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<PAGE> PAGE 2
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<PAGE> PAGE 3
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SIGNATURE MICHAEL T. GODACK
TITLE SR. VICE PRESIDENT
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Greenspring Fund, Incorporated
In planning and performing our audit of the financial statements and
financial highlights of Greenspring Fund, Inc. (hereafter referred to as the
"Fund") for the year ended December 31, 1999, we considered its internal
control, including control activities for safeguarding securities, in order
to determine our auditing procedures for the purpose of expressing our opinion
on the financial statements and to comply with the requirements of Form N-SAR,
not to provide assurance on internal control.
The management of the Corporation is responsible for establishing and
maintaining internal control. In fulfilling this responsibility, estimates
and judgements by management are required to assess the expected benefits and
related costs of controls. Generally, controls that are relevant to an audit
pertain to the entity's objective of preparing financial statements and
financial highlights for external purposes that are fairly presented in
conformity with generally accepted accounting principles. Those controls
include the safeguarding of assets against unauthorized acquisition, use or
disposition.
Because of inherent limitations in internal control, errors or fraud may
occur and not be detected. Also, projection of any evaluation of internal
control to future periods is subject to the risk that it may become inadequate
because of changes in conditions or that the effectiveness of the design and
operation may deteriorate.
Our consideration of internal control would not necessarily disclose all
matters in internal control that might be material weaknesses under standards
established by the American Institute of Certified Public Accountants. A
material weakness is a condition in which the design or operation of one or
more of the internal control structure components does not reduce to a
relatively low level the risk that misstatements caused by error or fraud in
amounts that would be material in relation to the financial statements and
financial highlights being audited may occur and not be detected within a
timely period by employees in the normal course of performing their
assigned functions. However, we noted no matters involving internal controls
and its operation, including controls for safeguarding securities, that we
consider to be material weaknesses as defined above as of December 31, 1999.
This report is intended solely for the information and use of the Board of
Directors and management of the Fund and the Securities and Exchange
Commission.
PricewaterhouseCoopers LLP
Baltimore, MD
January 28, 2000
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, effective commencing on October 15, 1999, between Corbyn
Investment Management, Inc., a Maryland corporation (the "Advisor") and
Greenspring Fund, Incorporated, a Maryland corporation (the "Fund").
WHEREAS, the Fund is a Maryland corporation organized under Articles of
Incorporation dated October 21, 1982 (the "Articles") and is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"),
as an open-end, diversified management investment company; and
WHEREAS, the Fund wishes to retain the Advisor to render investment advisory
services to the Fund and the Advisor is willing to furnish such services to
the Fund; and
WHEREAS, the Advisor is registered as an investment advisor under the
Investment Advisers Act of 1940, as amended (the "Advisers Act");
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, it is agreed between the Fund and the Advisor as follows:
1. APPOINTMENT. The Fund hereby appoints the Advisor to act as investment
advisor to the Fund for the periods and on the terms set forth in this
Agreement. The Advisor accepts such appointment and agrees to furnish the
services herein set forth, for the compensation herein provided. The Advisor
will furnish, without cost to the Fund, or provide and pay the cost of, such
office facilities, furnishings, and office equipment as may be required by
the Fund.
2. INVESTMENT ADVISORY DUTIES.
(A) Subject to the supervision of the Board of Directors of the Fund,
the Advisor will (i) provide a program of continuous investment management
for the Fund in accordance with the 1940 Act, the Fund's investment
objectives, policies and limitations as stated in the Fund's Prospectus
(the "Prospectus") and Statement of Additional Information included as
part of the Fund's Registration Statement filed with the Securities and
Exchange Commission, as they may be amended from time to time, copies of
which shall be provided to the Advisor by the Fund; (ii) make investment
decisions for the Fund; and (iii) place orders to purchase and sell for the
Fund.
