LOGO

Sequoia Fund, Inc.

Table of Contents

 

     Page  

Illustration of An Assumed Investment of $10,000

     3      

Annual Fund Operating Expenses

     4      

Shareholder Letter

     5      

Sector Breakdown

     6      

Fund’s Largest Holdings

     7      

Fees And Expenses of The Fund

     8      

Schedule of Investments

     9      

Statement of Assets and Liabilities

     13      

Statement of Operations

     14      

Statements of Changes in Net Assets

     15      

Financial Highlights

     16      

Notes to Financial Statements

     17      

Other Information

     22      

Sequoia Fund, Inc.

Illustration of An Assumed Investment of $10,000

(Unaudited)

The table below covers the period from July 15, 1970 (the date Sequoia Fund, Inc. (the “Fund”) shares were first offered to the public) to June 30, 2016. This period was one of widely fluctuating common stock prices. The results shown, which assume reinvestment of distributions, represent past performance and do not guarantee future results. The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Current performance may be lower or higher than the performance shown. Investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.

 

Period Ended   

   Total Value
of Shares
 

July 15, 1970

   $ 10,000   

May 31, 1971

     11,934   

May 31, 1972

     13,507   

May 31, 1973

     11,242   

May 31, 1974

     10,013   

May 31, 1975

     13,325   

May 31, 1976

     17,393   

May 31, 1977

     22,826   

Dec. 31, 1977

     28,057   

Dec. 31, 1978

     34,771   

Dec. 31, 1979

     38,961   

Dec. 31, 1980

     43,894   

Dec. 31, 1981

     53,329   

Dec. 31, 1982

     69,920   

Dec. 31, 1983

     89,015   

Dec. 31, 1984

     105,481   

Dec. 31, 1985

     134,975   

Dec. 31, 1986

     153,027   

Dec. 31, 1987

     164,361   

Dec. 31, 1988

     182,516   

Dec. 31, 1989

     233,453   

Dec. 31, 1990

     224,586   

Dec. 31, 1991

     314,426   

Dec. 31, 1992

        343,863   

Period Ended   

   Total Value
of Shares
 

Dec. 31, 1993

   $ 380,919   

Dec. 31, 1994

     393,633   

Dec. 31, 1995

     556,525   

Dec. 31, 1996

     677,506   

Dec. 31, 1997

     970,200   

Dec. 31, 1998

     1,312,197   

Dec. 31, 1999

     1,095,125   

Dec. 31, 2000

     1,314,850   

Dec. 31, 2001

     1,453,175   

Dec. 31, 2002

     1,414,776   

Dec. 31, 2003

     1,656,923   

Dec. 31, 2004

     1,734,116   

Dec. 31, 2005

     1,869,038   

Dec. 31, 2006

     2,024,960   

Dec. 31, 2007

     2,195,146   

Dec. 31, 2008

     1,601,905   

Dec. 31, 2009

     1,848,293   

Dec. 31, 2010

     2,208,627   

Dec. 31, 2011

     2,499,935   

Dec. 31, 2012

     2,891,849   

Dec. 31, 2013

     3,891,835   

Dec. 31, 2014

     4,185,695   

Dec. 31, 2015

     3,880,364   

June 30, 2016

     3,368,379   
 

 

 

Please consider the investment objectives, risks and charges and expenses of the Fund carefully before investing. The Fund’s prospectus contains this and other information about the Fund. You may obtain year to date performance as of the most recent month end, and a copy of the prospectus by calling 1-800-686-6884, or on the Fund’s website at www.sequoiafund.com. Please read the prospectus carefully before investing.

 

Shares of the Fund are offered through the Fund’s distributor, Ruane, Cunniff & Goldfarb LLC. Ruane, Cunniff & Goldfarb LLC is an affiliate of Ruane, Cunniff & Goldfarb Inc. and is a member of FINRA. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

 

 

3

Sequoia Fund, Inc.

Annual Fund Operating Expenses

(Unaudited)

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)

 

Management Fees

    1.00%     
Other Expenses  

0.03%

     
Total Annual Fund Operating Expenses*  

1.03%

     

*Does not reflect Ruane, Cunniff & Goldfarb Inc.’s (‘‘Ruane, Cunniff & Goldfarb’’) contractual reimbursement of a portion of the Fund’s operating expenses. This reimbursement is a provision of Ruane, Cunniff & Goldfarb’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 expense ratio presented is from the Prospectus dated April 29, 2016. For the year ended December 31, 2015, the Fund’s annual operating expenses and investment advisory fee, net of such reimbursement, were 1.00% and 0.97%, respectively.

