GREENSPRING FUND,
INCORPORATED
<LOGO>
THIRD QUARTER REPORT
SEPTEMBER 30, 2000
This report is authorized for distribution
only to shareholders who have received a
copy of the official Prospectus of the
Greenspring Fund, Incorporated.
Greenspring Fund, Incorporated
October 2000
Dear Shareholders:
For value investors, the third quarter of 2000 was one of the best
quarters in several years in terms of absolute performance, yet it was even
better when compared with the performance of managers using other investment
styles. Value investing performed strongly during a period of market turmoil,
as it has historically done. By providing stable, positive performance since
early March, while most investors have experienced volatility and anguish,
practitioners of value investing are starting to win back many of those who had
looked with disdain upon the value concept during the last couple of years.
In this environment the Greenspring Fund, as one would expect,
performed very well. In fact, while the NASDAQ has declined by more than 37%
from its peak on March 10 through October 11, the Greenspring Fund has gained
more than 16%, including the reinvestment of the July dividend. We are happy
that the Greenspring Fund has been able to compile a couple of very good
quarters, but we realize that there is still a lot of work to do before we erase
the memory of the difficult period a couple of years ago.
Recalling the metaphor used in past quarterly letters, the pendulum
has been rapidly swinging from greed to fear for practitioners of growth stock
investing. A year ago, growth investors turned a blind eye toward the many
negatives that were pointed out by fundamental stock analysts. Growth investors
were achieving strong market gains, ignoring "boring," old-fashioned
fundamentals that seemed irrelevant. Almost daily recently, however,
well-managed, fast-growing companies that had previously sold at exorbitant
levels have seen their stock prices tumble, as they issued disappointing
announcements that were not well received by the investment community. Because
so many of these stocks were "priced for perfection" with expectations that
their ambitious business plans would always be met or exceeded, no room for
any disappointment was built into their stock prices. As companies have
announced slowing revenues or earnings growth rates, investors have reacted
quickly and furiously by dumping their stocks. Additionally, this carnage
has caused investors to re-examine other holdings in their portfolios, which
in many cases has resulted in the sale of other high-flying stocks, in the
hopes of getting out prior to any potential disappointing announcements.
Suddenly, it seems that valuation matters again.
1
At the same time, in the universe of value stocks, or in many cases
so-called "old economy" companies, far less robust assumptions were built
into the stock prices. Although company-specific announcements can always
move stocks up or down, value stocks in general have already been beaten
down and have been able to provide positive performance during this
environment. The pendulum in the value universe has certainly begun to move
away from fear in the direction of greed; but while value managers can now be
characterized as being far more optimistic than they were a year ago, they
are a long way from being overconfident.
The recent investing environment has been one in which the performance
of stocks has once again become more closely aligned with underlying
fundamentals of companies. Stocks have been moving up or down for reasons
more easily attributable to fundamental developments than during the 1998-1999
period. During that time, the financial markets were engulfed by mania-like
conditions, the likes of which had not been seen on such a widespread basis
since the Roaring 20's or the "Nifty Fifty" period in the 1960's. Aggressive
investment styles were extremely popular and optimism was the word of the day.
The preachings and warnings by many seasoned investors about the risks in the
market fell on deaf ears. Recently, however, popular opinion now acknowledges
that the "but it's different this time" kind of talk heard a year ago was
misguided. Old-fashioned concepts such as earnings and cash flow apparently
still matter, even in a new age economy. Additionally, the "no price is too
high to pay for a great company" mentality that drove many excellent companies'
stocks into the stratosphere is now proving to have been unsustainable.
Companies such as Cisco Systems, Lucent Technologies, Intel, Microsoft,
QUALCOMM, and Home Depot are still excellent companies, but paying incredibly
inflated prices for their stocks without a logical relationship to their
growth prospects can be a recipe for losing money.
What has happened, has happened. As always, the $64,000 question is
what will happen in the future. Will the investment climate continue to benefit
value over growth? We believe the answer is "absolutely." Does that mean we
believe growth stock investing is dead for a couple of years? No, it does not;
but we believe it will be more difficult. There are future Qualcomms and Yahoos
out there still that will make their early investors an incredible amount of
money. However, there are also quite a few public companies with very
interesting ideas and concepts that will not pan out and will be out of
business in a year or two, leaving their shareholders holding an empty bag.
