logo.gif (4439 bytes)


Fund, Inc.


December 31, 2001



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, 2001. 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
Capital Gains
Value of
Value of

July 15, 1970 $10,000 $— $— $10,000
May 31, 1971 11,750 184 11,934
May 31, 1972 12,350 706 451 13,507
May 31, 1973 9,540 1,118 584 11,242
May 31, 1974 7,530 1,696 787 10,013
May 31, 1975 9,490 2,137 1,698 13,325
May 31, 1976 12,030 2,709 2,654 17,393
May 31, 1977 15,400 3,468 3,958 22,826
Dec. 31, 1977 18,420 4,617 5,020 28,057
Dec. 31, 1978 22,270 5,872 6,629 34,771
Dec. 31, 1979 24,300 6,481 8,180 38,961
Dec. 31, 1980 25,040 8,848 10,006 43,894
Dec. 31, 1981 27,170 13,140 13,019 53,329
Dec. 31, 1982 31,960 18,450 19,510 69,920
Dec. 31, 1983 37,110 24,919 26,986 89,015
Dec. 31, 1984 39,260 33,627 32,594 105,481
Dec. 31, 1985 44,010 49,611 41,354 134,975
Dec. 31, 1986 39,290 71,954 41,783 153,027
Dec. 31, 1987 38,430 76,911 49,020 164,361
Dec. 31, 1988 38,810 87,760 55,946 182,516
Dec. 31, 1989 46,860 112,979 73,614 233,453
Dec. 31, 1990 41,940 110,013 72,633 224,586
Dec. 31, 1991 53,310 160,835 100,281 314,426
Dec. 31, 1992 56,660 174,775 112,428 343,863
Dec. 31, 1993 54,840 213,397 112,682 380,919
Dec. 31, 1994 55,590 220,943 117,100 393,633
Dec. 31, 1995 78,130 311,266 167,129 556,525
Dec. 31, 1996 88,440 397,099 191,967 677,506
Dec. 31, 1997 125,630 570,917 273,653 970,200
Dec. 31, 1998 160,700 798,314 353,183 1,312,197
Dec. 31, 1999 127,270 680,866 286,989 1,095,125
Dec. 31, 2000 122,090 903,255 289,505 1,314,850
Dec. 31, 2001 130,240 1,002,955 319,980 1,453,175

The total amount of capital gains distributions accepted in shares was $611,666, the total amount of dividends reinvested was $116,619.

No adjustment has been made for any taxes payable by shareholders on capital gain distributions and dividends reinvested in shares.

To the Shareholders of
Sequoia Fund, Inc.

Dear Shareholder:

Sequoia Fund's results for the fourth quarter of 2001 are shown below with comparable results for the leading market indexes:

To December 31, 2001 Sequoia
Dow Jones
Standard &
Poor's 500

Fourth Quarter 8.30% 13.80% 10.73%
1 Year 10.52 -5.48 -11.91
5 Years (Annualized) 16.49 10.98 10.68
10 Years (Annualized) 16.54 14.69 12.92

The S&P 500 Index is an unmanaged, capitalization-weighted index of the common stocks of 500 major US corporations. The Dow Jones Industrial Average is an unmanaged, price-weighted index of 30 actively traded blue chip stocks. The performance data quoted represents past performance and assumes reinvestment of dividends. The investment return and principal value of an investment in the Fund will fluctuate. An investor's shares, when redeemed, may be worth more or less than their original cost.

We are pleased to report that in 2001 we had a total return of 10% and that our holdings as a group avoided the general decline of the market averages as indicated above.

The expanded display of our performance as shown above is now mandated by the SEC. Despite the increasing complexity of the performance table, it should assist you to better assess the management of your funds than does a quarterly or annual performance number. We believe strongly in our long held policy of making large commitments in a limited number of portfolio holdings. This approach may tend at times to result in significant divergence in performance from the general market, but, in our opinion, when carefully pursued should lead to a more satisfactory long term result.

The outrageous behavior of all the participants in the Enron scandal struck the perceived integrity of the business and the financial worlds with the same force that the tragic acts of September 11th dramatized the dangers of terrorism on our own soil. Just as there will be a great line of demarcation between the way the world operated pre-September 11th and the way it will operate in the future, we believe there will be a vast difference between the way the financial world operated pre-Enron and the way it will operate post-Enron. For our part, security analysis has increasingly become an exercise in ferreting out the truth from the half-truths and deceptions. However, we believe there will be a sea change, not only because of actions of Congress, public outrage and increased regulation, but perhaps most of all because of self-interest.

