GREENSPRING FUND,
INCORPORATED
(LOGO)
ANNUAL REPORT
DECEMBER 31, 1998
This report is authorized for distribution
only to shareholders who have received a
copy of the official Prospectus of the
Greenspring Fund, Incorporated.
<PAGE>
February 8, 1999
Dear Shareholders:
The year just completed was one of the most turbulent, roller coaster-like
periods in recent times. Events that affected the financial markets included
the following: the continuation and worsening of the near depression in Japan,
a wave of monetary devaluations and associated deflationary pressures spreading
from the Far East, a default by Russia on its debts, a severe midsummer
flight-to-quality liquidity crisis in the worldwide financial markets triggered
by the near demise of a large, star-studded hedge fund, a mania for Internet
stocks, a drop of more than 35% in commodity prices as measured by the Goldman
Sachs Commodity Index, and a great deal of political instability in Washington,
D.C. This unprecedented and unexpected confluence of events created an
unfavorable market environment for many investors, especially value and
small-cap investors. Despite the strong performance of some of the well-known
stock market averages, the majority of stocks declined during 1998. For
instance, on the NASDAQ, 3,351 stocks declined, while only 1,690 stocks gained
in price. Unfortunately, the Greenspring Fund was not able to withstand these
negative forces and was affected far more than we ever expected. Assuming the
reinvestment of all dividends and distributions, the Greenspring Fund declined
15.97% during 1998.
One of the more notable occurrences during 1998 was the disparity in performance
between growth and value investors. This gap is illustrated by statistics
provided by the Frank Russell Company. The Russell 3000 Index, containing the
three thousand largest publicly-traded stocks in the country, is broken down
into Growth and Value indices. The Russell 3000 Growth Index outperformed the
Russell 3000 Value Index during the year by more than 21%. Illustrating in a
similar manner the discrepancy between large-cap and small-cap stocks, the
performance of the Russell 1000 (the one thousand largest companies) exceeded
the performance of the Russell 2000 (the next two thousand largest companies)
by a margin of almost 30%.
1
<PAGE>
The popularity of investment philosophies is a cyclical phenomenon. Both
growth and value investors have periods of relative underperformance and
outperformance; during the last several years growth investors have had the
upper hand. As difficult as this period of relative underperformance has been
for value investors, it is not unprecedented. Dreman Value Management, headed
by well-known large-cap contrarian value investor David Dreman, recently did
a study, the results of which are shown below. The chart illustrates that value
stocks dramatically outperformed growth stocks over the ten years following
a period during which they had underperformed growth stocks by more than 35%.
1971-72 1973 1974 1975-84
Total Returns
*Value 26.6% -20.3% -11.3% 545.5%
*Growth 61.2 -17.7 -37.0 43.6
*Value minus Growth -34.6 -2.6 +25.7 +501.9
The early 1970's was a period during which growth stocks prospered and the
phrase Nifty Fifty was applied to the large, rapidly-growing growth stocks
of the time (for example Xerox, Polaroid, and Avon Products). They were
characterized as one-decision stocks, meaning that all one had to do was buy
them, regardless of their current valuation and the company's tremendous
growth would ensure that the investment would be so successful that there
would never be the need to sell the stock. This is the same kind of
reasoning often heard today with investments such as Dell Computer, America
On-Line, Yahoo, and Amazon.com, companies that are well run and rapidly
growing, but priced at astronomical levels relative to how much money they
are earning (or in some cases losing). After the Nifty Fifty's stock prices
crashed back to realistic levels during the mid 1970's, it took many years
for some of these growth investors to get back to break-even, despite the fact
that the operations of the companies performed well.
Will the next ten years result in the same kind of superb relative
performance value investors experienced beginning in 1975 after the last
period of sustained underperformance? Naturally, we hope so, but we are not
relying upon that. During the last several months, we have been very active
repositioning the Fund's portfolio. We have reduced or eliminated holdings
that were unfortunate victims of the financial dislocations caused by the late
summer liquidity crisis or, in some cases, suffered company-specific problems.
Generally, new purchases have been funded by reducing portfolio exposure to
those sectors that have hurt us the most during the past year, such as
financial securities and real estate-related companies. These areas had
greatly helped the Fund's performance throughout the years, but fell on
tough times during 1998.
