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SEQUOIA FUND, INC.
SEMI-ANNUAL REPORT
June 30, 1999
Dear Shareholder:
Sequoia Fund's results for the second quarter of 1999 are shown below
with comparable results for the leading market indexes:
To June 30, 1999
Sequoia Dow Jones Standard &
Fund Industrials Poor's 500
3 months -0.8% 12.5% 7.0%
6 months -3.8% 20.4% 12.4%
As indicated by the numbers above, Sequoia's year-to-date performance
is seriously lagging the returns of the major market indexes. It is
never pleasant to report poor relative performance. However, we
thought it might be helpful to put Sequoia's current performance in a
longer-term perspective.
Over its entire 29-year history, Sequoia has returned over
12,500%, compared to a 4,900% gain in the S&P 500 over the same
period (we are obligated to interject here that past performance
is no guarantee of future performance). However, the Fund has
underperformed the S&P 500 in 12 of its 29 calendar years - on
average, more than four years out of ten. There were two periods
of sustained and significant underperformance, when we declined
to participate in market sectors that were red hot. From 1970-
1973, the Fund lagged the return of the S&P 500 by a cumulative
39%. Our long-term shareholders will recall that during this
period, the market was dominated by the high-flying Nifty Fifty,
which we did not own despite the nearly universal opinion that
they were "sure things". In 1979 and 1980, the Fund
underperformed the S&P 500 by a cumulative 30%. The 1979-1980
market was primarily driven by the oil stocks with an assist from
the technology and defense sectors, none of which we participated
in. Remember those days when - without a doubt - oil prices
would continue to rise forever?
We cite this history to make an important point: when you maintain a
consistent investment philosophy and invest for the long term, you do
not need to outperform every calendar year in order to outperform in
the long term. Indeed, because market sectors and investment styles
move in and out of favor, it is virtually certain that you will not
outperform every calendar year.
The market's recent gains have been fueled by moves in technology and
a broad array of economically sensitive stocks. We do not make any
attempt to mirror the market in the composition of our portfolio, and
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in a focused portfolio like ours, deviation from the norm is highly
probable. In making decisions to buy and/or hold stocks, we put
almost all of our analytical focus on the particular company's long
term economic prospects, with little emphasis on shorter term factors.
The facts are that in today's inflated stock market we continue our
search for attractive equity values but have found little we want to
buy with deep conviction. Investing is a long term game and, as
always, we prefer to stick to what we know and feel comfortable with,
and wait for those inevitable but unpredictable market opportunities
to deploy our capital aggressively when we find the risk/reward
relationship more heavily weighted towards reward.
Like many others, we are bemused by the bedlam surrounding the
internet stocks as well as the dramatic increase in day trading. In a
recent op ed article in The Wall Street Journal, financial journalist
Daniel Akst commented "Ah, what a time to be a financial pundit. A
new crop of active investors, innocent of anything like a prolonged
bear market, is armed with online trading accounts and an apparently
insatiable appetite for investment guidance. The result is a bull
market for the services of financial reporters, analysts and
commentators. We are everywhere, it seems: on the air, in print and
online. Unfortunately, this cacophony of investment advice tends to
promote the very thing it should be discouraging, which is obsessive
meddling with one's investments."
The tag line in a major advertising campaign by a leading online
broker reads "In the world of investing, twenty minutes can make you -
- - or break you." Another electronic broker markets what it calls
"bed-and-breakfast" specials: if you buy a stock online from them one
day and sell it the next morning, there is no commission charge. The
New York Times reports of a $100,000 investment account opened at a
leading electronic broker. In a one year period, this account
generated a staggering $1.1 billion in principal value of total
purchases and sales of stocks. The return to the investor as a result
of all this frantic activity? The account earned $15,000.
As further evidence of the judgment-clouding effects of a rising stock
market, The Wall Street Journal recently reported that a growing
number of municipalities, faced with woefully underfunded pension
plans for municipal workers, are issuing pension-obligation bonds.
This type of bond was unheard of until a few years ago. Instead of
facing up to the politically difficult alternatives of raising taxes
to make good on its promises or cutting pension benefits, the
municipality instead raises money by selling long term bonds with an
interest rate of about 6.5%. The municipality then essentially goes
on margin by contributing the borrowed funds to its underfunded
pension plan to be invested in stocks. The theory is that as long as
the stocks generate a return in excess of the 6.5% annual interest
cost on the bonds, the pension fund profits accordingly. Twenty-
eight pension-obligations bonds were sold in 1998, up from seven in
1997. Philadelphia sold $1.3 billion this year. Los Angeles has a $2
2
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billion issue outstanding. A recent conference on the subject drew
500 government officials from around the country. "We naturally
wanted to play the equity markets like everyone else," says the
auditor of the city of Worcester in discussing the city's recent
pension bond issue. Another official, awaiting state approval for his
city's proposed pension bond, cheerfully concedes, ".it's taking a
gamble, like going to Foxwoods (Casino)".
