As filed with the Securities and Exchange Commission on April 28, 1997
File No. 2-81956
811-3627
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N - 1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post Effective Amendment No. 19 X
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 19 X
Greenspring Fund, Incorporated
(Exact Name of Registrant as Specified in Charter)
2330 West Joppa Road, Suite 110
Lutherville, Maryland 21093-4641
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (410)823-5353
Mr. Charles vK. Carlson, President
2330 West Joppa Road, Suite 110
Lutherville, Maryland 21093-4641
(Name and address of Agent for Service)
Copies To: Ralph V. De Martino, Esq.
De Martino Finkelstein Rosen & Virga
1818 N Street, N.W., Suite 400
Washington, D.C. 20036
Telephone: (202)659-0494
Telecopier: (202)659-1290
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date.
It is proposed that this filing will become effective (check appropriate line)
immediately upon filing pursuant to paragraph (b)
X on April 30, 1997 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)
on (date) pursuant to paragraph (a), of Rule 485.
The Registrant has registered an indefinite number of shares of Common Stock
under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The Registrant filed with the Commission a Rule 24f-2
Notice for the Registrant's most recent fiscal year on February 20, 1997.
Greenspring Fund, Incorporated
Cross Reference Sheet
Pursuant to Rule 495
N-1A Item Number Location and Page of Prospectus
Part A
Item 1. Cover Page Cover Page, Page 1
Item 2. Synopsis Fund Expenses, Page 2
Item 3. Financial Highlights Table Financial Highlights Table, Page 3
Item 4. General Description
of Registrant Cover Page, Page 1; Investment
Objectives, Page 6; Investment
Program, Page 6
Item 5. Management of the Fund Management of the Fund, Page 8
Item 6. Capital Stock and Other
Securities Capital Stock, Page 10
Item 7. Purchase of Shares Purchase of Shares, Page 14
Item 8. Redemption of Shares Redemption of Shares, Page 19
Item 9. Pending Legal Proceedings Not Applicable
<PAGE>
N-1A Item Number
Part B Location and Page of Statement of
Additional Information
Item 10. Cover Page Cover Page, Page 1
Item 11. Table of Contents Table of Contents, Page 2
Item 12. General Information and History Not Applicable
Item 13. Investment Objectives and Policies Investment Objectives, Page 3;
Investment Policies, Page 3;
Investment Program, Page 5
Item 14. Management of the Fund Management of the Fund, Page 8
Item 15. Control Persons and Principal
Holders of Securities Control Persons and Principal
Holders of Securities, Page 10
Item 16. Investment Advisory
and Other Services Investment Advisor and Advisory
Agreement, Page 10
Item 17. Brokerage Allocation and
Other Services Portfolio Transactions and
Brokerage, Page 11
Item 18. Capital Stock and
Other Securities Not Applicable
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered Purchase, Redemption and Pricing of
Securities Being Offered, Page 11
Item 20. Taxes Taxes, Page 12
<PAGE>
N-1A Item Number
Part B (Continued) Location and Page in Statement of
Additional Information
Item 21. Underwriters Not Applicable
Item 22. Calculations of Yield Quotations
of Money Market Funds Not Applicable
Item 23. Financial Statements Statement of Assets and Liabilities
Statement of Operations, Statement
of Changes in Net Assets, Notes to
the Financial Statements, Financial
Highlights Table, Portfolio of
Investments: Were filed in the
Annual Report for the Fiscal Year
Ended December 31, 1996 and are
hereby incorporated by reference.
Information required to be included in Part C is set forth under the
appropriate Item so numbered in Part C of this Registration Statement.
<PAGE>
GREENSPRING FUND, INCORPORATED
PROSPECTUS
April 30, 1997<PAGE>
CONTENTS
Synopsis.....................................2
Fund Expenses.............................2
Total Return Performance..................2
Financial Highlights Table...................3
General Information..........................5
Organization..............................5
Investment Objective......................5
Investment Program........................6
Non-Investment Grade Debt Securities......7
Management of the Fund.......................8
Discussion of Fund Performance...............9
Capital Stock...............................10
Shareholder Inquiries....................11
Dividends, Distributions and Taxes.......12
Purchase of Shares..........................14
Initial Investment.....................14
Additional Investments.................16
Automatic Investment Plan..............17
Other Purchase Information.............17
Net Asset Value Per Share..............18
Redemption of Shares........................19
Telephone Redemptions..................21
Systematic Withdrawal Plan.............22
Signature Guarantee....................22
Appendix A................................. 23
<PAGE>
GREENSPRING FUND,
INCORPORATED
APRIL 30, 1997
The Greenspring Fund (the "Fund") is a no-load mutual fund that
seeks long-term growth of capital from a mixture of equity and debt
securities. Current income is an important, but secondary, factor
in the selection of the Fund's investments. The Fund strives for
superior risk-averse performance through steady and consistent
investment gains. For further details, see "Investment Objective"
on page 5.
Shares of the Fund are purchased and redeemed at the current net
asset value per share. There are no sales commissions or other
charges on any transactions. The Fund does not pay "12b-1 fees"
(marketing fees) to promote or distribute its shares.
This Prospectus, which should be retained for future reference, is
designed to set forth concisely the information that an investor
should know about the Fund before investing. A Statement of
Additional Information, dated April 30, 1997, has been filed with
the Securities and Exchange Commission and is incorporated by
reference into this Prospectus. A copy of the Statement of
Additional Information may be obtained, without charge, by writing
or calling the Fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
SYNOPSIS
FUND EXPENSES
The following table illustrates all expenses and fees incurred
during the most recent fiscal year.
Shareholder Transaction Expenses None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.75%
Other Expenses (See Annual Report) 0.29%
Total Fund Operating Expenses 1.04%
The following example illustrates the expenses you would bear
directly or indirectly on a $1,000 investment over various time
periods assuming a 5% annual return and redemption at the end of
each time period.
1 Year-$11 3 Years-$33 5 Years-$57 10 Years-$127
This example, which is hypothetical, should not be considered
a representation of past or future expenses or performance.
Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual
return, the Fund's actual performance will vary and may
result in an actual return greater or less than 5%.
TOTAL RETURN PERFORMANCE
Throughout the year, the Fund may include in its communications
to current and prospective shareholders figures reflecting total
return over various time periods. Total return is the rate of return
on an amount invested in the Fund from the beginning until the end
of the stated period. Average annual return is the annual
compounded percentage change in the value of an amount invested
in the Fund from the beginning until the end of the stated period.
Both rates of return assume the reinvestment of all dividends and
distributions. The Fund's total return is a historical measure of
past performance and is not intended to indicate future performance.
Because investment return and principal value will fluctuate, the
Fund's shares may become worth more or less than their original
cost. The Fund's Annual Report to Shareholders discusses the
Fund's performance during 1996 and can be obtained from the
Fund at no charge.
FINANCIAL HIGHLIGHTS TABLE
The following table provides information regarding per share
income and capital changes for the period December 31, 1987
through December 31, 1996. It is based on a single share
outstanding throughout each fiscal year. This information should be
read in conjunction with the Fund's financial statements appearing
in the Fund's Annual Report to Shareholders, which are
incorporated by reference into the Statement of Additional
Information and this Prospectus. The Fund's financial statements
and financial highlights table for the years ended December 31,
1992, 1993, 1994, 1995 and 1996 have been audited by Coopers
& Lybrand L.L.P. Prior periods were audited by other auditors.
The unqualified opinion of the independent accountant covering the
most recent five years is contained in the Fund's December 31,
1996 Annual Report to Shareholders.
<PAGE>
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year 13.61 11.89 12.50 12.83 11.32 12.91 13.78 13.96 13.39 15.05
Income From Investment Operations
Net Investment Income 1.12 1.44 0.67 0.68 0.49 0.51 0.40 0.51 0.70 0.60
Net Realized and Unrealized
Gain/Loss on Investments 0.07 0.46 0.63 (1.51) 1.69 1.59 1.59 (0.12) 1.78 2.74
Total From Investment Operations 1.19 1.90 1.30 (0.83) 2.18 2.10 1.99 0.39 2.48 3.34
Less Distributions
Net Investment Income (1.65) (1.26) (0.79) (0.68) (0.52) (0.51) (0.40) (0.51) (0.68) (0.59)
Net Realized Gain on Investments (1.26) (0.03) (0.18) 0.00 (0.07) (0.72) (1.41) (0.45) (0.07) (0.56)
Distributions in Excess of
Net Realized Gains ( - ) ( - ) ( - ) ( - ) ( - ) ( - ) ( - ) ( - ) (0.07) ( - )
Total Distributions (2.91) (1.29) (0.97) (0.68) (0.59) (1.23) (1.81) (0.96) (0.82) (1.15)
Net Asset Value, End of Year 11.89 12.50 12.83 11.32 12.91 13.78 13.96 13.39 15.05 17.24
Total Return 9.26% 15.98% 10.60% (6.51%) 19.34% 16.52% 14.65% 2.83% 18.79% 22.65%
Ratios/Supplemental Data
Net Assets, End of Year (000's) 18,416 21,208 22,119 18,989 18,916 20,004 29,885 50,322 71,839 91,492
Ratio of Expenses to Average Net Assets 1.36% 1.29% 1.27% 1.31% 1.33% 1.48% 1.31% 1.27% 1.06% 1.04%
Ratio of Net Investment Income to
Average Net Assets 8.57% 11.13% 6.23% 4.82% 3.79% 3.68% 2.78% 4.03% 4.97% 3.74%
Portfolio Turnover Rate 929.30% 198.76% 71.26% 90.27% 70.21% 100.17% 121.79% 76.55% 65.19% 60.74
Average Commission Paid Per Share - - - - - - - - - 0.0477
</TABLE> <PAGE>
GENERAL INFORMATION
ORGANIZATION
The Fund is a no-load, open-end, diversified management
investment company registered with the Securities and Exchange
Commission under the Investment Company Act of 1940. It was
incorporated in Maryland on October 21, 1982 and first offered its
shares to the public on July 1, 1983.
INVESTMENT OBJECTIVE
The Fund's principal objective is to provide long-term growth of
capital for its shareholders through a total return approach to
investing. In pursuing its investment objective, the Fund invests
primarily in common stocks, but may also invest in preferred stocks,
debt securities, securities not publicly traded and money market
instruments. The objective of this diversification of security types
is to enhance the total return of the Fund's portfolio and to preserve
its principal during uncertain market conditions. The Fund's active
portfolio management may result in a higher level of taxable capital
gains than other mutual funds.
The Fund's investment policies are subject to restrictions as
described in the Statement of Additional Information. The Fund's
investment objective and investment policies, unless otherwise
specified, are not fundamental policies and may be changed without
shareholder approval. Shareholders will be notified prior to a
material change. Fundamental policies, which are listed in the
Statement of Additional Information under "Investment Policies",
may be changed only with approval of at least a majority of the
outstanding shares of the Fund. Operating policies of the Fund are
also listed in the Statement of Additional Information under
"Investment Policies".
An investor should keep in mind that every investment carries risk.
Although the Fund seeks to reduce risk by diversification, a
diversified portfolio does not eliminate all risk and the Fund can not
assure its shareholders that it will achieve its investment objective.
<PAGE>
The Fund's share price will fluctuate with changes in the market
value of its securities. Therefore, an investment in the Fund may be
worth more or less when redeemed than when purchased.
