To the Shareholders of Sequoia Fund Inc.
Dear Shareholder:
Sequoia Fund’s results for the quarter and year ended December 31, 2013 appear below with comparable results for the S&P 500 Index:
| To December 31, 2013 | Sequoia Fund | S&P 500 Index* |
| Fourth Quarter | 9.09% | 10.51% |
| 1 Year | 34.58% | 32.39% |
| 5 Years (Annualized) | 19.43% | 17.94% |
| 10 Years (Annualized) | 8.91% | 7.41% |
The performance shown above represents past performance and does 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 information shown.
* The S&P 500 Index is an unmanaged, capitalization-weighted index of the common stocks of 500 major U.S. corporations. 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 (800) 686-6884.
The Fund underperformed the S&P 500 Index in the fourth quarter while outperforming the Index for the year. In what has become a refrain for us, 2013 performance was compromised by our large cash position. We began the year with 16% of the Fund’s assets in cash. During the year, we were modest net sellers of stocks, and we reached year-end a bit more than 18% in cash. Cash detracted from our performance as our stocks appreciated more than 42% during the year, net of our management fees.
Over the past five and ten years, the Fund has outperformed the Index. The Fund has operated with approximately 15%-20% of our assets in cash for most of the past six years. That helped performance considerably in the crash of 2008, but has depressed performance subsequently. As we’ve disclosed previously, the Fund experienced a net inflow of $930 million in 2011, and while we were active buyers of stocks that year, we slowed our purchasing activity late in 2011 as the market began a steep ascent: the S&P Index rose 12% in the fourth quarter of 2011, 16% in 2012 and 32% in 2013, for an increase of 72% over nine quarters. Against this backdrop of rising asset prices, we did not fully invest those inflows. We made no significant investments in 2013.
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