Diamond Hill All Cap Select Fund NCSR Certified annual shareholder report (management investment company)

United States
Securities And Exchange Commission

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES

Investment Company Act file number 811-8061

Diamond Hill Funds

(Exact name of registrant as specified in charter)

325 John H. McConnell Boulevard, Suite 200, Columbus, Ohio 43215

(Address of principal executive offices) (Zip code)

James F. Laird, Jr., 325 John H. McConnell Boulevard, Suite 200, Columbus, Ohio 43215

(Name and address of agent for service)

Registrant’s telephone number, including area code: (614) 255-3333

Date of fiscal year end: 12/31

Date of reporting period: 12/31/10

Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection and policymaking roles.

A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.

Item 1. Reports to Stockholders.

Diamond Hill Funds annual Report

Table of Contents


Letter to Shareholders			1

Mission Statement, Pledge, and Fundamental Principles			3

Management Discussion of Fund Performance

Diamond Hill Small Cap Fund			6

Diamond Hill Small-Mid Cap Fund			9

Diamond Hill Large Cap Fund			11

Diamond Hill Select Fund			13

Diamond Hill Long-Short Fund			15

Diamond Hill Financial Long-Short Fund			17

Diamond Hill Strategic Income Fund			19

Financial Statements

Schedules of Investments			21

Statements of Assets & Liabilities			34

Statements of Operations			36

Statements of Changes in Net Assets			37

Schedule of Capital Share Transactions			39

Financial Highlights			40

Notes to Financial Statements			47

Report of Independent Registered Accounting Firm			55

Other Items			56

Schedule of Shareholder Expenses			57

Management of the Trust			59

Notice of Privacy Policy			60
EX-99.A.1
EX-99.CERT
EX-99.906CERT

CAUTIONARY STATEMENT

At Diamond Hill, we pledge that, “we will communicate with our clients about our investment performance in a manner that will allow them to properly assess whether we are deserving of their trust.” Our views and opinions regarding the investment prospects of our portfolio holdings and Funds are “forward looking statements” which may or may not be accurate over the long term. While we believe we have a reasonable basis for our opinions, actual results may differ materially from those we anticipate. Information provided in this report should not be considered a recommendation to purchase or sell any particular security.

You can identify forward looking statements by words like “believe,” “expect,” “anticipate,” or similar expressions when discussing prospects for particular portfolio holdings and/or one of the Funds. We cannot assure future results. You should not place undue reliance on forward-looking statements, which speak only as of the date of this report. We disclaim any obligation to update or alter any forward-looking statements, whether as a result of new information, future events, or otherwise. This material is not authorized for distribution to prospective investors unless preceded or accompanied by a Prospectus. Please read the Prospectus carefully for a discussion of fees, expenses, and risks. Current performance may be lower or higher than that quoted herein. You may obtain a current copy of the Prospectus or more current performance information by calling 1-888-226-5595 or at Diamond Hill’s website (www.diamond-hill.com).

Letter to Shareholders

Dear Fellow Shareholders:

We are pleased to provide you with this year-end update for the Diamond Hill Funds. In recent years, U.S. stocks have increasingly moved in lock step with macro-economic forces, reacting to the headline news of the day. Despite this macro view by the markets, our investment process has not and will not change. In our view, when stocks move for an extended period of time based on factors other than fundamental valuation, it generally creates investment opportunities. We continue to believe that security selection through the independent valuation of businesses and the discipline to only purchase (short) securities selling at a discount (premium) to our estimate of intrinsic value are the keys to a successful long-term track record.

2010 Financial Markets

U.S. financial markets rose again in 2010, in part reflecting a continuation of the unprecedented fiscal and monetary stimulus enacted in 2009. The S&P 500 Index returned 15.1%, including dividends, in 2010; however, there were several ups and downs along the way.

	•		By the end of the first quarter, U.S. stocks had posted solid results with a 5.4% total return for the S&P 500 Index. Corporate earnings reports were strong and the economic news was more positive than negative.

	•		During the second quarter, markets fell as the Greek debt crisis deepened, investor concern about China’s efforts to slow its economy grew, uncertainty regarding proposed regulatory reform and the impact of the oil spill in the Gulf of Mexico increased, and investors worried about the potential for a double dip recession. The S&P 500 Index declined 11.4%, including dividends.

	•		In the third quarter, the markets received a boost when Federal Reserve Chairman Ben Bernanke gave a speech opening the door for a second round of quantitative easing by the Fed (QE2) through the purchase of Treasury securities. Keeping yields artificially low encourages investors to buy riskier assets such as corporate bonds and stocks. The S&P 500 Index increased 11.3% during the third quarter and posted the strongest September return since 1939.

	•		The final boost for the markets came in mid-December as Congress approved two more years of Bush-era tax cuts and a 2% reduction in social security payroll taxes in 2011. The S&P 500 Index finished the year with a fourth quarter total return of 10.8%.

The U.S. financial markets were generally led higher by lower quality, cyclical companies at the lower end of the market capitalization range.

Market Outlook

The worldwide economic recovery continues to be led by China and other emerging economies, while the mature economies (such as the U.S. and Europe) continue to require fiscal and monetary stimulus, pulling forward economic activity at the cost of future growth. We believe that U.S. Treasury securities remain overvalued and that steps currently being taken by monetary authorities to prevent near term deflation are likely to increase the risk and magnitude of inflation in the future.

Reflecting our outlook, our strategies are currently emphasizing higher quality companies with the ability to withstand the reversal of monetary and fiscal stimulus in the years ahead. In our opinion, equities appear attractive relative to fixed income securities, and in all of our equity strategies we are finding more value in companies at the higher end of their respective market capitalization ranges. We continue to emphasize companies with stable business models, competitive positioning, quality management teams and strong balance sheets. From current levels, our expectation is for slightly below average equity market returns over the next five years.



Diamond Hill Funds Annual Report December 31, 2010

Page 1

Among the many challenges for active money managers in recent years was the high correlation of U.S. stocks, which increasingly moved in lock step with macro-economic forces. In part due to these high correlations, a similar phenomenon to the indexing dominance of the late 1990s is underway with the growing popularity of exchange-traded funds (ETFs), both broad market ETFs as well as sector-specific ETFs. Due to the disappointing returns of actively managed funds (both absolute and relative), ETFs are increasingly used as a substitute for individual stocks in many investors’ portfolios with assets invested in ETFs recently exceeding $1 trillion. As a result, the importance of individual security valuation is de-emphasized, as investors instead choose to look to a particular asset class or theme. However, stock correlations fell from the historically high levels reached in May and June of this year, perhaps setting the stage for valuation-sensitive investors (like us) to hold sway once again. An increasing level of merger and acquisition activity, which benefited some of our strategies, may have been one factor contributing to the lower correlations in the second half of the year.

Diamond Hill Capital Management, Inc.




R.H. Dillon, CFA		Christopher A. Welch, CFA
Co-Chief Investment Officer		Co-Chief Investment Officer

The views expressed are those of the portfolio manager as of December 31, 2010 are subject to change, and may differ from the views of other portfolio managers or the firm as a whole. These opinions are not intended to be a forecast of future events, a guarantee of future results, or investment advice. All data referenced are from sources deemed to be reliable but cannot be guaranteed. Securities and sectors referenced should not be construed as a solicitation or recommendation or be used as the sole basis for any investment decision.

The S&P 500 Index is a market capitalization-weighted index of 500 widely held stocks often used as a proxy for the stock market. Standard and Poor’s selects the companies for the index to widely represent the stock market based on market size, liquidity, and industry group representation. Indexes are unmanaged, do not incur fees, and cannot be invested in directly.

Investors should consider the investment objectives, risks, and charges and expenses of the Diamond Hill Funds carefully before investing. This and other information about the Funds is in the prospectus, which can be obtained at www.diamond-hill.com. Read the prospectus carefully before you invest. Diamond Hill Capital Management, Inc., a registered investment adviser, serves as Investment Adviser to the Diamond Hill Funds and is paid a fee for its services. The Diamond Hill Funds are distributed by BHIL Distributors, Inc. (Member FINRA), an affiliated company. Investors may obtain a copy of the current prospectus at 888-226-5595 or www.diamond-hill.com. Like all mutual funds, Diamond Hill Funds are not FDIC insured, may lose value, and have no bank guarantee.



	Diamond Hill Funds Annual Report December 31, 2010

Page 2

Mission Statement, Pledge
and Fundamental Principles


Mission		The mission of Diamond Hill is to serve our clients through a disciplined intrinsic value-based approach to investing, while maintaining a long-term perspective, and aligning our interests with those of our clients.

		To successfully pursue our mission, we are:

			COMMITTED to the Graham-Buffett investment philosophy, with goals to outperform benchmarks and our peers over 5-year rolling periods and achieve absolute returns sufficient for the risk of the asset class.

			DRIVEN by our conviction to create lasting value for clients and shareholders.

			MOTIVATED through our ownership of Diamond Hill funds and company stock.


Investment Philosophy		At Diamond Hill, the investment philosophy, which is rooted in the teachings of Benjamin Graham and the methods of Warren Buffett, drives the investment process — not the opposite.

		Most simply, we invest in a company when its market price is at a discount to our appraisal of the intrinsic value of the business (or at a premium for short positions).

	There are four guiding principles to our investment philosophy:

	w		Treat every investment as a partial ownership interest in that company

	w		Always invest with a margin of safety to ensure the protection of capital, as well as return on capital

	w		Possess a long-term investment temperament

	w		Recognize that market price and intrinsic value tend to converge over a reasonable period of time

“Investment is most intelligent when it is most businesslike.”

