You are on page 1of 6

October 2010

Greenspring Fund
Performance for the
Periods Ended
Dear Fellow Shareholders: September 30, 2010
Quarter 4.77%
We are pleased to report that the Greenspring Fund once Year to Date 5.46%
again posted positive results during the third quarter of 1 Year 8.47%
2010. Spurred by positive performances of all the asset 3 Years* 1.96%
classes — common stocks, corporate bonds and 5 Years* 5.08%
convertible bonds — in which the Fund was invested, the 10 Years* 7.56%
15 Years* 7.85%
Greenspring Fund gained 4.77 % during the quarter. The 20 Years* 9.19%
Fund’s third quarter gain more than compensated for the Since inception on 7/1/83* 10.09%
slight decline experienced during the second quarter of Expense Ratio** 1.08%
the year. Performance results for several time periods are
* annualized.
shown in the accompanying chart. **as stated in Prospectus dated 5-1-10.
See note on last page of letter.
The stock and bond markets as a whole performed very Performance data quoted represents past
well during the third quarter of 2010. In an environment performance; past performance does not
of increasing uncertainty regarding the strength of the guarantee future results. The investment
return and principal value of an
economic recovery, evolving expectations about the investment will fluctuate so that an
results of the political elections, the possibility of investor’s shares, when redeemed, may be
forthcoming alterations of tax policy, and looming worth more or less than their original
changes in government regulations, the Federal Reserve cost. Current performance of the Fund
continued to let its spigot of liquidity pour forth may be lower or higher than the
performance quoted. Performance data
unabatedly. current to the most recent month end may
be obtained by calling 1-800-366-3863 or
Motivated in large part by the lingering pain caused by visiting the Fund’s web site. The Fund
the severe losses suffered during 2008, individual imposes a 2.00% redemption fee for
investors continued to flee stocks and flock to bonds. shares held 60 days or less. Performance
data does not reflect the redemption fee. If
Continuing a trend dating back to 2008, investors in reflected, total returns would be reduced.
mutual funds moved $43 billion out of equity funds
during the third quarter of 2010, while directing $87 The Fund’s investment objec-
billion in new investment dollars into fixed-income tives, risks, charges and expenses
funds. With the extremely low current interest rate must be considered carefully
environment, domestic corporations have been very before investing. The Prospectus
willing to accommodate investors’ voracious demand for contains this and other infor-
bonds, with corporations selling $612 billion in mation about the Fund, and it
investment-grade bonds and a record $190 billion in less- may be obtained by calling
than-investment-grade bonds so far this year. Due to the 1-800-366-3863 or visiting
ease with which they have been able to tap the capital
markets, and their reluctance to spend money on capital Please read the Fund’s
expenditures, acquisitions, or research/development Prospectus carefully before
projects while the economic environment remains so investing.
uncertain, corporations are sitting on large pools of cash. At the end of the quarter, industrial
companies in the Standard & Poor’s 500 Index held a record $843 billion in cash reserves, an
amount equivalent to more than 11% of their stock market value.


In order of magnitude, the securities that had the largest impact on the Greenspring Fund’s
performance during the third quarter of 2010 were the common stock investments in FTI
Consulting, Verizon Communications, Harmonic Inc., Assurant, Inc., and Prestige Brands. With
the exception of FTI Consulting, all of these investments generated positive performance for the
Greenspring Fund during the quarter.

FTI Consulting, Inc.

