<PAGE>
ANNUAL REPORT
December 31, 1995
SEQUOIA FUND, INC.
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $ 10,000
With Income Dividends Reinvested and Capital Gains
Distributions Accepted in Shares
The table below covers the period from July 15, 1970 (the date
Fund shares were first offered to the public) to December 31,
1995. This period was one of widely fluctuating common stock
prices. The results shown should not be considered as a
representation of the dividend income or capital gain or loss
which may be realized from an investment made in the Fund today.
Value of Value of Value of
Initial Cumulative Cumulative Total
$10,000 Capital Gain Reinvested Value of
PERIOD ENDED: Investment Distributions Dividends Shares
- ------------ ---------- ------------- ---------- ---------
July 15, 1970 $10,000 $0 $0 $10,000
May 31, 1971 11,750 0 184 11,934
May 31, 1972 12,350 706 451 13,507
May 31, 1973 9,540 1,118 584 11,242
May 31, 1974 7,530 1,696 787 10,013
May 31, 1975 9,490 2,137 1,698 13,325
May 31, 1976 12,030 2,709 2,654 17,393
May 31, 1977 15,400 3,468 3,958 22,826
Dec. 31, 1977 18,420 4,617 5,020 28,057
Dec. 31, 1978 22,270 5,872 6,629 34,771
Dec. 31, 1979 24,300 6,481 8,180 38,961
Dec. 31, 1980 25,040 8,848 10,006 43,894
Dec. 31, 1981 27,170 13,140 13,019 53,329
Dec. 31, 1982 31,960 18,450 19,510 69,920
Dec. 31, 1983 37,110 24,919 26,986 89,015
Dec. 31, 1984 39,260 33,627 32,594 105,481
Dec. 31, 1985 44,010 49,611 41,354 134,975
Dec. 31, 1986 39,290 71,954 41,783 153,027
Dec. 31, 1987 38,430 76,911 49,020 164,361
Dec. 31, 1988 38,810 87,760 55,946 182,516
Dec. 31, 1989 46,860 112,979 73,614 233,453
Dec. 31, 1990 41,940 110,013 72,633 224,586
Dec. 31, 1991 53,310 160,835 100,281 314,426
Dec. 31, 1992 56,660 174,775 112,428 343,863
Dec. 31, 1993 54,840 213,397 112,682 380,919
Dec. 31, 1994 55,590 220,943 117,100 393,633
Dec. 31, 1995 78,130 311,266 167,129 556,525
<PAGE>
The total amount capital gains distributions accepted in shares
was $162,502, the total amount of dividends reinvested was
$78,118.
No adjustment has made for any taxes payable by shareholders on
capital gain distributions and dividends reinvested in shares.
2
<PAGE>
February 15, 1996
Dear Shareholder:
Sequoia Fund's results for the fourth quarter and full year
1995 are shown below with comparable results for the leading
market indexes:
Sequoia Dow Jones Standard &
1995 Fund Industrials Poors 500
- -------- ------- ----------- -----------
Fourth Quarter +8.5% +7.5% +6.0%
Year 41.4 36.9 37.6
In our third quarter report, we indicated that Sequoia's
1995 investment results appeared to be shaping up very nicely.
We are pleased to report that as the 1996 New Year rang in, 1995
went on the books as one of Sequoia's banner years. It was a
banner year for the domestic equity markets in general, too, as
shown in the remarkable numbers in the table above. To put these
results in historical context, U.S. equities (using the S&P 500
Index as a proxy for domestic stocks in general) have not enjoyed
investment returns of this magnitude since 1975, 20 years ago,
and that was coming off the extremely depressed market of 1974.
The outstanding performance of the market itself in 1995 is
understandable in view of the changes during the year in two key
3
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variables which directly influence the market value of companies:
long term interest rates plunged almost 25% and corporate profits
surged over 20%. The resulting interest rate and earnings levels
support the market's 1995 surge. While we note that aggregate
corporate earnings are now at or above historical highs as
measured by most yardsticks, we take comfort in the business and
earnings progress and prospects we see when we retreat to a
careful examination of the specifics of the companies we own.
U.S. corporate profitability has been impressive during this
business cycle but in many cases it has also been "enhanced" by
the financial statement effects of the recurring proliferation of
"non-recurring restructuring charges. An ancient Chinese proverb
states that the beginning of wisdom is to call a thing by its
correct name, and we have have always sought out managements who
are similarly minded in our portfolio companies. As far as we
can tell, the bland term "non-recurring restructuring charge" in
fact refers to one or more of a number of specific realities. In
the interest of improved disclosure and clarity in communications
with stockholders, therefore, we propose that corporate
managements in the future refer to their restructuring charges by
certain types, defined as follows: Restructuring Charge Type A:
Dear Stockholder: Your management now concedes that we wasted
your money by paying way too much for things in the past.