 

4

Sequoia Fund, Inc.

To the Shareholders of

Sequoia Fund, Inc.

Dear Shareholder:

As of this writing, the Sequoia Fund is down 8.99% year-to-date versus up 8.06% for the S&P 500 Index.

We are providing you with a copy of the transcript of the Ruane, Cunniff & Goldfarb Inc. Sequoia Fund, Inc. “Annual Investor Day 2016” meeting that was held on May 20th. We hope you find it informative.

Sequoia Fund’s results for the second quarter of 2016 appear below with comparable results for the S&P 500 Index:

 

To June 30, 2016

  

Sequoia Fund

       

S&P 500 Index*

    

3 Months

   -2.15%       2.46%   

6 Months

   -13.19%       3.84%   

1 Year

   -26.70%       3.99%   

5 Years (Annualized)

   6.44%       12.10%   

10 Years (Annualized)

   5.99%       7.42%   

The Sequoia Fund Investment Committee,

 

LOGO          LOGO
David M. Poppe     John B. Harris

 

LOGO         LOGO         LOGO     
Arman Gokgol-Kline    Trevor Magyar    D. Chase Sheridan

August 16, 2016

The numbers shown above represent past performance and do not guarantee future results. The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Future performance may be lower or higher than the performance information shown. The performance data quoted represents past performance and assumes reinvestment of distributions.

The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Year to date performance as of the most recent month end can be obtained by calling DST Systems, Inc. at 1-800-686-6884.

*The S&P 500 Index is an unmanaged capitalization-weighted index of the common stocks of 500 major US corporations.

 

5

Sequoia Fund, Inc.

Sector Breakdown

(Unaudited)

 

As of June 30, 2016

   % of
      net assets      

Diversified Companies

     17.4%

U.S. Government Obligations

     11.1%

Retailing

     10.5%

Information Processing

       5.5%

Application Software

       4.8%

Internet Software & Services

       4.7%

Auto Parts

       4.7%

Flooring Products

       4.6%

Industrial & Construction Supplies

       4.5%

Aerospace/Defense

       3.7%

Dental Equipment

       3.0%

Precision Instruments

       2.5%

Construction & Engineering

       2.3%

Automotive Retail

       2.2%

Diversified Banks

       2.0%

Restaurants

       1.9%

Investment Banking and Brokerage

       1.9%

Industrial Gases

       1.6%

Diversified Manufacturing

       1.6%

Advertising

       1.6%

Specialty Chemicals

       1.3%

Property and Casualty Insurance

       1.3%

Apparel, Accessories & Luxury Goods

       1.0%
Other   

    4.3%

    

100.0%

 

6

Sequoia Fund, Inc.

Fund’s Largest Holdings

(Unaudited)

The table below shows the Fund’s positions that constituted at least 3% of the Fund’s assets as of June 30, 2016:

 

    % of net assets

Position

 

 

     06/30/2016     

 

 

     12/31/2015     

Berkshire Hathaway

  17.4%   13.2%

TJX

    8.0%     6.9%

MasterCard

    5.5%     4.3%

Alphabet, Inc.

    4.7%     3.7%

O’Reilly Automotive

    4.7%     6.2%

Mohawk Industries, Inc.

    4.6%     3.2%

Fastenal Company

    4.5%     5.3%

Rolls-Royce

    3.7%     2.3%

Constellation Software

    3.4%     2.6%
Dentsply Sirona  

  3.0%

 

  2.0%

   

59.5%

 

49.7%

 

7

Sequoia Fund, Inc.

Fees And Expenses of The Fund

(Unaudited)

Shareholder Expense Example

 

As a shareholder of the Fund, you incur ongoing costs, including management fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (January 1, 2016 to June 30, 2016).

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled ‘‘Expenses Paid During Period’’ to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The

hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and will not help you determine the relative total costs of owning different funds.

 

     Beginning
Account
Value
January 1,
2016
   Ending
Account
Value

June 30,
2016
   Expenses
Paid During
Period*
January 1, 2016
to June 30,
2016

Actual

   $1,000    $868.10    $4.64

Hypothetical (5% return per year before expenses)

   $1,000    $1,019.89    $5.02

* Expenses are equal to the Fund’s annualized net expense ratio of 1.00%, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period).