The Fund has owned shares of FTI Consulting in varying amounts since September of 2003 and
we have discussed the Fund’s investment in FTI on many occasions in previous shareholder
letters, most recently in both the first and second quarter 2010 letters. FTI Consulting provides
consulting services on critical financial, management and legal issues to major corporations,
financial institutions and law firms throughout the world. FTI has a history of generating strong
% of Net profit margins and significant
Greenspring Fund Assets free cash flow while requiring
Top 10 Holdings as of very little capital investment.
9/30/10 Over the last several years, the
Mirant North America 7.375% Corporate Bonds 3.5% Company invested its free cash
FTI Consulting, Inc. 3.3% flow in growth opportunities
PartnerRe Ltd. 2.9%
Ralcorp Holdings, Inc. 2.8%
including a number of
Polypore, Inc. 8.75% Corporate Bonds 2.8% acquisitions that expanded
PPL Corporation 2.8% existing business lines and
Michael Baker Corp. 2.8% added new consulting services.
Assurant, Inc. 2.7% As discussed in the Fund’s
j2 Global Communications, Inc. 2.5% second quarter letter, FTI’s
Leucadia National Corp. 7% Corporate Bonds 2.4% stock price declined
significantly early in the third quarter after FTI issued a disappointing earnings forecast
indicating that earnings would be less than expected for the second quarter and the remainder of
2010. Our analysis indicated that the reduction in estimated 2010 earnings was largely related to
a shift in the mix between FTI’s core restructuring and advisory business that has historically
thrived during challenging economic conditions and FTI’s pro-cyclical operations, which have
not performed as well as anticipated due to the sluggish economic recovery. We believed that
the magnitude of the stock price decline (from $43.59 to $34.69 during the quarter) more than
reflected the lower earnings expectations, and we took advantage of the price decline to purchase
additional shares of FTI. The positive long-term prospects for FTI remain very strong.
Additionally, in the near term, FTI could benefit from additional acquisitions and/or share

Verizon Communications

Another strong contributor to the Fund’s performance was Verizon Communications, a well-
known provider of wireline and wireless services. We had purchased shares of Verizon at a
discount to our perceived fair value as we felt the market had been unduly concerned about the
security of its dividend payment, declining wireless voice pricing, lackluster new subscriber
growth, and continued pressures on the legacy wireline business. The stock rose during the
quarter as Verizon continued to deliver strong results, calming some of the market’s fears. Some
recent positive developments include steady growth in data applications (smartphones, etc.),
which have largely offset declines in wireless voice pricing. Additionally, while the wireline
business has continued to shrink as the number of traditional telephone lines continues to
decline, Verizon divested some of its least desirable wireline assets to Frontier Communications
Corp. and continues to restructure its remaining wireline business to help maximize profits and
cash flows. Also, strong market penetration of its FiOS digital TV offering and growing
anticipation of an early 2011 iPhone release gave investors hope for future growth. Investors
became more confident in the sustainability of the dividend at its current rate as the outlook for
free cash flow generation from both wireline and wireless businesses remains very strong. After
the stock climbed in price during the quarter and reached what we believed to be fair value, we
closed our position in Verizon. The Greenspring Fund realized attractive capital appreciation on
its Verizon investment in addition to having received several quarterly dividend payments.

Harmonic, Inc.

Harmonic is a leading provider of niche

video delivery solutions that allow Greenspring Fund
television service providers to upgrade Portfolio Allocation
their networks and provide viewers with as of September 30, 2010
richer and more sophisticated services.
Domestic and international cable and
satellite providers rely on Harmonic’s Cash
market-leading products to differentiate Common
themselves through the expansion of Stocks
high definition television, video-on-
demand, digital video recording, 3-D
television, and mobile video
applications. Corporate
Bonds Convertible
Harmonic’s stock rose during the 26% Bonds
quarter after investors applauded strong 15%
second quarter earnings and began to
grasp the numerous positive attributes
of the recently proposed acquisition of Omneon Inc., a privately-held provider of equipment used
by media companies to prepare, store, and produce video content. Second quarter results easily
exceeded market expectations, driven by continued strong revenue growth as customers continue
to upgrade their viewing features and Harmonic achieved market share gains. These better-than-
expected sales results combined with strong profit margins to drive earnings and free cash flow
results that surpassed analysts’ expectations. Additionally, management’s discussions with the
investment community caused them to realize that not only should the acquisition be accretive to
earnings per share, but the merger also created what we view as a unique company capable of
providing end-to-end content production and delivery services to the media and
telecommunications industries. We added to our holdings of Harmonic during the third quarter.
We continue to hold our position, as we believe that the stock price is still inexpensive relative to
the overall earnings potential of the combined company, and we look forward to following the
progress of the acquisition integration.