Restructuring Charge Type B: Dear Stockholder: Your management
4
<PAGE>
has been misleading you by exaggerating the company's historical
profitability and now has to admit that the company hasn't been
earning nearly as much as we said. Restructuring Charge Type C:
Dear Stockholder: Your management hired way too many people to do
the job at hand and just realized it. Restructuring Charge Type
D: Dear Stockholder: Your management is going to have to spend a
lot of money in the future to clean up past mistakes but we will
report the company's future earnings to you as if we didn't
really have those expenses so you will know how much the company
would be making if these mistakes hadn't been made.
The thoughtful observer may wonder at Wall Street's perverse
tendency to applaud corporate announcements of massive
restructuring charges with higher stock valuations. In his
insightful new column called "Intrinsic Value" in the Thursday
edition of The Wall Street Journal, Roger Lowenstein addressed
this subject recently, quoting a well known equity analyst as
saying: "Every company I follow has a write-off. No one has any
idea of what anyone is earning." We find this development
curiouser and curiouser, as Alice would say, co-existing in a
market where a shortfall from analyst consensus earnings
estimates of one to two cents per share in reported quarterly
earnings can cause a stock to plunge precipitously in value.
5
<PAGE>
For our part, we are pleased to see most of our portfolio
companies properly expensing such charges through earnings on a
regular basis rather than through a special "non-recurring"
expense line, thereby providing a much more honest indication of
ongoing corporate earning power.
Sincerely,
Richard T. Cunniff
William J. Ruane
Robert D. Goldfarb
6
<PAGE>
SEQUOIA FUND, INC.
Statement of Investments
December 31, 1995
COMMON STOCKS (96.87%)
Value
Shares Cost (Note 1)
- ------ ---- --------
BANK HOLDING COMPANIES (15.58%)
1,566,300 Bancorp Hawaii, Inc. $ 47,017,231 $ 56,191,012
1,840,700 Fifth Third Bancorp 92,765,943 134,141,013
2,100,000 First Bank Systems, Inc. 80,610,090 104,212,500
678,400 First Virginia Banks, Inc. 25,395,921 28,323,200
225,000 Mercantile Bankshares
Corporation 3,475,625 6,229,800
160,000 Regions Financial Corporation 5,348,750 6,890,080
161,301 Valley National Bancorp 3,973,675 4,032,525
------------ ---------------
258,587,235 340,020,130
------------ ---------------
BROADCASTING (3.96%)
700,000 Capital Cities/ABC, Inc. 13,847,728 86,362,500
------------ ---------------
CONSUMER PRODUCTS (.21%)
169,600 Sturm, Ruger & Company, Inc. 361,700 4,642,800
------------ ---------------
FINANCIAL SERVICES (30.94%)
21,034 Berkshire Hathaway Inc.* 165,788,581 675,191,400
------------ ---------------
INSURANCE (9.86%)
4,400,000 Progressive Corporation-Ohio+ 150,092,362 215,050,000
------------ ---------------
PERSONAL CREDIT (3.69%)
1,362,000 Household International Inc. 53,180,142 80,528,250
------------ ---------------
PHARMACEUTICALS (5.42%)
1,380,000 Johnson & Johnson 55,292,183 118,162,500
------------ ---------------
SECURITIES BROKER-DEALER (4.92%)
876,000 Dean Witter Discover & Co. 44,585,625 41,172,000
1,863,400 Salomon, Inc. 44,313,350 66,150,700
------------ ---------------
88,898,975 107,322,700
------------ ---------------
SERVICES (13.59%)
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3,550,000 Federal Home Loan Mortgage
Corporation 58,732,552 296,425,000
------------ ---------------
TOYS (5.06%)
3,562,600 Hasbro, Inc. 61,708,013 110,440,600
------------ ---------------
Miscellaneous Securities
(3.64%) 74,114,707 79,445,625
------------ --------------
TOTAL COMMON STOCKS $980,604,178 $2,113,591,505
------------ --------------
8
<PAGE>
SEQUOIA FUND, INC.