2
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As far as specific securities that negatively affected the Greenspring Fund's
performance during 1998, the most significant loss was the Fund's
investment in Tidewater. As described in an earlier report, Tidewater is the
leading provider of maritime oil services, such as supply and service ships
for offshore drillers. It has the dominant position in the Gulf of Mexico, as
well as a strong presence in most international drilling areas. At the time
we purchased Tidewater's common stock, the Company had a pristine balance sheet
and generated a great deal of free cash flow. Unfortunately, during 1998 the
price of oil declined from a high of $18 per barrel to less than $11 per barrel
at one point. As a result, most oil exploration companies announced sharp
cutbacks in their drilling plans, which resulted in decreased rates for
providers of oilfield service such as Tidewater. Although Tidewater will
weather the storm far better than its competitors due to its financial
strength, its operations will nevertheless suffer and, accordingly, analysts'
earnings expectations have consistently been marked down during the year.
These developments created a great deal of pressure on Tidewater's stock.
The Fund reduced its holdings in Tidewater during the second half of the
year and totally sold its position entirely by the end of the year. The
Company remains the dominant force in its field, and we will continue to
monitor this well-managed company with the idea of repurchasing it when
industry characteristics are more favorable.
The sector that hurt the Fund's performance the most during 1998 was
financial services, principally specialty finance companies. The lack of
success in these investments can be directly attributed to the
flight-to-quality that occurred in the financial markets in the fall of 1998.
Although the underlying fundamentals of many of these companies held up as
well, if not better, than expected during the year, in some cases their capital
structures were not adequate to withstand the volatility of the financial
markets during the August to October period of chaos, which was highlighted
by the downfall of the heralded hedge fund, Long Term Capital, with its
team of Nobel Prize-winning analysts. This put tremendous pressure on
companies invested in or serving the commercial mortgage market, especially
those companies that relied significantly upon short-term financing.
When the troubles of Long Term Capital became public knowledge, many lenders
became nervous and demanded additional collateral or terminated their lending
arrangements, despite the fact that the companies assets were performing very
well. Because market conditions were not conducive to raising additional funds,
many companies, including some the Fund owned, faced liquidity crises that
resulted in sharply lower stock prices. We have significantly reduced the
Fund's holdings in these companies; however, we continue to hold positions in
AMRESCO Capital Trust, Imperial Credit Commercial Mortgage, Long Beach
Financial and Resource Asset Investment Trust, all of which we believe are
financed conservatively relative to their peers and have assets that are
performing very well.
3
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Importantly, the turmoil in the market has created many opportunities. Value
investors are now presented with many promising investment ideas across a
greater number of industry sectors and market capitalizations. Some common
stock purchases that we have made recently, such as PayLess Shoesource,
HCR/ManorCare, Shared Medical Systems, Seagram's, and Healthsouth (the last
two were purchased in January) share some common themes, the importance of
which has been underscored during 1998. These characteristics include
(1) deep, high-quality management teams that are motivated by their company's
share price; (2) leading positions within their industry, so that their
fortunes are not controlled by larger competitors; (3) strong financial
underpinnings that diminish susceptibility to the type of financial
dislocations suffered by many companies in 1998 when the financial markets
went into disarray; and (4) share prices that trade at a discount to their
historical valuations, the valuations of their peers, and/or the general
market.
As 1999 gets underway, the Internet mania, which Federal Reserve chief Alan
Greenspan recently likened to playing the lottery, has garnered much of the
financial press. We truly expect that at some point during the year we will
enter a period in which value investors will once again benefit from a period
of strong relative performance. The Greenspring Fund has rebounded sharply
from its low reached in early October of last year. We feel rejuvenated
coming into this year, and we are eager to continue the strong progress that
has already been made in the Fund's portfolio. We are deeply dedicated to
producing once again the kind of relative performance that Greenspring
Fund's shareholders have historically enjoyed, and we feel confident that
this will happen. We sincerely thank each shareholder for your loyalty
and support during the challenging year of 1998 and we wish everyone a
happy, healthy, and prosperous 1999.
Respectfully,
/s/ Charles vK. Carlson
Charles vK. Carlson
President
4
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PERFORMANCE COMPARISON
This chart shows the value of a hypothetical $10,000 investment in the Fund
over the past 10 years as compared with $10,000 invested in the Lipper
Balanced Fund Index and the Russell 2000 Index. The Russell 2000 Index does
not reflect expenses, which have been deducted from the Fund's returns.