With respect to the stock market, we continue to search for stocks that we believe are
undervalued and possess company-specific catalysts that should cause the value to be realized.
We also target companies with solid balance sheets that have been generating significant
amounts of free cash flow and have managements with proven track records of wisely deploying
that free cash flow for shareholders’ benefit. With the uneven and uncertain economic recovery,
we envision a stock market that will continue to be volatile, providing us opportunities to bolster
the Fund’s equity positions during market downturns, and lighten our exposure after market

With the Fund’s fixed income investments, we are continuing to purchase bonds of relatively
short duration. Short-term interest rates have declined, with the yield on the 2-year U.S. Treasury
note dropping to 0.43% at the end of the third quarter, down from 0.63% at the start of the
quarter. However, we have continued to find new bond investments that provide generous
spreads above U.S. Treasury rates, without stretching to longer-dated bonds that are more
susceptible to interest rate volatility and without compromising our standards regarding credit
worthiness. Our focus remains on lower-rated bonds of companies that we have thoroughly
researched and are quite confident in the company’s ability to comfortably service its debt.

Purchases of Securities:

The Greenspring Fund’s largest purchases during the quarter were 1) Affymetrix, Inc.
convertible bonds; 2) GameStop Corp. corporate bonds; 3) Polypore International corporate
bonds; 4) Mirant North America corporate bonds and 5) Integra LifeSciences convertible bonds.
Within our common stock portfolio, the largest purchases were additions to our holdings of
Michael Baker Corp., NTELOS Holdings Corp., Ralcorp Holdings and an initial purchase of Red
Robin Gourmet Burgers. A brief discussion of the three largest purchases follows.

1) Affymetrix, Inc. convertible bonds 3.5% due January 15, 2038 – Affymetrix, Inc. is a
manufacturer of genomic analysis tools used by pharmaceutical and biotechnology companies
for use in the research and development of pharmaceuticals and by academic, government and
other research institutes in studying the relationship between genes and human health. Although
a relatively small company, Affymetrix sells a valuable computerized instrument. Once
installed, 85% of its revenue stream comes from sales of consumable supplies necessary for the
continued use of these instruments in the analysis of genes.

The Affymetrix convertible bonds have a “put” feature that allows holders of the bonds to sell
their bonds back to the Company at a price of par ($100) on specific dates, with the first such
date being January 15, 2013. From the date and price that the Fund purchased the majority of its
bonds, we should realize an annualized yield to put of more than 7% if we sell the bonds back to
Affymetrix on the first put date, which was our intention at the time of purchase. Additionally,
the bonds have a “change-in-control” put, which gives the holders the right to sell their bonds to
an acquiring company at a price of par in the event Affymetrix is purchased. If such an
acquisition were to occur prior to the first put date, then the annualized total return would likely

2) GameStop Corp. corporate bonds 8% due October 1, 2012 – GameStop Corp. is the world’s
leading retailer of new and used video games and entertainment software. Although many other
retailers sell video games, GameStop is the largest retailer whose principal product offering is
video games. GameStop has a strong balance sheet, a market-leading position, and generates
significant cash flow from operations. This bond issue is the only long-term debt that the
Company has outstanding. With its free cash flow, the Company has repurchased a significant
portion of its bonds through two separate early redemptions, while also repurchasing shares of its
common stock in the market. We believe that GameStop will continue to retire its debt prior to
its maturity date. Either way, we should attain a very attractive short-term total return.

3) Polypore International corporate bonds 8.75% due May 15, 2012 – Polypore International is a
manufacturer of high technology filter products used in batteries, healthcare products and highly
specialized industrial applications. The Company’s filtration membranes and membrane
separators perform critical functions in many specialized applications. Polypore’s business is
diversified and less sensitive to economic vicissitudes. Although the Company has a somewhat
leveraged balance sheet, Polypore’s profits have been accelerating recently and it generates a
significant amount of free cash flow. The Company will most likely access the capital markets
to refinance this fairly high cost piece of its debt, but first plans to settle an outstanding antitrust
case in which it is involved. In the meantime, bondholders have continued to benefit from the
high coupon rate of this bond. Regardless of whether the Company calls the bond for
redemption in the near future or not, we should receive a very attractive total return, especially
considering the current low interest rate environment.