 

 

8

Sequoia Fund, Inc.

Schedule of Investments

June 30, 2016

(Unaudited)

(Percentages are of the Fund’s Net Assets)

Common Stocks (85.6%)

 

            Shares             

       Value
               (Note 1)              
 

Advertising (1.6%)

    
928,976    

Omnicom Group Inc.

     $    75,702,254  
      

 

 

 
 

Aerospace/Defense (3.7%)

    
18,684,157    

Rolls-Royce Holdings plc (United Kingdom)

          176,974,290  
      

 

 

 
 

Apparel, Accessories & Luxury Goods (1.0%)

    
850,000    

Compagnie Financiere Richemont SA (Switzerland)

       49,398,361  
      

 

 

 
 

Application Software (3.4%)

    
422,445    

Constellation Software, Inc. (Canada)

       163,494,504  
      

 

 

 
 

Auto Parts (4.7%)

    
825,778    

O’Reilly Automotive, Inc. (a)

       223,868,416  
      

 

 

 
 

Automotive Retail (2.2%)

    
2,088,029    

Carmax, Inc. (a)

       102,376,062  
      

 

 

 
 

Construction & Engineering (2.3%)

    
2,220,000    

Jacobs Engineering Group Inc. (a)

       110,578,200  
      

 

 

 
 

Dental Equipment (3.0%)

    
2,268,809    

Dentsply Sirona, Inc.

       140,756,910  
      

 

 

 
 

Diversified Banks (2.0%)

    
2,020,963    

Wells Fargo & Co.

       95,652,179  
      

 

 

 
 

Diversified Companies (17.4%)

    
2,196    

Berkshire Hathaway, Inc.-Class A (a)

       476,477,100  
2,412,300    

Berkshire Hathaway, Inc.-Class B (a)

       349,276,917  
      

 

 

 
         825,754,017  
      

 

 

 
 

Diversified Manufacturing (1.6%)

    
761,755    

Danaher Corporation

       76,937,255  
      

 

 

 
 

Electrical & Mechanical Systems (0.8%)

    
771,762    

EMCOR Group, Inc.

       38,016,996  
      

 

 

 
 

Electronic Manufacturing Services (0.7%)

    
1,270,183    

Trimble Navigation Limited (a)

       30,941,658  
      

 

 

 
 

Flooring Products (4.6%)

    
1,140,822    

Mohawk Industries, Inc. (a)

       216,482,383  
      

 

 

 

 

 

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

 

9

Sequoia Fund, Inc.

Schedule of Investments (Continued)

June 30, 2016

(Unaudited)

 

            Shares             

       Value
               (Note 1)              
 

Healthcare (0.9%)

    
460,000    

Perrigo Company plc (Ireland)

     $    41,708,200  
      

 

 

 
 

Industrial & Construction Supplies (4.5%)

    
4,831,901    

Fastenal Company

       214,488,085  
      

 

 

 
 

Industrial Gases (1.6%)

    
685,147    

Praxair, Inc.

       77,003,671  
      

 

 

 
 

Information Processing (5.5%)

    
2,974,202    

MasterCard, Inc.-Class A

       261,908,228  
      

 

 

 
 

Internet Software & Services (4.7%)

    
161,444    

Alphabet, Inc.-Class A (a)

       113,580,697  
161,887    

Alphabet, Inc.-Class C (a)

       112,041,993  
      

 

 

 
         225,622,690  
      

 

 

 
 

Investment Banking & Brokerage (1.9%)

    
3,527,173    

The Charles Schwab Corp.

       89,272,749  
      

 

 

 
 

Precision Instruments (2.5%)

    
837,403    

Waters Corp. (a)

       117,780,732  
      

 

 

 
 

Property and Casualty Insurance (1.3%)

    
4,325,462    

Hiscox Ltd. (Bermuda)

       59,425,653  
20,893    

Verisk Analytics, Inc.-Class A (a)

       1,694,004  
      

 

 

 
         61,119,657  
      

 

 

 
 

Restaurants (1.9%)

    
227,000    

Chipotle Mexican Grill, Inc. (a)

       91,426,520  
      

 

 

 
 

Retailing (10.5%)

    
39,463    

Costco Wholesale Corp.

       6,197,269  
848,646    

Tiffany & Co.

       51,461,893  
4,901,169    

TJX Companies, Inc.