The Fund is not meant to be a vehicle for playing short-term swings
in the stock market.
INVESTMENT PROGRAM
The Fund pursues its investment objective by investing in a
diversified portfolio of securities that the Fund's Advisor, Key
Equity Management Corporation ("Key Equity" or the "Advisor"),
believes are undervalued relative to the general market and the
company's industry peers. The Advisor researches each security
separately and analyzes the company's profitability, the strength of
its balance sheet, its ability to generate free cash flow, the value
of unrecognized assets, management's ability to capitalize upon the
company's assets and anticipated economic trends. The Fund has no
specific criteria such as market capitalization, level of assets,
sales or earnings, or industry type that would make a security
unsuitable for purchase. Consequently, the proportion of the Fund's
assets invested in particular companies and industries fluctuates
given the Advisor's evaluation of the outlook for specific industries
and companies.
The Advisor looks for companies that may be somewhat out-of-favor,
where the adverse conditions that caused the security to be
out-of-favor are believed to be already discounted by the investment
community and reflected in the price of the company's securities.
Consequently, the risks associated with these type of investments
may be somewhat limited. Additionally, the Advisor selects those
out-of-favor companies that possess a catalyst that may result in
increased investor sponsorship. Such catalysts include management
changes, industry developments, new products and changing
corporate structures. The Fund may also invest a portion of its
assets in the securities of companies in the process of financial
reorganization or liquidation. Such an investment is done only after
careful analysis of the firm's assets, earnings power, and timing of
the reorganization or liquidation proceedings.
<PAGE>
The Fund also reserves the right to invest in repurchase agreements,
foreign securities and write or purchase call options, covered and
uncovered, as well as write or purchase put options; however, the
Fund has not utilized these investment practices recently. For a
more detailed description of these investment practices, please refer
to the Statement of Additional Information.
If the Fund's Advisor cannot find securities that meet its investment
criteria, short-term money market-type reserves may be utilized,
which should reduce downside volatility during periods of market
weakness.
NON-INVESTMENT GRADE DEBT SECURITIES
The Fund may invest in debt securities that are unrated or rated in
the medium to lowest rating categories by Standard & Poor's
Corporation ("S & P") or Moody's Investors Service, Inc.
("Moody's). (See Appendix A). S & P and Moody's rate securities
as to their credit quality, which may be helpful in judging the
assurance of interest and principal payments. S & P and Moody's
do not evaluate the market value risk of these securities, which are
inclined to be less sensitive to interest rate fluctuations than
higher-rated securities, but more sensitive to changing economic
conditions or individual corporate developments. Because credit
ratings may not be timely changed to reflect subsequent events,
the Advisor continuously monitors the issuers of high yield bonds
in its portfolio to determine if the issuers will have sufficient
cash flow and profits to meet required principal and interest
payments and to assure the bonds' liquidity so the Fund can meet
redemption requests. If the rating of an instrument held by the
Fund changes, the Fund will reassess its investment and may retain
the portfolio security.
Fluctuations in the prevailing levels of interest rates may have an
inverse effect on the Fund's bond holdings, but not the income
received by the Fund from its debt securities. Because yields on
debt securities available for purchase by the Fund vary over time, no
<PAGE>
specific yield on debt securities purchased by the Fund can be
assured. In addition, if debt securities contain call, pre-payment or
redemption provisions, during a period of declining interest rates,
these securities are likely to be redeemed, and the Fund may be
unable to replace them with securities having as high of a yield.
During the Fund's most recent fiscal year, the percentage of the
Fund's total investments represented by: (1) bonds rated by a
nationally recognized statistical rating organization, separated into
each applicable rating category by monthly dollar-weighted average
is AAA (S & P)/ Aaa (Moody's) - 1.33%; BB (S & P) - 2.44%, Ba
(Moody's) - .11%; B (S & P) - 9.63%, B (Moody's) - 12.96%; CCC
(S & P) - 1.51%, Caa (Moody's) - 4.32%, D (S & P) - 3.17%, Ca
(Moody's) 3.49% and (2) bonds not rated, which is not indicative
of an unfavorable rating, is S & P - 7.67% and Moody's - 3.54%.
The foregoing dollar weighted average ratings of the Fund's
portfolio should not be considered indicative of the future
composition of the bonds held in the Fund's portfolio. See
"Non-Investment Grade Debt Securities" in the Statement of
Additional Information.
MANAGEMENT OF THE FUND
The Board of Directors supervises the management of the Fund.
The Statement of Additional Information, under "Management of the
Fund," contains general background about each Director. The
executive officers of the Fund, whose services are provided by the
Fund's Advisor, serve without compensation from the Fund.
Key Equity Management Corporation, located at 2330 West Joppa
Road, Suite 108, Lutherville, Maryland 21093 was organized in
October 1982 solely to act as investment advisor to the Fund. Key
Equity is a wholly-owned subsidiary of Corbyn Investment
Management, Inc. ("Corbyn"), an investment advisor providing
investment management services for pension funds, endowments
and individuals since 1973. Key Equity manages the investment of
<PAGE>
the Fund's assets and continuously reviews, supervises and
administers the Fund's investment program subject to direction by
the Fund's Board of Directors.
In return for its services, the Fund pays Key Equity a monthly fee,
accrued daily, at an annual rate of .75% of the Fund's month-end net
assets. This fee may be in excess of that paid by other mutual funds.
For the year ended December 31, 1996, the total advisory fee paid
by the Fund to Key Equity represented an annual effective rate of
.75% of the Fund's total average daily net assets. Total expenses
incurred in the same time period by the Fund (including the advisory
fee) represented an annual effective rate of 1.04% of the Fund's total
average daily net assets.
Charles vK. Carlson is President, Chairman of the Board of
Directors and portfolio manager of the Fund. He has been President
of the Fund since March 1993, Chairman of the Board of Directors
since January 1994 and portfolio manager of the Fund since January
1987. Prior to becoming President of the Fund, Mr. Carlson was
Senior Vice President of the Fund from March 1991 to March 1993.
He has been a Director of the Fund since January 1987. Mr.
Carlson is also the President and a Director of Corbyn Investment
Management and Key Equity Management Corporation. A
Chartered Financial Analyst, he received his B.S. degree in Political
Economy in 1982 from The Johns Hopkins University.
DISCUSSION OF FUND PERFORMANCE
The performance of the Fund during 1996, including the relevant
market conditions and the investment strategies and techniques
pursued by the Fund's Advisor, is discussed in the shareholder letter
in the Annual Report, which can be obtained from the Fund without
charge.
<PAGE>
Average annual total returns for the one, five and ten year periods
ended December 31, 1996 were 22.65%, 14.89% and 12.08%,
respectively. Average annual returns for more than one year assume
a compounded rate of return and are not the Fund's year-by-year
results, which fluctuated over the periods shown. Past performance
is not predictive of future performance.
CAPITAL STOCK
The Fund has authorized 30,000,000 shares of $.01 par value
common stock. All shares are of the same class, with equal rights
and privileges. Each share is entitled to one vote and participates
equally in dividends and distributions declared. The shares are fully
paid and non-assessable when issued, are transferable, and have no
preemptive, conversion, or exchange rights.
The Fund's shares have non-cumulative voting rights, which means
that the holders of more than 50% of the shares voting for the
election of directors may elect 100% of the directors if they choose
to do so and, in this event, the holders of the remaining shares will
not be able to elect any directors.
<PAGE>
As of March 31, 1997, Corbyn had discretionary authority over
accounts holding 19% of the Fund. Corbyn, either alone or in
combination with the Advisor, may be deemed to have a controlling
interest in the Fund. Both Corbyn and the Advisor maintain that
they do not control the Fund.
On May 8, 1990, at its Annual Meeting of shareholders, the Fund's
shareholders approved an amendment of the Fund's Articles of
Incorporation and By-Laws providing that the Fund shall not be
required to hold an Annual Meeting of stockholders in any year in
which none of the following is required to be acted upon by
stockholders pursuant to the Investment Company Act of 1940: (1)
Election of Directors; (2) Approval of the Investment Advisory
Agreement; (3) Ratification of the selection of independent public
accountants; and (4) Approval of a Distribution Agreement.
Therefore, the Fund does not intend to hold an Annual Meeting of
shareholders. The Fund will, however, call a meeting of
shareholders for the purpose of voting upon the question of removal
of any director upon receipt of written request to do so by the record
holders of not less than 10 percent of the outstanding shares of the
Fund.
SHAREHOLDER INQUIRIES
Rodney Square Management Corporation ("Rodney Square"),
located at 1105 North Market Street, 3rd Floor, Wilmington, DE
19890, is the transfer agent for the Fund.
For shareholder account information, Rodney Square shareholder
service representatives can be reached at (800) 576-7498 between
the hours of 9:00 a.m. and 5:00 p.m. Eastern Standard Time during
any business day.
To change the address on your account, send a written request
signed by all registered owners of your account. Please include the
account number(s), the name(s) on the account and both the old and
new addresses. When Rodney Square receives notification of a
change of address, a confirmation will be mailed to you.
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund has qualified and intends to continue to qualify under
Subchapter M of the Internal Revenue Code as a regulated
investment company. The Fund will distribute all of its net income
and realized gains to shareholders, which will be taxable as ordinary
income or long-term capital gains to shareholders. Shareholders
may be proportionately liable for taxes on these distributions unless
shareholders are not subject to tax on their income and would not be
required to pay tax on amounts distributed to them. The Fund will
inform shareholders of the amount and nature of such income or
gains. Any dividends paid by the Fund will increase or decrease in
relation to the income received by the Fund from its investments.
Shareholders can elect to have dividends and capital gains paid in
cash or additional shares at the time of the initial purchase of
shares. This election can be changed by notifying Rodney Square in
writing prior to the record date for a particular distribution.
Dividends and capital gains paid in cash can be electronically
credited to a shareholder's bank account by attaching a voided
check when completing an Account Registration Form or paid by a
check. Dividends and capital gains will be reinvested in full and
fractional shares of the Fund at the next computed net asset value
at the close of business on the ex-dividend date. If no election
is made, all dividends and capital gains will automatically be
reinvested in shares of the Fund at no charge. A Statement of Account
will be mailed to shareholders when dividend and capital gains are
paid regardless if paid in cash or reinvested in additional shares.
The election to reinvest dividends and capital gains paid by the Fund
in additional shares of the Fund will be treated for tax purposes as
being received by the shareholder and then used to purchase shares
of the Fund. Dividends and net short-term capital gains are taxable
to shareholders as ordinary income regardless if received in cash or
additional shares. Some portion of the dividends paid by the Fund
may be eligible for the 70% dividends-received deduction for
corporate shareholders to the extent that the Fund's income is
<PAGE>
derived from certain dividends received from domestic corporations.
Long-term capital gains are taxable as long-term capital gains
regardless of how long the shares of the Fund have been owned.
Generally, by January 31, Rodney Square will mail shareholders
information on the tax status of dividends, capital gains and
redemptions made during the preceding year. Please retain these
account records in a safe place, as they will be required for tax
purposes.
Investors should consider the tax implications of buying shares
immediately prior to a distribution. Investors who purchase shares
shortly before the record date for a distribution will pay a per share
price that includes the value of the anticipated distribution and will
be taxed on the distribution when received even though the
distribution represents a return of a portion of the purchase price.
