GREENSPRING FUND,
INCORPORATED
FIRST QUARTER REPORT
MARCH 31, 1997
This report is authorized for distribution
only to shareholders who have received a
copy of the official Prospectus of the
Greenspring Fund, Incorporated.
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April 1997
Dear Shareholders:
Volatility dominated the stock market during the first quarter of 1997.
The positive market momentum of the fourth quarter of 1996 carried over into the
first several weeks of the new year. This "irrational exuberance," as Federal
Reserve Chairman Alan Greenspan termed it, peaked in the middle of February and,
as the quarter progressed, the market averages retreated. As of March 31, 1997,
the Dow Jones Industrial Average and the Standard & Poor's 500 Index had lost
most of their earlier gains, but still closed with positive total return
performances of 1.7% and 2.7%, respectively. Broader, more representative
averages suffered more, as indicated by the 5.5% loss in the Russell 2000 Index,
the 4.5% decline in the Lipper Capital Appreciation Fund Index, and the small
.4% increase in the Lipper Balanced Fund Index.
The Greenspring Fund gained 3.1% during the first quarter, while following a
similar pattern to that of the major stock market averages. The Fund
rose significantly during the first several weeks of the year, but declined
during the month of March by a considerably smaller percentage than the major
indices. Even with this retreat, the Fund achieved very strong performance
relative to appropriate benchmarks.
As this letter is being written, the market is in the midst of a "correction."
This is the first market setback of any significance since July of 1996,
although many sectors of the market have experienced sharp and painful
corrections already. According to a recent study by Prudential Securities, as
of the end of the first quarter, 55% of the stocks traded in the NASDAQ market
had declined by 20% or more from their highs of the past 52 weeks. It is during
difficult market conditions such as this that the Greenspring Fund has
historically shone. As frequently stated, the Fund's investment objective is to
provide steady, consistent performance for our shareholders throughout an entire
market cycle. We pursue this goal by investing in stocks and bonds that are
relatively insensitive to the gyrations of the overall market. This lack of
market sensitivity should limit the volatility of the portfolio and,
consequently, minimize losses and preserve capital during market downturns.
We prefer to invest in securities where company-specific events drive
performance, as opposed to being dependent upon broad market forces.
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A hypothetical example illustrates the importance of preserving capital
during difficult markets. Suppose an investor starts with a portfolio of
securities worth $100,000. Assume that a severe bear market follows during
which the portfolio suffers a 50% decline, lowering the value to $50,000. To
return to the original $100,000, the investor would need to recoup $50,000,
which would be a 100% gain from the current account size. A less risky
investor, who initially loses only half the amount of the more aggressive
investor, would see his portfolio decline from $100,000 to $75,000. To return
to his original amount, he would need to make $25,000 on his $75,000 portfolio,
or 33%, certainly a more achievable goal than 100%. If an investor regains
the lost amount at a compounded rate of 10% per year, it would take the more
aggressive investor almost eight years to return to the original $100,000, as
compared to about three years for the more conservative investor. In support
of this hypothetical example, we can provide several "real life" examples of
Greenspring Fund's historical ability to preserve capital during difficult
market environments.
The first example, as illustrated in the following chart, is Greenspring
Fund's performance compared with the Dow Jones Industrial Average and the
S&P 500 Index during the three periods that represent the largest market
declines, as measured by the S&P 500 Index, of the last ten years.
Peak Trough
8/25/87 - 10/19/87 Greenspring Fund - 8%
Dow Jones Indus. -36%
S&P 500 -33%
7/16/90 - 10/11/90 Greenspring Fund - 8%
Dow Jones Indus. -20%
S&P 500 -19%
2/02/94 - 06/24/94 Greenspring Fund 0%
Dow Jones Indus. - 8%
S&P 500 - 7%
The second illustration comes from a recently published Lipper
Analytical Services ("Lipper ") Performance Analysis report. One measurement
calculated by Lipper is a mutual fund's worst-performing three-month period
during the last ten years. Out of 124 Growth and Income funds, which is how
Lipper classifies us, the Greenspring Fund is ranked number one. This means
that the Fund lost less than any other mutual fund during its worst three-
month period. During the Crash of 1987, the Greenspring Fund at one point
had declined 10.8% from its three-month high. The average decline for all
Growth and Income funds during their worst quarter over the last ten years
was almost 26%.
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Also included in Lipper's report was a calculation of the number of
months it took a mutual fund to return to its high following its worst quarterly
loss. For the Greenspring Fund, it took five months to recover its loss, which
compares very favorably with the sixteen months that it took the average Growth
and Income fund.
Although we cannot guarantee that our relative or absolute performance
during the current market correction will match that of prior down phases, our
investment style remains the same and our confidence remains high in our ability
to provide excellent relative performance. Furthermore, we want to make it
clear that in no way are we expecting a market correction as severe as the ones
that occurred in either 1987 or 1990.