Warren Buffett gave a talk about the stock market at a recent Allen &
Co. gathering of media and technology executives in Sun Valley, Idaho,
which is described by Ken Auletta in the July 26th issue of The New
Yorker. During his remarks Buffett told an old joke which we feel
captures the mood of many of today's stock buyers: An oil prospector
dies and goes to Heaven. He asks St. Peter to be admitted, but is
told that there is no room because there are already too many oil
prospectors in Heaven. "Do you mind if I say four words?" he asks.
"No harm in that," says St. Peter. The prospector cries out "Oil
discovered in Hell!" With that, the resident prospectors stampede out
the Heavenly gates and St. Peter invites the new arrival to come on
in. "No thanks," the prospector muses, " I think I'll go along with
the rest of the boys. There may be some truth to that rumor."
Sincerely,
July 27, 1999
Please note that the mailing address for Sequoia's transfer agent has
been changed. The new address is:
DST Systems, P.O. Box 219477, Kansas City, Missouri 64121.
3
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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 June 30, 1999.
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 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
Dec. 31, 1996 88,440 397,099 191,967 677,506
Dec. 31, 1997 125,630 570,917 273,653 970,200
Dec. 31, 1998 160,700 798,314 353,183 1,312,197
June 30, 1999 149,420 784,195 328,598 1,262,213
4
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The total amount of capital gains distributions accepted in
shares was $316,164, the total amount of dividends reinvested was
$84,696.
No adjustment has been made for any taxes payable by shareholders
on capital gain distributions and dividends reinvested in shares.
5
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SEQUOIA FUND, INC.
Statement of Investments
June 30, 1999 (Unaudited)
COMMON STOCKS (79.23%)
Value
Shares Cost (Note 1)
- ------ ---- --------
BANK HOLDING COMPANIES (12.39%)
6,001,562 Fifth Third Bancorp $ 89,869,388 $ 399,478,971
326,000 Mercantile Bankshares
Corporation 3,362,542 11,532,250
1,154,100 National Commerce Bancorp 7,160,816 25,245,937
4,172,100 U.S. Bancorp 52,698,217 141,851,400
------------ --------------
153,090,963 578,108,558
------------ --------------
CONSUMER PRODUCTS (.07%)
327,600 Sturm, Ruger & Company, Inc. 355,900 3,501,225
------------ --------------
DIVERSIFIED COMPANIES(30.01%)
20,320 Berkshire Hathaway Inc.
Class A* 161,825,595 1,400,048,000
------------ --------------
INSURANCE (11.90%)
3,828,200 Progressive Corporation-Ohio+130,018,624 555,089,000
----------- --------------
MANUFACTURING - MOTORCYCLES (5.61%)
4,811,900 Harley Davidson, Inc. 64,628,722 261,647,063
------------ --------------
PERSONAL CREDIT (1.80%)
1,777,700 Household International, Inc.22,359,859 84,218,537
------------ --------------
SERVICES (15.82%)
12,723,800 Freddie Mac 52,697,585 737,980,400
------------ --------------
Miscellaneous Securities
(1.63%) 72,924,380 76,265,000
------------ --------------
TOTAL COMMON STOCKS $ 657,901,628 $3,696,857,783
-------------- --------------
6
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SEQUOIA FUND, INC.
Statement of Investments
June 30, 1999 (Unaudited)
(continued)
Principal Value
Amount Cost (Note 1)
--------- ---- -------
U.S. GOVERNMENT OBLIGATIONS (20.77%)
$ 22,000,000 U.S. Treasury Bills due
7/22/99 $ 18,951,012 $ 18,951,012
266,000,000 U.S. Treasury Notes,
5 7/8% due 8/31/99 266,116,531 266,581,875
271,000,000 U.S. Treasury Notes,
5 5/8% due 12/31/99 271,387,736 271,677,500
259,000,000 U.S. Treasury Notes,
5 5/8% due 4/30/2000 260,427,947 259,728,437
152,000,000 U.S. Treasury Notes,
5 3/8% due 7/31/2000 153,038,020 152,047,500
------------ ------------
TOTAL U.S. GOVERNMENT OBLIGATIONS 969,921,246 968,986,324
------------ ------------
TOTAL INVESTMENTS (100%)++ $1,627,822,874 $4,665,844,107
============== ==============
++ The cost for federal income tax purposes is identical.
* Non-income producing.
+ Refer to Note 6.
7
<PAGE>
SEQUOIA FUND, INC.