Redemptions of shares of the Fund will be taxable transactions for
Federal income tax purposes. Generally, a capital gain or loss will
be recognized in an amount equal to the difference between the
shareholder's basis in the shares and the proceeds received. Such
gains or losses will be characterized as short- or long-term,
depending on how long the shares were owned. A loss recognized
on the disposition of shares of the Fund will be disallowed under the
wash sale rule if identical shares are acquired 30 days before or
after the date of disposition. See "Taxes" in the Statement of
Additional Information.
The Fund may be required to withhold Federal income tax at the rate
of 31% from dividend, capital gain and redemption payments to
shareholders (a) who fail to furnish the Fund with and to certify the
payee's correct taxpayer identification number or social security
number, (b) when the Internal Revenue Service notifies the Fund
that the payee has failed to report properly certain interest and
dividend income to the IRS and to respond to notices to that effect
or (c) when the payee fails to certify that he is not subject to
backup withholding. Investors should be sure to provide this
information when completing the Account Registration Form. Certain
foreign accounts may be subject to U.S. withholding tax on ordinary
distributions.
<PAGE>
In addition to Federal taxes, a shareholder may be subject to state or
local taxes on payments received from the Fund. For a further
discussion of certain tax consequences of investing in shares of the
Fund, see "Taxes" in the Statement of Additional Information.
Shareholders are urged to consult their own tax advisors regarding
specific tax questions.
PURCHASE OF SHARES
INITIAL INVESTMENT
The minimum initial investment in the Fund is $2,000, except for an
Individual Retirement Account, a Gift to a Minor account and an
account opened through the Automatic Investment Plan, the
minimums for which are $1,000. To make an initial investment in
the Fund, please complete and sign an Account Registration Form
for a regular account or complete the necessary forms for an
Individual Retirement Account, a SEP-IRA or a SIMPLE IRA and
mail along with a check, payable to Greenspring Fund, to
Greenspring Fund, c/o Rodney Square, P.O. Box 8987, Wilmington,
DE 19899. All courier deliveries, including overnight express,
should be mailed to Greenspring Fund, c/o Rodney Square, 1105 N.
Market Street, 3rd Floor, Wilmington, DE 19890. The Fund does
not accept telephone orders for the purchase of shares, except it
will accept telephone orders from brokerage firms with whom the Fund
has certain operating relationships. The Fund reserves the right to
modify or limit its procedures for telephone orders or to terminate
them at any time. Checks should be drawn in U.S. currency on a
U.S. bank.
If an investor purchases or redeems shares of the Fund through an
investment dealer, bank or other institution, that institution may
impose charges for its services.
Shares of the Fund will be purchased at the Fund's net asset value
next determined after Rodney Square receives the purchase order or
application on each day the New York Stock Exchange (the
<PAGE>
"Exchange") is open for regular trading and the purchase order or
application is determined to be in good form by Rodney Square.
Any purchase order for shares received by Rodney Square by mail
or wire prior to the close of the Exchange, which is 4:00 p.m.
Eastern Standard Time, will be valued at the closing net asset value
on that day. If an order is placed with a brokerage firm with whom
the Fund has certain operating relationships by 4:00 p.m. Eastern
Standard Time and forwarded promptly to Rodney Square, it will be
valued at the closing net asset value on that day. Purchase orders or
applications received after the close of the Exchange will be deemed
received on the next business day and be valued at the net asset
value computed on that business day. There is no sales charge
included in the price of the shares and all purchases will be in full
and fractional shares carried out to three decimal places. Rodney
Square will mail a confirmation of each transaction, in the form of
a Statement of Account, showing the date of the transaction, the
number of shares involved, the net asset value per share and the total
balance of shares in the account after the transaction.
The Fund reserves the right to decline to accept a purchase order
upon receipt when, in the judgement of the Fund, it would not be in
the best interests of the existing shareholders to accept the order.
In the case of a check requiring special handling, the Fund
reserves the right to delay the processing of a purchase order until
the check is converted into Federal Funds by the Fund's custodian
bank.
Shares of the Fund may also be purchased by wiring funds to the
Fund's custodian bank, Wilmington Trust Company. Prior to wiring
funds, Rodney Square must be advised of the investment so an
account number can be established. A signed and completed
Account Registration Form can be sent by telecopy (fax) to Rodney
Square to establish an account after notifying Rodney Square of the
incoming wire. Rodney Square's fax number is (302) 427-4511.
Funds should be wired to:
<PAGE>
Rodney Square
c/o Wilmington Trust Company
Wilmington, DE
ABA# 0311-0009-2
DDA# 2656-8560
For Credit to the Greenspring Fund
Further Credit (Shareholder's Name)
Fund Account Number
If you are planning to wire funds, it is suggested that you instruct
your bank early in the day so the wire transfer can be accomplished
the same day. The Fund may impose a wiring fee.
If your check or wire does not clear, you will be responsible for any
loss the Fund incurs. If you are already a shareholder, the Fund
reserves the right to direct Rodney Square to redeem shares from
any identically registered account as reimbursement for any loss
incurred.
ADDITIONAL INVESTMENTS
Additional purchases of shares may be made in minimum amounts
of $100 by mailing either the detachable investment slip found at the
bottom of a recent account statement, a letter indicating the amount
of the purchase, your account number, and the name in which your
account is registered along with a check, payable to Greenspring
Fund, Incorporated, to Rodney Square, or by wiring monies to
Wilmington Trust Company as described above. Please specify the
account number in the purchase request to assure proper crediting.
Generally, certificates representing the shares are not issued. This
saves the Fund the cost of issuing the certificates, saves the
shareholders the trouble of safekeeping the certificates, and
facilitates redemptions and transfers. However, share certificates
are available at any time upon written request at no additional cost
to shareholders. No certificates will be issued for fractional
shares.
<PAGE>
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan permits a shareholder to
automatically purchase shares of the Fund on a monthly basis
through an arrangement with his bank and Rodney Square. The
minimum initial investment for the Automatic Investment Plan is
$1,000. Rodney Square will arrange for a predetermined amount of
money, selected by the shareholder (the minimum per month is
$100), to be deducted on the 20th of the month from the
shareholder's checking account to purchase shares of the Fund. The
shareholder will receive a confirmation from Rodney Square and his
checking account will reflect the amount charged. A shareholder
may utilize this service by filing an Automatic Investment Plan
application with a voided personal check with Rodney Square. The
shareholder's bank must be able to accept Automated Clearing
House ("ACH") transactions and/or be a member of an ACH
association. The Automatic Investment Plan normally becomes
active within 30 days after the application is received.
OTHER PURCHASE INFORMATION
If shares of the Fund are held in a "street name" account with an
Authorized Dealer, all recordkeeping, transaction processing and
payments of distributions relating to the beneficial owner's account
will be performed by the Authorized Dealer and not by the Fund.
Since the Fund will have no record of the beneficial owner's
transactions, a beneficial owner should contact the Authorized
Dealer to purchase or redeem shares, to make changes in or give
instructions concerning the account or to obtain information about
the account. The transfer of shares in a "street name" account to an
account with another dealer or to an account directly with the Fund
involves special procedures and will require the beneficial owner to
obtain historical purchase information about the shares in the
account from the Authorized Dealer.
<PAGE>
NET ASSET VALUE PER SHARE
The Fund's shares of stock are purchased and redeemed at the
current net asset value per share. The Fund determines the net asset
value per share by subtracting its total liabilities (including
accrued expenses and dividends payable) from its total assets (the
current market value of securities the Fund holds plus cash or other
assets including income accrued but not yet received) and dividing the
result by the total number of shares outstanding.
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.
The Fund may invest in securities which are restricted as to public
sale. Such securities are valued at fair value as determined in good
faith by the Advisor as directed by the Board of Directors.
The net asset value per share is calculated as of the close of the
regular session of the New York Stock Exchange (currently 4:00
p.m. Eastern Standard Time) each day the Exchange is open for
business. The net asset value appears daily in the Wall Street
<PAGE>
Journal and most major newspapers and is also available by calling
the Fund at (800) 366-3863 after 4:30 p.m. Eastern Standard Time
each business day.
REDEMPTION OF SHARES
Shares of the Fund may be redeemed at no charge on any day that
the Exchange is open for business. A proper redemption request
will be executed at the next computed net asset value after receipt
of the request. A proper redemption request includes a written
request which specifies the account number and the number of
shares or the dollar amount to be redeemed. The request must be
signed in exactly the same way as the shares are registered,
including the signature of each joint owner, if applicable. Rodney
Square does not accept redemption requests sent by telecopy (fax)
unless the request is first authorized by the Fund. The Fund's fax
number is (410) 823-0903. If the amount to be redeemed is greater
than $10,000, all of the signatures on the redemption request and/or
certificate must be signature guaranteed as described on page 22.
If any stock certificates were issued for shares that are included in
the redemption request, the certificates must be presented in
properly endorsed form. Further documentation may be requested
from corporations, administrators, executors, trustees, custodians or
others who hold shares in a fiduciary or representative capacity to
evidence the authority of the person or entity making the request.
Redemptions will not become effective until the Fund has received
all of the required, properly executed, documents. Requests for
redemption by telegram and requests which are subject to any
special conditions or which specify an effective date other than as
described in this Prospectus cannot be accepted. You will be
notified promptly in writing by the Fund if your redemption request
cannot be accepted.
Payment will be made for the shares redeemed within seven days
after the redemption request is processed by Rodney Square, in
<PAGE>
accordance with the procedures set forth below. Redemptions of
shares recently purchased by check will not be mailed until all
checks in payment for the purchase of shares to be redeemed have
been collected, which may take up to 15 days. When payment for
recently purchased shares is made by certified check or wired funds,
redemptions will be made within seven days. The value of the
shares upon redemption may be more or less than the shareholder's
cost depending on the value of the Fund at that time.
The redemption of shares held in a retirement account may involve
the imposition of charges by the Fund's custodian. These costs are
detailed in Greenspring Fund's IRA Investment Kit available at no
charge from the Fund.
The Fund may suspend the right of redemption for any period during
which a) the New York Stock Exchange is closed or the Securities
and Exchange Commission determines that trading on the Exchange
is restricted; b) the Securities and Exchange Commission
determines there is an emergency as a result of which it is not
reasonably practicable for the Fund to sell its portfolio securities
or to calculate the fair value of its net assets; or c) for such other
periods as the Securities and Exchange Commission may by order
permit for the protection of the Fund's shareholders.
The Fund expects to make all redemptions in cash. For those
shareholders for which it is applicable, the Fund reserves the right
to fulfill a request for redemption by making a payment in whole or
in part in the form of a pro rata distribution of the Fund's readily
marketable securities. These securities would be valued the same
way the securities are valued in calculating the net asset value of
the Fund. The Fund is governed by Rule 18f-1 under the Investment
Company Act of 1940. Therefore, the Fund is obligated to redeem
shares, with respect to one shareholder during any 90-day period,
solely in cash up to the lesser of $250,000 or 1% of the net asset
value of the Fund at the beginning of the period.
The Fund reserves the right to automatically redeem any account
where the account balance falls below $1,000 due to redemptions by
the shareholder. Such redemptions will not be implemented if the
<PAGE>
value of a shareholder's account falls below the minimum account
balance due to market conditions. Shareholders will be notified in
writing 60 days prior to the automatic redemption of their account.