The Greenspring Fund is not immune from market corrections and has
experienced some weakness since the market peak in February. We attribute much
of the weakness in the Fund to its sizable position in financial stocks. The
common stocks of banks, thrifts, insurance companies and other financial
services companies declined after the Federal Reserve, in a well-anticipated
move, boosted short-term interest rates by a 1/4 of a percentage point (25 basis
points). In reaction to the Fed move, "momentum" investors hurriedly exited the
financial sector that had been "hot" for several years. This quick exit
exacerbated the downward pressure on these stock prices. We believe this sharp
sell-off will prove to be unwarranted, as investors realize how inexpensively
financial stocks are priced relative to their earnings. The financial services
industry has evolved in a very sophisticated way over the last ten to fifteen
years, creating an environment where increases in short-term interest rates
should have little impact on the earnings of these companies. In a recent
research report, Morgan Stanley concluded that a 200 basis point increase
in rates (as compared to the recent 25 basis point increase) would reduce the
earnings of the regional banks in their research universe by a negligible 3%
or less.
Currently, the Greenspring Fund is relatively fully-invested in stocks
and fixed income securities. If the market continues its decline and more
equity investment opportunities become available at attractive prices, we
will sell some short-term fixed income securities in order to purchase more
promising investments. Meanwhile, these short-term, special-situation fixed
income investments have served their purpose well, providing above-average,
low-risk returns while maintaining their value and acting as a safe haven during
these difficult market conditions. We also hold many "event-driven" investments
that should produce strong performance during 1997 regardless of the direction
of the financial markets. As always, we look forward to reporting on the Fund's
continued progress during the remainder of the year.
Respectfully,
Charles vK. Carlson
President
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GREENSPRING FUND, INCORPORATED
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997
COMMON STOCKS (61.34%)
Shares Value
Banking (10.77%)
500 *Avondale Financial Corp. $ 8,500
600 *Bank Plus Corp. 6,225
31,000 BostonFed Bancorp, Inc. 468,875
49,400 Charter Financial, Inc. 827,450
18,000 Chase Manhattan Corp. 1,685,250
15,000 *Coast Savings Financial, Inc. 594,375
25,000 Columbia Bancorp, Inc. 550,000
89,728 Crestar Financial Corp. 3,106,832
50,000 *Dime Bancorp, Inc. 768,750
34,000 GA Financial, Inc. 505,750
33,500 *ITLA Capital Corp. 498,313
10,000 Mercantile Bankshares Corp. 337,500
35,000 *Ocwen Financial, Inc. 1,015,000
33,000 *PFF Bancorp, Inc. 474,375
21,100 *PS Financial, Inc. 276,938
44,760 Patriot Bank Corp. 637,830
28,600 Statewide Financial Corp. 421,850
12,183,813
Business Services (.38%)
42,500 *Credit Management Solutions, Inc. 435,625
435,625
Consumer Products/Services (5.10%)
52,400 *American Safety Razor 805,650
21,600 *BEC Group 99,900
98,500 *Eagle Food Centers, Inc. 474,031
36,600 First Brands Corporation 896,700
19,900 Genesee Corporation Class B 800,975
60,000 *Host Marriott Services 532,500
180,880 *Seven-Up/RC Bottling Company of
Southern California 2,153,557
5,763,313
Defense (.81%)
11,000 Lockheed Martin Corp. 924,000
924,000
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GREENSPRING FUND, INCORPORATED
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997
COMMON STOCKS (CON'T)
Shares Value
Electric Power (.02%)
2,500 *NRG Generating, Inc. $ 28,125
28,125
Entertainment (.65%)
100,000 *Colonial Downs Holdings, Inc. 737,500
737,500
Environmental Services (4.57%)
121,100 Alliance Global Environmental Fund 1,665,125
394,974 *ATC Group Services, Inc. 3,505,394
5,170,519
Financial Services (4.18%)
320,700 Criimi Mae Inc. 4,730,325
4,730,325
Healthcare Products/Services (1.41%)
69,700 *Mediq, Inc. 566,313
60,000 *Universal Hospital Systems 1,027,500
1,593,813
Insurance (5.02%)
75,000 PartnerRe Holdings, Ltd. 2,653,125
51,208 Reliastar Financial Corp. 3,027,673
5,680,798
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GREENSPRING FUND, INCORPORATED
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997
COMMON STOCKS (CON'T)
Shares Value
Manufacturing (11.26%)
11,300 Charter Power Systems $ 365,837
16,700 *Figgie International 187,875
32,200 *Figgie International Class A 390,425
278,300 *Griffon Corporation 3,339,600
55,200 *Middleby Corp. 469,200
421,000 UNR Undustries, Inc. 3,157,500
110,000 *U.S. Industries, Inc. 3,877,500
35,000 Woodward Governor Company 953,750
12,741,687
Media (1.65%)