CHART
Russell 2000 Lipper Balanced
Index Fund Index Greenspring Fund
12/31/88 $ 10,000 $ 10,000 $ 10,000
03/31/89 10,715 10,491 10,368
06/30/89 11,362 11,246 10,788
09/30/89 12,094 12,003 11,114
12/31/89 11,421 12,135 11,060
03/31/90 11,105 11,811 11,478
06/30/90 11,477 12,386 11,349
09/30/90 8,601 11,282 10,587
12/31/90 8,972 12,062 10,340
03/31/91 11,606 13,414 11,379
06/30/91 11,375 13,418 11,792
09/30/91 12,227 14,174 11,965
12/31/91 12,891 15,219 12,339
03/31/92 13,824 15,057 12,743
06/30/92 12,802 15,267 12,892
09/30/92 13,093 15,737 13,646
12/31/92 14,999 16,344 14,378
03/31/93 15,556 17,093 15,549
06/30/93 15,837 17,428 15,715
09/30/93 17,168 18,057 16,406
12/31/93 17,551 18,252 16,484
03/31/94 17,040 17,664 16,836
06/30/94 16,309 17,519 16,846
09/30/94 17,384 18,019 17,172
12/31/94 16,992 17,797 16,951
03/31/95 17,699 18,861 17,882
06/30/95 19,252 20,185 19,110
09/30/95 21,067 21,273 19,757
12/31/95 21,446 22,177 20,135
03/31/96 22,450 22,674 21,326
06/30/96 23,525 23,135 21,647
09/30/96 23,511 23,741 22,683
12/31/96 24,611 25,063 24,695
03/31/97 23,250 25,173 25,469
06/30/97 26,903 27,869 27,747
09/30/97 30,801 29,659 30,133
12/31/97 29,662 30,089 30,609
03/31/98 32,625 32,469 31,999
06/30/98 31,043 32,962 30,304
09/30/98 24,676 31,054 24,379
12/31/98 28,636 34,628 25,720
In the past, the Fund has compared its performance to the Lipper Growth &
Income Fund Index. The Fund's investment strategies are better reflected by
the Russell 2000 Index. Accordingly, the Russell 2000 Index is used in the
table above.
The following table includes the Fund's past performance as of December 31,
1998:
1 Year 5 Year 10 Year
Greenspring Fund -15.97% 9.31% 9.91%
Past performance is not an indication of future performance. Shares may be
worth more or less at redemption than at original purchase.
5
<PAGE>
PREPARING FOR THE YEAR 2000
As an addendum to the Letter to Shareholders, we would like to comment on
the Year 2000 or "Y2K". Many computer systems currently use a two-digit
date field to represent the date. Unless these systems are changed or modified,
they may not be able to distinguish the Year 1900 from the Year 2000 and,
therefore, may calculate inaccurate information.
We are trying to ensure that our shareholders will not be impacted by this
problem. We have assessed our internal systems and upgraded hardware and
software where necessary. We will test our systems this summer by setting
the date to 2000 to confirm that the systems will run smoothly.
We also rely on third party service providers for certain functions such as
transfer agency, custody and trading. Each service provider has provided a
plan for compliance. We will monitor their progress throughout 1999 and
participate in any testing where applicable.
Although much time and effort has been put into planning for Y2K, all systems
may not be ready or unforeseen problems may occur. If problems do occur,
they should be resolved quickly. If necessary, we will operate on a manual
basis. We will update you on our progress later this year.