The Fund also reserves the right to involuntarily redeem the account
of any shareholder who has failed to furnish a certified social
security or tax identification number ("TIN") to the Fund. This will
reduce unnecessary expenses associated with the maintenance of an
account of any shareholder who fails to provide a TIN, and,
therefore, should benefit a majority of the Fund's shareholders. The
Fund will notify shareholders in writing 30 days prior to
involuntarily redeeming shares.
TELEPHONE REDEMPTIONS
The Fund will accept telephone redemptions for amounts up to
$10,000. The Fund may make exceptions for brokerage firms with
whom the Fund has certain operating relationships. Telephone
redemptions can only be made by calling Rodney Square at (800)
576-7498 by 4:00 p.m. Eastern Standard Time. To protect your
account from losses resulting from unauthorized or fraudulent
telephone instructions, Rodney Square will request the registered
name, the account number, and the social security or tax
identification number listed on the account. The telephone call will
be recorded. The proceeds of any telephone redemption will be
made payable to the exact registrant(s) and mailed to the address of
record within 5 business days of the request. In the case of a
telephone redemption by wire, the wire will be made only in
accordance with the shareholder's prior written instructions. The
Fund will not be responsible for the authenticity of transaction
instructions received by telephone, provided that reasonable security
procedures have been followed. If reasonable security procedures
are not followed, the Fund may be liable for any losses. The Fund
reserves the right to modify or limit its procedures for telephone
redemptions or to terminate them at any time.
<PAGE>
SYSTEMATIC WITHDRAWAL PLAN
The Fund offers a Systematic Withdrawal Plan whereby
shareholders may request that a check drawn in a predetermined
amount be sent to them each month or calendar quarter. A
shareholder's account must have Fund shares with a value of at least
$10,000 in order to start a Systematic Withdrawal Plan. The
minimum amount that may be drawn each month or quarter is $100.
This Plan may be terminated or modified at any time without charge
or penalty.
A withdrawal under the Systematic Withdrawal Plan involves a
redemption of shares on or about the 25th of each month and may
result in a gain or loss for federal income tax purposes. In
addition, if the amount withdrawn exceeds the dividends credited to
the shareholder's account, the account ultimately may be depleted.
SIGNATURE GUARANTEE
Signature guarantees are required for shareholders' protection and
to prevent fraudulent redemptions. A signature guarantee will be
required for any redemption request over $10,000, any redemption
request where there has been an address change within 30 days, and,
regardless of the amount, if the redemption proceeds are to be paid
to someone other than the registered owner(s).
A signature guarantee can be obtained from commercial banks that
are FDIC members, trust companies, firms that are members of a
domestic stock exchange and foreign branches of any of the above.
A notary public is not an acceptable guarantor.
The signature guarantee must appear together with the signature(s)
of the registered owner(s) on the written request for redemption, on
a separate instrument of assignment (stock power) which may be
obtained from banks or stockbrokers, or on all stock certificates
surrendered for redemption, in which case the signature guarantees
must also appear on the letter of stock power if shares held on
deposit in non-certificate form are also being redeemed.
APPENDIX A
Description of Corporate Bond Ratings
Standard & Poor's Corporation
The ratings are based on current information furnished by the issuer
or obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform any audit in
connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such
information or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default-capacity and willingness of the
obliger as to the timely payment of interest and repayment
of principal in accordance with the terms of the
obligations.
II. Nature and provisions of the obligation.
III. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or
other arrangement under the laws of bankruptcy and other
laws affecting creditors' rights.
AAA - The highest rating assigned by Standard & Poor's
with extremely strong capacity to pay interest and repay principal.
AA - Differs from the higher rated issues minimally with
a very strong capacity to pay interest and repay principal.
A - Somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than
debt in higher rated categories with strong capacity to pay
interest and repay principal.
<PAGE>
BBB - Normally exhibits adequate protection parameters
but adverse economic conditions or changing circumstances are more
likely to weaken the capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B - While such debt will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions
and are predominantly speculative with respect to paying
interest and repaying principal.
CCC - Identifiable vulnerability to default and are
dependent upon favorable business, financial and
economic conditions to meet timely payment of interest
and repayment of principal. In the event of adverse
business, financial and economic conditions, they are not
likely to have the capacity to pay interest and repay
principal.
CC, C - Subordinated to senior debt that is assigned an
actual or implied "CCC" or "CCC-" rating. A "C" rated
bond also may involve a situation where a bankruptcy
petition has been filed, but debt service payments are
continued.
D - Involve a situation where interest payments or
principal payments are not made on the date due even if
the applicable grace period has not expired, unless
Standard & Poor's believes such payments will be made
during such grace period and may also involve the filing of
a bankruptcy petition if debt service payments are jeopardized.
<PAGE>
Moody's Investors Service, Inc.
Aaa - Judged to be of the best quality and carry the
smallest degree of investment risk. Interest payments are
protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position
of such issues.
Aa - Judged to be of high quality with minimal investment
risk. They are rated lower than Aaa bonds because
margins of protection may not be as large as Aaa securities
or fluctuation of protective elements may be of greater
amplitude or there may not be other elements present.
Consequently, the long term risks appear somewhat larger
than with Aaa securities.
A - Possess many favorable investment attributes with
adequate security for repayment of principal and payment
of interest; elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa - Neither highly protected nor poorly secured with
interest payments and principal security appearing
adequate for the present, but certain protective elements
may be lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative
characteristics as well.
Ba - Judged to have speculative elements and often the
protection of interest and principal payments may be only
moderate and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
<PAGE>
B - Generally lack characteristics of a desirable investment
with minimal assurance of interest and principal payments
or of maintenance of other terms of the contract over any
long period of time.
Caa - Are of poor standing and may be in default or
elements of danger with respect to principal or interest
may be present.
Ca - Represent obligations which are speculative in a high
degree and are often in default or have other marked shortcomings.
C - Lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real
investment standing.
<PAGE>
Greenspring Fund, Incorporated
2330 West Joppa Road, Suite 110
Lutherville, MD 21093
(410) 823-5353
(800) 366-3863
DIRECTORS
Charles vK. Carlson, Chairman
William E. Carlson
David T. Fu
Michael J. Fusting
Michael T. Godack
Richard Hynson, Jr.
OFFICERS
Charles vK. Carlson
President and Chief Executive Officer
Michael T. Godack
Sr. Vice President and Secretary
Michael J. Fusting
Vice President, Treasurer and Chief
Financial Officer
INVESTMENT ADVISOR
Key Equity Investment Management
2330 West Joppa Road, Suite 108
Lutherville, MD 21093-7207
TRANSFER AGENT
Rodney Square Management Corporation
1105 North Market Street, Third Floor
Wilmington, DE 19890
(800) 576-7498
CUSTODIAN
Wilmington Trust Company
1100 North Market Street
Wilmington, DE 19890
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
217 E. Redwood Street
Baltimore, MD 21202-3316
LEGAL COUNSEL
DeMartino Finkelstein Rosen & Virga
1818 N Street, N.W.
Washington, DC 20036-2492
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Greenspring Fund, Incorporated
("the Fund")
FORM N-1A, PART B
This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the Fund's Prospectus dated April 30, 1997, which may be
obtained by calling the Fund at (410) 823-5353 or (800) 366-3863 or by writing
to Greenspring Fund, Incorporated, 2330 West Joppa Road, Suite 110, Lutherville,
Maryland 21093-4641.
The date of this Statement of Additional Information is April 30, 1997.
<PAGE>
TABLE OF CONTENTS
Page
Investment Objectives and Policies (Page 5 in Prospectus). . . . . . . . . 3
Investment Objective. . . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Policies . . . . . . . . . . . . . . . . . . . . . . . . . 3
Fundamental Policies . . . . . . . . . . . . . . . . . . . . . . 3
Operating Policies . . . . . . . . . . . . . . . . . . . . . . . 4
Investment Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . 5
Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Call Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Put Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Federal Income Tax Treatment of Options . . . . . . . . . . . . . . . 6
Non-investment Grade Debt Securities. . . . . . . . . . . . . . . . . 7
Foreign Securities. . . . . . . . . . . . . . . . . . . . . . . . . . 7
Total Return Performance . . . . . . . . . . . . . . . . . . . . . . . . . 8
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Management of the Fund (Page 8 in Prospectus). . . . . . . . . . . . . . . 8
Control Persons and Principal Holders of Securities. . . . . . . . . . . .10
Investment Advisor and Advisory Agreement. . . . . . . . . . . . . . . . .10
Portfolio Transactions and Brokerage . . . . . . . . . . . . . . . . . . .11
Purchase, Redemption and Pricing of the Fund's Shares
(Pages 14, 15, 16, 17, 18, 19, 20, 21 and 22 in Prospectus) . . . . .11
Net Asset Value Per Share (Page 18 in Prospectus) . . . . . . . . . .11
Pricing of Securities Being Offered . . . . . . . . . . . . . . . . .12
Taxes (Page 12 in Prospectus). . . . . . . . . . . . . . . . . . . . . . .12
Custodian. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Legal Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Independent Accountants. . . . . . . . . . . . . . . . . . . . . . . . . .13
<PAGE>
Investment Objectives and Policies
The following information supplements the Fund's discussion of its investment
objective and program on pages 5 and 6 of the Prospectus. Unless otherwise
specified, the Fund's investment program and policies are not fundamental
policies. The Fund's operating policies are subject to change by its Board of
Directors without shareholder approval. However, shareholders will be
notified of any material changes.
Investment Objective
The Fund's principal objective is to provide long-term growth of capital for
its shareholders through a total return approach to investing. In pursuing its
investment objective, the Fund invests primarily in common stocks, but may
also invest in preferred stocks, debt securities, securities not publicly
traded and money market instruments. The objective of this diversification
of security types is to enhance the total return of the Fund's portfolio and
to preserve its principal during uncertain market conditions.
Investment Policies
Fundamental Policies
The Fund's fundamental policies may not be changed without the approval of the
lesser of (1) 67% of the Fund's shares present at a meeting of shareholders if
the holders of more than 50% of the outstanding shares are present in person
or by proxy or (2) more than 50% of the Fund's outstanding shares.
The Fund may not:
1) purchase any securities which would cause more than 5% of its total
assets at the time of such purchase to be invested in the securities
of any issuer, except the U.S. Government;
2) purchase any securities which would cause the Fund at the time of such
purchase to own more than 10% of the outstanding securities of any
class of issuer;
3) purchase any securities which would cause more than 25% of its total
assets at the time of such purchase to be concentrated in the
securities of issuers engaged in any one industry;
4) invest in companies for the purpose of exercising management or
control;
5) purchase or sell real estate, although it may invest in the securities
of companies whose business involves the purchase or sale of real
estate;
6) purchase or sell commodities or commodity contracts;
7) purchase the securities of any other investment company except in the
open market in a transaction involving no commission or profit to a
sponsor or dealer (other than a customary sales load or broker's
commission, if applicable), or as a part of a merger, consolidation or
acquisition.