Statement of Investments
December 31, 1995
(continued)
Principal Value
Amount Cost (Note 1)
--------- ---- -------
U.S. GOVERNMENT OBLIGATIONS(3.13%)
$ 5,700,000 U.S. Treasury Bills due
1/25/96 through 2/8/96 $ 5,670,467 $ 5,670,467
62,000,000 U.S. Treasury Notes,
5-7/8% due 7/31/97 61,866,594 62,687,813
----------- ----------- ----------
TOTAL U.S. GOVERNMENT OBLIGATIONS 67,537,061 68,358,280
----------- ----------- ----------
TOTAL INVESTMENTS (100%)++ $1,048,141,239 $2,181,949,785
============== ==============
++ The cost for federal income tax purposes is identical.
* Non-income producing.
+ Refer to Note 7.
SEQUOIA FUND, INC.
Statement of Assets and Liabilities
December 31, 1995
ASSETS:
Investments in securities, at value
(cost $1,048,141,239) (Note 1) $2,181,949,785
Cash on deposit with custodian 1,251,545
Receivable for capital stock sold 531,174
Dividends and interest receivable 3,783,690
Other assets 35,897
--------------
Total assets 2,187,552,091
==============
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<PAGE>
LIABILITIES:
Payable for capital stock repurchased 214,216
Accrued expenses 1,815,167
-------------
Total liabilities 2,029,383
-------------
Net assets applicable to 27,971,867
shares of capital stock outstanding (Note 4) $2,185,522,708
==============
Net asset value, offering price and
redemption price per share $78.13
======
See Notes to Financial Statements.
10
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SEQUOIA FUND, INC.
Statement of Operations
Year Ended December 31, 1995
INVESTMENT INCOME:
Income:
Dividends:
Unaffiliated companies $ 19,826,702
Affiliated companies (Note 7) 968,000
Interest 6,652,763
------------
Total income 27,447,465
------------
Expenses:
Investment advisory fee (Note 2) 18,558,564
Legal and auditing fees 116,193
Stockholder servicing agent fees 173,621
Custodian fees 154,841
Directors fees and expenses (Note 5) 131,862
Other 78,219
------------
Total expenses 19,213,300
Less expenses reimbursed by Investment Adviser (Note 2) 505,000
------------
Net expenses 18,708,300
------------
Net investment income 8,739,165
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized (loss) on investments:
Unaffiliated companies (13,914,683)
------------
Net realized (loss) on investments (13,914,683)
Net increase in unrealized appreciation on investments 646,622,517
------------
Net increase in unrealized appreciation on investments 646,622,517
------------
Net realized and unrealized gain on investments 632,707,834
------------
Increase in net assets from operations $641,446,999
============
See Notes to Financial Statements.
11
<PAGE>
SEQUOIA FUND, INC.
Statements of Changes in Net Assets
Year Ended December 31,
-----------------------------
1995 1994
----------- ----------
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 8,739,165 $ 11,706,671
Net realized gain (loss) (13,914,683) 16,935,599
Net increase in unrealized appreciation 646,622,517 21,649,730
--------------- --------------
Net increase in net assets from operations 641,446,999 50,292,000
Distributions to shareholders from:
Net investment income (8,810,242) (11,726,849)
Net realized gain on investments (2,200,955) (18,163,489)
Capital share transactions (Note 4) 6,775,846 15,829,828
--------------- --------------
Total increase 637,211,648 36,231,490
NET ASSETS:
Beginning of year 1,548,311,060 1,512,079,570
--------------- --------------
End of year $2,185,522,708 $1,548,311,060
============== ==============
NET ASSETS CONSIST OF:
Capital (par value and paid in surplus) $1,065,623,392 $1,058,847,546
Undistributed net investment income 5,453 76,530
Undistributed net realized gains (losses) (13,914,683) 2,200,955
Unrealized appreciation 1,133,808,546 487,186,029
--------------- --------------
$2,185,522,708 $1,548,311,060
============== ==============
See Notes to Financial Statements.
12
<PAGE>
SEQUOIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Sequoia Fund Inc. is registered under the Investment Company
Act of 1940, as amended, as a non-diversified, open-end
management company. The investment objective of the Fund is
growth of capital from investments primarily in common stocks and
securities convertible into or exchangeable for common stock. The
following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its
financial statements.