As a result, we believe that to be successful as a growth stock investor
during the next several years, a much more discriminating approach will be
required than what was necessary during the last couple of years.
Despite a year in which the value style has had far greater success
than growth, the flow of new investment dollars towards growth funds has,
until very recently, continued at a high rate. For example, the Janus family
of mutual funds probably best exemplifies the growth style of investing.
2
Despite the fact that so far this year (through October 11) their well-known
Janus Venture and Janus Twenty funds have decreased in value by 35% and 17%,
respectively, September was the first month since November of 1997 that the
Janus mutual funds have recorded net outflows. Human nature being what it is,
many investors have continued to make investment decisions based upon the
success achieved by these funds during 1998 and 1999, without pausing to
consider whether or not that performance is likely to be repeated any time soon
in the current investment climate.
Because of the extreme, mania-like conditions that existed,
the flows of new investment money toward recent winners became far more
exaggerated than what had been the norm. These conditions led to two
self-perpetuating cycles - one a virtuous cycle, the other a vicious one. In
the growth stock world, good performance by certain investment managers (the
Janus funds being perhaps the highest profile), resulted in additional
investors' dollars being directed towards growth stock managers. These new
funds were put to work by buying more shares of their favorite stocks (because
of their investment philosophy, it did not matter that most of their purchases
were at increasingly higher and higher prices than their original purchases).
As they purchased these same stocks, their prices were pushed higher, which led
to increased flows of new capital from investors, and on and on in a virtuous
cycle. On the other hand, value investors became caught in a vicious cycle
during this mania period. Disappointing performance led to mutual fund
redemptions that had to be funded by selling securities. This increased
selling pressure led to weak stock prices, which hurt performance, which led
to redemptions and on and on. These cycles were intensified well beyond
normal magnitudes by the mania-like conditions, but have now come to an end due
to the recent stellar relative performance by value investors. If the cycles
reverse and money begins to flow back in the direction of the old economy
stocks, it would be very beneficial for value investors.
By no means, however, are we dependent upon an improving flow of
funds to help bolster our current and potential investments. We have been able
to achieve very good performance this year without the wind at our backs, and
we expect to continue to find good investments that are capable of providing
strong performance in a flat general market environment. Investors' infatuation
with "new economy" stocks and neglect of "old economy" securities have created
fertile ground out of which to pick some excellent companies at very
reasonable prices over the last several quarters. Additionally, with the
slowing of the economy, the strength of the dollar relative to other currencies,
and the sharp increase in energy prices, many companies have been announcing
that their earnings will not be as strong as earlier expected. Such
"pre-announcements," as they are called in the investment community, have
resulted in a proliferation of sharp stock declines. We are not eager to buy
these stocks on their initial downdrafts, as it can be dangerous "catching a
falling knife." We prefer to wait for the knife to hit the ground and stabilize
before investing. With the tremendous number of companies issuing such
3
pre-announcements, a lot of "value"-type investments are being created across
all market capitalizations, and we expect that many outstanding investment
opportunities will be generated. For example, during the quarter, we
purchased Honeywell International in the aftermath of a pre-announcement that
had knocked its stock down to attractive levels. Since our purchase,
Honeywell's shares have moved higher and we believe there is much more upside
in the stock as the company regains the confidence of Wall Street.
Value investors, such as the Greenspring Fund, are rebounding
strongly and are moving forward with a renewed confidence. Having gained
valuable insights from the hard-fought lessons of the past couple years, we
have broadened our horizons and are considering sectors and companies that
we might not have considered to have been in our research universe several
years ago. Our goal is to be duly discriminating in our selection process,
yet to be more flexible and open-minded. We are excited about what we believe
to be a very fruitful period in the market for those investors with an
analytical approach, and we are looking forward to reporting continued
success during the balance of the year.