The purchase of securities of other investment companies is also
limited by the Investment Company Act of 1940 (the "1940
Act"). The 1940 Act provides, in general, that a registered
investment company (the "Acquiring Company") may not acquire
any security issued by another investment company (the "Acquired
Company") if the Acquiring Company immediately after
the acquisition owns in the aggregate: (a) more than 3% of the total
outstanding voting stock of the Acquired Company; (b)
securities of the Acquired Company having an aggregate value in
excess of 5% of the value of the total assets of the
Acquiring Company; or (c) securities issued by all investment
companies having an aggregate value in excess of 10% of the
total assets of the Acquiring Company. Investors may incur duplicate
fees to the extent that the Fund invests in other investment
companies.
8) purchase securities on margin or effect short sales of securities;
9) make loans, except that it may acquire publicly distributed bonds,
debentures, notes and other debt securities;
<PAGE>
10) borrow money, except for temporary emergency purposes, and then only
in amounts not exceeding the lesser of 10% of its total assets valued
at cost or 5% of its total assets valued at market;
11) mortgage, pledge or hypothecate securities;
12) act as securities underwriter, except to the extent that it may be
regarded as an underwriter upon disposition of any of its securities
for purposes of the Securities Act of 1933;
13) deal with any of its officers or directors or with any firm of which
any of its officers or directors is an officer, director or member as
principal in the purchase or sale of portfolio securities; or effect
portfolio transactions through any such officer, director or firm as
agent or broker unless the Fund pays no more than the customary
brokerage charges for such services;
14) purchase or obtain the securities of any issuer if any officer or
director of the Fund owns more than .5% or if all officers and
directors of the Fund together own more than 5% of the securities
of such issuer, provided, that as a matter of operating policy, the
Fund has determined that such limitations will also apply to the
officers and directors of its investment advisor; or
15) issue any obligations, bonds, notes or other senior securities.
Operating Policies
The following restrictions are operating policies which are subject to change by
the Board of Directors without shareholder approval. However, the Fund will
not change any operating policy without notice to shareholders.
The Fund may not:
1) invest more than 5% of its total assets in the securities of issuers
engaged in continuous operation for less than three years;
2) purchase any securities which will cause more than 5% of its total
assets at the time of such purchase to be invested in securities
which may not be publicly sold without registration under the
Securities Act of 1933 or are otherwise illiquid and not readily
marketable;
3) invest in straddles or spreads;
4) purchase participations or other direct interests in oil, gas or other
mineral exploration or development programs;
5) purchase any securities which would cause more than 2% of its total
assets at the time of such purchase to be invested in warrants which
are not listed on the New York Stock Exchange or the American Stock
Exchange or more than 5% of its total assets to be invested in
warrants acquired by the Fund in units or attached to debt securities;
6) purchase or sell real estate, including limited partnership interests
unless those limited partnership interests are listed on a nationally
recognized securities exchange, although it may invest in real estate
investments trusts or securities of companies which invest in real
estate; and
7) invest in oil, gas or mineral leases or development programs, but may
invest in securities of companies that invest or sponsor oil, gas or
mineral leases or development programs.
<PAGE>
Investment Program
Repurchase Agreements
The Fund may invest in repurchase agreements with domestic banks or broker-
dealers either for temporary defensive purposes due to market conditions or
to generate income from its excess cash balances. A repurchase agreement is an
agreement under which the Fund acquires a money market instrument from a
domestic bank or broker-dealer, subject to resale to the seller at an agreed
upon price and date (normally, the next business day). The resale price reflects
an agreed upon interest rate effective for the period the instrument is held by
the Fund and is unrelated to the interest rate on the underlying instrument.
The use of repurchase agreements involves certain risks. For example, if the
seller of a security under an agreement defaults on its obligation to repurchase
the underlying security at a time when the value of this security has declined,
the seller may incur a loss upon disposition of it. If the seller becomes
insolvent and subject to liquidation or reorganization under bankruptcy, a
court may determine that the underlying security is collateral for a loan by
the Fund and therefore subject to sale by the trustee in bankruptcy. It is
expected that these risks can be controlled through careful monitoring
procedures.
Options
The Fund may purchase and sell both call options and put options that are
listed on an organized securities exchange. Although these investment
practices will be used primarily in a hedging function to reduce principal
fluctuations or to generate additional income, they do involve certain
risks which are different in some respects from the investment risks
associated with similar funds which do not engage in such activities. The
Fund will not write an option, if, as a result, the aggregate market value of
all portfolio securities covered by call options or subject to put
options exceeds 25% of the market value of the Fund's net assets.
Since inception of the Fund, the only two options transactions in the Fund's
portfolio enacted were during 1987 and 1991 when covered calls were sold
against a security.
The current market value of a put or call option which has been purchased will
be recorded as an asset on the Fund's Statement of Assets and Liabilities. This
asset will be will be valued at the last quoted sales price each day. If the
option has not been traded or if the last sales price is not within the
context of the highest closing bid and the lowest closing offer, the option
will be valued at the mean of the bid and asked price on the day the valuations
are made. The assets will be extinguished upon the expiration of the option,
the selling of an identical option in a closing transaction or the delivery
of the underlying security upon the exercise of the option.
Call Options
A call option is a short-term contract pursuant to which the purchaser of the
call option, in return for a premium paid, has the right to buy
the security underlying the option at a specified exercise price at any time
during the term of the option. The writer ("seller") of the call option, who
receives the premium, has the obligation, upon exercise of the option, to
deliver the underlying security against payment of the exercise price during
the option period. A writer is required to deposit in escrow the underlying
security or other assets in order to secure his obligation to deliver the
underlying security.
The Fund may write ("sell") covered call options for the purpose of reducing
the effect of price fluctuations of the securities owned by the Fund. Options
will be sold on the basis of investment considerations consistent with the
Fund's investment objectives. These options will generally be written on
securities which, in the opinion of the Fund, are not expected to make any
major price moves in the near future but which, over the long term, are deemed
to be attractive investments for the Fund.
Options written by the Fund will normally have expiration dates ranging up to
nine months. However, the Fund does not have any control over when it may be
required to sell the underlying securities, since it may be assigned an
exercise notice at any time prior to the expiration of its obligation as a
writer. The exercise price of the options may be below, equal to, or above the
current market value of the underlying securities at the time the options are
written.
Although the Fund has no current intention to sell uncovered call options, the
Fund reserves the right to do so. In writing an uncovered call option, the
writer obligates itself to deliver the underlying security at the exercise
price, even though, at the time the option is written, it does not own the
underlying security. Once the option has been written, the Fund will establish
and maintain for the term of the option a segregated account consisting of
cash and U.S. government securities equal to the fluctuating market value of
the underlying securities. If the holder of the option wishes to exercise
its option to buy the underlying security from the writer, the writer must
make arrangements to purchase and deliver the underlying security.
There are risks involved when writing uncovered equity call options. The writer
has assumed the risk of an increase in the price of the underlying security
<PAGE>
above the exercise price so long as his obligation as a writer continues.
Should this increase occur, the writer may be issued a notice to exercise the
option and would therefore be required to sell the underlying security at the
exercise price which may be less than the price it must pay or may have paid to
acquire the security, thereby reducing its profit or incurring a loss.
Conversely, should the price of the security decline, the writer has retained
the risk of a loss, which will be offset in whole or in part by the premium
received.
Closing transactions may be effected in order to realize a profit on an
outstanding option or to prevent an underlying security from being called.
Effecting a closing transaction will also permit the Fund to write another
option on the underlying security with either a different expiration date or
exercise price or both.
If the Fund effects a closing purchase transaction and the cost is less (more)
than the premium received from the writing of the option, a profit (loss) will
be realized. Because increases in the market price of the underlying security
will generally effect increases in the market price of an option, any loss
resulting from the repurchase of the option is likely to be offset in whole or
in part by the appreciation of the underlying security owned by the Fund.
The Fund may purchase call options, which may give the Fund the right to buy an
underlying security at the exercise price any time during the option period.
The Fund will not commit more that 5% of its total assets at the time of
purchase to the purchasing of call options. The Fund may purchase a call option
for the purpose of acquiring an underlying security for its portfolio. This
would give the Fund the ability to fix its cost of acquiring the stock at the
exercise price of the call option plus the premium paid, which at times, may
cost the Fund less than purchasing the security directly. The Fund is also
partially protected from any unexpected decline in the market price of the
underlying security as long as it holds the option and, therefore, can allow
the option to expire, incurring a loss only to the extent of the premium paid
for the option. The Fund may also purchase a closing call to liquidate a
position and to extinguish its obligation pursuant to a call it has sold.
Put Options
The Fund may write ("sell") put options, which give the holder of the options
the right to sell and the Fund the obligation to buy the underlying security at
the exercise price during the option period. The Fund will generally write put
options when it wishes to purchase the underlying security at a price lower
than the current market price of the security. The Fund will provide that such
options will be offset at the time of the sale by a segregated account
consisting of cash, U.S. Government securities or high-grade debt securities
equal in value to the amount the Fund will be obligated to pay upon exercise
of the put. This amount must be maintained until the put is exercised, has
expired or the Fund has purchased a closing put, which is a put of the same
series as the one previously sold. The risk in writing put options is that the
market price of the underlying security declines below the exercise price less
the premiums received. The daily valuation of put options is substantially
identical to that of call options.
The Fund may purchase put options, which give the Fund the right to sell the
underlying security at the exercise price at any time during the
option period. Put options may be purchased for defensive purposes in order
to protect against an anticipated decline in the value of its securities. This
protection would be provided only during the life of the option when the Fund,
as the holder of the option, is able to sell the underlying security at the
put exercise price regardless of that security's current market price.
Purchasing put options involves the risk of losing the entire premium (purchase
price of the option). No more that 5% of the Fund's total net assets, at the
time of purchase, will be committed to the purchasing of put options.
Federal Income Tax Treatment of Options
Set forth below is a brief summary of the federal income tax consequences of
options. It is not intended to be a complete and detailed description of all
possible tax consequences. Investors should consult their own tax advisors for
more complete information. The summary below assumes that options purchased by
the Fund are capital assets.
When puts and calls written by the Fund (seller) expire unexercised, the premium
received becomes a short-term capital gain at the time of such expiration. When
a covered call written by the Fund is exercised, the amount realized on the sale
of the underlying security is increased by the amount of the premium in
determining gain or loss, and the gain or loss on the sale of the security is
short or long-term, depending on the holding period of the underlying security.
When puts written by the Fund are exercised, the Fund will reduce the cost
basis of the underlying security by the amount of the premium received. The Fund
will recognize either a short or long-term capital gain or loss upon the sale or
expiration of the option. Upon the exercise of a call option by the Fund
(buyer), the Fund will increase the cost basis of the underlying security by
the amount of value paid for the option. If it is a put option, the Fund will
reduce the amount realized on the sale of the underlying security by the amount
paid for the put option. Because of tax considerations, the Fund may be limited
in its ability to write or purchase options with an exercise period of less than
three months. Gains or losses on options sold or purchased in hedging
transactions will be treated as ordinary income or losses.
<PAGE>
Non-Investment Grade Debt Securities
The non-investment grade bond market's growth has parallelled a long economic
expansion and has not weathered a recession in its present size and form. An
economic downturn or increase in interest rates is likely to have a negative
effect on the non-investment grade bond market and on the value of non-
investment grade bonds in the Fund's portfolio, as well as the ability of the
bonds' issuers to repay principal and interest. Securities of companies in
reorganization proceedings are relatively unaffected by such events or by
changes in prevailing interest rates. Adverse publicity and investor
perceptions, whether or not based upon rational analysis, may also affect the
value and liquidity of non-investment grade bonds.