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
ASSETS:
Investments in securities, at value
(cost $1,627,822,874) (Note 1) $4,665,844,107
Cash on deposit with custodian 11,243,412
Receivable for capital stock sold 98,826
Dividends and interest receivable 12,733,834
Other assets 28,727
--------------
Total assets 4,689,948,906
==============
LIABILITIES:
Payable for capital stock repurchased 2,089,342
Accrued expenses 4,171,308
-------------
Total liabilities 6,260,650
-------------
Net assets applicable to 31,345,559
shares of capital stock outstanding
(Note 4) $4,683,688,256
==============
Net asset value, offering price and
redemption price per share $149.42
========
See Notes to Financial Statements.
8
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SEQUOIA FUND, INC.
Statement of Operations
Six Months Ended June 30, 1999 (Unaudited)
INVESTMENT INCOME:
Income:
Dividends:
Unaffiliated companies $9,772,715
Affiliated companies (Note 6) 526,526
Interest 26,018,378
Total income 36,317,619
Expenses:
Investment advisory fee (Note 2) 23,896,575
Legal and auditing fees 46,782
Stockholder servicing agent fees 204,034
Custodian fees 40,000
Directors fees and expenses (Note 5) 92,664
Other 118,345
Total expenses 24,398,400
Less expenses reimbursed by Investment Adviser (Note 2) 428,000
Net expenses 23,970,400
Net investment income 12,347,219
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on investments:
Unaffiliated companies 70,098,655
Affiliated companies (Note 6) 53,596,729
Net realized gain on investments 123,695,384
Net decrease in unrealized appreciation on:
Investments ( 320,830,848)
Net realized and unrealized (loss) on investments ( 197,135,464)
Decrease in net assets from operations ($ 184,788,245)
See Notes to Financial Statements.
9
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SEQUOIA FUND, INC.
Statements of Changes in Net Assets
Six Months
Ended Year
6/30/99 Ended
(Unaudited) 12/31/98
----------- -----------
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $12,347,219 $ 11,736,732
Net realized gain 123,695,384 431,381,943
Net increase (decrease) in unrealized
appreciation (320,830,848) 859,089,190
Net increase (decrease) in net assets
from operations (184,788,245) 1,302,207,865
Distributions to shareholders from:
Net investment income ( 781,080) ( 10,988,302)
Net realized gains ( 158,544,077) ( 238,181,010)
Capital share transactions (Note 4) 25,910,222 276,288,024
--------------- --------------
Total increase (decrease) ( 318,203,180) 1,329,326,577
NET ASSETS:
Beginning of period 5,001,891,436 3,672,564,859
-------------- --------------
End of period $4,683,688,256 $5,001,891,436
=============== ===============
NET ASSETS CONSIST OF:
Capital (par value and paid in surplus) $1,589,834,231 $1,483,849,808
Undistributed net investment income 12,314,569 748,430
Undistributed net realized gains (Note3) 43,518,222 158,441,116
Unreal1ized appreciation 3,038,021,234 3,358,852,082
-------------- --------------
Total Net Assets $4,683,688,256 $5,001,891,436
============== ==============
10
<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 are valued at the last reported
sales price on the NASDAQ National Market System on the last
business day of the period; listed securities and securities
traded in the over-the-counter market for which no sale was
reported on that date are valued at the mean between the
last reported bid and asked prices; U.S. Treasury Bills with
remaining maturities of 60 days or less are valued at their
amortized cost. U.S. Treasury Bills that when purchased have
a remaining maturity in excess of sixty days are stated at
their discounted value based upon the mean between the bid
and asked discount rates until the sixtieth day prior to
maturity, at which point they are valued at amortized cost.
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
11
<PAGE>
of the financial statements and the reported amounts of
increases and decreases in net assets from operations during
the reporting period. Actual results could differ from
those estimates.
E. General: Dividends and distributions are recorded by the
Fund on the ex-dividend date. Interest income is accrued as
earned.
12
<PAGE>
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 values. This percentage will not
increase or decrease in relation to increases or decreases in the
net asset value of the Fund. Under the Advisory Agreement, the
Investment Adviser is obligated to reimburse the Fund for the
amount, if any, by which the operating expenses of the Fund
(including the management fee) in any year exceed the sum of
1-1/2% of the average daily net asset values of the Fund during
such year up to a maximum of $30,000,000, plus 1% of the average
daily net asset values in excess of $30,000,000. The expenses
incurred by the Fund exceeded the percentage limitation during
the six months ended June 30, 1999 and the Investment Adviser
reimbursed the Fund $428,000.
For the six months ended June 30, 1999, there were no
amounts accrued to interested persons, including officers and
directors, other than advisory fees of $23,896,575 and brokerage
commissions of $111,445 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 six months ended
June 30, 1999.