Respectfully,
/s/Charles vK. Carlson
Charles vK. Carlson
President
4
GREENSPRING FUND, INCORPORATED
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2000
COMMON STOCKS (55.26%)
Shares Value
------ -----
Banks - Regional (3.24%)
57,400 John Hancock Bank & Thrift Opportunity Fund $ 455,612
9,000 Mercantile Bankshares Corp. 326,672
14,476 SunTrust Banks, Inc. 721,086
-----------
1,503,370
-----------
Building Materials (0.85%)
10,300 Martin Marietta Materials, Inc. 394,284
-----------
394,284
-----------
Business and Public Services (4.05%)
10,100 *Cendant Corporation 109,837
110,000 *Modis Professional Services, Inc. 570,625
36,500 *Personnel Group of America 114,063
7,000 *Right Management Consultants 80,500
67,700 *Sylvan Learning Systems, Inc. 1,002,806
-----------
1,877,831
-----------
Diversified Natural Gas (5.88%)
3,600 El Paso Natural Gas Corporation 221,850
2,700 Equitable Resources, Inc. 171,112
33,700 Kinder Morgan, Inc. 1,379,594
34,300 Questar Corp. 953,969
-----------
2,726,525
-----------
Electrical Equipment (1.26%)
8,700 Emerson Electric Co. 582,900
-----------
582,900
-----------
5
GREENSPRING FUND, INCORPORATED
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2000
COMMON STOCKS (CON'T)
Shares Value
------ -----
Electric Power Generation (0.55%)
7,000 *NRG Energy Inc. $ 255,500
-----------
255,500
-----------
Engineering Services (0.38%)
22,500 *Michael Baker Corporation 174,375
-----------
174,375
-----------
Healthcare (2.11%)
120,400 *HEALTHSOUTH Corporation 978,250
-----------
978,250
-----------
Industrial Gas (0.59%)
40,000 *Airgas, Inc. 272,500
-----------
272,500
-----------
Insurance (9.84%)
20,300 *Arch Capital Corp. 319,725
44,750 PartnerRe, Ltd. 2,122,828
77,800 UnumProvident Corp. 2,120,050
-----------
4,562,603
-----------
Manufacturing (2.81%)
52,200 *Middleby Corporation 313,200
22,200 Woodward Governor Company 989,288
-----------
1,302,488
-----------
6
GREENSPRING FUND, INCORPORATED
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2000
COMMON STOCKS (CON'T)
Shares Value
------ -----
Multi-Industry (3.76%)
27,500 Honeywell International $ 979,688
77,000 U.S. Industries, Inc. 765,187
-----------
1,744,875
-----------
Natural Gas Transmission/
Distribution (4.54%)
5,500 Chesapeake Utilities Corporation 99,688
2,000 New Jersey Resources 81,250
24,400 Nicor, Inc. 882,975
34,000 Piedmont Natural Gas Company, Inc. 1,041,250
-----------
2,105,163
-----------
Oil and Gas Exploration/ Production (10.33%)
8,190 Anadarko Petroleum 544,307
3,900 Burlington Resources, Inc. 143,569
8,000 *Chieftan International 165,500
15,600 EOG Resources, Inc. 606,450
5,000 *HS Resources, Inc. 168,125
15,800 *Louis Dreyfus Natural Gas 626,075
54,350 Mitchell Energy & Development Corp. 2,534,069
-----------
4,788,095
-----------
Savings Institutions (1.30%)
9,000 Coastal Bancorp, Inc. 160,875
30,000 *ITLA Capital Corp. 444,375
-----------
605,250
-----------
7
GREENSPRING FUND, INCORPORATED
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2000
COMMON STOCKS (CON'T)
Shares Value
------ -----
Software and Services (0.91%)
11,500 *Network Associates $ 260,187
25,000 *Sequoia Software Corporation 161,720
-----------
421,907
-----------
Technology (1.58%)
70,925 *S3, Incorporated 731,414
-----------
731,414
-----------
Telecommunications (0.94%)
14,800 AT & T Corp. 434,750
-----------
434,750
-----------
Waste Services (0.34%)
19,975 *Waste Industries, Inc. 157,303
-----------
157,303
-----------
Total Common Stocks (Cost $18,968,339) 25,619,383
===========