6
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GREENSPRING FUND, INCORPORATED
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
COMMON STOCKS (60.27%)
Shares Value
Banks - Regional (5.57%)
50,663 Crestar Financial Corp. $ 3,647,736
10,000 Mercantile Bankshares Corp. 385,000
57,487 *Sun Bancorp, Inc. 1,063,510
27,516 Union Planters Corp. 1,246,819
6,343,065
Business Services (1.75%)
64,400 Standard Register Company 1,992,375
1,992,375
Computer Services (.44%)
10,000 Shared Medical Systems 498,750
498,750
Consumer Products/Services (.59%)
179,066 *Bolle Inc. 358,132
13,300 Genesee Corporation Class B 309,225
667,357
Financial Services (8.45%)
296,375 AMRESCO Capital Trust 2,815,562
444,475 Imperial Credit Commercial Mortgage 4,166,953
231,025 *Long Beach Financial Corp. 1,732,688
82,225 Resource Asset Investment Trust 904,475
9,619,678
7
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GREENSPRING FUND, INCORPORATED
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
COMMON STOCKS (CON'T)
Shares Value
Food Services (4.13%)
453,200 *Host Marriott Services $ 4,701,950
4,701,950
Healthcare (1.93%)
75,000 *HCR Manor Care 2,203,125
2,203,125
Instrumentation (4.44%)
406,000 *!Barringer Technologies 3,501,750
179,900 *OSI Systems, Inc. 1,551,638
5,053,388
Insurance (6.55%)
75,000 PartnerRe Holdings, Ltd. 3,431,250
87,416 Reliastar Financial Corp. 4,032,063
7,463,313
Manufacturing (3.80%)
158,400 Rohn Industries, Inc. 544,500
193,247 *Scott Technologies 3,194,624
27,275 Woodward Governor Company 593,231
4,332,355
8
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GREENSPRING FUND, INCORPORATED
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
COMMON STOCKS (CON'T)
Shares Value
Multi-Industry (7.58%)
297,500 *Griffon Corporation $ 3,160,937
165,000 U.S. Industries, Inc. 3,073,125
157,000 *Walter Industries 2,404,063
8,638,125
Natural Resources (1.26%)
78,080 Penn Virginia Corp. 1,434,720
1,434,720
Real Estate (3.12%)
165,900 *Acadia Realty Trust 870,975
166,800 The Town and Country Trust 2,679,225
3,550,200
Retail - Specialty (2.23%)
53,500 *Payless ShoeSource 2,534,562
2,534,562
9
<PAGE>
GREENSPRING FUND, INCORPORATED
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
COMMON STOCKS (CON'T)
Shares Value
Savings and Loans (8.43%)
70,081 Astoria Financial Corp. $ 3,206,206
31,000 BostonFed Bancorp, Inc. 546,375
50,000 Dime Bancorp, Inc. 1,321,875
34,000 GA Financial, Inc. 527,000
42,700 *ITLA Capital Corp. 645,837
33,000 *PFF Bancorp, Inc. 528,000
16,500 Rocky Ford Financial Corp. 179,438
63,650 Staten Island Bancorp 1,269,022
143,950 Thistle Group Holdings 1,385,519
9,609,272
Total Common Stocks (Cost $61,747,983) 68,642,235
PREFERRED STOCK (5.98%)
409,515 Prime Retail, Inc., 8.50% Pfd. B 6,808,187
Total Pfd. Stock (Cost $7,998,606) 6,808,187
10
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GREENSPRING FUND, INCORPORATED
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
BONDS (26.96%)
Shares/
Principal
Amount Value
Convertible Bonds (16.38%)
$ 1,268,000 Centertrust Retail Properties,
7.50%, 1/15/01 $ 1,201,034
6,055,000 Corporate Express, Inc., 4.50%, 7/1/00 5,158,103
2,500,000 Emcor Group, 5.75%, 4/1/05 2,137,500
1,176,000 Kelley Oil & Gas Partners, Ltd.,
8.50%, 4/1/00 858,480
1,590,000 Kelley Oil & Gas Partners, Ltd.,
7.875%, 12/15/99 1,164,675
4,497,000 NovaCare, 5.50%, 1/15/00 3,597,600
700,000 +Pharmaceutical Marketing, 6.25%, 2/1/03 692,125
3,900,000 The Learning Company, 5.50%, 11/1/00 3,846,375
18,655,892
Non-Convertible Bonds (10.58%)
2,445,000 Bay View Capital Corp., 9.125%, 8/15/07 2,371,650
2,701,000 Homeland Stores, 10.00%, 8/1/03 2,444,405
1,800,000 Host Marriott Travel Plaza, 9.50%, 5/15/05 1,901,250
400,000 Ocwen Financial, 11.875%, 10/1/03 358,000
2,451,300 #RB Asset, 8.00%, 1/15/06 1,379,481
2,400,000 Sprint Spectrum, 11.00%, 8/15/06 2,784,000
800,000 U.S. Treasury, 6.375%, 5/15/99 805,000
12,043,786
Total Bonds (Cost $32,688,817) 30,699,678
11
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GREENSPRING FUND, INCORPORATED
