they are aware or should have been aware that they have been given confidential information by an insider who has violated his fiduciary duty to the company's shareholders. However, in the "tippee" situation, a breach of duty occurs only if the insider personally benefits, directly or indirectly, from the disclosure. The benefit does not have to be pecuniary, but can be a gift, a reputational benefit that will translate into future earnings, or even evidence of a relationship that suggests a quid pro quo. ii. Misappropriation Theory Another basis for insider trading liability is the "misappropriation" theory, where liability is established when trading occurs on material nonpublic information that was stolen or misappropriated from any other person. In U.S. v. Carpenter, supra, the Court found, in 1987, a columnist defrauded The Wall Street Journal when he stole information from the Journal and used it for trading in the securities markets. It should be noted that the misappropriation theory can be used to reach a variety of individuals not previously thought to be encompassed under the fiduciary duty theory. J. Penalties for Insider Trading Penalties for trading on or communicating material nonpublic information are severe, both for individuals involved in such unlawful conduct and their employers. A person can be subject to some or all of the penalties below even if he or she does not personally benefit from the violation. Penalties include: - civil injunctions - treble damages - disorgement of profits - jail sentences - fines for the person who committed the violation o up to three time the profit gains or loss avoided, whether or not the person actually benefited, and - fines for the employer or other controlling person of up to the greater of $1,000,000 or three times the amount of the profit gains or loss avoided. In addition, any violation of this Insider Trading Policy can be expected to result in serious sanctions by the Firm, including dismissal of the persons involved. SECTION II. PROCEDURES TO IMPLEMENT FIRM POLICY The following procedures have been established to aid the officers, directors and employees of the Firm in avoiding insider trading, and to aid the Firm in preventing, detecting and imposing sanctions against insider trading. Every officer, director and employee of the Firm must follow these procedures or risk serious sanctions, including dismissal, substantial personal liability and criminal penalties. If you have any questions about these procedures you should consult the Designated Supervisory Person. A. Identifying Insider Information Before trading for yourself or others, including accounts managed by the Firm, in the securities of a company about which you may have potential inside information, ask yourself the following questions: i. Is the information material? Is this information that an investor would consider important in making his or her investment decisions? Is this information that would substantially affect the market price of the securities if generally disclosed? ii. Is the information nonpublic? To whom has this information been provided? Has the information been effectively communicated to the marketplace by being published in Reuters, The Wall Street Journal or other publications of general circulation? If, after consideration of the above, you believe that the information is material and nonpublic, or if you have questions as to whether the information is material and nonpublic, you should take the following steps: i. Report the matter immediately to the Designated Supervisory Person. ii. Do not purchase or sell the securities on behalf of yourself or others, including accounts managed by the Firm. iii. Do not communicate the information inside or outside the Firm, other than to the Designated Supervisory Person. iv. After the Designated Supervisory Person has reviewed the issue, you will be instructed to continue the prohibitions against trading and communication, or you will be allowed to trade and communicate the information. B. Personal Securities Trading. The Firm has adopted a Code of Ethics (the "Code"), which, among other things, restricts personal securities trading and requires preclearance of personal securities transactions. Transactions permitted under the Code may nevertheless be prohibited under this Insider Trading Policy. All officers, directors and employees of the Firm shall submit to the Designated Supervisory Person a report of every securities transaction in which they, their families (including the spouse, minor children and adults living in the same household as the officer, director or employee), have a beneficial interest. C. High-Risk Trading Activities. Certain high-risk trading activities, if used in the management of Firm officers', directors' or employees' personal trading portfolios are risky not only because of the nature of the securities transactions themselves, but also because of the potential that action necessary to close out the transaction may become prohibited during the pendency of the transactions. Examples of such activities include short sales of common stock and trading in derivative instruments such as option contracts to purchase ("call") or sell ("put") securities at certain predetermined prices. Firm officers, directors and employees should understand that short sales and trading in derivative instruments involve special risks--derivative instruments, for example, ordinarily have greater price volatility than the underlying security. The fulfillment of the obligations owned by each officer, director and employee to the Firm may heighten those risks. For example, if the Firm becomes aware of material, nonpublic information about the issuer of the underlying securities, the Firm personnel may find