Sales of Securities:

As in recent quarters, many of the Fund’s “sales” of securities were of fixed income securities
that were subject to corporate actions such as redemptions, puts or maturities. However, in the
past quarter, we also liquidated two common stock holdings — Cogent, Inc. and Verizon
Communications. The Greenspring Fund’s five largest sales during the quarter were: 1)
SunPower Corp convertible bonds; 2) Cogent, Inc. common stock; 3) Verizon Communications
common stock; 4) School Specialty convertible bonds and 5) Whiting Petroleum corporate

The SunPower Corp. and School Specialty convertible bonds were “put” back to the issuing
companies in accordance with our original intentions at the times of purchase. Both sales
concluded successful short-term investments for the Greenspring Fund. The Whiting Petroleum
bonds were called for early redemption by the Company, also concluding a successful short-term
investment for the Greenspring Fund. The sale of the Fund’s holdings in Verizon
Communications was due to the stock price reaching our target for fair value as discussed earlier
in the letter. A discussion of the Fund’s sale of its holdings in Cogent, Inc. follows.

Cogent, Inc. – We discussed our reasoning for purchasing shares of Cogent in the quarterly letter
for the second quarter of 2010, a period during which it was the Fund’s third largest purchase. In
that letter, we noted Cogent’s attractive product offering in the field of large-scale fingerprint
and biometric identification systems. Also discussed was Cogent’s high return/high cash flow
business model that had enabled the Company to amass approximately $500 million (more than
$5.50 per share) in cash on its balance sheet. Apparently, others noted these attributes as well, as
Cogent received, and agreed to, a takeover proposal from 3M in late August of 2010. The price
that was agreed to, $10.50 per share, was a bit disappointing to us, as we believed that the
Company was worth significantly more. However, it appeared that a higher bid from a company
acceptable to Cogent was unlikely to surface. As Cogent’s stock was trading in the marketplace
at levels above the agreed-upon takeout price (in hopes of a higher bid), we sold all of the Fund’s
shares. Even though the take-out price was at a lower level than what we considered to be fair,
the Fund still earned a very attractive return on its investment in Cogent, shares of which were
first purchased in April of 2010.

In early October of 2010, the Greenspring Fund once again reached a record high price level, as
adjusted for all dividends and distributions, pushing through earlier record highs set in the spring
of 2010. This is a testament to the Fund’s investment philosophy of striving to staunchly
preserve capital during difficult market conditions, while seeking to build capital in a steady,
consistent fashion during times that are more constructive. The Greenspring Fund’s goal is to
provide all of our shareholders with investment performance over an entire market cycle that
meets or exceeds the performance of the overall market, and strive to achieve that return with far
less volatility for our shareholders. We are pleased that the Fund is once again in record high
territory, and we look forward to reporting continued progress as the year develops.


Charles vK. Carlson Michael J. Fusting

Portfolio Manager Co-Chief Investment Officer
Co-Chief Investment Officer

**Total Annual Fund Operating Expenses for the Fund will not correlate to the Ratio of Expenses to Average Net Assets shown in the Fund’s
most recent Annual Report and in the Financial Highlights section of this Prospectus, which reflects the operating expenses of the Fund and does
not include acquired fund fees and expenses.

Mutual fund investing involves risk. Principal loss is possible. Small-capitalization companies tend to have limited liquidity and greater price
volatility than large-capitalization companies. Investments by the Fund in lower-rated and non-rated securities present a greater risk of loss to
principal and interest than higher-rated securities. Investments in debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities.

Opinions expressed are subject to change, are not guaranteed and should not be considered recommendations to buy or sell any security. Fund
holdings and/or sector allocations are subject to change at any time and are not recommendations to buy or sell any security. Current and future
portfolio holdings are subject to risk.

The S&P 500 Index is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general.
You can not invest directly in an index. Free cash flow measures the cash generating capability of a company by adding certain non-cash charges
(e.g. depreciation and amortization) to earnings and subtracting recurring capital expenditures. Duration is a commonly used measure of the
potential volatility of the price of a debt security, or the aggregate market value of a portfolio of debt securities, prior to maturity. Securities with a
longer duration generally have more volatile prices than securities of comparable quality with a shorter duration.

Distributed by Quasar Distributors, LLC 11/10