— BENJAMIN GRAHAM


Pledge		Consistent with our mission & investment philosophy, we pledge the following to all of our clients:

		Our investment discipline is to assess the economics of the underlying business, its management, and the price that must be paid to own a piece of it. We seek to concentrate our investments in businesses that are available at prices below intrinsic value (above intrinsic value for short positions) and are managed or controlled by trustworthy and capable people. Benjamin Graham pioneered this discipline during the 1930s and many others have practiced it with great success ever since, most notably Warren Buffett. We will communicate with our clients about our investment performance in a manner that will allow them to properly assess whether we are deserving of their trust.

		Our investment team will be comprised of people with integrity, sound experience and education, in combination with a strong work ethic and independence of thought. Especially important is that each possesses the highest level of character, business ethics and professionalism.



Diamond Hill Funds Annual Report December 31, 2010

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		Our employees will enjoy a working environment that supports professional and personal growth, thereby enhancing employee satisfaction, the productivity of the firm and the experience of our clients.

		“Invest With Us” means we will invest the capital you entrust to us with the same care that we invest our own capital. To this end, Diamond Hill employees and affiliates are significant investors in the same portfolios in which our clients invest and are collectively the largest shareholders in the Diamond Hill Funds. In addition, all Diamond Hill employees are subject to a Code of Ethics, which states that all personal investments must be made in a Diamond Hill fund, unless approved by our Chief Compliance Officer.

Our fundamental equity		Valuation Every share of stock has an intrinsic value that is independent of its current stock market price.
investment principles		At any point in time, the stock market price may be either higher or lower than intrinsic value.

		Over short periods of time, as evidenced by extreme stock market volatility, the stock market price is heavily influenced by the emotions of market participants, which are far more difficult to predict than intrinsic value. While stock market prices may experience extreme fluctuations on a particular day, we believe intrinsic value is far less volatile.

		Over sufficiently long periods of time, five years and longer, the stock market price tends to converge with intrinsic value.

		Calculating Intrinsic Value Estimate

		We believe that we can determine a reasonable approximation of that intrinsic value in some cases.

		That value can be determined if we have a reasonable basis for projecting the future cash flows of a business and use an appropriate discount rate.

		In estimating intrinsic value, we use an interdisciplinary approach. Not only do we perform financial modeling including discounted cash flow, private market value and leveraged buyout analyses, we draw from other areas we believe are relevant to our investment decision-making. These include economics, statistics and probability theory, politics, psychology, and consumer behavior.

		In short, we do not want to exclude from our thinking anything that can help us forecast future cash flows, our most important as well as most difficult job.

		The Diamond Hill investment process continually compares market price to our estimate of intrinsic value, which is updated over time as new information arises.

		Suitable Investments

		We only invest in a business when the stock market price is lower than our conservative assessment of per share intrinsic value (or higher than our assessment of per share intrinsic value for short positions).

		We concentrate our investments in businesses whose per share intrinsic value is likely to grow.

		To achieve this, we assess the underlying economics of the businesses in which we invest and the industries and markets in which they participate. We seek to invest in businesses that possess a competitive advantage and significant growth prospects as well as outstanding managers and employees.



	Diamond Hill Funds Annual Report December 31, 2010

Page 4


		Every business in which we invest is “handicapped” by its price. While we would prefer to own only great businesses with superior managers, there are very few businesses that satisfy those criteria and additionally are available at attractive prices. As a result, we may invest in less attractive businesses at more than attractive prices. Depending on the price that we pay, our returns from less than ideal businesses may be even better than our returns from ideal businesses.

		Risk & Return

		We intend to achieve our return from both the closing of the gap between our purchase price and intrinsic value and the growth in per share intrinsic value. For short positions, a growing intrinsic value may shorten the holding period.

		We define risk as the permanent loss of capital. We manage risk by investing in companies selling at a discount (premium) to our estimate of intrinsic value, with a full understanding of the fundamental drivers of intrinsic value. In addition, we carefully consider business risks that could impact our estimate of intrinsic value. We regularly monitor and update our estimate of intrinsic value, adjusting for new information. If we are successful in accurately assessing intrinsic value, we will minimize the risk of loss and increase the return potential.

Our fundamental strategic income principles		Yield Our primary goal is to generate a yield greater than the current rate of inflation without bearing undue credit or interest rate risk. However, we cannot guarantee any specific yield.
		Approach

		A flexible approach allows us to invest in both investment grade and non-investment grade corporate bonds as well as in preferred securities, real estate investment trusts, master limited partnerships, and closed end funds.

		We can also invest in securities issued by the U.S. government and its agencies when conditions warrant.

		Total Return

		We balance our income objective with a focus on total return. Over the next five years, our objective is to earn equity-like returns in the income markets with lower year-to-year volatility and more importantly, a much lower risk of permanent loss of capital.

“You simply have to behave according to what is rational than

according to what is fashionable.”

— WARREN BUFFETT



Diamond Hill Funds Annual Report December 31, 2010

Page 5

Diamond Hill Small Cap Fund

Performance Update


Average Annual Total Returns	One			Three			Five			Ten			Expense
as of December 31, 2010	Year			Years			Years			Years			Ratio*

PERFORMANCE AT NAV without sales charges
Class A Shares		22.99	%		5.48	%		3.86	%		11.79	%		1.38	%
Class C Shares		22.01	%		4.68	%		3.07	%		10.95	%		2.13	%
Class I Shares		23.39	%		5.87	%		4.26	%		12.04	%		1.02	%
BENCHMARK
Russell 2000 Index		26.85	%		2.22	%		4.47	%		6.33	%		—
PERFORMANCE AT POP includes sales charges
Class A Shares		16.85	%		3.68	%		2.80	%		11.22	%		1.38	%
Class C Shares		21.01	%		4.68	%		3.07	%		10.95	%		2.13	%

Historical performance for Class C shares and Class I shares prior to their inception is based on the performance of Class A shares. Class C and Class I performance has been adjusted to reflect differences in sales charges and expenses between classes.



*		Reflects the expense ratio as reported in the Summary Prospectus as amended April 30, 2010.

Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.diamond-hill.com.

Portfolio Commentary



Tom Schindler, CFA Manager	Chris Welch, CFA Assistant Manager	Chris Bingaman, CFA Assistant Manager

Since the end of 2010 marks the ten-year anniversary of the Diamond Hill Small Cap Fund, it seems an opportune time to reflect back on the last decade. When the Fund began, small cap companies had been performing well on an absolute basis, but had lagged considerably behind large cap stocks. For instance, in the five-year period ended December 29, 2000, the S&P 500 compounded at 18.3% per year, while the Russell 2000 compounded at 10.4%. This performance differential left small cap stocks at the largest valuation discount relative to large cap stocks in many years. More importantly, the technology and telecom sectors, which were the best performing sectors of the market in the previous five years, remained at valuation levels that did not make sense to us despite a substantial decline in those sectors in the last nine months of 2000. With this backdrop, we envisioned a scenario where it was possible to form a portfolio of small cap companies largely drawn from the consumer, financial and industrial sectors with expected returns in the double digits, while at the same time expecting the indices, both large and small, to fall considerably short of historic average returns.

For the ten-year period ended December 31, 2010, the Small Cap Fund (Class A, without sales charge) returned 11.79%, annually, while the Russell 2000 Index returned 6.33%, annually, over the same period. Using government statistics, inflation during the period was 2.3%. Thus, the real annualized return for the Diamond Hill Small Cap Fund was about 9.2%, while the real return for the Russell 2000 was about 3.9%. To put these numbers into historical context, Ibbotson Associates found that from 1926 -2000, small company stocks returned 12.4% compounded annually while inflation was 3.1%, translating into a real return of about 9.1%^†. Given the remarks in the first paragraph, the full decade’s returns generally met our hopes and expectations. However, the manner in which these returns were generated was anything but expected. In the first five years, the Fund compounded at 20.3% (on the strength of executing a portfolio concentrated in the sectors mentioned above in addition to substantial investment in the energy sector beginning in 2004) while the Russell 2000 compounded at 8.2%. In the second five years, the Fund did not escape unscathed from the fallout of the credit crises that deeply impacted many sectors of the market, but the financial sector most deeply. Thus, while we are pleased with both the absolute and relative performance of the Fund since inception, we recognize that the strong performance in the first five years is responsible for attaining the satisfactory absolute result.

Turning to calendar year 2010, the Diamond Hill Small Cap Fund (Class A, without sales charge) returned 22.99%. This figure compares to a 26.85% return for the benchmark Russell 2000 Index. The entire shortfall came in the fourth quarter, as the Index return was exceptionally strong. The two major reasons for the shortfall were 1) high cash balances held throughout the year, which served as a relative performance drag and 2) a substantial underweight



	Diamond Hill Funds Annual Report December 31, 2010

Page 6

and weak performance in the information technology sector holdings, which was a very strong sector in the 2010 Russell 2000 return. In all other sectors, the stock-picking in the Fund was generally solid.

During the year, holdings in the energy sector were once again a large positive contributor to performance. Global oil prices continued to rebound during the year as the global economic recovery led the International Energy Agency (IEA) to estimate a 3.2% worldwide increase in demand for crude. Natural gas prices declined on the order of 20% for the year, as continued new supply from U.S. shale gas led to ample inventory.

Cimarex Energy Co. and Forest Oil Corp., while both still heavy natural gas producers, benefitted from “liquids-rich” natural gas plays. Whiting Petroleum Corp. and Denbury Resources, Inc. continued to focus on enhanced oil recovery projects. Berry Petroleum Co., which uses natural gas to generate steam to help lift heavy crude, also performed well. Of the Fund’s investments in the energy sector, only Hornbeck Offshore Services, Inc. and Southwestern Energy Co. had negative returns in 2010. The consumer staples sector proved to be a fertile investment area for the Fund. American Italian Pasta Co. was purchased by Ralcorp Holdings, Inc. and Del Monte Foods was in the midst of being purchased by a private equity consortium led by KKR & Co L.P. In addition, snack-foods company Lance merged with Snyders of Hanover to form Snyders-Lance, Inc., a generally well received merger. Also, battery and personal products company Energizer Holdings, Inc., natural foods producer Hain Celestial Group, Inc. and grocer Ruddick Corp. all outperformed during the year.