       378,517,282  
860,077    

Wal-Mart Stores, Inc.

       62,802,823  
      

 

 

 
         498,979,267  
      

 

 

 
 

Specialty Chemicals (1.3%)

    
1,474,323    

Croda International plc (United Kingdom)

       61,609,222  
      

 

 

 
 

Total Common Stocks (Cost $1,806,937,693)

       4,067,852,506  
      

 

 

 

 

 

 

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

 

10

Sequoia Fund, Inc.

Schedule of Investments (Continued)

June 30, 2016

(Unaudited)

 

          Principal          

Amount

       Value
            (Note  1)            

Corporate Bond (1.4%)

    
 

Application Software (1.4%)

    
76,460,100    

Constellation Software, Inc. (Canada)

    
 

7.60%, 3/31/2040

     $ 65,987,857  
      

 

 

 
 

Total Corporate Bond

    
 

(Cost $66,762,801)

       65,987,857  
      

 

 

 

U.S. Government Obligations (11.1%)

    
525,000,000    

United States Treasury Bill, 0.240% - 0.275%
due 07/14/2016 through 08/04/2016

       524,923,438  
      

 

 

 
 

Total U.S. Government Obligations

(Cost $524,923,438)

       524,923,438  
      

 

 

 
 

Total Investments (98.1%)

(Cost $2,398,623,932) (b)

       4,658,763,801  
 

Other Assets Less Liabilities (1.9%)

       91,521,482  
      

 

 

 
 

Net Assets (100.0%)

     $ 4,750,285,283  
      

 

 

 

 

 (a) Non-income producing security.

 

 (b) The cost for federal income tax purposes is identical.

Generally accepted accounting principles establish a disclosure hierarchy that categorizes the inputs to valuation techniques used to value the investments at measurement date. These inputs are summarized in the three levels listed below:

 

Level 1    –    

unadjusted quoted prices in active markets for identical securities

Level 2    –    

other significant observable inputs (including, but not limited to, quoted prices for similar securities, interest rates, prepayment speeds and credit risk)

Level 3    –    

unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Transfers between levels are recognized at the end of the reporting period. During the six months ended June 30, 2016, there were no transfers into or out of Level 1 or 2 measurements in the fair value hierarchy. There were no Level 3 securities held by the Fund during the six months ended June 30, 2016.

 

 

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

 

11

Sequoia Fund, Inc.

Schedule of Investments (Continued)

June 30, 2016

(Unaudited)

 

The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of June 30, 2016:

 

    

 Common Stocks 

   Corporate Bond   

U.S.
     Government     
      Obligations      

  

           Total            

Level 1 - Quoted Prices

     $ 4,067,852,506        $ —                $ —                  $ 4,067,852,506  

Level 2 - Other Significant Observable Inputs

                65,987,857          524,923,438          590,911,295  
    

 

 

      

 

 

      

 

 

      

 

 

 

Total

     $ 4,067,852,506        $ 65,987,857        $ 524,923,438        $ 4,658,763,801  
    

 

 

      

 

 

      

 

 

      

 

 

 

 

 

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

 

12

Sequoia Fund, Inc.

Statement of Assets and Liabilities

June 30, 2016

(Unaudited)

 

Assets

  

Investments in securities, at value (cost $2,398,623,932) (Note 1)

   $ 4,658,763,801   

Cash on deposit

     97,169,940   

Foreign currency (cost $1,119,561)

     1,124,457   

Receivable for investments sold

     1,938,191   

Receivable for capital stock sold

     126,318   

Dividends and interest receivable

     1,774,890   
  

 

 

 

 

Total assets

     4,760,897,597   
  

 

 

 

 

Liabilities

  

Payable for capital stock repurchased

     6,051,690   

Accrued investment advisory fee

     3,610,019   

Accrued professional fees

     811,529   

Accrued other expenses

     139,076   
  

 

 

 

 

Total liabilities

     10,612,314   
  

 

 

 

 

Net Assets

   $ 4,750,285,283   
  

 

 

 

 

Net Assets Consist of

  

Capital (par value and paid in surplus) $.10 par value capital stock,
100,000,000 shares authorized, 29,199,438 shares outstanding

   $ 2,465,184,401   

Accumulated net realized gains on investments (Note 4)

     25,144,977   

Unrealized appreciation on investments and foreign currency transactions

     2,259,955,905   
  

 

 

 

 

Net Assets

   $ 4,750,285,283   
  

 

 

 

Net asset value per share

   $ 162.68   
  

 

 

 

 

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

 

13

Sequoia Fund, Inc.