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
COMPANIES IN LIQUIDATION (1.40%)
Shares/
Principal
Amount Value
581,450 *!Hi Shear Industries, Inc. $ 1,507,991
2,900,000 $*Lomas Mortgage USA, Class 3 Claim 84,100
Total Companies in Liquidation
(Cost $1,308,195) 1,592,091
SHORT-TERM INVESTMENTS (4.03%)
Commercial Paper (3.07%)
$3,500,000 General Electric Capital Services,
5.51%, 1/20/99 3,500,000
3,500,000
Other Short-Term Investments (.96%)
1,091,286 Temporary Investment Fund, Inc. 1,091,286
1,091,286
Total Short-Term Investments
(Cost $4,591,286) 4,591,286
Total Investments in Securities (98.64%)
(Cost $108,334,887) 112,333,477
Other Assets Less Liabilities (1.36%) 1,550,982
Total Net Assets (100%) $113,884,459
*Non-income producing securities
+144A security, representing .61% of net assets
$Illiquid, Board-valued
#Illiquid, Board-valued, payment-in-kind bond
!Non-controlled affiliated issuer
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
GREENSPRING FUND, INCORPORATED
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
ASSETS
Investments, at market value (Cost $108,334,887) $112,333,477
Receivable for securities sold 1,202,298
Interest receivable 769,848
Dividends receivable 286,589
Receivable for Fund shares 4,900
Prepaid expense 841
114,597,953
LIABILITIES
Payable for Fund shares 316,774
Payable for securities purchased 252,088
Due to investment advisor 74,147
Accrued expenses 70,485
713,494
NET ASSETS
Capital stock, $.01 par value, authorized
60,000,000 shares, outstanding, 7,071,920 $113,884,459
NET ASSETS CONSIST OF:
Capital stock at par value 70,719
Paid in capital 113,433,560
Undistributed net investment income 64,811
Accumulated net realized losses (3,683,221)
Unrealized appreciation of investments 3,998,590
$113,884,459
NET ASSET VALUE PER SHARE $ 16.10
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
GREENSPRING FUND, INCORPORATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
NET INVESTMENT INCOME
Income
Interest $ 4,257,892
Dividend 3,328,813
Other income 136,555
7,723,260
Expenses
Investment advisory fees 1,249,348
Administrative 165,678
Transfer agent fees 76,717
Registration fees 41,132
Custody fees 38,925
Professional fees 32,201
Reports to shareholders 23,908
Directors fees 5,500
Fidelity bond 3,378
Total Expenses 1,636,787
Net Investment Income 6,086,473
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS
Net realized loss on investments (3,675,986)
Net change in unrealized depreciation of
investments (31,714,271)
(35,390,257)
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS ($29,303,784)
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
GREENSPRING FUND, INCORPORATED
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
December 31, 1998 December 31, 1997
OPERATIONS:
Net investment income $ 6,086,473 $ 4,251,920
Net realized gain/(loss)
from investments (3,675,986) 5,155,949
Net change in unrealized
appreciation/(depreciation)
of investments (31,714,271) 19,033,538
(29,303,784) 28,441,407
DISTRIBUTION TO SHAREHOLDERS:
Net investment income (6,021,662) (5,151,311)
Net realized gain on investments (383,500) (5,054,261)
Distributions in excess of
net investment income 0 (127,012)
(6,405,162) (10,332,584)
CAPITAL STOCK TRANSACTIONS:
Sale of 2,232,947 and
4,683,274 shares 43,748,839 89,108,348
Distributions reinvested
of 333,475 and 486,121 shares 5,898,814 9,527,618
Redemption of 4,538,952 and
1,433,404 shares (81,268,578) (27,022,113)
(31,620,925) 71,613,853
TOTAL INCREASE(DECREASE) IN
NET ASSETS (67,329,871) 89,722,676
NET ASSETS AT BEGINNING OF PERIOD 181,214,330 91,491,654
NET ASSETS AT END OF PERIOD $113,884,459 $181,214,330
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
GREENSPRING FUND, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
Note 1 - Significant Accounting Policies
Greenspring Fund, Incorporated ("the Fund") is a diversified open-end management
investment company registered under the Investment Company Act of 1940, as
amended.