A. Valuation of investments: Investments are carried at market
value or at fair value as determined by the Board of
Directors. Securities traded on a national securities
exchange are valued at the last reported sales price on the
principal exchange on which the security is listed on the
last business day of the period; securities traded in the
over-the-counter market and listed securities for which no
sale was reported on that date are valued at the mean between
the last reported bid and asked prices; U.S. Treasury Bills
with remaining maturities of 60 days or less are valued at
their amortized cost. U.S. Treasury Bills that when purchased
have a remaining maturity in excess of sixty days are stated
at their discounted value based upon the mean between the bid
and asked discount rates until the sixtieth day prior to
maturity, at which point they are valued at amortized cost.
B. Accounting for investments: Investment transactions are
accounted for on the trade date and dividend income is
recorded on the ex-dividend date. The net realized gain or
loss on security transactions is determined for accounting
and tax purposes on the specific identification basis.
C. Federal income taxes: It is the Fund's policy to comply with
the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its
taxable income to its stockholders. Therefore, no federal
income tax provision is required.
D. Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
increases and decreases in net assets from operations during
the reporting period. Actual results could differ from those
estimates.
13
<PAGE>
E. General: Dividends and distributions are recorded by the Fund
on the ex-dividend date. Interest income is accrued as
earned.
NOTE 2--INVESTMENT ADVISORY CONTRACTS AND PAYMENTS TO INTERESTED
PERSONS:
The Fund retains Ruane, Cunniff & Co., Inc., as its
investment adviser. Ruane, Cunniff & Co., Inc. (Investment
Adviser) provides the Fund with investment advice, administrative
services and facilities.
Under the terms of the Advisory Agreement, the Investment
Adviser receives a management fee equal to 1% per annum of the
Fund's average daily net asset value. This percentage will not
increase or decrease in relation to increases or decreases in the
net asset value of the Fund. Under the Advisory Agreement, the
Investment Adviser is obligated to reimburse the Fund for the
amount, if any, by which the operating expenses of the Fund
(including the management fee) in any year exceed the sum of
1-1/2% of the average daily net asset value of the Fund during
such year up to a maximum of $30,000,000, plus 1% of the average
daily net asset value in excess of $30,000,000. The expenses
incurred by the Fund exceeded the percentage limitation during
the year ended December 31, 1995 and the Investment Adviser
reimbursed the Fund $505,000.
14
<PAGE>
For the year ended December 31, 1995, there were no amounts
accrued to interested persons, including officers and directors,
other than advisory fees of $18,558,564 and brokerage commissions
of $187,900 to Ruane, Cunniff & Co., Inc. Certain officers of
the Fund are also officers of the Investment Adviser and the
Fund's distributor. Ruane, Cunniff & Co., Inc., the Fund's
distributor, received no compensation from the Fund on the sale
of the Fund's capital shares during the year ended December 31,
1995.
NOTE 3--PORTFOLIO TRANSACTIONS:
The aggregate cost of purchases and the proceeds from the
sales of securities, excluding U.S. government obligations, for
the year ended December 31, 1995 were $174,031,719 and
$76,740,515, respectively.
At December 31, 1995 the aggregate gross unrealized
appreciation and depreciation of securities were $1,137,222,171
and $3,413,625, respectively.
NOTE 4--CAPITAL STOCK:
At December 31, 1995 there were 40,000,000 shares of $.10 par
value capital stock authorized. Transactions in capital stock
were as follows:
1995 1994
--------------------- -------------------
Shares Amount Shares Amount
-------- -------- -------- --------
Shares sold 1,446,747 $ 94,340,709 1,861,116 $104,556,895
Shares issued to
stockholders on
reinvestment of:
Net investment income 93,996 6,408,962 150,318 8,454,779
Net realized gain on
investments 34,096 2,045,382 301,397 16,766,833
---------- ----------- ---------- -----------
1,574,839 102,795,053 2,312,831 129,778,507
Shares repurchased 1,453,448 96,019,207 2,032,472 113,948,679
---------- ----------- ---------- -----------
Net increase 121,391 $ 6,775,846 280,359 $15,829,828
========== =========== ========== ===========
NOTE 5--DIRECTORS FEES AND EXPENSES:
15
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Directors who are not deemed "interested persons" receive
fees of $6,000 per quarter and $1,500 for each meeting attended,
and are reimbursed for travel and other out-of-pocket
disbursements incurred in connection with attending directors'
meetings. The total of such fees and expenses paid by the Fund to
these directors for the year ended December 31, 1995 was
$131,862.
NOTE 6--CAPITAL LOSS CARRY FORWARD:
At December 31, 1995 the Fund had tax basis capital losses of
$13,914,683, which may be carried forward to offset future
capital gains. Such losses expire December 31, 2003.