Statement of Operations

Six Months Ended June 30, 2016

(Unaudited)

 

Investment Income

  

Income

  

Dividends, net of $128,869 foreign tax withheld

   $ 20,634,202   

Interest

     1,913,733   
  

 

 

 

 

Total investment income

     22,547,935   
  

 

 

 

 

Expenses

  

Investment advisory fee (Note 2)

     27,994,724   

Professional fees

     1,661,425   

Transfer agent fees

     456,338   

Independent Directors fees and expenses

     127,460   

Custodian fees

     62,158   

Other

     187,998   
  

 

 

 

 

Total expenses

     30,490,103   

Less expenses reimbursed by Investment Adviser (Note 2)

     2,420,787   
  

 

 

 

 

Net expenses

     28,069,316   
  

 

 

 

 

Net investment loss

     (5,521,381
  

 

 

 

 

Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions

  

Realized gain (loss) on

  

Investments (Note 3)

     606,698,014   

Foreign currency transactions

     (131,210
  

 

 

 

 

Net realized gain on investments and foreign currency transactions

     606,566,804   

Net decrease in unrealized appreciation on investments and foreign currency translations

     (1,452,986,230
  

 

 

 

 

Net realized and unrealized (loss) on investments and foreign currency transactions and translations

     (846,419,426
  

 

 

 

 

Net decrease in net assets from operations

   $ (851,940,807
  

 

 

 

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

 

14

Sequoia Fund, Inc.

Statements of Changes in Net Assets

 

     Six Months
Ended 6/30/16
(Unaudited)
    Year Ended
12/31/15
 

Increase (Decrease) in Net Assets

    

From operations

    

Net investment loss

   $ (5,521,381   $ (35,067,912

Net realized gain on investments and foreign currency transactions

     606,566,804        418,257,275   

Net decrease in unrealized appreciation on investments and foreign currency translations

     (1,452,986,230     (963,888,313
  

 

 

   

 

 

 

 

Net decrease in net assets from operations

     (851,940,807     (580,698,950
  

 

 

   

 

 

 

 

Distributions to shareholders from

    

Net realized gains

     (474,018,377     (345,179,339
  

 

 

   

 

 

 

 

Capital share transactions

    

Shares sold

     64,157,698        389,567,801   

Shares issued to shareholders on reinvestment of net realized gain distributions

     411,085,257        306,531,556   

Shares repurchased

     (1,139,879,810     (1,097,370,461
  

 

 

   

 

 

 

 

Net decrease from capital share transactions

     (664,636,855     (401,271,104
  

 

 

   

 

 

 

 

Total decrease in net assets

     (1,990,596,039     (1,327,149,393

Net Assets

    

Beginning of period

     6,740,881,322        8,068,030,715   
  

 

 

   

 

 

 

 

End of period (including accumulated net investment loss of $0 and $0, respectively)

   $ 4,750,285,283      $ 6,740,881,322   
  

 

 

   

 

 

 

Share transactions

    

Shares sold

     341,967        1,585,069   

Shares issued to shareholders on reinvestment of net realized gain distributions

     2,527,121        1,476,907   

Shares repurchased

     (6,193,090     (4,870,262
  

 

 

   

 

 

 

 

Net decrease from capital share transactions

     (3,324,002     (1,808,286
  

 

 

   

 

 

 

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

 

15

Sequoia Fund, Inc.

Financial Highlights

 

     Six Months
Ended
June 30, 2016
    Year Ended December 31,  
     (Unaudited)     2015     2014     2013     2012     2011  

Per Share Operating Performance (for a share outstanding throughout the period)

                       

Net asset value, beginning of period

              $ 207.26      $ 235.00      $ 222.92      $ 168.31      $ 145.50      $ 129.29   
             

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from investment operations

                       

Net investment (loss)

                (0.19     (1.08     (0.61     (0.72     (0.41     (0.42

Net realized and unrealized gains (losses) on investments

                (27.15     (16.15     17.23        58.73        23.22        17.45   
             

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net asset value from operations

                (27.34     (17.23     16.62        58.01        22.81        17.03   
             

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Less distributions from
Net realized gains