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
Investment transactions and related investment income - Investment transactions
are recorded on the trade date. Dividend income is recorded on the ex-dividend
date and interest income is recorded on the accrual basis. Dividends determined
to be a return of capital are recorded as a reduction of the cost basis of the
security. Realized gains and losses from investment transactions are reported
on an identified cost basis.
Valuation of investments - Securities listed on a national securities exchange
or the NASDAQ National Market are valued at the last reported sale price on the
exchange of major listing as of the close of the regular session of the New York
Stock Exchange.
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 mature, or have an announced call,
within 60 days will be amortized on a straight line 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 value as determined in good faith by the Advisor as directed by the
Board of Directors.
16
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GREENSPRING FUND, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
Note 1 - Significant Accounting Policies (Con't)
In determining fair value, the Advisor, as directed by the Board of Directors,
considers all relevant qualitative and quantitative information available.
These factors are subject to change over time and are reviewed periodically.
The values assigned to fair value investments are based on available information
and do not necessarily represent amounts that might ultimately be realized,
since such amounts depend on future developments inherent in long-term
investments. Further, because of the inherent uncerainty of valuation,
those estimated values may differ significantly from the values that would
have been used had a ready market of the investments existed, and the
differences could be material.
At December 31, 1998, $1,463,581 or 1.3% of net assets were valued by the
Advisor.
Income Taxes - It is the policy of the Fund to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies.
Accordingly, the Fund intends to distribute substantially all of its taxable
income. Therefore, no federal income tax provision is required.
Dividends and distributions to stockholders - The Fund records dividends and
distributions to stockholders on the ex-dividend date.
Note 2 - Dividends and Distributions of 1998 Taxable Earnings
It is the Fund's policy to declare dividends from net investment income and
distributions from net realized gains as determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
On July 16, 1998, the Board of Directors declared an income dividend and a
long-term capital gains distribution of $.37 and $.04225 per share,
respectively, payable on July 17, 1998 to shareholders of record on July 15,
1998. Additionally, on December 28, 1998, the Board of Directors declared
an income dividend of $.38 per share, payable on December 29, 1998 to
shareholders of record on December 24, 1998.
17
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GREENSPRING FUND, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
Note 2 - Dividends and Distributions of 1998 Taxable Earnings (Con't)
These dividends are either distributed to shareholders or reinvested by the
Fund in additional shares of common stock, which are issued to stockholders.
For those reinvesting the dividend, the number of shares issued is based on
the net asset value per share as of the close of business on the business day
previous to the payment date.
At December 31, 1998, the Fund had capital loss carryforwards of $1,852,590
for federal income tax purposes which may be applied against future net taxable
realized gains of each succeeding year until the earlier of their utilization
or expiration in 2006.
Note 3 - Purchases and Sales of Investments
For the year ended December 31, 1998, purchases and sales of investments, other
than short-term investments, aggregated $107,287,499 and $134,453,072
respectively.
For federal income tax purposes, the cost of investments owned at December 31,
1998 was $108,338,628. Net unrealized appreciation of such investments
aggregated $3,994,849 which was composed of appreciation of $16,378,636 for
those securities having an excess of value over cost, and depreciation of
$12,383,787 for those securities having an excess of cost over value.
Note 4 - Transactions with Related Parties
The Fund's investment advisor, Key Equity Management Corporation ("Key Equity")
is a wholly-owned subsidiary of Corbyn Investment Management ("Corbyn"). Under
an agreement between the Fund and Key Equity, the Fund pays Key Equity a fee
of 0.75% of the first $250 million of average daily net assets, 0.70% of average
daily net assets between $250 million and $500 million and 0.65% of average
daily net assets in excess of $500 million, which is computed daily and paid
monthly. Investment advisory fees incurred for the year ended December
31, 1998 were $1,249,348. At December 31, 1998, investment advisory fees
payable amounted to $74,147.
18
<PAGE>
GREENSPRING FUND, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
Note 4 - Transactions with Related Parties (Con't)
The Fund entered into an Administrative Services Agreement with Corbyn on May
1, 1998. As administrator, Corbyn provides administrative services and
personnel for fund accounting, regulatory reporting and other administrative
matters. As compensation, the Fund pays Corbyn a fee of $2,500 a month plus
0.04% of average daily net assets up to $250 million, 0.03% of average daily
net assets between $250 million and $500 million and 0.025% of average daily
net assets in excess of $500 million, which is computed daily and paid monthly.