The market for non-investment grade bonds may be thinner and less active than
that for higher quality securities, which can adversely affect the price at
which these securities are sold. If market quotations are not available, non-
investment grade securities will be valued inaccordance with standards
established by the Board of Directors, including the use of outside pricing
services. Judgment plays a greater role in valuing non-investment grade debt
securities than is the case for securities for which more external sources for
quotations and last-sale information is available. To the extent the Fund owns
illiquid or restricted non-investment grade bonds, these securities may involve
special registration responsibilities, liabilities and costs, and liquidity
and valuation difficulties.
The economy and interest rates affect non-investment grade securities
differently from other securities. The prices and, therefore, yields of
these bonds have been found to be less sensitive to interest rate changes
than higher-rated investments, but more sensitive to adverse
economic changes or individual corporate developments. Non-investment grade
bonds are subject to a greater risk of default than high-grade debt securities.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress which would adversely
affect their ability to obtain additional financing. If the issuer of a bond
owned by the Fund defaults, the Fund may incur additional expenses to seek
recovery. In addition, periods of economic uncertainty and changes can be
expected to result in increased volatility of market prices of non-investment
grade bonds and the Fund's asset value. Furthermore, in the case of non-
investment grade bonds structured as zero coupon or pay-in-kind securities,
their market prices are affected to a greater extent by interest
rate changes and, thereby, tend to be more speculative and volatile than
securities which pay interest periodically and in cash.
Non-investment grade bonds present risks based on payment expectations. For
example, these bonds may contain redemption or call provisions. If an issuer
exercises these provisions in a declining interest rate market, the Fund may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. Conversely, a non-investment grade bond's
value will decrease in a rising interest rate market. In addition, there is
a higher risk of non-payment of interest and/or principal by issuers of non-
investment grade bonds than in the case of investment grade bonds.
New laws and proposed new laws may have a negative impact on the market for
non-investment grade bonds. As examples, recent legislation requires federally-
insured savings and loan associations to divest themselves of their investments
in non-investment grade bonds and pending proposals are designed to limit the
use of tax and other advantages of non-investment grade bonds. While no
initiatives affecting the Fund have prevailed, any such proposals, if enacted,
could have a material negative effect on the Fund's net asset value and
investment practices.
Special tax considerations are associated with investing in non-investment
grade bonds structured as zero coupon or pay-in-kind securities.
The Fund reports the interest on these securities as income even though it
receives no cash interest until the security's maturity or payment
date.
Foreign Securities
The Fund may invest in securities principally traded in markets outside the
United States. Investments in foreign securities involve the risk
of fluctuations in the value of the currencies in which the foreign securities
are denominated. Such a fluctuation could make the security worth less in
U.S. dollars even though its worth is more in its home country. Investments
in foreign securities may also be subject to local economic or political risks
such as political instability of some foreign governments and the possibility of
expropriation or confiscatory taxation, imposition of withholding taxes on
dividend or interest payments and limitations on the removal of funds or
other assets of the Fund. There also may be less publicly available information
about foreign securities and governments than domestic ones. Foreign
securities are not registered with the Securities and Exchange Commission and
are generally not subject to the regulatory controls imposed
on domestic securities. Securities of some foreign companies are less liquid
and more volatile than securities of domestic companies and incur higher
custodian charges.
<PAGE>
Total Return Performance
The Fund's total return calculations quoted in advertising reflect all aspects
of the Fund's return including the reinvestment of all capital gains
distributions and income dividends for the periods shown and any change in
the Fund's net asset value per share over the period without regard to tax
consequences to the shareholder. Such performance information is based on
historical results and is not intended to indicate future performance. Average
annual returns are calculated by determining the growth or decline in value of a
hypothetical historical investment in the Fund over a stated period and then
calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. In addition, the Fund may quote cumulative total
returns reflecting the change in value of an investment over a stated period
of time. The average annual total return of the Fund for the one, five and ten
year periods ended December 31, 1996 were 22.65%, 14.89% and 12.08%,
respectively. The cumulative total return of the Fund for the one, five and
ten year periods ended December 31, 1996 were 22.65%, 100.14% and 212.94%,
respectively.
Portfolio Turnover
While the Fund generally invests in securities for the purpose of seeking long-
term capital gains, the Fund's investment philosophy may dictate the frequent
realization of short-term gains and losses, which may result in a portfolio
turnover rate higher than many other mutual funds. The portfolio turnover
rates for 1996 and 1995 were 60.74% and 65.19%, respectively.
With the Fund's emphasis on the preservation of capital, certain equities may be
sold at an earlier date than anticipated at the time of purchase. This may be
the case if a sale is warranted by the attainment of the security's price
objective or by a change in the company's investment prospects, economic
conditions or the state of the financial markets. The Fund may also from time
to time purchase equities whose prices are expected to rise over the short term,
but whose longer-term prospects may or may not be attractive. The purchase and
sale of these securities may also lead to a higher than average portfolio
turnover rate. To the extent that the Fund's strategies result in short-term
gains, shareholders will be taxed on such gains at ordinary income rates.
Management of the Fund
The following is a list of the officers and directors of the Fund, and a brief
statement of their present positions and principal occupations during the last
five years. Unless otherwise noted, the address of each is 2330 West Joppa Road,
Suite 110, Lutherville, Maryland 21093-4641. The Fund's directors who are
considered "interested persons" as that term is defined under Section 2(a)(19)
of the Investment Company Act of 1940 are noted with an asterisk (*). The
individuals so noted are "interested persons" on the basis of their positions
with the Fund's investment advisor, Key Equity Management Corporation
("Advisor") and the Advisor's parent company, Corbyn Investment Management,
Inc. ("Corbyn") except that Mr. William E. Carlson is an "interested person"
by virtue of his familial relationship with Charles vK. Carlson (brothers).
<PAGE>
<TABLE>
<CAPTION>
Principal
Position(s) Held Occupation(s) During
Name With Registrant Past Five Years
<S> <C> <C>
Charles vK. Carlson, CFA* President, Chairman of the President and Director
Age 37 Board and Chief Executive Officer of the Fund's Advisor
and Corbyn Investment
Management, Inc.
Michael T. Godack* Sr. Vice President, Secretary Vice President and
Age 43 and Director Director of the Fund's
Advisor. Managing
Director of Corbyn
Investment Management, Inc.
Michael J. Fusting, CFA, CPA* Vice President, Treasurer, Chief Vice President, Treasurer,
Age 36 Financial Officer and Director and Director of the Fund's
Advisor. Managing Director
of Corbyn Investment
Management, Inc.
Richard Hynson, Jr.* Director Sr. Vice President and
Age 53 Managing Director of Corbyn
Investment Managment, Inc.
David T. Fu Director Managing Director of Galway
1246 Harbour Glen Court Partners, L.L.C. from January
Arnold, MD 21012 1995 to present. Director of
Age 40 Bell Atlantic Information
Services from September 1993 to
January 1995. Vice President of
Network Management, Inc. from
February 1992 to September 1993.
Sales Director of Hamilton Avnet
Computer from February 1990 to
February 1992.
William E. Carlson* Director Partner of Shapiro and Olander from
117 E. Churchill Street February 1990 to present.
Baltimore, MD 21230 Appointed and commenced service
Age 39 as a director on February 15, 1994
to fill vacancy left by Daniel R.
Long, III who resigned due to
competing personal responsibilities.
</TABLE>
Directors who are not employees of the Fund or companies affiliated with the
Fund will receive a fee of $1,000 for attending the annual meeting plus $350
for each other meeting attended besides the annual meeting and reasonable out
- -of-pocket expenses incurred in connection with attending such meetings.
Directors, as well as officers, who are "interested persons" of the Fund do
not receive remuneration from the Fund or from its Advisor, but may receive
remuneration from Corbyn Investment Management.<PAGE>
Control Persons and Principal Holders of Securities
As of March 31, 1997, there were approximately 6,388,896 shares of capital
stock of the Fund outstanding. Of those shares, the following shareholders
are the recordholders of 5% or more of the outstanding shares of the Fund:
Amount/Nature of Percentage of
Name/Address Ownership Ownership
Corbyn Investment Management 1,201,088 19%
2330 West Joppa Road, Suite 108 Record
Lutherville, MD 21093
Charles Schwab & Co., Inc. 1,688,816 26%
101 Montgomery Street Record
San Francisco, CA 94104
Corbyn Investment Management, an investment research management company
organized in the State of Maryland, is affiliated with the Fund through its
management and with the Fund's Advisor through its management and ownership.
Certain clients of Corbyn may have investment objectives similar to that of
the Fund. Recommendations may be made from time to time which result in the
purchase or sale of a particular security by advisory clients simultaneously
with the Fund. The acquisition or disposition of a security for such clients
does not create an obligation to acquire or dispose of the security for the
Fund. If transactions on behalf of more than one client during the same period
increase the demand for securities being purchased or the supply of the
securities being sold, there may be an adverse effect on price and the ability
of the Fund to obtain or dispose of the full amount of the security which it
seeks to purchase or sell. If Corbyn's clients and the Fund are purchasing a
given security on the same day from the same broker-dealer, the price of
the transaction may be averaged and the average price allocated among the
clients participating in the transaction.
As of March 31, 1997, the officers and directors of the Fund, as a group,
beneficially and of record owned, directly or indirectly, approximately 34,020
shares of the Fund, representing approximately .53% of the Fund's outstanding
shares.
Investment Advisor and Advisory Agreement
Key Equity Management Corporation, a wholly-owned subsidiary of Corbyn
Investment Management, Inc., is the Fund's Advisor and is located at 2330 West
Joppa Road, Suite 108, Lutherville, Maryland 21093. Key Equity was organized in
October, 1982 solely to act as investment advisor to the Fund and does not have
any operating history prior to July 1, 1983.
The Investment Advisory Agreement between Key Equity and the Fund is dated
February 28, 1986 and was most recently approved by shareholders on May 8, 1990.
Under this Agreement, the Advisor furnishes the Fund with investment research,
advice and supervision and continuously provides the Fund with an investment
program consistent with policies adopted by the Fund and declared by its Board
of Directors. The Advisor also supervises the Fund's relations with its
custodian, auditors and federal and state regulatory bodies, furnishes
the office space and all necessary office facilities, equipment and personnel
for managing the investments of the Fund and maintaining its organization. The
Advisor pays the salaries and fees of all executive officers and directors of
the Fund and for all clerical services relating to the research oriented work of
the Fund's investment portfolio. However, Corbyn has and may continue to furnish
the office facilities, equipment and salaries as described above, through the
Advisor, at no additional cost to the Fund.
In return for these services, the Fund will pay its Advisor a monthly fee,
accrued daily, at an annual rate of .75% of the Fund's month-end net asset
value. The advisory fee may be reduced to the extent that the Fund's annual
expenses exceed, in any fiscal year, 1.50% of the average daily net assets up to
$30,000,000 and 1% of the average daily net assets over $30,000,000.
Reimbursements of fees paid in excess of this limitation, if any, will be on
a monthly basis. For this purpose, expenses exclude taxes, brokerage fees
and commissions and extraordinary expenses, as determined by the Advisor,
such as litigation.
The investment advisory fees paid by the Fund for the years 1994, 1995 and 1996
were $307,474, $494,166 and $581,258, respectively. At December 31, 1996,
investment advisory fees payable to the Advisor amounted to $57,139.