For the year, the Small Cap Fund’s holdings in the financial sector performed in-line with those in the Russell 2000. Additionally, the amount allocated to the sector was similar to that of the Russell 2000. As in 2009, the Fund’s investments in the financial sector were more heavily weighted to insurance than banks. Assured Guaranty Ltd. was one notable exception to positive performance in the insurance industry. While we still believe there have been no major negative fundamental developments with the company, some analysts have expressed concerns about the finances of state and local governments. Still, while state budgets are admittedly strained, the amount of absolute debt and interest payments relative to state GDP leads us to believe that the situation is very different than the scenarios in European sovereign debt.

Merger and acquisition activity generally benefitted the Fund’s results during the year. In healthcare, inVentive Health, Inc., King Pharmaceuticals, Inc., and ResCare, Inc. were all recipients of takeover offers. Tyco purchased Brink’s Home Security shortly after it was spun-off from The Brink’s Co. Lastly, Verigy Ltd. received an unsolicited takeover offer from Advantest in December.

We will continue to balance risk and reward in our appraisal of individual company values and appreciate your ongoing support and look forward to continuing to work with you in the coming years.

Thomas P. Schindler, CFA
Manager


†		Ibbotson uses a combination of data series for Small Cap Companies. From 1926 — 1981, the data was composed of stocks making up the fifth quintile (the 9th and 10th deciles) of the New York Stock Exchange. From 1982 -2000 the small stock return series was the total return achieved by the DFA (Dimensional Fund Advisors) U.S. Small Company 9 — 10 Portfolio. Thus the data from 1982 — 2000 are net of transaction costs, fees and expenses while the pre- 1982 data are before these costs and expenses. Generally, the Ibbotson data for small company stocks represent a somewhat smaller capitalization universe than that represented by the Russell 2000.



Diamond Hill Funds Annual Report December 31, 2010

Page 7

Growth of $10,000

Comparison of the Change in Value of a $10,000 Investment in the Diamond Hill Small Cap Fund Class A^(A)and the Russell 2000 Index.


^(A)		The chart above represents the performance of Class A shares only, which will vary from the performance of Class C and Class I shares based on the difference in loads and fees paid by shareholders in the different classes.

^(B)		The average annual total returns shown above are adjusted for maximum applicable sales charge of 5.00%.

The performance of the above Fund does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

Tabular Presentation of Investments

The table below provides the Small Cap Fund’s sector allocation. We hope it will be useful to shareholders as it summarizes key information about the Fund’s investments.

Sector Allocation (% of Net Assets)*


							Consumer						Information			Health			Consumer												Cash
	Financials			Energy			Staples			Industrials			Technology			Care			Discretionary			Utilities			Materials			Telecom			& Equiv.

Small Cap Fund		20.7	%		12.5	%		11.5	%		10.9	%		8.1	%		7.8	%		7.6	%		3.2	%		—			—			17.6	%
Russell 2000 Index		20.4	%		5.5	%		2.9	%		16.0	%		17.7	%		12.3	%		13.9	%		3.1	%		6.4	%		1.1	%		—


*		Sector allocations may not total 100% due to rounding and are as of 12/31/10 and subject to change.



	Diamond Hill Funds Annual Report December 31, 2010

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Diamond Hill Small-Mid Cap Fund

Performance Update


										Since
Average Annual Total Returns	One			Three			Five			Inception			Expense
as of December 31, 2010	Year			Years			Years			(12/30/05)			Ratio*

PERFORMANCE AT NAV without sales charges
Class A Shares		23.03	%		6.63	%		5.69	%		5.69	%		1.33	%
Class C Shares		22.14	%		5.87	%		4.94	%		4.94	%		2.08	%
Class I Shares		23.43	%		7.01	%		6.09	%		6.09	%		0.97	%
BENCHMARK
Russell 2500 Index		26.71	%		2.48	%		4.86	%		4.85	%		—
PERFORMANCE AT POP includes sales charges
Class A Shares		16.86	%		4.83	%		4.61	%		4.61	%		1.33	%
Class C Shares		21.14	%		5.87	%		4.94	%		4.94	%		2.08	%


*		Reflects the expense ratio as reported in the Summary Prospectus as amended April 30, 2010.

Portfolio Commentary



Chris Welch, CFA Manager	Tom Schindler, CFA Assistant Manager	Chris Bingaman, CFA Assistant Manager

The Diamond Hill Small-Mid Cap Fund (Class A, without sales charge) returned 23.03% in 2010. This figure compares to a 26.71% return for the benchmark Russell 2500 Index. For the five-year period since inception, the Fund’s return was 5.69% annually, while the Russell 2500 Index returned 4.86% over the same period. The 2010 performance was strong on an absolute basis though it trailed the benchmark. We are pleased, however, to have outperformed the Index over the first five years of the Fund’s existence.

Entering the year, we believed the best investment opportunities were in higher quality stocks, those with stronger balance sheets and more stable business models. That proved not to be the case in 2010, as the best performers collectively were cyclical stocks with lower market capitalizations and smaller dividend payouts. This “low quality” market rally appeared to be driven in part by the quantitative easing program announced by the U.S. Federal Reserve.

All portfolio sectors generated positive absolute returns during the year. Sectors that contributed positive returns relative to the benchmark included energy, financials and industrials. In the energy sector, a number of our holdings benefited from the increasing application of horizontal drilling techniques in the production of oil and natural gas liquids, which sell at a price premium to natural gas. Cimarex Energy Co. was a prime beneficiary of this trend, and the stock rose 68% during the year. Huntington Bancshares, Inc. and Old Republic International Corp. were leading contributors in the financials sector. Huntington benefited from improving credit quality, while Old Republic’s mortgage insurance business continued its recovery from the recession lows. Our industrial sector holdings were also significant contributors to relative return. Dover Corp. and Parker Hannifin Corp. generated strong returns from both revenue growth and significant margin improvement, while Fluor Corp. saw its backlog rise meaningfully in its Engineering and Construction business.

The stocks with the most significant negative contributions to return during the year were Southwestern Energy Co. and Assured Guaranty Ltd. Southwestern faced a significant decline in natural gas prices due to the increased U.S. output of that commodity. The company has very little oil production, so it yielded little benefit from the horizontal drilling for liquids phenomenon that boosted Cimarex and other energy holdings. Assured Guaranty dropped 18% during 2010, as concerns about potential state and municipal bond defaults colored investors’ perceptions of the company. We believe that these concerns were overdone, and the stock remained a top ten holding in the portfolio at year-end.



Diamond Hill Funds Annual Report December 31, 2010

Page 9

In our 2009 Portfolio Commentary, we wrote the following:

While the economic outlook has improved modestly over the past 12 months, the reaction of stock prices has been dramatic. Returns that we thought might take 5 years to realize occurred in many cases over the course of a few months. The “fear discount” that was being applied to many economically sensitive companies a year ago no longer appears to be in place. As such, we sold a number of our more cyclical holdings during the year as prices reached our intrinsic value estimates. In general we found better margins of safety in higher quality companies as the year progressed, with an emphasis on opportunities in the health care and consumer staples sectors.

As discussed above, this view proved to be suboptimal for the 2010 equity market environment. Nevertheless, our overall outlook remains essentially the same. We are finding the most value in stocks at the higher end of the quality scale, as well as those at the larger end of our market capitalization range. Many of our new investments during the year were in companies with steady business models that we believe will be able to earn favorable returns on investment even in potentially challenging economic environments. Due to the narrow discounts to our intrinsic value estimates that we observed in numerous stocks in our universe, we maintained a cash level in the low-to-mid teens throughout most of 2010, and cash was approximately 15% entering 2011. We look forward to deploying this capital into better opportunities when they arise.

We appreciate your ongoing support and look forward to continuing to work with you in the coming years.

Christopher A. Welch, CFA
Manager

Growth of $10,000

Comparison of the Change in Value of a $10,000 Investment in the Diamond Hill Small-Mid Cap Fund - Class A^(A)and the Russell 2500 Index.


^(A)		The chart above represents the performance of Class A shares only, which will vary from the performance of Class C and Class I shares based on the difference in loads and fees paid by shareholders in the different classes.

^(B)		The total return shown above is adjusted for maximum applicable sales charge of 5.00%.

^(C)		Class A shares commenced operations on December 30, 2005.

The performance of the above Fund does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

Tabular Presentation of Investments

The table below provides the Small-Mid Cap Fund’s sector allocation. We hope it will be useful to shareholders as it summarizes key information about the Fund’s investments.

Sector Allocation (% of Net Assets)*


							Consumer			Information						Health			Consumer												Cash
	Financials			Energy			Staples			Technology			Industrials			Care			Discretionary			Utilities			Materials			Telecom			& Equiv.

Small-Mid Cap Fund		19.0	%		16.0	%		11.4	%		10.8	%		10.2	%		8.2	%		6.9	%		2.6	%		—			—			14.8	%
Russell 2500 Index		20.1	%		6.6	%		3.1	%		15.2	%		14.7	%		10.5	%		14.5	%		5.5	%		7.7	%		1.4	%		—


*		Sector allocations may not total 100% due to rounding and are as of 12/31/10 and subject to change.