(B) In performing its investment management services to the Fund
hereunder, the Advisor will provide the Fund with ongoing investment
guidance and policy direction, including oral and/or written research,
analysis, advice, statistical and economic data and judgments regarding
individual investments, general economic conditions and trends and long-range
investment policy. The Advisor will determine the securities, instruments,
repurchase agreements, options, futures and other investments and techniques
that the Fund will purchase, sell, enter into or use, and will provide an
ongoing evaluation of the Fund's investments. The Advisor will determine
what portion of the Fund's investments shall be invested in securities and
other assets, and what portion, if any, should be held invested in money
market equivalents or held in cash reserves. Subject to the approval
of the Board of Directors (including a majority of the Fund's Directors who
are not "interested persons" of the Fund as defined in the 1940 Act) and of the
shareholders of the Fund, the Advisor may delegate to a sub-advisor its
duties enumerated in Section 2 hereof. The Advisor shall continue to
supervise the performance of any such sub-advisor and shall report regularly
thereon to the Fund's Board of Directors.
(C) The Advisor shall be responsible for selecting members of securities
exchanges, brokers and dealers (such members, brokers and dealers being
hereinafter referred to as "brokers") for the execution of the Fund's
portfolio transactions consistent with the Fund's brokerage policy and,
when applicable, the negotiation of commissions in connection therewith.
All decisions and placements shall be made in accordance with the following
principles:
(i) Purchase and sale orders will usually be placed with brokers
that are selected by the Advisor as able to achieve "best execution" of
such orders. "Best execution" shall mean prompt and reliable execution
at the most favorable securities price, taking into account the other
provisions hereinafter set forth. The determination of what may constitute
best execution and price in the execution of a securities transaction by a
broker involves a number of considerations, including, without limitation,
the overall direct net economic result to the Fund (involving both price paid
or received and any commissions and other costs paid), the efficiency with
which the transaction is executed, the ability to effect the transaction
at all where a large block is involved, availability of the broker to stand
ready to execute possibly difficult transactions in the future, and the
financial strength and stability of the broker. Such considerations are
judgemental and are weighed by the Advisor in determining the overall reason-
ableness of brokerage commissions.
(ii) In selecting brokers for portfolio transactions, the Advisor
shall take into account its past experience as to brokers qualified to
achieve "best execution", including brokers who specialize in any foreign
securities held by the Fund.
(iii) If the Board of Directors so authorizes the Advisor, the
Advisor may allocate brokerage business to brokers who have provided brokerage
and research services, as such services are defined in Section 28(e) of the
Securities Exchange Act of 1934, as amended (the "1934 Act") for the
Fund and/or other accounts, if any, for which the Advisor exercises
investment discretion (as defined in Section 3(a)(35) of the 1934 Act) and,
as to transactions for which fixed minimum commission rates are not applicable,
to pay a commission for effecting a securities transaction in excess of the
amount another broker would have charged for effecting that transaction, if
the Advisor determines in good faith that such amount of commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker, viewed in terms of either that particular
transaction or the Advisor's overall responsibilities with respect to the
Fund and the other accounts, if any, as to which it exercises investment
discretion. In reaching such determination, the Advisor will not be
required to place or attempt to place a specific dollar value on the research
or execution services of a broker or on the portion of any commission
reflecting either of said services. In demonstrating that such determinations
were made in good faith, the Advisor shall be prepared to show that all
commissions were allocated and paid for purposes contemplated by the Fund's
brokerage policy; that the research services provide lawful and appropriate
assistance to the Advisor in the performance of its investment decision-
making-responsibilities, and that the commissions were within a reasonable
range. Whether commissions were within a reasonable range shall be based
on any available information as to the level of commissions known to be
charged by other brokers on comparable transactions, but there shall be taken
into account the Fund's policies that (a) obtaining a low commission is
deemed secondary to obtaining a favorable securities price, since it is
recognized that usually it is more beneficial to the Fund to obtain a
favorable price than to pay the lowest commission; and (b) the quality,
comprehensiveness and frequency of research studies which are provided
for the Advisor are useful to the Advisor in performing its advisory
services under this Agreement. Research services provided by brokers to the
Advisor are considered to be in addition to, and not in lieu of, services
required to be performed by the Advisor under this Agreement. Research
furnished by brokers through which the Fund effects securities transactions
may be used by the Advisor for any of its accounts, and not all such research
may be used by the Advisor for the Fund. When execution of portfolio
transactions is allocated to brokers trading on exchanges with fixed
brokerage commission rates, account may be taken of various services provided
by the broker.
(iv) Purchases and sales of portfolio securities within the United
States other than on a securities exchange shall be executed with primary
market makers acting as principal, except where, in the judgment of the
Advisor, better prices and execution may be obtained on a commission basis
or from other sources.