Just as self-interest was the driving force behind pre-Enron accounting (stock options were worth more if companies produced rapid, preferably smooth, reported EPS growth), the combination of self-interest and regulation will result in a very different financial world going forward, with CEO's, directors, audit committees and accounting firms likely to act very differently post-Enron. They will do so if for no other reason than that they don't want their wives to have to explain to Katie Couric that their CEO husbands were totally unaware of the alleged fraud being committed by the CFO. Large accounting firms don't want to have their very existence threatened by devastating publicity and questions about their fundamental credibility. CEO's don't want to have to go before Congress and take the Fifth Amendment, while directors and audit committee members don't want to be sued or have their names and reputations tarnished and destroyed on the front pages of newspapers.

While we don't think that the changes in accounting will be so great that true economic earnings and reported earnings will be one and the same, we do believe that going forward, post-Enron reported earnings will more closely reflect economic reality. We are proud of the integrity of the financial reporting of our portfolio companies in which we are invested. It is interesting to conjecture how high the multiple of the S&P 500 index would be as reported earnings are altered in the post-Enron era to be much closer to true economic earnings. We will continue to assess the true economic earnings of companies in which we are invested by making realistic adjustments to the reported earnings. In conclusion we believe the changes in behavior whether caused by regulation or self-interest will be healthy for the serious long-term investor.

Finally, despite the substantial declines in many individual stocks as well as the averages, we find that the optimism generated by more than a decade of above average gains has still created a level of the stock market which gives very generous valuations of most companies. During 2001, we were able to find few opportunities to buy companies at prices which met our valuation standards. Once again, we urge you to maintain adequate financial reserves for your foreseeable spending needs, keep your investment expectations low and we will work hard to achieve them in this new atmosphere.


Carley Cunniff
Executive Vice President
Richard T. Cunniff
Vice Chairman
Robert D. Goldfarb
William J. Ruane
February 19, 2002

Schedule of Investments
December 31, 2001

Shares Cost Value
(Note 1)

8,710,393 Fifth Third Bancorp $87,194,981 $534,208,403
243,300 Mercantile Bankshares Corporation 2,547,217 10,471,632

89,742,198 544,680,035

1,963,000 Fastenal Company† 112,198,911 130,402,090

19,661 Berkshire Hathaway Inc. Class A* 157,992,830 1,486,371,600

476,700 Molex Inc. Class A 12,992,243 12,894,735

2,414,000 Ethan Allen Interiors, Inc.† 61,511,689 100,398,260

2,430,500 Progressive Corporation 81,538,669 362,873,650

414,400 Cintas Corporation 11,070,348 19,891,200

3,087,350 Dover Corporation 109,217,300 114,448,064
240,500 Harley Davidson, Inc. 1,578,883 13,061,555

110,796,183 127,509,619

1,532,200 Household International Inc. 26,537,251 88,775,668

263,700 Danaher Corporation 9,877,812 15,903,747

803,700 International Speedway Corp. Class A 25,758,212 31,424,670

54,600 Costco Wholesale Corporation* 1,665,393 2,423,148
7,893,800 TJX Companies, Inc. 170,148,431 314,646,868

171,813,824 317,070,016

Miscellaneous Securities (2.93%) 92,183,356 123,191,050

TOTAL COMMON STOCKS 964,013,526 3,361,386,340


$659,000,000 U.S. Treasury Bills due 1/17/02 through 2/28/02 657,490,059 657,490,059
187,500,000 U.S. Treasury Notes, 6 3/8% due 01/31/2002 187,467,605 188,203,125

TOTAL U.S. GOVERNMENT OBLIGATIONS 844,957,664 845,693,184

TOTAL INVESTMENTS (100%)†† $1,808,971,190 $4,207,079,524

†† The cost for federal income tax purposes is identical.
* Non-income producing.
Refer to Note 7.

The accompanying notes form an integral part of these Financial Statements

Statement of Assets and Liabilities
December 31, 2001

     Investments in securities, at value (cost $1,808,971,190) (Note 1) $4,207,079,524
     Cash on deposit with custodian 2,414,319
     Receivable for capital stock sold 760,678
     Receivable for investment securities sold 16,213,337
     Dividends and interest receivable 7,437,719
     Other assets 44,325

          Total assets 4,233,949,902

     Payable for capital stock repurchased 533,455
     Accrued investment advisory fee 3,150,450
     Accrued other expenses 136,538

          Total liabilities 3,820,443

Net assets applicable to 32,478,458 shares of capital stock outstanding (Note 4) $4,230,129,459

Net asset value, offering price and redemption price per share $130.24

The accompanying notes form an integral part of these Financial Statements.