	Diamond Hill Funds Annual Report December 31, 2010

Page 10

Diamond Hill Large Cap Fund

Performance Update


										Since
Average Annual Total Returns	One			Three			Five			Inception			Expense
as of December 31, 2010	Year			Years			Years			(6/29/01)			Ratio*

PERFORMANCE AT NAV without sales charges

Class A Shares		9.29	%		-2.10	%		2.62	%		5.65	%		1.16	%

Class C Shares		8.45	%		-2.86	%		1.85	%		4.82	%		1.91	%

Class I Shares		9.72	%		-1.73	%		3.02	%		5.91	%		0.80	%

BENCHMARK

Russell 1000 Index		16.10	%		-2.37	%		2.59	%		2.71	%		—

PERFORMANCE AT POP includes sales charges

Class A Shares		3.80	%		-3.77	%		1.58	%		5.08	%		1.16	%

Class C Shares		7.45	%		-2.86	%		1.85	%		4.82	%		1.91	%


Historical performance for Class C shares and Class I shares prior to their inception is based on the performance of Class A shares. Class C and Class I performance has been adjusted to reflect differences in sales charges and expenses between classes.

*		Reflects the expense ratio as reported in the Summary Prospectus as amended April 30, 2010.

Portfolio Commentary




Chuck Bath, CFA	Bill Dierker, CFA	Chris Welch, CFA
Manager	Assistant Manager	Assistant Manager

The Diamond Hill Large Cap Fund (Class A, without sales charge) returned 9.29% in 2010 compared to 16.10% for the Russell 1000 index. The stock market rally continued in 2010 from the lows achieved in the first quarter of 2009. Most of the past year’s return was achieved in the second half of 2010 as the market recovered from a sharp sell-off during the summer. The Fund lagged the market’s recovery, which was certainly disappointing. Much of the disappointment was related to the “low quality” nature of the 2010 market rally. Many lower quality companies experienced strong rallies from their 2009 lows. As a result, their valuations appeared unattractive coming into 2010; however, a meaningful recovery in profitability allowed this portion of the market to continue to rally strongly. Companies with high levels of economic cyclicality and lower market capitalization were typical of the best performing stocks of 2010. Sectors such as health care held up well in the market sell-off in the preceding years, but health care stocks were relatively unexciting in this year’s market recovery. However, as we enter 2011, we expect the cyclical recovery in profitability to slow due to already high profit margins. This should make it continually more difficult for the cyclical companies to lead a market rally and highlights the value in the higher quality and larger capitalization companies held in the Diamond Hill Large Cap Fund.

The industrial sector was our best performing sector in 2010. Parker Hannifin Corp., Fluor Corp. and Dover Corp. were the portfolio’s leading performers. A strong recovery in orders and revenues led to a better than expected recovery in profitability. These companies came through the 2008-2009 period much stronger than in previous recessions as good balance sheets, combined with strong worldwide competitive positions, allowed them to recover more strongly and more quickly than in past recessions. Shares of these companies continued to be held in the Fund as we believe their strong competitive position was still not reflected in their stock price.

Our energy holdings remained a significant part of the portfolio and contributed positively to the portfolio’s return in 2010. Anadarko Petroleum Corp. posted the largest gain in the sector after an eventful and difficult summer. In April, the drilling rig at the Macondo Well site (25% owned by Anadarko but managed by BP) exploded, leading to serious concerns regarding the safety and environmental efficacy of drilling in the Gulf of Mexico. As the year ended, these problems receded allowing the stock to recover nicely. Other large holdings such as Occidental Petroleum Corp. and Exxon Mobil Corp. were also strong and contributed nicely to the portfolio’s performance, benefiting from rising oil prices. A strong recovery in worldwide demand continues to pressure the world’s ability to supply the energy markets. As a result, the pressure has been to the upside on oil prices. We continued to hold energy company shares at year-end, as we expect this trend to continue in 2011.

Health care was a large sector in the portfolio which unfortunately performed poorly in 2010. Companies such as Medtronic, Inc. and Baxter International, Inc. were some of the worst performing stocks in the portfolio. Increasing levels of competition combined with a slowdown in demand made the end markets for these companies more challenging than usual. Perhaps it is a sign of the severity of

Diamond Hill Funds Annual Report December 31, 2010

Page 11

the recession, but health care demand was disappointing in 2010. Health care is usually not economically sensitive; however, the industry experienced disappointing revenue growth seemingly driven by higher levels of unemployment. As a result, earnings growth was disappointing at the same time that more cyclical companies were experiencing a strong earnings recovery. We continued to hold health care shares in the portfolio as we believe their attractive valuations reflect an overly pessimistic view of the long-term opportunities in these companies.

In the fourth quarter of 2010, we began to add to our financial services holdings. New holdings, such as PNC Financial Services Group, Inc., were representative of companies with improving balance sheets. Asset quality was improving; however, valuations did not yet reflect a better secular outlook. We believe many of these companies will be able to meaningfully raise their dividends and otherwise return capital to shareholders which should lead to better performance in the coming years. As the year ended, financial services was one of the largest sector weights in the portfolio.

As of the end of 2010, I concluded my eighth full year of managing the Diamond Hill Large Cap Fund. While I was pleased to see the market recover in 2010, I was disappointed the portfolio did not participate more fully in the recovery. However, since coming to Diamond Hill, I am proud of the long term performance of the Fund and look forward to the opportunity to manage client’s assets in the years ahead. I am grateful for the opportunity and look forward to the challenge.

Thank you for your continued support.

Chuck Bath, CFA
Manager

Growth of $10,000

Comparison of the Change in Value of a $10,000 Investment in the Diamond Hill Large Cap Fund - Class A^(A)and the Russell 1000 Index.


^(A)		The chart above represents the performance of Class A shares only, which will vary from the performance of Class C and Class I shares based on the difference in loads and fees paid by shareholders in the different classes.

^(B)		The average annual total returns shown above are adjusted for maximum applicable sales charge of 5.00%.

^(C)		Class A shares commenced operations on June 29, 2001.

The performance of the above Fund does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

Tabular Presentation of Investments

The table below provides the Large Cap Fund’s sector allocation. We hope it will be useful to shareholders as it summarizes key information about the Fund’s investments.

Sector Allocation (% of Net Assets)*


				Health									Consumer			Information			Consumer												Cash
	Energy			Care			Financials			Industrials			Staples			Technology			Discretionary			Materials			Utilities			Telecom			& Equiv.

Large Cap Fund		19.1	%		18.7	%		18.2	%		14.1	%		12.4	%		7.3	%		3.6	%		2.1	%		0.5	%		—			4.0	%

Russell 1000 Index		11.6	%		11.6	%		16.1	%		10.9	%		8.6	%		18.2	%		12.3	%		4.3	%		3.4	%		3.1	%		—


*		Sector allocations may not total 100% due to rounding and are as of 12/31/10 and subject to change.

Diamond Hill Funds Annual Report December 31, 2010

Page 12

Diamond Hill Select Fund

Performance Update


										Since
Average Annual Total Returns	One			Three			Five			Inception			Expense
as of December 31, 2010	Year			Years			Years			(12/30/05)			Ratio*

PERFORMANCE AT NAV without sales charges

Class A Shares		10.83	%		-0.44	%		3.45	%		3.45	%		1.27	%

Class C Shares		9.96	%		-1.20	%		2.71	%		2.71	%		2.02	%

Class I Shares		11.19	%		-0.08	%		3.84	%		3.84	%		0.91	%

BENCHMARK

Russell 3000 Index		16.93	%		-2.01	%		2.74	%		2.74	%		—

PERFORMANCE AT POP includes sales charges

Class A Shares		5.34	%		-2.13	%		2.39	%		2.39	%		1.27	%

Class C Shares		8.96	%		-1.20	%		2.71	%		2.71	%		2.02	%


*		Reflects the expense ratio as reported in the Summary Prospectus as amended April 30, 2010.

Portfolio Commentary




Bill Dierker, CFA	Chuck Bath, CFA	Chris Welch, CFA
Manager	Assistant Manager	Assistant Manager

In 2010, the Diamond Hill Select Fund generated a total return of 10.83% (Class A, without sales charge) compared to our benchmark, the Russell 3000 Index, which returned 16.93%. For the five years ending in 2010, the Select Fund generated a compound annual rate of return of 3.45%, compared to our benchmark which returned 2.74%. “It’s the economy stupid” was a phrase used in the 1992 Presidential campaign. In 2010, the economy had a large impact on the Select Fund, but in ways we did not expect.

Our holdings in the health care sector, which was on average our largest sector weight, were impacted by lower utilization of health care services. Part of this lower utilization was a result of health care consumers postponing doctor visits or surgical procedures. Utilization was also impacted by the high level of unemployment, which in many cases resulted in loss of medical insurance coverage. This lower utilization resulted in diminished earnings outlooks for many of our health care holdings. Our holdings in the consumer staples sector were also impacted by the retrenchment of the consumer. Our investments in ConAgra Foods, Inc. and General Mills, Inc. were impacted by consumers trading down to products with lower price points. These companies were also impacted by input cost inflation that the companies were unable to pass on to consumers due to the weak demand environment. Much to our surprise, given the consumer approach to health care and food, the consumer discretionary sector (e.g. retailers and restaurants) was the largest contributor to our benchmark, the Russell 3000. We were substantially underweight this sector throughout the year, observing the unemployment rate above 9% all year long. In fact, looking at non-farm payrolls, their trajectory versus past economic recoveries suggested that we were in a “jobless recovery.” What we may have overlooked was the significant impact on personal income from government “transfer payments,” extremely low interest rates and an effective tax rate near 50-year lows.

On the plus side, we had positive performance in three sectors — energy, financials and industrials. In energy, our significant overweight in this sector offset a small deficit in stock selection. Our position in Southwestern Energy Co., which is more exposed to falling natural gas prices, had a negative impact on our energy holdings. This was more than offset by strong returns from our ownership in Cimarex Energy Co., Anadarko Petroleum Corp., and Occidental Petroleum Corp.