Administrative fees incurred for the year ended December 31, 1998 were $60,397.
At December 31, 1998, investors for whom Corbyn Investment Management was
investment advisor held 1,285,548 shares of the Fund's common stock.
Note 5 - Investment in Non-Controlled Affiliates
Affiliated issuers, as defined in the Investment Company Act of 1940, are
issuers in which the Fund held 5% or more of the outstanding voting securities.
19
<PAGE>
GREENSPRING FUND, INCORPORATED
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
Net Asset Value, Beginning of Period $ 20.04 $ 17.24 $ 15.05 $ 13.39 $ 13.96
Income From Investment Operations
Net Investment Income 0.76 0.50 0.74 0.70 0.51
Net Realized and Unrealized Gain/Loss
on Investments (3.91) 3.58 2.60 1.78 (0.12)
Total From Investment Operations (3.15) 4.08 3.34 2.48 0.39
Less Distributions
Net Investment Income (0.75) (0.67) (0.59) (0.68) (0.51)
Net Realized Gain on Investments (0.04) (0.60) (0.56) (0.07) (0.45)
Distributions in Excess of Net Investment Income ( - ) (0.01) ( - ) ( - ) ( - )
Distributions in Excess of Net Realized Gains ( - ) ( - ) ( - ) (0.07) ( - )
Total Distributions (0.79) (1.28) (1.15) (0.82) (0.96)
Net Asset Value, End of Period $ 16.10 $ 20.04 $ 17.24 $ 15.05 $ 13.39
Total Return (15.97%) 23.95% 22.65% 18.79% 2.83%
Ratios/Supplemental Data
Net Assets, End of Period (000's) $113,884 $181,214 $ 91,492 $ 71,839 $ 50,322
Ratio of Expenses to Average Net Assets 1.01% 1.00% 1.04% 1.06% 1.27%
Ratio of Net Investment Income to Average Net Assets 3.77% 3.10% 4.69% 4.97% 4.03%
Portfolio Turnover 71.62% 46.17% 60.74% 65.19% 76.55%
</TABLE>
20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Greenspring Fund, Incorporated
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and changes in net assets and the financial
highlights present fairly, in all material aspects, the financial position of
Greenspring Fund, Incorporated (the "Fund") at December 31, 1998, and the
results of its operations, the changes in its net assets and the financial
highlights for each of the fiscal periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements")
are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 1998, by correspondence with custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 29, 1999
21
<PAGE>
GREENSPRING FUND, INCORPORATED
PERFORMANCE SINCE INCEPTION
CHART
07/01/83 $10,000
12/31/83 11,223
12/31/84 12,692
12/31/85 15,238
12/31/86 17,668
12/31/87 19,304
12/31/88 22,389
12/31/89 24,762
12/31/90 23,149
12/31/91 27,626
12/31/92 32,190
12/31/93 36,906
12/31/94 37,952
12/31/95 45,082
12/31/96 55,291
12/31/97 68,532
12/31/98 57,585
Figures include changes in principal value, reinvested dividends, and capital
gains distributions. Cumulative total return represents past performance.
Past expense limitations increased the Fund's return. Investment returns and
principal value will vary and shares will be worth more or less at redemption
than at original purchase.
Average annual total returns for the one, five and ten year periods ended
December 31, 1998 were -15.97%, 9.31% and 9.91%, 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.
22
<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 Chief Compliance Officer
Michael J. Fusting
Sr. Vice President and Chief Financial Officer
Elizabeth C. Agresta
Secretary and Treasurer
INVESTMENT ADVISOR
Key Equity Management Corporation
2330 West Joppa Road, Suite 108
Lutherville, MD 21093-7207
TRANSFER AGENT
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
(800) 576-7498
CUSTODIAN
PNC Bank
Airport Business Center
200 Stevens Drive, Suite 440
Lester, PA 19113
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
250 W. Pratt Street
Baltimore, MD 21201-2304
LEGAL COUNSEL
DeMartino Finkelstein Rosen & Virga
1818 N Street, N.W., Suite 400
Washington, DC 20036-2492