8
GREENSPRING FUND, INCORPORATED
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2000
BONDS (34.54%)
Principal
Amount/
Shares Value
------ -----
Convertible Bonds (30.40%)
$ 250,000 Adaptec, Inc., 4.75%, 2/1/04 $ 208,594
500,000 Cellstar Corp., 5.00%, 10/15/02 175,000
1,268,000 Center Trust Inc., 7.50%, 1/15/01 1,239,470
1,050,000 Dura Pharmaceuticals, 3.50%, 7/15/02 1,021,781
2,839,000 Efficient Networks, 5.00%, 3/15/05 1,816,960
2,125,000 HEALTHSOUTH Corp., 3.25%, 4/1/03 1,779,687
1,350,000 Kellstrom Industries, 5.50%, 6/15/03 580,500
1,230,000 Lechters, Inc., 5.00%, 9/27/01 1,048,575
5,320,000 Network Associates, 0.00%, 2/18/18 2,030,468
3,885,000 Personnel Group of America, 5.75%, 7/1/04 1,932,788
350,000 S3, Incorporated, 5.75%, 10/01/03 316,094
2,450,000 Speedfam - IPEC, Inc., 6.25%, 9/15/04 1,629,250
334,000 Waste Management, 4.00%, 2/1/02 314,238
-----------
14,093,405
-----------
Non-Convertible Bonds (4.14%)
2,334,000 Bay View Capital Corp., 9.125%, 8/15/07 1,917,283
-----------
1,917,283
-----------
Total Bonds (Cost $17,158,014) 16,010,688
===========
COMPANIES IN LIQUIDATION (2.35%)
581,450 *!Hi Shear Industries, Inc. 1,090,219
-----------
Total Companies in Liquidation
(Cost $1,308,195) 1,090,219
===========
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GREENSPRING FUND, INCORPORATED
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2000
SHORT-TERM INVESTMENTS (7.86%)
Principal
Amount Value
------ -----
Commercial Paper (5.18%)
$1,400,000 General Electric Capital Corp.,
6.52%, 10/4/00 $ 1,400,000
1,000,000 American Express, 6.53%, 10/12/00 1,000,000
------------
2,400,000
------------
Other Short-Term Investments (2.68%)
1,242,753 Temporary Investment Fund, Inc. 1,242,753
------------
1,242,753
------------
Total Short-Term Investments
(Cost $3,642,753) 3,642,753
============
Total Investments (100%) (Cost $41,077,301) 46,363,043
Other Assets Less Liabilities (4,625)
------------
Total Net Assets (100%) $46,358,418
============
* Non-income producing securities
! Non-controlled affiliated issuer
10
GREENSPRING FUND, INCORPORATED
PERFORMANCE SINCE INCEPTION
<CHART>
HOW $10,000 INVESTED ON 7/1/83 WOULD HAVE GROWN
7/1/83 $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
12/31/99 59,108
9/30/00 66,290
*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
September 30, 2000 were 15.88%, 8.43% and 10.83%, 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.
11
Greenspring Fund, Incorporated
2330 West Joppa Road, Suite 110
Lutherville, MD 21093
(410) 823-5353
(800) 366-3863
greenspringfund.com
DIRECTORS TRANSER AGENT
Charles vK. Carlson, Chairman PFPC Inc.
William E. Carlson 400 Bellevue Parkway
David T. Fu Wilmington, DE 19809
Michael J. Fusting (800) 576-7498
Michael T. Godack
Richard Hynson, Jr. ADMINISTRATOR
Michael O'Boyle Corbyn Investment Management, Inc.
2330 W. Joppa Road, Suite 108
OFFICERS Lutherville, MD 21093
Charles vK. Carlson
President and Chief Executive Officer CUSTODIAN
PFPC Trust Company
Michael T. Godack 8800 Tinicum Blvd.
Sr. Vice President and Third Floor, Suite 200
Chief Compliance Officer Philadelphia, PA 19153
Michael J. Fusting INDEPENDENT ACCOUNTANTS
Sr. Vice President and PricewaterhouseCoopers LLP
Chief Financial Officer 250 W. Pratt Street
Baltimore, MD 21201-2304
Elizabeth Agresta Swam
Secretary and Treasurer
INVESTMENT ADVISER LEGAL COUNSEL
Corbyn Investment Management, Inc. Kirkpatrick & Lockhart LLP
2330 West Joppa Road, Suite 108 1800 Massachusetts Avenue, N.W.
Lutherville, MD 21093 Washington, DC 20036-1800