Each year, the Agreement must be approved by a majority of the Board of
Directors or by vote of the holders of a majority of the outstanding voting
securities of the Fund. Additionally, the Agreement must be approved annually by
a majority of the directors of the Fund who are not parties to the Agreement
or "interested persons" of any such party (as defined in the 1940 Act) by votes
cast in person at a meeting called for this purpose. The Agreement was last
approved on February 13, 1997, the date of the last annual Board of Directors
meeting. The Agreement may be terminated at any time by the Board of Directors
or by the vote of a majority of the outstanding voting securities of the Fund,
without penalty, on 60-days written notice to the Advisor and will terminate
<PAGE>
automatically in the event of its assignment. The Advisor may also terminate
the Agreement by notifying the Fund 60 days prior to the termination date.
Portfolio Transactions and Brokerage
The Fund's officers implement the investment decisions for the Fund recommended
by its Advisor. The Advisor also selects the brokerage firms used by the Fund to
complete securities transactions. All decisions and selections are reviewed
quarterly by the Fund's Board of Directors.
The Advisor selects broker-dealers to effect securities transactions for the
Fund based on which broker-dealers can obtain the most favorable combination
of price and execution for the transactions. This does not mean that the Fund
must base its execution decisions solely on whether the lowest possible
commissions costs may be obtained. The Advisor determines if the amount of
commissions is reasonable in relation to the value of the brokerage and research
services provided, viewed in the terms of either that particular transaction
or the overall responsibilities to the Fund and that the services provided by a
broker provide the Advisor with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities. In seeking to
achieve the best combination of price and execution, an effort is made to
evaluate the overall quality and reliability of broker-dealers and the services
they provide, including their general execution capabilities and financial
condition.
Commissions paid by the Fund will be compared to commissions charged by other
brokers on similar transactions in order to ascertain that commissions are
within a reasonable range. Obtaining a low commission, though, is secondary
to obtaining a favorable security, which is usually more beneficial to the
Fund. The Advisor may pay a higher brokerage commission than may be charged
by other brokers to brokers who provide quality, comprehensive and frequent
research studies (such as investment and market research and securities and
economic analysis) to the Fund and its Advisor, which are useful in performing
the advisory activities under contract with the Fund. There
is no current arrangement to do so.
With respect to securities traded only on the over-the-counter market, orders
are executed on a principal basis with primary market makers
in such securities, except when, in the opinion of the Advisor, the Fund may
obtain better prices or executions on a commission basis. Portfolio transactions
placed through dealers serving as primary market makers are effected at net
prices, without commissions, but which include compensation in the form of a
mark up or mark down.
During 1996, all the Fund's brokerage commissions were paid to firms which
provided the Fund's Advisor with research services.
For the years 1994, 1995, and 1996 the total brokerage commissions paid by
the Fund were $93,888, $154,298, and $135,471, respectively. No officer or
director of the Fund, nor any officer, director or shareholder of the Fund's
Advisor, has any direct or indirect affiliation with any person employed as a
broker by or on behalf of the Fund.
Purchase, Redemption and Pricing of the Fund's Shares
Net Asset Value Per Share
The Fund's shares of stock are purchased and redeemed at the Fund's current
net asset value per share. The Fund determines the net asset
value per share by subtracting its liabilities (including accrued expenses and
dividends payable) from its total assets (the current market
value of the securities the Fund holds plus cash or other assets, including
interest accrued but not yet received) and dividing the result by
the total number of shares outstanding.
The net asset value per share is calculated as of the close of the regular
session of the New York Stock Exchange (currently 4:00 p.m. Eastern Standard
Time) each day the Exchange is open for business. It is expected the Exchange
will be closed during 1997 on Saturdays and Sundays and on January 1 (New Year's
Day), February 17 (President's Day), March 28 (Good Friday), May 26 (Memorial
Day), July 4 (Independence Day), September 1 (Labor Day), November 27
(Thanksgiving Day) and December 25 (Christmas Day), 1997.
The Fund expects to make all redemptions in cash. For those shareholders for
which it is applicable, the Fund reserves the right to honor any request for
redemption by making a payment in whole or in part in the form of a pro rata
distribution of the Fund's readily marketable securities. These securities
would be valued the same way the securities are valued in calculating the net
asset value of the Fund. The Fund is governed by Rule 18f-1 under the
Investment Company Act of 1940. Therefore, the Fund is obligated to redeem
shares, with respect to one shareholder during any 90-day period, solely in
cash up to the lesser of $250,000 or 1% of the net asset value of the Fund at
the beginning of the period.
<PAGE>
Pricing of Securities Being Offered
Securities traded primarily on a principal securities exchange are valued at
the last reported sales price on the exchange of major listings. 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 sales 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.
The Fund may invest in securities which are restricted as to public sale. Such
securities are valued at fair value as determined in good faith by the Advisor
as directed by the Board of Directors.
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.
Taxes
Set forth below is a brief summary of the Federal income tax consequences of
an investment in the Fund. It is not intended to be a complete and detailed
description of all possible tax consequences. Investors should consult their
own tax advisors for more complete information.
The Fund intends to qualify each year as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986 ("the Code") as amended. To
qualify as a regulated investment company, the Fund must (a) diversify its
holdings so that at the end of each fiscal quarter (i) at least 50% of the value
of the Fund's total assets must be represented by cash and cash equivalents,
U.S. government securities, securities of other regulated investment companies
and other securities, which does not include investments in the securities of
any one issuer that represents more than 5% of the value of the Fund's total
assets or more than 10% of the issuer's outstanding voting securities and (ii)
not more than 25% of the value of the Fund's total assets invested in the
securities (other than U.S. government securities or securities of other
regulated investment companies) of any one issuer; (b) derive at least 90% of
its gross income from dividends, interest, income from securities on loan and
gains (without including losses) from the sale or other disposition of
securities; (c) derive less than 30% of its gross income from gains (without
including losses) on the sale or other disposition of securities held for
less than three months; and (d) distribute at least 90 percent of the Fund's
taxable income for the taxable year. In addition, in each calendar year, the
Fund is required to distribute the sum of 98% of the ordinary income earned
in such calendar year, 98% of the capital gain net income earned in the 12-month
period ending October 31 and any undistributed ordinary income and
undistributed capital gain net income from the prior year or the Fund will be
subject to a non-deductible 4% excise tax on the undistributed
amount. For purposes of this excise tax, amounts on which the Fund pays income
tax are treated as distributed.
Shareholders may also be required to include in income a designated portion of
the Fund's undistributed net capital gain, but will be entitled to a credit for
tax on such amount that was paid by the Fund and to an increase in the basis of
their shares for 65% of the amount included in income. Distributions from the
Fund in excess of the Fund's current and accumulated earnings and profits will
not be treated as a dividend. Instead, such distribution will be a non-taxable
return of capital applied first to reduce the shareholder's adjusted basis in
his shares, and to the extent that such distribution exceeds the shareholder's
adjusted basis, the excess will be treated as a gain from the sale of the
shares. For 1996, the Fund made the following distributions:
Ordinary Dividends Per Share $.59
Short-Term Capital Gains Distribution Per Share $.186
Long-Term Capital Gains Distribution Per Share $.369
Dividends and distributions are generally taxable to shareholders in the year in
which received. Dividends declared by the Fund in October, November or December
of a calendar year, but paid during January of the following calendar year, will
be treated as received by shareholders on December 31.
<PAGE>
Custodian
Wilmington Trust Company, whose address is Rodney Square North, 1100 North
Market Street, Wilmington, DE 19890-0001, acts as custodian for the Fund's
investments. Wilmington Trust Company does not have any part in determining
the investment policies of the Fund.
Legal Counsel
The law firm of De Martino Finkelstein Rosen & Virga, whose address is 1818
N Street, N.W., Suite 400, Washington, D.C. 20036, serves as outside legal
counsel for the Fund.
Independent Accountants
Coopers & Lybrand L.L.P., Certified Public Accountants, whose address is 217
East Redwood Street, Baltimore, Maryland 21202, has been retained as the
independent accountants to the Fund. The financial statements of the Fund
for the year ended December 31, 1996 and the report of independent accountants
are included in the Fund's Annual Report for the fiscal year ended December 31,
1996, which is incorporated by reference into this Statement of Additional
Information.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Part A:
Financial Highlights Table for the Years Ended December 31, 1996; 1995;
1994; 1993; 1992; 1991; 1990; 1989; 1988; and 1987.
Part B:
The following financial statements are incorporated by reference from the
Registrant's Annual Report to Shareholders dated December 31, 1996:
Portfolio of Investments, December 31, 1996
Statement of Assets and Liabilities, December 31, 1996
Statement of Operations for the Year Ended December 31, 1996
Statement of Changes in Net Assets for the Years Ended December 31, 1996
and 1995
Notes to Financial Statements, December 31, 1996
Financial Highlights Table For the Years Ended December 31, 1996; 1995;
1994; 1993; and 1992
Report of Independent Accountants
Performance Since Inception
(b) Exhibits:
Exhibit
Number Description
1(a) Copy of the Articles of Incorporation of Registrant - Copy of the Articles
of Incorporation of the Registrant was filed as Exhibit 1 to the
Registrant's Registration Statement on Form N-1 (File No. 2-81956 and
811-3627) on February 11, 1983, which is hereby incorporated by reference.
(b) Copy of the amendment to the Articles of Incorporation of Registrant -
Copy of the amendment to the Articles of Incorporation of Registrant,
dated May 8, 1990, was filed as Exhibit 1(a) to the Registrant's
Post-Effective Amendment No. 12 (File No. 2-81956 and 811-3627) on April
29, 1992, which is hereby incorporated by reference.
2(a) Copy of the By-laws of the Registrant - Copy of the By-laws of the
Registrant was filed as Exhibit 2 to the Registrant's Registration
Statement on Form N-1 (File No. 2-81956 and 811-3627) on February 11,
1983, which is hereby incorporated by reference.
(b) Copy of the amendment to the By-Laws of Registrant - Copy of the amendment
to the By-Laws, dated May 8, 1990, was filed as Exhibit 2(b) to the
Registrant's Post-Effective Amendment No. 12 (File No. 2-81956 and 811-
3627) on April 29, 1992, which is hereby incorporated by reference.
3 Not Applicable (Copy of the voting trust agreement)
4 Specimen certificate for shares of common stock of the Registrant was
filed as Exhibit 4 to the Registrant's Registration Statement on Form N-1
(File No. 2-81956 and 811-3627) on February 11, 1983, which is hereby
incorporated by reference.
5 Copy of the Investment Advisory Agreement - Copy of the Investment
Advisory Agreement was filed as Exhibit 5 to the Registrant's Post-
Effective Amendment No. 5 (File No. 2-81956 and 811-3627) on May 16,
1986, which is hereby incorporated by reference.
6 Not Applicable (Copy of the underwriting or distribution contract)
7 Not Applicable (Copy of all bonus, profit sharing or similar contacts)
<PAGE>
8(a) Copy of the Custodial Agreement of the Registrant - Copy of the Custodial
Agreement of the Registrant, dated October 1, 1994, was filed as Exhibit
8(a) to the Registrant's Post-Effective Amendment No. 17 (File No. 2-81956
and 811-3627) on March 29, 1995.
