|Sequoia Fund, Inc.||767 Fifth Avenue, Suite 4701
New York, NY 10153
For the Period Ended September 30, 2003
Sequoia Fund's results for the third quarter of 2003 are shown below with comparable results for the leading market indexes:
|September 30, 2003||Sequoia
|5 Years (Annualized)||6.60%||5.33%||1.00%|
|10 Years (Annualized)||14.63%||12.35%||10.05%|
|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 so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
We are pleased with the absolute results of Sequoia Fund, which has appreciated 15.9% for the year to date, versus 22.8% for the Dow Jones and 22.3% for the S&P 500.
As for relative performance, we have lagged the major averages for two reasons. First, Sequoia's 17% cash position at the beginning of the year produced virtually no return in a period of extremely low interest rates and exerted a material drag on our aggregate performance. As evidence of this fact, we note that the 83% of the Fund invested in equities during the year has appreciated by 19%. Second, economically sensitive stocks (including technology stocks) have generally fueled the market's advance this year, and issues of this variety account for a relatively small percentage of our invested assets.
We have no aversion whatsoever to economically cyclical stocks per se. In fact, we own a few of them (as well as stocks of companies that are subject to other cycles). Having said that, many economically sensitive companies tend to have characteristics that we dislike. They often produce undifferentiated commodity-type products and consume large amounts of capital, a combination that leads to lower returns on invested capital and less free cash flow than we typically prefer. They also often come with the potentially heavy baggage of large pension and health care liabilities. As a result, economically sensitive stocks have historically been under-represented in our portfolio.
With respect to technology, we think it makes sense to repeat an observation we have made in the past. While we marvel at the breadth and speed of technological progress, we note that it typically causes businesses and industries to undergo rapid and unpredictable change. The prospect of such change makes it difficult for us to estimate and value the streams of future free cash flow that determine a company's intrinsic worth. Furthermore, high technology is usually accompanied by high levels of options issuance. While many investors continue to ignore options issuance, we consider it a very real corporate expense.
Turning to our portfolio, we are pleased with the progress of the companies that we own. They are all experiencing increased earnings, with the prospect of further gains in 2004. As for our lack of activity this year, it reflects both a level of comfort with our present holdings and an inability to find companies that meet our qualitative criteria and offer attractive valuations. The stock market, in our opinion, is not cheap. The shares of our portfolio companies are not cheap either, though we feel that their long term prospects warrant holding them at current prices (with possibly one or two small exceptions).
We strongly encourage you to read an article that appeared in the November 10, 2003, issue of Fortune (available at www.Fortune.com) in which Warren Buffett expounds on his belief that "our trade deficit has greatly worsened, to the point that our country's net worth' is now being transferred abroad at an alarming rate." Mr. Buffett argues that "a perpetuation of this transfer will lead to major trouble." Although we share Mr. Buffett's pessimism with regard to this and other important macroeconomic issues, we note that on a microeconomic level, we are basically optimists offering you our best wishes for a happy new year and a prosperous future. As always, we will do our best to help with regard to the latter.
|December 11, 2003|
SEQUOIA FUND, INC.
STATEMENT OF INVESTMENTS
SEPTEMBER 30, 2003 (UNAUDITED)
COMMON STOCKS (82.96%)
|BANK HOLDING COMPANIES (11.28%)|
|7,489,993||Fifth Third Bancorp||$415,469,912|
|155,200||Mercantile Bankshares Corporation||6,208,000|
|BUILDING MATERIALS (3.11%)|
|DIVERSIFIED COMPANIES (33.91%)|
|16,896||Berkshire Hathaway Inc. Class A (c)||1,267,200,000|
|300||Berkshire Hathaway Inc. Class B (c)||748,800|
|FREIGHT TRANSPORTATION (2.02%)|
|2,199,600||Expeditors International Inc.||75,688,236|
|HOME FURNISHINGS (2.00%)|
|2,075,800||Ethan Allen Interiors, Inc. (b)||74,728,800|
|206,800||Harley Davidson, Inc.||9,967,760|
|TEXTILE - CARPETS (7.37%)|
|3,866,400||Mohawk Industries Inc. (b)||275,751,648|
|PROCESS CONTROL INSTRUMENTS (0.45%)|
|47,000||Costco Wholesale Corporation (c)||1,460,760|
|1,375,900||Tiffany & Company||51,362,347|
|13,475,700||TJX Companies, Inc.||261,698,094|
|Miscellaneous Securities (1.08%)||40,649,841|
|TOTAL COMMON STOCKS||$3,102,201,630|
|U.S. GOVERNMENT OBLIGATIONS (17.19%)|
|$643,000,000||U.S. Treasury Bills due 10/02/03 through 11/06/03||$642,631,168|
|TOTAL U.S. GOVERNMENT OBLIGATIONS||$642,631,168|
|U.S. Government Obligations||17.19%||642,631,168|
|Number of Shares Outstanding||27,962,484|
|Net Asset Value Per Share||$133.72|
|(a)||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 in accordance with NASDAQ Official Closing Price 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 sixty 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)||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."|
SEQUOIA FUND, INC.
767 Fifth Avenue, Suite 4701
New York, New York 10153-4798
Website : www.sequoiafund.com
William J. Ruane
Richard T. Cunniff
Robert D. Goldfarb
David M. Poppe
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|
|David M. Poppe|| 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
The Bank of New York
MF Custody Administration Department
100 Church Street, 10th Floor
New York, New York 10286
REGISTRAR AND SHAREHOLDER SERVICING AGENT
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.