themselves "frozen" in a position in a derivative security. The Firm will not bear any losses resulting in personal accounts through the implementation of this Insider Trading Policy. D. Restricting Access to Material Nonpublic Information Information in your possession that you identify as material and nonpublic may not be communicated to anyone, including persons within the Firm, except as provided in paragraph 1 above. In addition, care should be taken so that such information is secure. For example, files containing material nonpublic information should be sealed; access to computer files containing material nonpublic information should be restricted, and conversations containing such information, if appropriate at all, should be conducted in private (for example not by cellular telephone), to avoid potential interception. E. Resolving Issues Concerning Insider Trading If, after consideration of the items set forth in paragraph 1, doubt remains as to whether information is material or nonpublic, or if there is any unresolved question as to the applicability or interpretation of the foregoing procedures, or as to the propriety of any action, it must be discussed with the Designated Supervisory Person before trading or communicating the information to anyone. F. Acknowledgment I have read and understand the foregoing procedures and will comply in all respects with such procedures. I understand that any violation of the Insider Trading Policy may lead to sanctions, including dismissal. - ------------------------------------ ----------------------------------- NAME DATE SECTION III. SUPERVISORY PROCEDURES The roles of the Head of Trading and the Designated Supervisory Person are critical to the implementation and maintenance of the Firm policy and procedures against insider trading. Supervisory Procedures can be divided into two classifications--prevention of insider trading and detection of insider trading. A. Prevention of Insider Trading To prevent insider trading, the Firm should: i. distribute and review the Firm's policy and procedures with new employees and periodically review them with existing directors, officers and employees ii. answer questions regarding the Firm's policy and procedures iii. resolve issues of whether information received by an officer, director or employee of the Firm is material and nonpublic iv. review on a regular basis and update as necessary the Firm's policy and procedures v. when it has been determined that an officer, director or employee of the Firm has material nonpublic information a. implement measures to prevent dissemination of such information, and b. if necessary, restrict officer, directors and employees from trading the securities. vi. promptly review and either approve or disapprove, in writing, each request of an officer, director or employee for clearance to trade in specified securities. B. Detection of Insider Trading To detect insider trading, the Designated Supervisory Person should: i. Monitor trading activities of the Firm's own account, if any, on a daily basis in addition to review of trade confirmations and monthly customer statements provided by any NASD Member broker-dealer with whom the firm may establish an account (transactions in the firm's account. ii. Monitor trading activities of Firm employees through review of duplicates of confirmations and customer statements provided by any NASD Member broker-dealer with whom the employee has an account (the Firm recommends that all employees maintain their Personal Accounts, as defined in Section 2 of the Firm's Code, at Neuberger Berman but if, with the written permission of the Designated Supervisory Person, a Personal Account is maintained at a brokerage firm other than Neuberger Berman, a duplicate of all brokerage confirmations should be sent to the Designated Supervisory Person. iii. Coordinate the review of such reports with other appropriate officers, directors or employees of the Firm. iv. Promptly investigate all reports of any possible violations of the Firm's Policy and Statement. C. Special Reports Promptly, upon learning of a potential violation of the Firm's Insider Trading Policy, the Designated Supervisory Person should prepare a written report providing full details and recommendations for further action which may include any or all of the following: i. the name of particular securities involved, if any, ii. the date(s) the Designated Supervisory Person learned of the potential violation and began investigating, iii the accounts and individuals involved, iv. actions taken as a result of the investigation, if any, and v. recommendations for further action. D. General Reports to Management and/or the Board of Directors On an as-needed or periodic basis, it may be useful for the Designated Supervisory Person to prepare a written report to the management and/or the Board of Directors of the Firm setting forth some or all of the following: i. a summary of existing procedures to detect and prevent insider trading, ii. a summary of changes in procedures made in the last year, iii. full details of any investigation since the last report (either internal or by a regulatory agency) of any suspected insider trading, the results of the investigation and a description of any changes in procedures prompted by any such investigation, iv. an evaluation of the current procedures and a description of anticipated changes in procedures, and v. a description of the Firm's continuing educational program regarding insider trading, including the dates of such programs since the last report to management. E. Annual Reports On an annual basis, the Firm's Board of Directors will re-evaluate the current policies and procedures in place. 69900.0020 #374342 -----END PRIVACY-ENHANCED MESSAGE-----