8(b) Copy of the Custodial Fees (schedule of remuneration) of the Registrant -
Copy of the Custodial Fees (schedule of remuneration), dated October 1,
1994, was filed as Exhibit 8(b) to the Registrant's Post-Effective
Amendment No. 17 (File No. 2-81956 and 811-3627) on March 29, 1995.
9(a) Copy of the Charles Schwab Operating Agreement - Copy of the Charles
Schwab Operating Agreement, dated September 14, 1993, was filed as
Exhibit 9 to the Registrant's Post-Effective Amendment No. 16 (File No.
2-81956 and 811-3627) on March 31, 1994, which is hereby incorporated
by reference.
9(b) Copy of the Transfer Agent Agreement of the Registrant - Copy of the
Transfer Agent Agreement of the Registrant, dated October 1, 1994, was
filed as Exhibit 9(b) to the Registrant's Post-Effective Amendment No.
17 (File No. 2-81956 and 811-3627) on March 29, 1995.
10 An Opinion and Consent of Counsel was filed with Form 24f-2 on February
20, 1997.
11 Copies of the Independent Certified Public Accountant's Opinion and
Statement of Consent - the Opinion and Statement of Consent of Coopers
& Lybrand L.L.P., dated January 31, 1997 and April 28, 1997, respectively,
attached as Exhibit 11 to the Registrant's Post-Effective Amendment No. 19
(File No. 2-81956 and 811-3627) as filed on April 28, 1997.
12 Not Applicable (Copy of financial statements omitted from Item 23)
13 Copies of agreements of Registrant providing the initial capital of
$100,000.00 - Copies of agreements of Registrant's providing the initial
capital was filed as Exhibit 13 to the Registrant's Registration
Statement of Form N-1 (File No. 2-81956 and 811-3627) on April 30, 1983,
which is hereby incorporated by reference.
14 Copy of model plan used in establishing a retirement plan - Copy of model
plan used in establishing a retirement plan was filed as Exhibit 14 to
the Registrant's Post-Effective Amendment No. 3 (File No. 2-81956 and
811-3627) on February 6, 1985, which is hereby incorporated by reference.
15 Not Applicable (Copy of any plan entered into describing the financing
and distribution of the Registrant's shares).
16 Copy of Schedule of Computation of Performance of Registrant - Copy of the
Schedule of Computation of the Registrant was filed as Exhibit 16 to the
Registrant's Post-Effective Amendment No. 9 (File No. 2-81956 and
811-3627) on May 10, 1989, which is hereby incorporated by reference.
17 Copy of a Financial Data Schedule - A copy of a Financial Data Schedule is
being filed as Exhibit 17 to the Registrant's Post-Effective Amendment
No.19 (File No. 2-81956 and 811-3627) on April 28, 1997.
Item 25. Persons Controlled by or Under Common Control with Registrant
Charles vK. Carlson is President of Corbyn Investment Management, Inc. and
Messrs. Godack, Hynson, Trump and Fusting and Karla Moore are Managing Directors
of Corbyn Investment Management, Inc. Messrs. Carlson, Godack, Trump and
Fusting are also directors of Key Equity Management Corporation. Corbyn
Investment Management, Inc. owns 100% of the total outstanding stock of Key
Equity Management Corporation. As of the date of this filing, approximately
19% of the Fund's outstanding stock was owned by various private counsel clients
of Corbyn Investment Management, Inc., as to which Corbyn Investment
Management, Inc. has discretionary authority. See the response to Item 28 below
for further information regarding Key Equity Management Corporation.
Item 26. Number of Holders of Securities
As of March 31, 1997, the number of record holders of each class of securities
of the Registrant was as follows:
Title of Class Number of Record Holders
Common Stock
(par value $.01 per share) 3397
<PAGE>
27. Indemnification
Under the terms of the Registrant's Articles of Incorporation and By-Laws, the
registrant may indemnify any person to the extent permitted by law.
Section 2-418 of the Maryland General Corporation Law generally provides that
corporations may indemnify officers and directors, including indemnification
for judgments, fines, settlement amounts and reasonable expenses actually
incurred, if the officer or director acted in good faith. However, if the
proceeding is one by or in the right of the corporation, indemnification may
be made only against reasonable expenses and may not be made in respect of any
proceeding in which the director shall have been adjudged to be liable to the
corporation. The statute provides that the termination of any proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent creates a rebuttable presumption that the director did not meet
the requisite standard of good faith. This statute also provides that the
corporation may maintain insurance on behalf of directors, officers, employees
and agents for liabilities arising out of such persons' actions on behalf of
the corporation in good faith.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
if in the opinion of its counsel, the matter has been settled by a controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Advisor
Key Equity Management Corporation (the "Advisor") was incorporated on October
21, 1982 to act in the capacity of investment advisor to the Fund. As stated in
the Fund's Statement of Additional Information, officers and directors of the
Advisor are also directors of the Fund and Corbyn Investment Management. Corbyn
Investment Management is a registered investment advisor with its principal
business address as 2330 West Joppa Road, Suite 108, Lutherville, Maryland
21093.
Set forth below is a list of each officer and director of the Advisor
indicating each business, profession, vocation or employment of a substantial
nature in which each such person is engaged:
Charles vK. Carlson
President and Director of Key Equity Management Corporation; President,
Chairman of the Board of Directors and Chief Executive Officer of Greenspring
Fund, Inc; President and Director of Corbyn Investment Management, Inc.
Michael Timothy Godack
Vice-President and Director of Key Equity Management Corporation; Senior
Vice-President, Secretary and Director of the Greenspring Fund, Inc.;
Managing Director of Corbyn Investment Management, Inc.
Michael Joseph Fusting
Vice-President, Treasurer and Director of Key Equity Management Corporation;
Vice-President, Treasurer, Chief Financial Officer and Director of Greenspring
Fund, Inc.; Managing Director of Corbyn Investment Management, Inc.
David Allen Trump
Vice President and Director of Key Equity Management Corporation; Managing
Director of Corbyn Investment Management, Inc.
Karla Keller Moore
Secretary and Director of Key Equity Management Corporation; Managing Director
and Secretary of Corbyn Investment Management, Inc.
<PAGE>
Item 29. Principal Underwriters
The Registrant does not have any principal underwriter of its shares.
Item 30. Location of Accounts and Records:
(a) With respect to the required books and records to be maintained by the
Registrant's Custodian under Section 31(a) of the 1940 Act, the address is:
Wilmington Trust Corporation
Wilmington Trust Center
Rodney Square North
1100 North Market Street
Wilmington, DE 19890-0001
(b) With respect to the required books and records to be maintained by the
Registrant's Transfer Agent under Section 31(a) of the 1940 Act, the
address is:
Rodney Square Management Corporation
1105 North Market Street, 3rd Floor
Wilmington, DE 19890
(c) With respect to all other required books and records to be maintained by
the Registrant at its principal office and the Registrant's Investment
Advisor under Section 31(a) of the 1940 Act, the person maintaining
physical possession and the address are:
Michael T. Godack
Greenspring Fund, Incorporated
2330 West Joppa Road, Suite 110
Lutherville, Maryland 21093
Item 31. Management Services
The Registrant is not a party to any management-related service contract.
Item 32. Undertakings
Not Applicable<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all the requirements
for effectiveness of this Registration Statement pursuant to the Rule 485(b)
under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment No. 19 to be signed on its behalf by the undersigned, thereto duly
authorized, in the County of Baltimore and State of Maryland on the 18th day
of April, 1997.
Greenspring Fund, Incorporated
By:
Charles vK. Carlson, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
Signature Title Date
President and Chairman April 18, 1997
Charles vK. Carlson of the Board (Chief
Executive Officer)
Senior Vice President,
Michael T. Godack Secretary and Director
Vice-President,
Michael J. Fusting Treasurer and Director
(Chief Financial Officer)
Richard Hynson, Jr. Director
David T. Fu Director
William E. Carlson Director
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to the
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment No. 19 to be signed on its behalf by the undersigned,
thereto duly authorized, in the County of Baltimore and State of
Maryland on the 18th day of April, 1997.
Greenspring Fund, Incorporated
By: S/Charles vK. Carlson
Charles vK. Carlson, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
Signature Title Date
S/Charles vK. Carlson President and Chairman April 18, 1997
Charles vK. Carlson of the Board (Chief
Executive Officer)
S/Michael T. Godack Senior Vice President,
Michael T. Godack Secretary and Director
S/Michael J. Fusting Vice-President, Treasurer
Michael J. Fusting and Director (Chief
Financial Officer)
S/Richard Hynson, Jr. Director
Richard Hynson, Jr.
S/David T. Fu Director
David T. Fu
S/William E. Carlson Director
William E. Carlson<PAGE>
EXHIBIT 11
COPY OF THE
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT'S
OPINION
AND
STATEMENTS OF CONSENT<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of
Directors of Greenspring Fund, Incorporated
We have audited the accompanying statement of assets and liabilities of
Greenspring Fund, Incorporated, including the schedule of portfolio of
investments, as of December 31, 1996, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of
the two years in the period then ended and the financial highlights for the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Greenspring Fund, Incorporated as of December 31, 1996, the results of its
operations, the changes in its net assets and the financial highlights for the
periods stated in the first paragraph, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
January 31, 1997
<PAGE>
EXHIBIT 17
COPY OF THE
FINANCIAL DATA SCHEDULE
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 72,639,985
<INVESTMENTS-AT-VALUE> 89,877,772
<RECEIVABLES> 1,035,253
<ASSETS-OTHER> 1,197,781
<OTHER-ITEMS-ASSETS> 634
<TOTAL-ASSETS> 92,111,440
<PAYABLE-FOR-SECURITIES> 462,184
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 157,602
<TOTAL-LIABILITIES> 619,786
<SENIOR-EQUITY> 53,085
<PAID-IN-CAPITAL-COMMON> 73,558,842
<SHARES-COMMON-STOCK> 5,308,459
<SHARES-COMMON-PRIOR> 4,774,378
<ACCUMULATED-NII-CURRENT> 183,071
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 458,869
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17,237,787
<NET-ASSETS> 91,491,654
<DIVIDEND-INCOME> 1,440,255
<INTEREST-INCOME> 2,181,637
<OTHER-INCOME> 36,845
<EXPENSES-NET> 795,202
<NET-INVESTMENT-INCOME> 2,863,535
<REALIZED-GAINS-CURRENT> 3,697,949
<APPREC-INCREASE-CURRENT> 9,422,762
<NET-CHANGE-FROM-OPS> 15,984,246
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,789,842
<DISTRIBUTIONS-OF-GAINS> 2,752,675
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,319,471
<NUMBER-OF-SHARES-REDEEMED> 1,102,859
<SHARES-REINVESTED> 317,469
<NET-CHANGE-IN-ASSETS> 19,652,559
<ACCUMULATED-NII-PRIOR> 109,378
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 486,405
<GROSS-ADVISORY-FEES> 581,258
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 795,202
<AVERAGE-NET-ASSETS> 76,572,826
<PER-SHARE-NAV-BEGIN> 15.05
<PER-SHARE-NII> .60
<PER-SHARE-GAIN-APPREC> 2.74
<PER-SHARE-DIVIDEND> .59
<PER-SHARE-DISTRIBUTIONS> .56
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.24
<EXPENSE-RATIO> 1.04
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