(D) The Advisor further agrees that, in performing its duties hereunder, it
will:
(i) comply with the 1940 Act and all rules and regulations
thereunder, the Advisers Act, the Internal Revenue Code (the "Code") and all
other applicable federal and state laws and regulations, and with any applicable
procedures adopted by the Directors;
(ii) use reasonable efforts to manage the Fund so that it will
qualify, and continue to qualify, as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder;
(iii) place orders pursuant to its investment determinations for
the Fund directly with the issuer, or with any broker or dealer, in accordance
with applicable policies expressed in the Fund's Prospectus and/or Statement
of Additional Information and/or in this Agreement and in accordance with
applicable legal requirements;
(iv) furnish to the Fund whatever statistical information the Fund
may reasonably request with respect to the Fund's assets or contemplated
investments. In addition, the Advisor will keep the Fund and its Directors
informed of developments materially affecting the Fund's investments and
shall, on the Advisor's own initiative, furnish to the Fund from time to
time whatever information the Advisor believes appropriate for this purpose;
(v) make available to the Fund, promptly upon its request, such
copies of the Advisor's investment records and ledgers with respect to the
Fund as may be required to assist the Fund in its compliance with applicable
laws and regulations. The Advisor will furnish the Directors with such
periodic and special reports regarding the Fund as they may reasonably request;
and
(vi) immediately notify the Fund in the event that the Advisor or
any of its affiliates (a) becomes aware that it is subject to a statutory
disqualification that prevents the Advisor from serving as investment advisor
pursuant to this Agreement; or (b) becomes aware that it is the subject of an
administrative inquiry, proceeding or enforcement action by the Securities and
Exchange Commission ("SEC") or other regulatory authority. The Advisor further
agrees to notify the Fund immediately of any material fact known to the Advisor
respecting or relating to the Advisor that is not contained in the Fund's
Registration Statement, or any amendment or supplement thereto that may
reasonably be required to be disclosed therein, and of any statement contained
therein that becomes untrue in any material respect.
3. ALLOCATION OF CHARGES AND EXPENSES. Except as otherwise
specifically provided in this Section 3, the Advisor shall pay the
compensation and expenses of all of its directors, officers and employees
who serve as officers and executive employees of the Fund (including the
Fund's share of payroll taxes for such persons), and the Advisor shall make
available, without expenses to the Fund, the service of its directors, officers
and employees who may be duly-elected officers of the Fund, subject to their
individual consent to serve and to any limitations imposed by law.
The Advisor shall not be required to pay any expenses of the Fund other
than those specifically allocated to the Advisor in this Section 3. In
particular, but without limiting the generality of the foregoing, the Advisor
shall not be responsible, except to the extent of the reasonable compensation
of such of the Fund's employees as are officers or employees of the Advisor
whose services may be involved, for the following expenses of the Fund;
organization and certain offering expenses of the Fund (including out-of-
pocket expenses, but not including the Advisor's overhead and employee costs);
fees payable to the Advisor and to any other Fund advisors or consultants;
legal expenses; auditing and accounting expenses; interest expenses; telephone,
telefax, facsimile, postage and other communications expenses; taxes and
governmental fees; fees, dues and expenses incurred by or with respect to
the Fund in connection with membership in investment company trade
organizations; costs of insurance relating to fidelity coverage for the Fund's
officers and employees; fees and expenses of the Fund's custodian, any
sub-custodian, transfer agent, registrar, or dividend disbursing agent;
payments to the Advisor for maintaining the Fund's financial books and
records and calculating the daily net asset value pursuant to Section 4 hereof,
other payments for portfolio pricing or valuation services to pricing agents,
accountants, bankers and other specialists, if any; expenses of preparing
share certificates; other expenses in connection with the issuance, offering,
distribution, sale or redemption of securities issued by the Fund; expenses
relating to investor relations; expenses of registering and qualifying shares
of the Fund for sale; freight, insurance and other charges in connection
with the shipment of the Fund's portfolio securities; brokerage commissions
or other costs of acquiring or disposing of any portfolio securities or other
assets of the Fund or of entering into other transactions or engaging in any
investment practices with respect to the Fund; expenses of printing and
distributing Prospectuses, Statements of Additional Information, reports,
notices and dividends to stockholders; costs of stationery; any litigation
expenses; costs of stockholders' meetings; the compensation and all expenses
(specifically including travel expenses relating to the Fund's business) of
officers, directors and employees of the Fund who are not officers or
employees of the Advisor, and travel expenses (or an appropriate portion
thereof) of officers or directors of the Fund who are officers, directors or
employees of the Advisor to the extent that such expenses relate to attendance
at meetings of the Board of Directors of the Fund with respect to matters
concerning the Fund, or any committees thereof or advisors thereto.