Statement of Operations
Year Ended December 31, 2001

               Unaffiliated companies $13,555,201
               Affiliated companies (Note 7) 386,240
          Interest 56,998,325

                    Total income 70,939,766

          Investment advisory fee (Note 2) 39,520,181
          Legal and auditing fees 129,894
          Stockholder servicing agent fees 368,017
          Custodian fees 80,000
          Directors fees and expenses (Note 6) 178,803
          Other 229,305

                    Total expenses 40,506,200
     Less expenses reimbursed by Investment Adviser (Note 2) 836,000

                    Net expenses 39,670,200

                    Net investment income 31,269,566

     Realized gain on investments:
          Unaffiliated companies 49,836,661
          Affiliated companies (Note 7) 13,367

                    Net realized gain on investments 49,850,028
     Net increase in unrealized appreciation on:
          Investments 323,645,180

                    Net realized and unrealized gain on investments 373,495,208

Increase in net assets from operations $404,764,774

The accompanying notes form an integral part of these Financial Statements.

Statements of Changes in Net Assets

Year Ended December 31,

2001 2000

     From operations:
          Net investment income $31,269,566 $44,997,211
          Net realized gains 49,850,028 942,243,845
          Net increase/(decrease) in unrealized appreciation 323,645,180 (315,156,819)

               Net increase in net assets from operations 404,764,774 672,084,237
     Distributions to shareholders from:
          Net investment income (30,954,184) (45,137,144)
          Net realized gains (108,695,093) (761,659,017)
          Capital share transactions (Note 4) 21,135,078 181,707,472

               Total increase 286,250,575 46,995,548
     Beginning of year 3,943,878,884 3,896,883,336

     End of year $4,230,129,459 $3,943,878,884

     Capital (par value and paid in surplus) $1,834,354,645 $1,794,951,606
     Undistributed net investment income 354,842 39,460
     Undistributed net realized (losses)/gains (Note 3) (2,688,362) 74,424,664
     Unrealized appreciation 2,398,108,334 2,074,463,154

               Total Net Assets $4,230,129,459 $3,943,878,884

The accompanying notes form an integral part of these Financial Statements.

Notes To Financial Statements


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 accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
E. General: Dividends and distributions are recorded by the Fund on the ex-dividend date. Interest income is accrued as earned.


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 year ended December 31, 2001 and the Investment Adviser reimbursed the Fund $836,000.

For the year ended December 31, 2001, there were no amounts accrued to interested persons, including officers and directors, other than advisory fees of $39,520,181 and brokerage commissions of $178,290 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, 2001.


The aggregate cost of purchases and the proceeds from the sales of securities, excluding U.S. government obligations, for the year ended December 31, 2001 were $255,903,100 and $220,725,545, respectively. Included in proceeds of sales is $26,917,420 representing the value of securities disposed of in payment of redemptions in-kind, resulting in realized gains of $18,267,961. 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 December 31, 2001 the aggregate gross unrealized appreciation and depreciation of securities were $2,398,205,842 and $97,508, respectively.


At December 31, 2001 there were 100,000,000 shares of $.10 par value capital stock authorized. Transactions in capital stock were as follows:

2001 2000

Shares Amount Shares Amount

Shares sold 1,129,012 $137,722,810 715,998 $90,211,693
Shares issued to stockholders on reinvestment of:
     Net investment income 177,192 21,920,774 184,579 22,203,418
     Net realized gains on investments 792,019 95,716,809 5,443,920 654,982,903

2,098,223 255,360,393 6,344,497 767,398,014
Shares repurchased 1,923,077 234,225,315 4,659,821 585,690,542

Net Increase 175,146 $21,135,078 1,684,676 $181,707,472


The tax character of distributions paid during 2001 and 2000 was as follows:

2001 2000

Distributions paid from:
Ordinary income $44,425,425 $45,159,363
Long-term capital gains 95,223,852 761,636,798

     Total distributions $139,649,277 $806,796,161

As of December 31, 2001, the components of distributable earnings on a tax basis were as follows:

Undistributed ordinary income $848,250
Undistributed long-term gain 1,028,871
Post October loss deferral (4,210,641)
Unrealized appreciation 2,398,108,334



Directors who are not deemed "interested persons" receive fees of $6,000 per quarter and $2,500 for each meeting attended, and are reimbursed for travel and other out-of-pocket disbursements incurred in connection with attending directors meetings. The total of such fees and expenses paid by the Fund to these directors for the year ended December 31, 2001 was $178,803.