On average, we were underweight the financial sector, but stock selection was positive with a collection of mostly “non-bank” holdings. Strong performance was generated by our positions in Assurant, Inc., Arch Capital Group Ltd., U.S. Bancorp and Prudential Financial, Inc.

An overweight in the industrial sector combined with positive stock selection, generated the highest contribution to the Select Fund return. Noteworthy performances were registered by Parker Hannifin Corp. and Dover Corp.

Diamond Hill Funds Annual Report December 31, 2010

Page 13

Outside of the sectors discussed, strong individual performers included McDonald’s Corp. and health insurance company UnitedHealth Group, Inc.

Coming into 2010, the Select Fund had a significant (approximately 75%) bias to companies with a market capitalization greater than $10 billion. While this was a residual of bottom-up stock selection, we also liked large cap stocks as they tend to have strong balance sheets, significant operations outside the United States, and they appeared to provide better value versus small and mid-caps. In a word, we liked “quality.” With profit margins across the market near prior peaks, we still believe the “quality” approach is appropriate despite the 2010 experience. In addition, despite the disappointing performance in 2010, we remain focused on the long-term. While less than our five-year time horizon, I would like to point out that since the market peaked on October 9, 2007, the Select Fund has outperformed the Russell 3000 and the majority of our peer group. Short term underperformance is never fun, but we will continue to focus on the long-term performance of our investments.

William C. Dierker,
CFA Manager

Growth of $10,000

Comparison of the Change in Value of a $10,000 Investment in the Diamond Hill Select Fund — Class A^(A)and the Russell 3000 Index.


^(A)		The chart above represents the performance of Class A shares only, which will vary from the performance of Class C and Class I shares based on the difference in loads and fees paid by shareholders in the different classes.

^(B)		The total return shown above is adjusted for maximum applicable sales charge of 5.00%.

^(C)		Class A shares commenced operations on December 30, 2005.

The performance of the above Fund does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

Tabular Presentation of Investments

The table below provides the Select Fund’s sector allocation. We hope it will be useful to shareholders as it summarizes key information about the Fund’s investments.

Sector Allocation (% of Net Assets)*


							Health			Consumer						Information			Consumer												Cash
	Financials			Energy			Care			Staples			Industrials			Technology			Discretionary			Materials			Utilities			Telecom			& Equiv.

Select Fund		19.7	%		18.7	%		17.5	%		14.4	%		12.3	%		6.5	%		3.8	%		2.6	%		—			—			4.4	%

Russell 3000 Index		16.5	%		11.1	%		11.6	%		8.1	%		11.3	%		18.1	%		12.4	%		4.5	%		3.4	%		2.9	%		—


*		Sector allocations may not total 100% due to rounding and are as of 12/31/10 and subject to change.

Diamond Hill Funds Annual Report December 31, 2010

Page 14

Diamond Hill Long-Short Fund

Performance Update


Average Annual Total Returns	One			Three			Five			Ten			Expense
as of December 31, 2010	Year			Years			Years			Years			Ratio*

PERFORMANCE AT NAV without sales charges

Class A Shares		-0.31	%		-3.53	%		1.59	%		6.03	%		1.84	%

Class C Shares		-1.09	%		-4.29	%		0.81	%		5.21	%		2.59	%

Class I Shares		0.03	%		-3.18	%		1.99	%		6.27	%		1.48	%

BENCHMARK

Russell 1000 Index		16.10	%		-2.37	%		2.59	%		1.83	%		—

5O% Russell 100 Index/50%, BofA ML US T-Bill 0-3 Mo. Index		8.31	%		-0.21	%		2.88	%		2.41	%		—

PERFORMANCE AT POP includes sales charges

Class A Shares		-5.30	%		-5.17	%		0.55	%		5.48	%		1.84	%

Class C Shares		-2.08	%		-4.29	%		0.81	%		5.21	%		2.59	%


Historical performance for Class C shares and Class I shares prior to their inception is based on the performance of Class A shares. Class C and Class I performance has been adjusted to reflect differences in sales charges and expenses between classes.

*		Reflects the expense ratio as reported in the Summary Prospectus as amended April 30, 2010.

Portfolio Commentary




Chuck Bath, CFA	Ric Dillon, CFA	Chris Bingaman, CFA
Co-Manager	Co-Manager	Assistant Manager

The Diamond Hill Long-Short Fund (Class A, without sales charge) declined 0.31% in 2010 compared to a 16.10% return for the long-only Russell 1000 Index and an 8.31% return for the blended benchmark (50% Russell 1000 Index/50% BofA Merrill Lynch U.S. T-Bill 0-3 Month Index).

Although the total returns for Diamond Hill’s Large Cap and Long-Short Funds were very similar over the past five years, there was a significant difference between each Fund’s results over the past year. The long portfolio in our Long-Short strategy is managed similarly to our long-only Large Cap strategy, thus the difference in returns between the two strategies is explained chiefly by the short portfolio in the Long-Short strategy. The long portfolio contributed positively to the Fund’s return, offset by negative contribution to return from the short portfolio.

In the long portfolio, our holdings in the energy and industrials sectors were the most significant contributors to return. Anadarko Petroleum Corp. posted the largest gain in the sector after an eventful and difficult summer. In April, the drilling rig at the Macondo Well site (25% owned by Anadarko but managed by BP) exploded, leading to serious concerns regarding the safety and environmental efficacy of drilling in the Gulf of Mexico. As the year ended, these problems receded allowing the stock to recover nicely. Other large holdings such as Occidental Petroleum Corp., which benefitted from rising oil prices, and Cimarex Energy Co., which benefitted from horizontal drilling techniques in the production of oil and natural gas liquids, contributed significantly to the long portfolio’s performance. We continued to hold energy company shares at year-end, as we expect oil prices to continue to rise in 2011.

The industrial sector also contributed significantly to the long portfolio return. Parker Hannifin Corp. and Dover Corp. were the portfolio’s leading performers. A strong recovery in orders and revenues led to a better than expected recovery in profitability. These companies came through the 2008-2009 period much stronger than in previous recessions as good balance sheets, combined with strong worldwide competitive positions, allowed these companies to recover more strongly and more quickly than in past recessions. These companies continued to be held in the Fund as we believe their strong competitive position was still not reflected in their stock price.

While the long portfolio had a positive contribution of approximately 10% for the year, this lagged the Russell 1000 return. From the market lows in March 2009, smaller companies have outperformed larger ones, and as many commentators have observed, lower quality companies outperformed higher quality. We believe that over the next five years the opposite will be the case, and we have positioned the portfolio accordingly.

Our short positions in the consumer discretionary sector were the primary drivers of underperformance in 2010 led by MGM Resorts International, Tractor Supply Co., Royal Caribbean Cruises Ltd., Netflix, Inc., Macy’s, Inc. and Sally Beauty Holdings, Inc. We continue to believe that U.S. consumers face a headwind of high unemployment and soft house prices, as well as a need to repair their balance sheets through a higher savings rate. There has been little evidence to the contrary. Nevertheless, some

Diamond Hill Funds Annual Report December 31, 2010

Page 15

of those issues were offset by continued fiscal and monetary stimulus, in addition to a rising stock market, permitting consumer spending levels to be higher than we expected in 2010. We maintained positions in the stocks mentioned above, although in some cases we reduced our position sizes where fundamentals were sufficiently strong to raise our estimates of intrinsic value.

Given the Fund’s long bias (average 50% net long), the magnitude of the short portfolio’s poor performance is more clearly understood. The short portfolio’s negative one year results offset the Fund’s cumulative positive results from the previous four years.

Importantly, we are not disheartened by this year’s underperformance. With some analysis, we have learned that our worst results were in shorting “good” companies with high valuations. We define “good” as those companies growing rapidly due to various factors, including superior products or services, improving perceptions, etc. Companies like Chipotle Mexican Grill, Inc., Netflix, Inc., Salesforce.com, Inc. and Tractor Supply Co. would all be examples of good companies. In each case, the companies exceeded our estimates (and probably consensus estimates) of fundamentals, and valuations became even more stretched. While undoubtedly any or all of these companies could experience stock price declines due to their lofty valuations, in perhaps no case are these valuations stretched to the extremes of 10 years ago.

We prefer being short companies, such as Boeing, Macy’s, Inc. or MGM Resorts, which face competitor challenges. Boeing faces competitors with labor cost advantages, while Macy’s faces a secular shift away from department stores and MGM faces weakness in Las Vegas. In each case, these companies also face various degrees of stress to their balance sheets.

As always, we appreciate your confidence and continued support.


Chuck Bath, CFA Co-Manager		R.H. Dillon, CFA Co-Manager

Growth of $10,000

Comparison of the Change in Value of a $10,000 Investment in the Diamond Hill Long-Short Fund - Class A^(A), the Russell 1000 Index and the Blended Index (50% Russell 1000 Index and 50% BofA Merrill Lynch US T-Bill 0-3 Month Index).


^(A)		The chart above represents the performance of Class A shares only, which will vary from the performance of Class C and Class I shares based on the difference in loads and fees paid by shareholders in the different classes.

^(B)		The average annual total returns shown above are adjusted for maximum applicable sales charge of 5.00%.