4. COMPENSATION. As compensation for the services provided and expenses
assumed by the Advisor under this Agreement, the Fund will pay the Advisor
at the end of each calendar month an advisory fee as set forth in Schedule A
hereto. The advisory fee is computed daily as a percentage of the Fund's
net assets. The "net assets" of the Fund shall mean the average of the
values placed on the Fund's net assets as of 4:00 p.m. (Eastern time) on each
day on which the net asset value of the Fund is determined consistent with
the provisions of Rule 22c-1 under the 1940 Act or, or if the Fund lawfully
determines the value of its net assets as of some other time on each business
day, as of such other time. The value of net assets of the Fund shall always
be determined pursuant to the applicable provisions of the articles and the
Registration Statement. If, pursuant to such provisions, the determination
of net assets value is suspended for any particular business day, then for the
purposes of this Section 4, the value of the net assets of the Fund as last
determined shall be deemed to be the value of its net assets as of the close
of regular trading on the New York Stock Exchange, or as of such other time
as the value of the net assets of the Fund's securities may lawfully be
determined, on that day. If the determination of the net asset value of the
shares of the Fund has been so suspended for a period including any month
when the Advisor's compensation is payable at the end of such month, then
such value shall be computed on the basis of the value of the net assets of the
Fund as last determined (whether during or prior to such month). If the Fund
determines the value of the net assets more than once on any day, then the last
such determination thereof on that day shall be deemed to be the sole
determination thereof on that day for the purposes of this Section 4.
In the event that the Advisor's gross compensation hereunder shall, when
added to the other expenses of the Fund, cause the aggregate expenses of the
Fund to exceed the maximum expenses permitted under the lowest applicable
expense limitation established pursuant to the statutes or regulations of
any jurisdiction in which the shares of the Fund may be qualified for offer
and sale, the total compensation paid or payable to the Advisor shall be
reduced (but not below zero), to the extent necessary to cause the Fund not
to exceed such expense limitation. Except to the extent that such
reduction has been reflected in lowered monthly payments to the Advisor, the
Advisor shall refund to the Fund the amount by which the total of payments
received by the Advisor are in excess of such expense limitation as promptly
as practicable after the end of such fiscal year, provided that the Advisor
shall not be required to pay the Fund an amount greater than the fee otherwise
payable to the Advisor in respect of such year. As used in this Section 4,
"expenses" shall mean those expenses inlcuded in the applicable expense
limitation having the broadest specifications thereof and "expense limitation"
shall mean a limitation on the maximum annual expenses which may be incurred by
an investment company as determined by applicable law. The words "lowest
applicable expense limitation" shall be deemed to be that which results in the
largest reduction of the Advisor's compensation for any fiscal year of the Fund;
provided, however, that nothing in this Agreement shall limit the Advisor's
fees if not required by an applicable statute or regulation referred to above
in this Section 4.
5. BOOKS AND RECORDS. The Advisor agrees to maintain such books and
records with respect to its services to the Fund as are required by Section
31 of the 1940 Act, and rules adopted thereunder, and by other applicable
legal provisions, and to preserve such records for the periods and in the
manner required by that Section, and those rules and legal provisions. The
Advisor also agrees that records it maintains and preserves pursuant to Rules
31a-1 and 31a-2 under the 1940 Act in connection with its services hereunder
are the property of the Fund and will be surrendered promptly to the Fund
upon its request. The Advisor further agrees that it will furnish to
regulatory authorities having the requisite authority any information or
reports in connection with its services hereunder which may be requested in
order to determine whether the operations of the Fund are being conducted in
accordance with applicable law and regulations.