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, 2001 aggregated $230,800,350 and $173,710,600, respectively. The summary of transactions for each affiliate during the period of their affiliation for the year ended December 31, 2001 is provided below:


Purchases Sales Realized

Shares Cost Shares Cost

Ethan Allen Interiors, Inc. $386,240
Fastenal Company 2,020,000 $115,765,116 57,000 $3,566,205 $13,367

$13,367 $386,240


Year Ended December 31,

2001 2000 1999 1998 1997

Per Share Operating Performance (for a share outstanding throughout each year)
Net asset value, beginning of year $122.09 $127.27 $160.70 $125.63 $88.44

Income from investment operations:
Net investment income 0.97 1.66 0.84 0.39 0.08
Net realized and unrealized gains (losses) on investments 11.52 23.33 (26.83) 43.07 38.10

     Total from investment operations 12.49 24.99 (25.99) 43.46 38.18

Less distributions:
Dividends from net investment income (0.97) (1.66) (0.85) (0.37) (0.08)
Distributions from net realized gains (3.37) (28.51) (6.59) (8.02) (0.91)

     Total distributions (4.34) (30.17) (7.44) (8.39) (0.99)

Net asset value, end of year $130.24 $122.09 $127.27 $160.70 $125.63

Total Return 10.5% 20.1% w16.5% 35.3% 43.2%
Ratios/Supplemental data
Net assets, end of year (in millions) $4,230.1 $3,943.9 $3,896.9 $5,001.9 $3,672.6
Ratio to average net assets:
     Expenses 1.0% 1.0% 1.0% 1.0% 1.0%
     Net investment income 0.8% 1.2% 0.6% 0.3% 0.1%
Portfolio turnover rate 7% 36% 12% 21% 8%


To the Board of Directors and Shareholders of
Sequoia Fund, Inc.

In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Sequoia Fund, Inc. (the "Fund") at December 31, 2001, the results of its operations for the year then ended, and the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2001 by correspondence with the custodian, provide a reasonable basis for our opinion. The financial highlights for each of the two years in the period ended December 31, 1998 were audited by other independent accountants whose report dated January 15, 1999 expressed an unqualified opinion on those statements.

PricewaterhouseCoopers LLP
New York, New York
January 18, 2002

Information about Sequoia Fund Officers and Directors:

The Statement of Additional Information (SAI) includes additional information about Fund directors and is available, without charge, upon request. You may call toll-free 1-800-686-6884 to request the SAI.

Name, Age, and Address

Position Held
with Fund
Term of Office and
Length of Time
Occupation during
Past 5 Years
Held by

William J. Ruane, 76
767 Fifth Avenue
New York, NY 10153
Chairman of the
Board & Director
Term — 1 Year &
Length of Time
served — 31 Years
Chairman of the
Board & Director of
Ruane, Cunniff &
Co., Inc.
Richard T. Cunniff, 78
767 Fifth Avenue
New York, NY 10153
Vice Chairman &
Term — 1 Year &
Length of Time
served — 31 Years
Vice Chairman &
Director of Ruane,
Cunniff & Co., Inc.
Ruger &
Co., Inc.
Robert D. Goldfarb, 57
767 Fifth Avenue
New York, NY 10153
President & Director Term — 1 Year &
Length of Time
served — 23 Years
President & Director
of Ruane, Cunniff &
Co., Inc.
Carol L. Cunniff, 51
767 Fifth Avenue
New York, NY 10153
Executive Vice
President & Director
Term — 1 Year &
Length of Time
served — 7 Years
Executive Vice
President & Director
of Ruane, Cunniff &
Co., Inc.
Joseph Quinones, Jr.,56
767 Fifth Avenue
New York, NY 10153
Vice President,
Secretary &
Term — 1 Year &
Length of Time
served — 6 Years
Vice President,
Secretary &
Treasurer of Ruane,
Cunniff & Co., Inc.
Francis P. Matthews, 79
767 Fifth Avenue
New York, NY 10153
Director Term — 1 Year &
Length of Time
served — 29 Years
Retired None
C. William Neuhauser, 75
767 Fifth Avenue
New York, NY 10153
Director Term — 1 Year &
Length of Time
served — 27 Years
Retired None
Robert L. Swiggett, 79
767 Fifth Avenue
New York, NY 10153
Director Term — 1 Year &
Length of Time
served — 31 Years
Retired None
Roger Lowenstein, 47
767 Fifth Avenue
New York, NY 10153
Director Term — 1 Year &
Length of Time
served — 3 Years
Writer who regularly
contributes to major
Financial and News
Vinod Ahooja, 50
767 Fifth Avenue
New York, NY 10153
Director Term — 1 Year &
Length of Time
served — 1 Year
Retired None

767 Fifth Avenue, Suite 4701
New York, New York 10153-4798
Website: www.sequoiafund.com


William J. Ruane
Richard T. Cunniff
Robert D. Goldfarb
Carol L. Cunniff
Vinod Ahooja
Roger Lowenstein
Francis P. Matthews
C. William Neuhauser
Robert L. Swiggett


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


Ruane, Cunniff & Co., Inc.
767 Fifth Avenue, Suite 4701
New York, New York 10153-4798


The Bank of New York
Mutual Funds Relationship Management
15 Broad Street, 7th Floor
New York, New York 10286


DST Systems, Inc.
P.O. Box 219477
Kansas City, Missouri 64121


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.