The performance of the above Fund does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

The chart above represents a comparison of a hypothetical $10,000 investment and the reinvestment of dividends and capital gains in the indicated share class versus a similar investment in the Russell 1000 Index and the blended index. The Russell 1000 Index is a market capitalization-weighted index measuring performance of the largest 1,000 companies on a market capitalization basis, in the Russell 3000 Index. The blended index represents a 50% weighting of the Russell 1000 Index as described above and a 50% weighting of the BofA Merrill Lynch US T-Bill 0-3 Month Index. The BofA Merrill Lynch US T-Bill 0-3 Month Index tracks the performance of US dollar denominated US Treasury Bills publicly issued in the US domestic market with a remaining term to final maturity of less than 3 months. Both indices are unmanaged, and do not reflect the deduction of fees associated with a mutual fund such as investment management and accounting fees. The Fund’s performance reflects the deduction of fees for these services. Investors cannot invest directly in an index although they can invest in the underlying securities.

Tabular Presentation of Investments

The table below provides the Long-Short Fund’s sector allocation. We hope it will be useful to shareholders as it summarizes key information about the Fund’s investments.

Sector Allocation (% of Net Assets)*


				Health									Consumer			Information			Consumer															Cash
	Energy			Care			Financials			Industrials			Staples			Technology			Discretionary			Materials			Utilities			Telecom			Other			& Equiv.

Long Portfolio		20.2	%		17.2	%		16.1	%		15.3	%		11.3	%		6.5	%		3.8	%		2.2	%		0.5	%		—			—			6.9	%

Russell 1000 Index		11.6	%		11.6	%		16.1	%		10.9	%		8.6	%		18.2	%		12.3	%		4.3	%		3.4	%		3.1	%		—			—

Short Portfolio		—			(1.2	%)		(0.5	%)		(2.4	%)		(4.1	%)		(3.9	%)		(13.9	%)		(1.0	%)		—			(0.7	%)		(1.0	%)		—


*		Sector allocations may not total 100% due to rounding and are as of 12/31/10 and subject to change.

Diamond Hill Funds Annual Report December 31, 2010

Page 16

Diamond Hill Financial Long-Short Fund

Performance Update


Average Annual Total Returns	One			Three			Five			Ten			Expense
as of December 31, 2010	Year			Years			Years			Years			Ratio*

PERFORMANCE AT NAV without sales charges

Class A Shares		16.78	%		-7.11	%		-5.01	%		5.87	%		1.76	%

Class C Shares		15.92	%		-7.86	%		-5.75	%		5.11	%		2.51	%

Class I Shares		17.29	%		-6.73	%		-4.67	%		6.06	%		1.40	%

BENCHMARK

S&P 1500 Super Composite Financials Index		13.35	%		-14.41	%		-9.44	%		-3.93	%		—

PERFORMANCE AT POP includes sales charges

Class A Shares		10.93	%		-8.68	%		-5.97	%		5.32	%		1.76	%

Class C Shares		14.92	%		-7.86	%		-5.75	%		5.11	%		2.51	%


Historical performance for Class I shares prior to their inception is based on the performance of Class A shares. Class I performance has been adjusted to reflect differences in sales charges and expenses between classes.

*		Reflects the expense ratio as reported in the Summary Prospectus as amended April 30, 2010.

Past performance does notguarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.diamond-hill.com.

Portfolio Commentary




Christopher M. Bingaman, CFA	Austin Hawley, CFA	John Loesch, CFA
Manager	Assistant Manager	Assistant Manager

Along with the overall domestic equity markets, 2010 was another very solid year for the Financial Long-Short Fund. The portfolio produced a 16.78% total return (Class A, without sales charge) as it once again benefited from a heavy long bias maintained throughout the year. The Fund’s primary benchmark (S&P 1500 SuperComposite Financials Index) posted a total return of 13.35%, which modestly lagged the broader U.S. equity indices. The past year marked the fourth consecutive year that the overall financial sector trailed the market; however, the BKX (KBW Bank Index) was finally able to break its six-year streak of relative underperformance. For the trailing five-year period, the Fund generated a total return of -5.01% per year, compared to -9.44% per year for the primary benchmark.

In general, we continue to believe that the financial services sector is poised for solid returns on both an absolute and relative basis. After three years of struggling with credit and capital issues, we believe most industries within the sector are now well positioned for the economic recovery, which appears to be gaining momentum. Specifically, capital levels in virtually all areas of the sector, but most importantly the banking industry, have increased once again over the past year. Balance sheets have generally shrunk, while at the same time, many participants retained the vast majority of their earnings. Meanwhile, the private sector continued to provide new common equity capital to allow for opportunistic growth and/or the repayment of TARP obligations. In addition, the industry gained needed clarity on prospective capital requirements during the year, and it now appears most of the larger domestic institutions are ready to meet and even exceed the capital requirements well in advance of the regulatory guidelines. As importantly, we also saw a continuation of the more benign trend in loan losses and securities impairments. In many instances, credit expenses actually turned into a healthy tailwind. Finally, the significantly more constructive state of the capital markets was also quite beneficial to nearly the entire sector, from both a general business as well as a capital cost perspective.

As we noted last year, we value stocks using a long time horizon and estimates of normalized earnings. Once again, the combination of improving underlying business fundamentals, along with still modest valuations, led us to numerous undervalued situations and therefore a continuation of the heavy long bias in the portfolio. In particular, we continued to hold investments in companies which we believe have been able to substantially improve their competitive position during the recent economic/ credit cycle. At the larger end of the market capitalization spectrum, examples would be two long-time holdings, Wells Fargo & Co. and U.S. Bancorp, as well as J.P. Morgan Chase & Co. and PNC Financial Services Group, Inc. We also added to smaller capitalization banks and thrifts that we believe are similarly positioned to succeed. Most of these organizations have been the beneficiaries of forced mergers and/or FDIC assisted transactions and should be well positioned coming out of the recession. In addition, we continued to find value in a number of insurance companies with Assured Guaranty Ltd., Old

Diamond Hill Funds Annual Report December 31, 2010

Page 17

Republic International Corp., Prudential Financial Inc. and The Travelers Cos., Inc. all in the top ten holdings at year end. These companies generally experienced fundamental pressures relatively early in the cycle due to exposure to real estate related assets and/or broad exposure to the equity markets. At the end of 2010, these organizations displayed sound balance sheets with strong capital levels and were, without exception, operationally poised to add profitable market share in their respective business lines. Finally, we continue to expect increased M&A activity in the near-term and believe this will be an essential component of capacity rationalization and efficiency gains across the key industries within the sector.

As always, we continue to believe shareholders in the fund will benefit from a relatively concentrated portfolio. Also, as most of you are aware, we continue to manage the Fund as a long-short portfolio and will continue to do so for the foreseeable future. We do not intend to use our short positions as a “hedge” to mitigate our long exposure/volatility, but instead as a way to enhance our performance over time. Our short exposure will typically be much smaller than the long side, and therefore, we will have fewer positions and generally smaller in size. Finally, we continually strive to maintain our disciplined process of evaluating both the fundamentals and valuations of our current and prospective investments. We would like to thank our shareholders for their continued support of the Fund.

Christopher M. Bingaman, CFA
Manager

Growth of $10,000

Comparison of the Change in Value of a $10,000 Investment in the Diamond Hill Financial Long-Short Fund — Class A^(A), the S&P 1500 SuperComposite Financials Index.


^(A)		The chart above represents the performance of Class A shares only, which will vary from the performance of Class C and Class I shares based on the difference in loads and fees paid by shareholders in the different classes.

^(B)		The average annual total returns shown above are adjusted for maximum applicable sales charge of 5.00%.

The performance of the above Fund does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

The chart above represents a comparison of a hypothetical $10,000 investment and the reinvestment of dividends and capital gains in the indicated share class versus a similar investment in the S&P 1500 Super Composite Financials Index(“Index”).The index is a market capitalized-weighted index which is comprised of the companies that represent the Financial Services Sector weighting within the S&P 1500 Super Composite Index. The Index is unmanaged, and does not reflect the deduction of fees associated with a mutual fund such as investment management and accounting fees. The Fund’s performance reflects the deduction of fees for these services. Investors cannot invest directly in an index although they can invest in the underlying securities.

Tabular Presentation of Investments

The table below provides the Financial Long-Short Fund’s sector allocation. We hope it will be useful to shareholders as it summarizes key information about the Fund’s investments.

Sector Allocation (% of Net Assets)*


										Consumer			REITs &
	Banking						Financial			Financial			Real Estate						Capital			Cash
	Services			Insurance			Services			Services			Management			Other			Markets			& Equiv.

Long Portfolio		31.3	%		31.2	%		18.7	%		4.3	%		3.8	%		1.4	%		—			9.2	%

S&P 1500 SuperComposite Financials Index		19.1	%		23.2	%		24.9	%		3.9	%		14.0	%		—			15.0	%		—

Short Portfolio		(7.2	%)		—			(0.5	%)		—			—			—			—			—


*		Sector allocations may not total 100% due to rounding and are as of 12/31/10 and subject to change.

Diamond Hill Funds Annual Report December 31, 2010

Page 18

Diamond Hill Strategic Income Fund

Performance Update


										Since
Average Annual Total Returns	One			Three			Five			Inception			Expense
as of December 31, 2010	Year			Years			Years			(9/30/02)			Ratio*

PERFORMANCE AT NAV without sales charges

Class A Shares		13.33	%		8.46	%		6.02	%		7.81	%		1.05	%

Class C Shares		12.39	%		7.64	%		5.23	%		7.07	%		1.80	%

Class I Shares		13.77	%		8.86	%		6.45	%		8.11	%		1.40	%

BENCHMARK

BofA Merrill Lynch U.S. Corporate, Government, & Mortgage Index		6.43	%		5.96	%		5.87	%		5.08	%		—

BofA Merrill Lynch U.S. Corporate & High Yield Index		10.76	%		7.52	%		6.56	%		7.00	%		—

PERFORMANCE AT POP includes sales charges

Class A Shares		9.34	%		7.17	%		5.27	%		7.35	%		1.05	%

Class C Shares		11.39	%		7.64	%		5.23	%		7.07	%		1.80	%


Historical performance for Class I shares prior to their inception is based on the performance of Class A shares. Class I performance has been adjusted to reflect differences in sales charges and expenses between classes.