                (17.24     (10.51     (4.54     (3.40            (0.82
             

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

              $ 162.68      $ 207.26      $ 235.00      $ 222.92      $ 168.31      $ 145.50   
             

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Return

                (13.19 )% (a)      (7.31 )%      7.56     34.58     15.68     13.19

Ratios/Supplementary data

                       

Net assets, end of period (in millions)

              $ 4,750      $ 6,741      $ 8,068      $ 8,039      $ 5,837      $ 4,914   

Ratio of expenses to average net assets

                       

Before expense reimbursement

                1.09 % (b)      1.03     1.03     1.02     1.03     1.03

After expense reimbursement

                1.00 % (b)      1.00     1.00     1.00     1.00     1.00

Ratio of net investment (loss) to average net assets

                (0.20 )% (b)      (0.42 )%      (0.26 )%      (0.37 )%      (0.26 )%      (0.34 )% 

Portfolio turnover rate

                11 % (a)      10     8     2     5     3

 

 

 (a) Not annualized.

 (b) Annualized.

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

 

16

Sequoia Fund, Inc.

Notes to Financial Statements (Unaudited)

Note 1— Significant Accounting Policies

Sequoia Fund, Inc. (the ‘‘Fund’’) is registered under the Investment Company Act of 1940, as amended, as a non-diversified, open-end management investment company. The investment objective of the Fund is long-term growth of capital. The Fund is an investment company under U.S. generally accepted accounting principles (“GAAP”) and follows the accounting and reporting guidance applicable to investment companies. 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 fair value as determined under the supervision of the Fund’s 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; securities traded in the NASDAQ Stock Market (“NASDAQ”) are valued in accordance with the NASDAQ Official Closing Price. Securities for which there is no sale or Official Closing Price are valued at the mean of the last reported bid and asked prices.

Securities traded on a foreign exchange are valued at the closing price on the last business day of the period on the principal exchange on which the security is primarily traded. The value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at the close of the New York Stock Exchange on the date of valuation.

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 60 days are valued on the basis of market quotations and estimates until the sixtieth day prior to maturity, at which point they are valued at amortized cost. Fixed-income securities, other than U.S. Treasury Bills, are valued at the last quoted sales price or, if adequate trading volume is not present, at the mean of the last bid and asked prices.

When reliable market quotations are insufficient or not readily available at time of valuation or when the Ruane, Cunniff & Goldfarb Inc. (the “Investment Adviser”) determines that the prices or values available do not represent the fair value of a security, such security is valued as determined in good faith by the Investment Adviser, in conformity with guidelines adopted by and subject to review by the Fund’s Board of Directors.

 

B.

Foreign currency translations: Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at the date of valuation. Purchases and sales of foreign securities are translated into U.S. dollars at the rates of exchange prevailing when such securities are acquired or sold. Income and expenses are translated into U.S. dollars at the rates of exchange prevailing when accrued. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Reported net realized gains or losses on foreign currency transactions arise from the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized gains and losses on foreign currency transactions

 

17

Sequoia Fund, Inc.

Notes to Financial Statements (Unaudited) (Continued)

 

 

 

and translations arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates.

 

C.

Investment transactions and investment income: Investment transactions are accounted for on the trade date and dividend income is recorded on the ex-dividend date. Interest income is accrued as earned. Premiums and discounts on fixed income securities are amortized over the life of the respective security. The net realized gain or loss on security transactions is determined for accounting and tax purposes on the specific identification basis.

 

D.

Federal income taxes: The Fund’s policy is to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and distributes all of its taxable income to its stockholders. Therefore, no federal income tax provision is required.

 

E.

Use of estimates: The preparation of financial statements in conformity with GAAP 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.

 

F.

Dividends and distributions: Dividends and distributions are recorded by the Fund on the ex-dividend date.

Note 2— Investment Advisory Contract and Payments to Affiliates

The Investment Adviser provides the Fund with investment advice and administrative services.

Under the terms of the Advisory Agreement, the Investment Adviser receives an investment advisory fee equal to 1% per annum of the Fund’s average daily net asset value. Under the Advisory Agreement, the Investment Adviser is contractually obligated to reimburse the Fund for the amount, if any, by which the operating expenses of the Fund (including the investment advisory fee) in any year exceed the sum of 1 12% of the average daily net asset value of the Fund for such year up to a maximum of $30,000,000 of net assets, plus 1% of the average daily net asset value in excess of $30,000,000. The expenses incurred by the Fund exceeded the limitation for the six months ended June 30, 2016 and the Investment Adviser reimbursed the Fund $2,420,787. Such reimbursement is not subject to recoupment by the Investment Adviser.