NOTE 7--AFFILIATED COMPANIES:
Investment in portfolio companies 5% or more of whose
outstanding voting securities are held by the Fund are defined in
the Investment Company Act of 1940 as "affiliated companies."
The total value and cost of investments in affiliates at December
31, 1995 aggregated $215,050,000 and $150,092,362, respectively.
The summary of transactions for each affiliate during the period
of their affiliation for the year ended December 31, 1995 is
provided below:
Purchases Sales
-------------- ------------- Realized Dividend
Affiliate Shares Cost Shares Cost Gain Income
----------------------- ------ ----- ------ ---- ----- -------
Progressive Corp - Ohio -- -- -- -- -- $968,000
========
NOTE 8--SELECTED FINANCIAL INFORMATION:
Year Ended December 31,
------------------------------------
1995 1994 1993 1992 1991
----- ----- ----- ----- -----
Per Share Operating Performance
(for a share outstanding
throughout the year)
Net asset value, beginning of
year $55.59 $54.84 $56.66 $53.31 $41.94
------ ------ ------ ------ ------
Income from investment
operations:
16
<PAGE>
Net investment income 0.31 0.42 0.64 0.93 1.35
Net realized and unrealized
gains on investments 22.62 1.41 5.39 3.98 14.96
----- ------ ------ ------ ------
Total from investment
operations 22.93 1.83 6.03 4.91 16.31
----- ------ ------ ------ ------
Less distributions:
Dividends from net investment
income (0.31) (0.42) (0.65) (0.93) (1.36)
Distributions from net
realized gains (0.08) (0.66) (7.20) (0.63) (3.58)
Total distributions (0.39) (1.08) (7.85) (1.56) (4.94)
------ ------ ------ ------ ------
Net asset value, end of year $78.13 $55.59 $54.84 $56.66 $53.31
====== ====== ====== ====== ======
Total Return 41.4% 3.3% 10.8% 9.4% 40.0%
Ratios/Supplemental data
Net assets, end of year
(in millions) $2,185.5 $1,548.3 $1,512.1 $1,389.3 $1,251.4
Ratio to average net assets:
Expenses 1.0% 1.0% 1.0% 1.0% 1.0%
Net investment income 0.5% 0.8% 1.1% 1.8% 2.8%
Portfolio turnover rate 15% 32% 24% 28% 36%
17
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
Sequoia Fund, Inc.
We have audited the accompanying statement of assets and
liabilities, including the statement of investments, of Sequoia
Fund, Inc. as of December 31, 1995, and the related statements of
operations for the year then ended, changes in net assets for
each of the two years in the period then ended, and the selected
financial information for each of the five years in the period
then ended. These financial statements and the selected financial
information are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial
statements and the selected financial information based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and the selected financial information
are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation
of securities owned as of December 31, 1995, by correspondence
with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and the selected
financial information referred to above present fairly, in all
material respects, the financial position of the Sequoia Fund,
Inc. as of December 31, 1995, the results of its operations, the
changes in its net assets and the selected financial information
for the periods indicated, in conformity with generally accepted
accounting principles.
McGladrey & Pullen
New York, New York
January 19, 1996
18
<PAGE>
SEQUOIA FUND, INC.
767 Fifth Avenue, Suite 4701
New York, New York 10153-4798
DIRECTORS
William J. Ruane
Richard T. Cunniff
Robert D. Goldfarb
John M. Harding
Francis P. Matthews
C. William Neuhauser
Robert L. Swiggett
OFFICERS
William J. Ruane - Chairman of the Board
Richard T. Cunniff - President
Robert D. Goldfarb - Vice President
Joseph Quinones, Jr. - Vice President, Secretary &
Treasurer
INVESTMENT ADVISER & DISTRIBUTOR
Ruane, Cunniff & Co., Inc.
767 Fifth Avenue, Suite 4701
New York, New York 10153-4798
CUSTODIAN
Morgan Guaranty Trust Company of New York
23 Wall Street
New York, New York 10015
REGISTRAR AND SHAREHOLDER
SERVICING AGENT
DST Systems, Inc.
P.O. Box 419477
Kansas City, Missouri 64141
LEGAL COUNSEL
Seward & Kissel
One Battery Park Plaza
New York, New York 10004
This report has been prepared for the information of shareholders
of Sequoia Fund and is not authorized for distribution to
prospective investors unless preceded or accompanied by an
effective prospectus that includes information regarding the
Fund's objectives, policies, management, records and other
information.
19
69900020.AL7