*		Reflects the expense ratio as reported in the Summary Prospectus as amended April 30, 2010.

Past performance does notguarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.diamond-hill.com.

Portfolio Commentary




William Zox, CFA, J.D., LL.M.	Christopher M. Bingaman, CFA	Austin Hawley, CFA
Manager	Assistant Manager	Assistant Manager

For 2010, the Diamond Hill Strategic Income Fund generated a 13.33% total return (Class A, without sales charge) compared to a 6.43% total return for the Bank of America Merrill Lynch U.S. Corporate, Government and Mortgage Index. For the trailing five-year period, the Fund generated a total return of 6.02% per year compared to 5.87% per year for the Index and 2.74% per year for U.S. stocks, as measured by the Russell 3000 Index.

We added the Bank of America Merrill Lynch U.S. Corporate & High Yield Index as a supplemental benchmark for the Fund. The Fund has never been managed against an index and that will not change with the addition of the supplemental benchmark. Because the Fund has a flexible mandate, we have used a broad bond market index as the primary benchmark since its inception. Another factor in favor of the broad bond market index is that there are many passive and active strategies available to investors that are comparable to such an index. However, the primary benchmark has never been representative of the actual holdings of the Fund. The supplemental benchmark may be helpful to an analysis of the Fund as it is much more representative of the Fund’s holdings than the primary benchmark (in particular, since April 30, 2008). For 2010, the supplemental benchmark index generated a total return of 10.76%. For the trailing five-year period, the supplemental benchmark index generated a total return of 6.56% per year.

Corporate bonds outperformed government bonds by a wide margin again in 2010. Over the course of the year, the 10-year Treasury yield declined from 3.85% to 3.30% while the two-year Treasury yield declined from 1.14% to 0.61%. The option-adjusted spread of the Bank of America Merrill Lynch BBB Index declined from 248 basis points to 211 basis points. This spread was under 150 basis points from the fourth quarter of 2003 until the third quarter of 2007. The option-adjusted spread of the Bank of America Merrill Lynch U.S. High Yield Master II Index declined from 639 basis points to 541 basis points. This spread was under 450 basis points from late-2003 until late-2007.

Coming into 2010, we were concerned that net new Treasury issuance in the $1.5-1.8 trillion range for the second year in a row would put upward pressure on Treasury yields. In fact, Treasury yields actually declined during 2010. On the supply front, net debt issuance outside of Treasuries was negative in 2010. On the demand front, foreign purchasers and banks increased their purchases of Treasuries while the Federal Reserve and money managers continued to be large buyers.

Once again, 2011 net Treasury issuance is expected to be in the $1.5-1.8 trillion range. The Federal Reserve will be the dominant player on the demand side for the first half of the year but at some point the Fed will have to

Diamond Hill Funds Annual Report December 31, 2010

Page 19

withdraw from its extraordinary monetary stimulus. Further, the private sector supply of debt may begin to grow as the recovery becomes self-sustaining. While the timing is difficult to predict, we believe that it is likely that the Treasury will be required to pay materially higher interest rates on its debt at some point during our five-year investment horizon.

In fact, interest rates did rise from very low levels during the last two months of 2010. One precipitating factor was the strength of final demand at the end of 2010 which more than offset the waning support of the inventory cycle and fiscal stimulus. The markets seemed to be discounting continuing strength in final demand throughout 2011 and more fiscal and monetary stimulus than was anticipated last summer. Still, deleveraging of consumer and then government balance sheets will remain a significant force on the economy and markets for years to come. When asset prices are rising and interest rates are relatively low, deleveraging will be less disruptive. However, the environment will not always be this benign and deleveraging will likely be more disruptive at times.

We continue to believe that select corporate bonds, with attractive current income and limited interest rate risk, offer a reasonable risk/reward opportunity while the deleveraging process plays out and Treasury yields revert back to more typical levels.

William Zox, CFA, J.D., LL.M.
Manager

Growth of $10,000

Comparison of the Change in Value of a $10,000 Investment in the Diamond Hill Strategic Income Fund - - Class A^(A), the BofA Merrill Lynch U.S. Corporate, Government & Mortgage Index and BofA Merrill Lynch U.S. Corporate & High Yield Index.


^(A)		The chart above represents the performance of Class A shares only, which will vary from the performance of Class C and Class I shares based on the difference in loads and fees paid by shareholders in the different classes.

^(B)		The total return shown above is adjusted for maximum applicable sales charge of 3.50%.

^(C)		Class A shares commenced operations on September 30, 2002.

The performance of the above Fund does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

The chart above represents a comparison of a hypothetical $10,000 investment and the reinvestment of dividends and capital gains in the indicated share class versus a similar investment in the BofA Merrill Lynch U.S. Corporate, Government & Mortgage Index and the BofA Merrill Lynch U.S. Corporate & High Yield Index. The BofA Merrill Lynch U.S. Corporate, Government & Mortgage Index measures the performance of a mixture of government bonds, corporate bonds and mortgage pass through securities of investment grade quality, having a maturity greater than or equal to one year. The BofA Merrill Lynch U.S. Corporate & High Yield Index tracks the performance of the U.S. dollar denominated investment grade and below investment grade corporate debt publically issued in the U.S. domestic market. Both indices are unmanaged, and do not reflect the deduction of fees associated with a mutual fund such as investment management and accounting fees. The Fund’s performance reflects the deduction of fees for these services. Investors cannot invest directly in an index although they can invest in the underlying securities.

Tabular Presentation of Schedule of Investments

The table below provides the Strategic Income Fund’s sector allocation. We hope it will be useful to shareholders as it summarizes key information about the Fund’s investments.

Sector Allocation (% of Net Assets)*


										Cash and
							Asset-Backed			Cash
	Corporate Bonds			Preferreds			Securities			Equivalents

Strategic Income Fund		92.3	%		1.1	%		0.5	%		6.1	%


*		Sector allocations may not total 100% due to rounding and are as of 12/31/10 and subject to change.

Diamond Hill Funds Annual Report December 31, 2010

Page 20

Diamond Hill Small Cap Fund

Schedule of Investments
December 31, 2010


			Fair
	Shares		Value

Common Stocks — 82.3%
Consumer Discretionary — 7.6%
Aaron’s, Inc.^à		418,415	$	8,531,482
Callaway Golf Co.^à		731,916		5,906,562
Carter’s, Inc.*^à		137,905		4,069,576
Global Sources Ltd.*		524,661		4,994,773
Hillenbrand, Inc.		574,910		11,963,877
K-Swiss, Inc., Class A*^à		457,100		5,700,037
Liquidity Services, Inc.*^à		126,660		1,779,573
Steiner Leisure Ltd.*^à		454,681		21,233,603

				64,179,483


Consumer Staples — 11.5%
B&G Foods, Inc.		247,965		3,404,559
Del Monte Foods Co.		848,480		15,951,424
Energizer Holdings, Inc.*		391,620		28,549,098
Flowers Foods, Inc.^à		911,836		24,537,507
Ralcorp Holdings, Inc.*		184,400		11,987,844
Ruddick Corp.^à		138,690		5,109,340
Snyders-Lance, Inc.^à		360,530		8,450,823

				97,990,595


Energy — 12.5%
Berry Petroleum Co., Class A^à		515,645		22,533,687
Cimarex Energy Co.		241,295		21,361,846
Denbury Resources, Inc.*		638,515		12,189,251
Exterran Holdings, Inc.*^à		279,728		6,699,486
Forest Oil Corp.*		222,020		8,430,099
Hornbeck Offshore Services, Inc.*^à		233,740		4,880,491
Southwestern Energy Co.*		208,230		7,794,049
Whiting Petroleum Corp.*		187,650		21,990,704

				105,879,613


Financials — 20.7%
Alleghany Corp.*		39,738		12,174,531
Arch Capital Group Ltd.*		186,195		16,394,470
Assurant, Inc.		740,495		28,523,867
Assured Guaranty Ltd.^à		1,690,807		29,927,284
City National Corp.		101,775		6,244,914
First American Financial Corp.		306,020		4,571,939
First Niagara Financial Group, Inc.^à		248,790		3,478,084
Horace Mann Educators Corp.		611,295		11,027,762
Huntington Bancshares, Inc.		1,355,798		9,314,332
Mid-America Apartment Communities, Inc. REIT^à		127,569		8,099,356
National Penn Bancshares, Inc.^à		659,430		5,295,223
Old Republic International Corp.^à		1,467,630		20,003,797
Popular, Inc.*		1,634,955		5,133,759
Redwood Trust, Inc. REIT^à		356,720		5,325,830
Sterling Bancorp		493,537		5,167,332
United Fire & Casualty Co.^à		212,675		4,746,906

				175,429,386


Health Care — 7.8%
Greatbatch, Inc.*		250,445		6,048,247
Kinetic Concepts, Inc.*		313,920		13,146,969
King Pharmaceuticals, Inc.*		1,102,195		15,485,840
LifePoint Hospitals, Inc.*^à		391,175		14,375,681
Myriad Genetics, Inc.*^à		491,125		11,217,295
STERIS Corp.^à		167,635		6,111,972

				66,386,004


Industrials — 10.9%
AAR Corp.*^à		397,572		10,921,303
AirTran Holdings, Inc.*^à		1,316,400		9,728,196
Allegiant Travel Co.^à		189,390		9,325,564
Apogee Enterprises, Inc.^à		514,250		6,926,947
Brink’s Co., The		417,570		11,224,282
Corrections Corp. of America*		352,635		8,837,033
HUB Group, Inc., Class A*^à		228,920		8,044,249
Kaydon Corp.^à		121,285		4,938,725
Saia, Inc.*^à		549,225		9,111,643
Toro Co., The^à		63,725		3,928,009
Trinity Industries, Inc.^à		375,845		10,001,235