For the six months ended June 30, 2016, advisory fees of $27,994,724 were earned by the Investment Adviser and brokerage commissions of $1,062,681 were earned by Ruane, Cunniff & Goldfarb LLC, the Fund’s distributor and a wholly-owned subsidiary of the Investment Adviser. Certain officers of the Fund are also officers of the Investment Adviser and Ruane, Cunniff & Goldfarb LLC. Ruane, Cunniff & Goldfarb LLC received no compensation from the Fund on the sale of the Fund’s capital shares for the period ended June 30, 2016. There were no other amounts accrued or paid to interested persons, including officers and directors.

 

18

Sequoia Fund, Inc.

Notes to Financial Statements (Unaudited) (Continued)

 

 

Note 3— Investment Transactions

The aggregate cost of purchases and the proceeds from the sales of securities, excluding short-term securities, for the six months ended June 30, 2016 were $529,713,423 and $1,939,444,873, respectively. Included in proceeds of sales is $163,546,553 representing the value of securities disposed of in payment of redemptions in-kind, resulting in realized gains of $146,151,969.

Note 4— Federal Income Tax Information

Distributions to shareholders are determined in accordance with federal income tax regulations and may differ from those determined for financial statement purposes. To the extent these differences are permanent such amounts are reclassified within the capital accounts. During the six months ended June 30, 2016, permanent differences primarily due to realized gains on redemptions in-kind not recognized for tax purposes, net operating loss and different book and tax treatment of net realized gains on foreign currency transactions resulted in a net decrease in accumulated net realized gains of $146,020,759 with a corresponding increase in capital of $140,499,378, and a decrease to accumulated net investment loss of $5,521,381. These reclassifications had no effect on net assets.

At June 30, 2016 the aggregate gross unrealized appreciation and depreciation of securities for federal income tax purposes were $2,308,537,686 and $48,397,817, respectively.

The tax character of distributions paid for the six months ended June 30, 2016 and 2015 was as follows:

 

               2016                            2015            

Distributions paid from

       

Long-term capital gains

   $ 474,018,377         $ 345,179,339   
  

 

 

      

 

 

 

As of June 30, 2016 and December 31, 2015 the components of distributable earnings on a tax basis were as follows:

 

    

         2016           

    

         2015           

 

Undistributed long-term gains

   $ 25,144,977       $ 38,617,309   

Unrealized appreciation

     2,259,955,905         3,712,942,135   
  

 

 

    

 

 

 
   $ 2,285,100,882       $ 3,751,559,444   
  

 

 

    

 

 

 

The Fund recognizes the tax benefits or expenses of uncertain tax positions only when the positions are ‘‘more likely than not’’ to be sustained assuming examination by tax authorities. Management has reviewed the Fund’s tax positions taken on federal income tax returns for all open years (tax years ended December 31, 2012 through December 31, 2015) and has concluded that no provision for unrecognized tax benefits or expenses is required in these financial statements.

 

19

Sequoia Fund, Inc.

Notes to Financial Statements (Unaudited) (Continued)

 

 

Note 5— Interim Financial Statement

The interim financial statements have not been examined by the Fund’s independent registered public accounting firm and accordingly it does not express an opinion thereon.

Note 6— Indemnification

The Fund’s officers, directors and agents are indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss thereunder to be remote.

Note 7— Legal Proceedings

On January 8, 2016, Stanley H. Epstein, Harriet P. Epstein, and SEP IRAA/C Peter Christopher Gardener, derivatively and on behalf of the Fund, filed a suit against Ruane, Cunniff & Goldfarb Inc., Robert D. Goldfarb, David Poppe, Robert L. Swiggett and Roger Lowenstein (collectively, the “Defendants”) in the Supreme Court of the State of New York, County of New York. The Fund is also named in the suit as a Nominal Defendant. On May 9, 2016, the plaintiffs filed an amended complaint, adding Edward Lazarus as an additional Defendant. The amended complaint asserts derivative claims in connection with certain of the Fund’s investments against the Defendants for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, breach of contract and gross negligence. The case is Epstein v. Ruane, Cunniff & Goldfarb Inc. et al., 650100/2016, Supreme Court of the State of New York, County of New York (Manhattan).