100,000 *US West Media Group 1,862,500
1,862,500
Natural Resources (4.65%)
242,600 *Castle Energy Corp. 2,668,600
8,300 *Norex Industries, Inc. 379,725
49,365 Penn Virginia Corp. 2,184,401
3,900 United States Lime & Minerals 26,569
5,259,295
Real Estate (8.08%)
125,000 Health & Retirement Property Trust 2,250,000
295,000 Mark Centers Trust 3,208,125
245,645 The Town and Country Trust 3,684,675
9,142,800
Companies in Liquidation (2.79%)
4,700 *Aerospace Creditors Liquidating Trust 19,387
46,184 *Atlantic Realty Trust 499,364
487,000 *EQK Realty Investors 1 730,500
801,450 *Hi Shear Industries, Inc. 1,903,444
3,152,695
Total Common Stocks
(Cost $54,460,764) 69,406,808
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GREENSPRING FUND, INCORPORATED
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997
PREFERRED STOCKS (5.44%)
Shares/
Principal
Amount Value
Convertible Pfd. Stock (1.11%)
54,500 Prime Retail, Inc. $ 1,253,500
Total Convertible Pfd. Stock 1,253,500
Non-Convertible Pfd. Stocks (4.33%)
1,000 +Bank United Capital, 10.25%,
Series A 985,000
14,500 Illinois Power Company, Adj, Rate
Pfd., Series A 659,750
108,000 Live Entertainment, Adj. Rate Pfd.,
Series B 972,000
94,500 *River Bank America $3.75, Series A 2,279,813
Total Non-Convertible Pfd. Stocks 4,896,563
Total Preferred Stocks
(Cost $5,419,008) 6,150,063
BONDS (26.22%)
Convertible Bonds (7.73%)
$1,500,000 Alexander Haagen Properties, Inc.,
7.50%, 1/15/01 1,410,000
2,000,000 Bell Sports Corp., 4.25%, 11/15/00 1,555,000
4,000,000 Corporate Express, Inc., 4.50%,
7/1/00 3,402,500
1,176,000 Kelley Oil & Gas Partners, Ltd.,
8.50%, 4/1/00 1,127,490
685,000 Kelley Oil & Gas Partners, Ltd.,
7.875%, 12/15/99 649,038
500,000 Liberty Properties Limited
Partnership, 8.00%, 7/1/01 606,875
Total Convertible Bonds 8,750,903
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GREENSPRING FUND, INCORPORATED
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997
BONDS (CON'T)
Principal
Amount Value
Non-Convertible Bonds (16.41%)
$1,500,000 B.F. Saul Real Estate Investment $ 1,610,625
Trust, 11.625%, 4/1/02
1,000,000 Figgie International,
9.875%, 10/1/99 1,035,625
3,000,000 Greyhound Lines, 10.00%, 7/31/01 3,093,750
1,000,000 +Life Savings Bank, 13.50%, 3/15/04 1,000,000
387,100 Live Entertainment, 12.00%, 3/23/99 379,358
1,904,000 Mattel, Inc., 10.125%, 8/15/02 1,999,200
400,000 Ocwen Financial, 11.875%, 10/1/03 436,000
3,000,000 Revlon Worldwide, 0.00%, 3/15/98 2,830,314
2,950,000 TransTexas Gas Corp.,
11.50%, 6/15/02 3,246,844
1,840,000 UNC Inc., 9.125%, 7/15/03 1,922,800
1,000,000 U.S. Treasury, 7.125%, 9/30/99 1,013,906
Total Non-Convertible Bonds 18,568,422
Bonds in Reorganization (2.08%)
3,500,000 *Lomas Mortgage, 10.25%, 10/1/02 2,355,937
Total Bonds in Reorganization 2,355,937
Total Bonds (Cost $27,885,156) 29,675,262
SHORT-TERM INVESTMENTS (8.35%)
Commercial Paper (6.19%)
2,000,000 General Electric Corp.,
5.32508707%, 4/14/97 2,000,000
5,000,000 Household Finance,
5.313423344%, 4/7/97 5,000,000
Total Commercial Paper 7,000,000
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GREENSPRING FUND, INCORPORATED
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997
SHORT-TERM INVESTMENTS (CON'T)
Value
Other Short-Term Investments (2.16%)
Rodney Square Money Market $ 2,453,274
Total Other Short-Term Investments 2,453,274
Total Short-Term Investments
(Cost $9,453,274) 9,453,274
Total Investments in
Securities (101.35%)
(Cost $97,218,202) 114,685,407
Other Assets Less
Liabilities ((1.35%)) ( 1,534,803)
Total Net Assets (100%) $113,150,604
*Non-income producing securities
+144A securities representing 1.75% of net assets
Securities traded primarily on a principal securities exchange are valued at the
last reported sales price on the exchange of major listing. Securities which
are traded principally in the over-the-counter market, listed securities for
which no sale was reported on the day of valuation, listed securities for which
the last reported sale price is not in the context of the highest closing bid
price and the lowest closing offering price, and listed securities whose primary
market is believed by the Advisor to be over-the-counter are valued at the mean
of the closing bid and asked prices obtained from sources that the Advisor deems
appropriate. Short-term investments are valued at amortized cost which
approximates fair market value. The value of securities that either mature or
have an announced call within 60 days will be amortized on a straightline basis
from the market value one day preceding the beginning of the amortization
period. Securities for which market quotations are not readily available are
valued at fair market value as determined in good faith by the Advisor as
directed by the Board of Directors.
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