6. STANDARD OF CARE AND LIMITATION OF LIABILITY. The Advisor shall
exercise its best judgment in rendering the services provided by it under
this Agreement. The Advisor shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the Fund or the holders of the
Fund's shares in connection with the matters to which this Agreement relates,
provided that nothing in this Agreement shall be deemed to protect or purport
to protect the Advisor against any liability to the Fund or to holders of the
Fund's shares to which the Advisor would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or by reason of the Advisor's directors, employees
or other affiliates of the Advisor performing services with respect to the
Fund.
7. SERVICES NOT EXCLUSIVE. It is understood that the services of the
Advisor are not exclusive, and that nothing in this Agreement shall prevent
the Advisor from providing similar services to other investment companies or
to other series of investment companies, or from engaging in other activities,
provided such other services and activities do not, during the term of the
Agreement, interfere in a material manner with the Advisor's ability to meet
its obligations to the Fund hereunder. When the Advisor recommends the purchase
or sale of the same security for the Fund, it is understood that in light of
its fiduciary duty to the Fund, such transactions will be executed on a basis
that is fair and equitable to the Fund. In connection with purchases or
sales of portfolio securities for the account of the Fund, neither the
Advisor nor any of its directors, officers or employees shall act as a
principal or agent or receive any commission, provided that portfolio
transactions for the Fund may be executed through firms affiliated with the
Advisor, in accordance with applicable legal requirements. If the Advisor
provides any advice to its clients concerning the shares of the Fund, the
Advisor shall act solely as investment counsel for such clients and not in
any way on behalf of the Fund.
8. DURATION AND TERMINATION. This Agreement shall continue until May 1,
2000, and thereafter shall continue automatically for successive annual periods,
provided such continuance is specifically approved at least annually by (a)
the Directors or (b) a vote of a "majority" (as defined in the 1940 Act)
of the Fund's outstanding voting securities (as defined in the 1940 Act),
provided that in either event the continuance is also approved by a majority
of the Directors who are not "interested persons" (as defined in the 1940 Act)
of any party to this Agreement, by vote cast in person at a meeting called for
the purpose of voting such approval. Notwithstanding the foregoing, this
Agreement may be terminated (a) at any time without penalty by the Fund upon
the vote of a majority of the Directors or by vote of the majority of the Fund's
outstanding voting securities, upon sixty (60) days written notice to the
Advisor or (b) by the Advisor at any time without penalty, upon sixty (60)
days written notice to the Fund. Notwithstanding the foregoing, this
Agreement will terminate automatically in the event of its assignment (as
defined in the 1940 Act).
9. AMENDMENTS. No provision of this Agreement may be changed, waived,
discharged, or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall
be effective until approved by an affirmative vote of (a) a majority of the
outstanding voting securities of the Fund, and (b) a majority of the Directors,
including a majority of Directors who are not interested persons of any
party to this Agreement, cast in person at a meeting called for the purpose
of voting such approval, if such approval is required by applicable law.
10. MISCELLANEOUS.
A. This Agreement shall be governed by the laws of the State of Maryland,
provided that nothing herein shall be construed in a manner inconsistent with
the 1940 Act, the Advisers Act, or rules, regulations or orders of the SEC
thereunder.
B. The captions of this Agreement are included for convenience only and in
no way define or limit any of the provisions hereof or otherwise affect their
construction or effect.
C. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected hereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable.
D. Nothing herein shall be construed as constituting the Advisor as an
agent of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of October 14, 1999.
GREENSPRING FUND, INCORPORATED
By: Michael J. Fusting
Its: Sr. Vice President
CORBYN INVESTMENT MANAGEMENT, INC.
By: Charles vK. Carlson
Its: President
SCHEDULE A
TO THE INVESTMENT ADVISORY AGREEMENT
DATED OCTOBER 15, 1999 BETWEEN
GREENSPRING FUND, INCORPORATED AND
CORBYN INVESTMENT MANAGEMENT, INC.
Pursuant to Section 4 of this Agreement, the Fund shall pay the Advisor, at
the end of each calendar month, compensation computed daily at an annual rate
of the Fund's average daily net assets as follows:
AVERAGE DAILY NET ASSETS FEE
$0 to $250,000,000 0.75%
$250,000,000 to $500,000,000 0.70%
in excess of $500,000,000 0.65%