NOTE 3--PORTFOLIO TRANSACTIONS:
The aggregate cost of purchases and the proceeds from the
sales of securities, excluding U.S. government obligations, for
the six months ended June 30, 1999 were $74,599,042 and
$161,005,037,respectively. Included in proceeds of sales is
$93,911,913 representing the value of securities disposed of in
payment of redemptions in-kind resulting in realized gains of
$80,074,201. As a result of the redemptions in-kind net realized
gains differ for financial statements and tax purposes. These
realized gains have been reclassified from undistributed realized
gains to paid in surplus in the accompanying financial
statements.
At June 30, 1999 the aggregate gross unrealized appreciation
and depreciation of securities were $3,039,711,263 and
$1,690,030, respectively.
13
<PAGE>
NOTE 4--CAPITAL STOCK:
At June 30, 1999 there were 100,000,000 shares of $.10 par value capital
stock authorized. Transactions in capital stock for the six months ended June
30, 1999 and the year ended December 31, 1998 were as follows:
1999 1998
--------------------- -------------------
Shares Amount Shares Amount
Shares sold 792,318 $ 121,093,453 2,164,908 $ 319,175,918
Shares issued to
stockholders on
reinvestment of:
Net investment income 3,851 568,922 54,399 7,959,038
Net realized gains on
investments 970,281 143,329,905 1,470,593 215,201,334
1,766,450 264,992,280 3,689,900 542,336,290
Shares repurchased 1,546,781 239,082,058 1,796,644 266,048,266
Net increase 219,669 $ 25,910,222 1,893,256 $ 276,288,024
NOTE 5--DIRECTORS FEES AND EXPENSES:
Directors who are not deemed "interested persons" receive
fees of $6,000 per quarter and $2,500 for each meeting attended,
and are reimbursed for travel and other out-of-pocket
disbursements incurred in connection with attending directors
meetings. The total of such fees and expenses paid by the Fund to
these directors for the six months ended June 30, 1999 was
$92,664.
14
<PAGE>
NOTE 6--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 June 30,
1999 aggregated $555,089,000 and $130,018,624, respectively. The
summary of transactions for each affiliate during the period of
their affiliation for the six months ended June 30, 1999 is
provided below:
Purchases Sales
Realized Dividend
Affiliate Shares Cost Shares Cost Gain Income
Progressive Corp - Ohio -- -- 524,300 $ 18,563,238 $53,596,729 $ 526,526
15
<PAGE>
NOTE 7-- The interim financial statements have not been examined
by the Fund's independent accountants and accordingly they do not
express an opinion thereon.
NOTE 8--SELECTED FINANCIAL INFORMATION:
Six
Months Year Ended December 31,
Ended
June 30
1999 1998 1997 1996 1995 1994
Per Share Operating Performance
(for a share outstanding
throughout the period)
Net asset value, beginning of
period $160.70 $125.63 $88.44 $78.13 $55.59 $54.84
Income from investment
operations:
Net investment income 0.39 0.39 0.08 0.38 0.31 0.42
Net realized and unrealized
Gains (losses) on investments (6.57) 43.07 38.10 16.41 22.62 1.41
Total from investment
operations (6.18) 43.46 38.18 16.79 22.93 1.83
Less distributions:
Dividends from net investment
income (0.03) (0.37) (0.08) (0.38) (0.31) (0.42)
Distributions from net
realized gains (5.07) (8.02) (0.91) (6.10) (0.08) (0.66)
Total distributions (5.10) (8.39) (0.99) (6.48) (0.39) (1.08)
Net asset value, end of period $149.42 $160.70 $125.63 $88.44 $78.13 $55.59
Total Return -3.8%+ 35.3% 43.2% 21.7% 41.4% 3.3%
Ratios/Supplemental data
Net assets, end of period
(in millions) $4,683.7 $5,001.9 $3,672.6 $2,581.0 $2,185.5 $1,548.3
Ratio to average net assets:
Expenses 1.0%* 1.0% 1.0% 1.0% 1.0% 1.0%
Net investment income 0.5%* 0.3% 0.1% 0.4% 0.5% 0.8%
Portfolio turnover rate 5%* 21% 8% 23% 15% 32%
+ Not annualized
* Annualized
16
<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
Carol L. Cunniff
John M. Harding
Francis P. Matthews
C. William Neuhauser
Robert L. Swiggett
Roger Lowenstein
OFFICERS
William J. Ruane - Chairman of the Board
Richard T. Cunniff - Vice Chairman
Robert D. Goldfarb - President
Carol L. Cunniff - Executive 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
The Bank of New York
90 Washington Street
New York, New York 10286
REGISTRAR AND SHAREHOLDER
SERVICING AGENT
DST Systems, Inc.
P.O. Box 219477
Kansas City, Missouri 64121
LEGAL COUNSEL
Seward & Kissel
One Battery Park Plaza
New York, New York 10004
This report has been prepared for the information of shareholders of Sequoia
Fund, Inc.
17