On March 14, 2016, Clive Cooper, individually and as a representative of a class, on behalf of DST Systems, Inc. 401(k) Profit Sharing Plan, filed a suit in the Southern District of NewYork against Ruane, Cunniff & Goldfarb, Inc., DST Systems, Inc.,TheAdvisory Committee of the DST Systems, Inc. 401(K) Profit Sharing Plan, the Compensation Committee of the Board of Directors of DST Systems, Inc., Jerome H. Bailey, Lynn Dorsey Bleil, Lowell L. Bryan, Gary D. Forsee, Gregg Wm. Givens, Charles Haldeman, Jr., Samuel G. Liss and John Does 1-20. The complaint asserts claims for breach of fiduciary duty and violation of ERISA’s prohibited transaction rules, co-fiduciary breach, and breach of trust in connection with certain investments made on behalf of the Plan. The case is Cooper v. DST Systems, Inc. et al., 1:16cv1900, U.S. District Court for the Southern District of New York. The plaintiffs in the action have dismissed without prejudice all claims against all of the defendants other than Ruane, Cunniff & Goldfarb Inc., which is now the only defendant in the case.The Fund is not a defendant in this lawsuit.

Ruane, Cunniff & Goldfarb Inc. believes that the foregoing lawsuits are without merit and intends to defend itself vigorously against the allegations in them. The outcomes of these lawsuits are not expected to have a material impact on the Fund’s financial statements.

 

20

Sequoia Fund, Inc.

Notes to Financial Statements (Unaudited) (Continued)

 

 

Note 8— Subsequent Events

Accounting principles generally accepted in the United States of America require the Fund to recognize in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed as of the date of the Statement of Assets and Liabilities. For non-recognized subsequent events that must be disclosed to keep the financial statements from being misleading, the Fund is required to disclose the nature of the event as well as an estimate of its financial effect, or a statement that such an estimate cannot be made. Management has evaluated subsequent events through the issuance of these financial statements and has noted no such events.

 

21

Sequoia Fund, Inc.

Other Information

(Unaudited)

Shares of the Fund may be offered only to persons in the United States and by way of a prospectus. This should not be considered a solicitation or offering of any product or service to investors residing outside of the United States.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (the “SEC”) for the first and third quarters of each fiscal year on Form N-Q. Form N-Q is available on the SEC’s web site at http://www.sec.gov. The Fund’s Form N-Q may also be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. For information regarding the operation of the SEC’s Public Reference Room, call 1-800-SEC-0330. For a complete list of the Fund’s portfolio holdings, view the most recent semi-annual or annual report on Sequoia Fund’s web site at http://www.sequoiafund.com/fund-reports.htm.

You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge.Visit Sequoia Fund’s web site at www.sequoiafund.com and use the ‘‘Shareholder Information’’ link to obtain all proxy information. This information may also be obtained from the SEC’s web site at www.sec.gov or by calling DST Systems, Inc. at 1-800-686-6884.

 

22

 

 

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Sequoia Fund, Inc.

9 West 57th Street, Suite 5000

New York, New York 10019-2701

1-800-686-6884

Website: www.sequoiafund.com

Interested Directors

        David M. Poppe

        John B. Harris

Independent Directors

        Roger Lowenstein, Chairperson of the Board

        Edward Lazarus

        Tim Medley

        Robert L. Swiggett

Officers

        David M. Poppe       President & CEO
        Todd G. Ruoff       Executive Vice President & Secretary
        Paul J. Greenberg              Treasurer
        Michael Sloyer       General Counsel & Chief Compliance Officer
        Michael Valenti       Assistant Secretary

 

Investment Adviser    Registrar and Transfer Agent
        Ruane, Cunniff & Goldfarb Inc.            DST Systems, Inc.
        9 West 57th Street, Suite 5000            P.O. Box 219477
        New York, New York 10019-2701            Kansas City, Missouri 64121
Distributor    Accounting Agent
        Ruane, Cunniff & Goldfarb LLC            BNY Mellon Investment
        9 West 57th Street, Suite 5000            Services (US.) Inc.
        New York, New York 10019-2701            4400 Computer Drive
           Westborough, MA 01581
Custodian   
        The Bank of New York Mellon    Legal Counsel
        MF Custody Administration Department            Seward & Kissel LLP
        225 Liberty Street, 25th Floor            One Battery Park Plaza
        New York, New York 10286            New York, New York 10004