				92,987,186


Information Technology — 8.1%
Alliance Data Systems Corp.*^à		203,650		14,465,259
Broadridge Financial Solutions, Inc.		274,155		6,012,219
CoreLogic, Inc.		624,805		11,571,389
CSG Systems International, Inc.*		435,187		8,242,442
KLA-Tencor Corp.		171,720		6,635,261
Verigy Ltd.*		1,662,075		21,640,216

				68,566,786

Diamond Hill Funds Annual Report December 31, 2010

Page 21

Diamond Hill Small Cap Fund
Schedule of Investments (Continued)
December 31, 2010


	Shares/		Fair
	Par Value		Value

Common Stocks — 82.3% continued
Utilities — 3.2%
Cleco Corp.^à		308,315	$	9,483,769
UGI Corp.		349,690		11,043,210
WGL Holdings, Inc.^à		194,271		6,949,074

				27,476,053


Total Common Stocks			$	698,895,106


Repurchase Agreement — 10.4%
BNP Paribas Securities Corp., 0.17%, Agreement dated 12/31/10 to be repurchased at $88,254,472 on 1/3/11. Repurchase agreement is fully collateralized by various U.S. Government Agency securities with a range of rates from 0.0% — 6.3%, and maturities from 1/12/2011 through 6/5/2036^†	$	88,253,222	$	88,253,222


Registered Investment Companies — 18.6%
JPMorgan Prime Money Market Fund, Capital Shares		84,130,452		84,130,452
JPMorgan U.S. Government Money Market Fund, Capital Shares		73,618,344		73,618,344

Total Registered Investment Companies			$	157,748,796


Total Investment Securities — 111.3% (Cost $797,535,899)**			$	944,897,124

Net Other Assets (Liabilities) — (11.3%)				(96,273,060	)


Net Assets — 100.0%			$	848,624,064


*		Non-income producing security.

**		Represents cost for financial reporting purposes.

^à		All or a portion of the security is on loan. The total market value of the securities on loan, as of December 31, 2010, was $85,494,357.

^†		This security, which was purchased using cash collateral received from securities on loan, represents collateral for securities loaned as of December 31, 2010.

REIT — Real Estate Investment Trust

See accompanying Notes to Financial Statements.

Diamond Hill Small-Mid Cap Fund
Schedule of Investments
December 31, 2010


			Fair
	Shares		Value

Common Stocks — 85.1%
Consumer Discretionary — 6.9%
Aaron’s, Inc.^à		33,525	$	683,575
Callaway Golf Co.^à		94,575		763,220
Carter’s, Inc.*^à		10,600		312,806
GameStop Corp., Class A*^à		25,285		578,521
Hillenbrand, Inc.		44,045		916,576
K-Swiss, Inc., Class A*^à		55,365		690,402
Steiner Leisure Ltd.*^à		18,260		852,742

				4,797,842


Consumer Staples — 11.4%
ConAgra Foods, Inc.		93,395		2,108,859
Del Monte Foods Co.		78,270		1,471,476
Energizer Holdings, Inc.*		19,155		1,396,399
Flowers Foods, Inc.^à		58,420		1,572,082
Molson Coors Brewing Co., Class B		21,010		1,054,492
Ruddick Corp.^à		9,190		338,560

				7,941,868


Energy — 16.0%
Berry Petroleum Co., Class A^à		20,165		881,211
Cimarex Energy Co.		27,235		2,411,115
Denbury Resources, Inc.*		78,018		1,489,364
Energen Corp.		16,115		777,710
Exterran Holdings, Inc.*^à		24,065		576,357
Forest Oil Corp.*		13,550		514,493
Hornbeck Offshore Services, Inc.*^à		12,780		266,846
Noble Energy, Inc.		29,745		2,560,450
Southwestern Energy Co.*		26,680		998,632
Whiting Petroleum Corp.*		5,550		650,404

				11,126,582


Financials — 19.0%
Alleghany Corp.*		2,649		811,574
Allstate Corp.		28,970		923,564
Arch Capital Group Ltd.*		16,535		1,455,907
Assurant, Inc.		36,795		1,417,343
Assured Guaranty Ltd.		118,415		2,095,945
First American Financial Corp.		23,425		349,969
First Niagara Financial Group, Inc.^à		54,495		761,840
Huntington Bancshares, Inc.		115,434		793,031
Marsh & McLennan Cos., Inc.		24,620		673,111
National Penn Bancshares, Inc.		82,960		666,169

Diamond Hill Funds Annual Report December 31, 2010

Page 22

Diamond Hill Small-Mid Cap Fund
Schedule of Investments (Continued)
December 31, 2010


			Fair
	Shares		Value

Common Stocks — 85.1% continued
Financials — 19.0% continued
Old Republic International Corp.^à		156,020	$	2,126,553
Popular, Inc.*		247,300		776,522
SunTrust Banks, Inc.		10,315		304,396

				13,155,924


Health Care — 8.2%
Forest Laboratories, Inc.*		46,545		1,488,509
Greatbatch, Inc.*		13,490		325,784
Kinetic Concepts, Inc.*		25,445		1,065,637
LifePoint Hospitals, Inc.*^à		19,325		710,194
Myriad Genetics, Inc.*^à		30,730		701,873
Quest Diagnostics, Inc.		26,055		1,406,188

				5,698,185


Industrials — 10.2%
AirTran Holdings, Inc.*^à		75,215		555,839
Brink’s Co., The		29,285		787,181
Corrections Corp. of America*		38,070		954,034
Dover Corp.		41,935		2,451,101
Fluor Corp.		10,530		697,718
HUB Group, Inc., Class A*		17,805		625,667
Parker Hannifin Corp.		7,540		650,702
Trinity Industries, Inc.		13,220		351,784

				7,074,026


Information Technology — 10.8%
Alliance Data Systems Corp.*^à		16,475		1,170,219
Broadridge Financial Solutions, Inc.		65,690		1,440,582
CoreLogic, Inc.		66,015		1,222,598
KLA-Tencor Corp.		33,410		1,290,962
Linear Technology Corp.		18,775		649,427
Verigy Ltd.*		131,100		1,706,922

				7,480,710


Utilities — 2.6%
Cleco Corp.		13,800		424,488
UGI Corp.		30,445		961,453
WGL Holdings, Inc.^à		11,245		402,234

				1,788,175


Total Common Stocks			$	59,063,312


	Shares/		Fair
	Par Value		Value

Repurchase Agreement — 11.0%
BNP Paribas Securities Corp., 0.17%, Agreement dated 12/31/10 to be repurchased at $7,636,628 on 1/3/11. Repurchase agreement is fully collateralized by various U.S. Government Agency securities with a range of rates from 0.0% — 6.3%, and maturities from 1/12/2011 through 6/5/2036^†	$	7,636,520	$	7,636,520


Registered Investment Company — 15.1%
JPMorgan U.S. Government Money Market Fund, Capital Shares		10,443,099	$	10,443,099


Total Investment Securities — 111.2% (Cost $64,550,548)**			$	77,142,931

Net Other Assets (Liabilities) — (11.2%)				(7,798,218	)


Net Assets — 100.0%			$	69,344,713


*		Non-income producing security.

**		Represents cost for financial reporting purposes.

^à		All or a portion of the security is on loan. The total market value of the securities on loan, as of December 31, 2010, was $7,418,648.

^†		This security, which was purchased using cash collateral received from securities on loan, represents collateral for securities loaned as of December 31, 2010.

See accompanying Notes to Financial Statements.

Diamond Hill Funds Annual Report December 31, 2010

Page 23

Diamond Hill Large Cap Fund

Schedule of Investments
December 31, 2010


			Fair
	Shares		Value

Common Stocks — 96.0%
Consumer Discretionary — 3.6%
McDonald’s Corp.		261,534	$	20,075,350
Wal-Mart Stores, Inc.		374,978		20,222,563

				40,297,913


Consumer Staples — 12.4%
ConAgra Foods, Inc.		923,353		20,849,311
General Mills, Inc.		560,583		19,951,149
Kimberly-Clark Corp.		241,085		15,197,998
PepsiCo, Inc.		471,950		30,832,494
Procter & Gamble Co., The		480,407		30,904,582
Sysco Corp.		690,354		20,296,408

				138,031,942


Energy — 19.1%
Anadarko Petroleum Corp.		626,385		47,705,482
Apache Corp.		362,343		43,202,156
Devon Energy Corp.		537,197		42,175,336
EOG Resources, Inc.		127,175		11,625,067
Exxon Mobil Corp.		304,505		22,265,405
Occidental Petroleum Corp.		465,807		45,695,667

				212,669,113


Financials — 18.2%
Assurant, Inc.		222,910		8,586,493
Bank of New York Mellon Corp.		557,144		16,825,749
Chubb Corp., The		174,230		10,391,077
JPMorgan Chase & Co.		814,127		34,535,267
Marsh & McLennan Cos., Inc.		621,790		16,999,739
PNC Financial Services Group, Inc.		351,825		21,362,814
Prudential Financial, Inc.		372,330		21,859,494
Travelers Cos., Inc., The		459,869		25,619,302
U.S. Bancorp		828,793		22,352,547
Wells Fargo & Co.		747,420		23,162,546

				201,695,028


Health Care — 18.7%
Abbott Laboratories		601,697		28,827,303
Amgen, Inc.*		83,470		4,582,503
Baxter International, Inc.		328,602		16,633,833
Johnson & Johnson		401,364		24,824,364
Medtronic, Inc.		898,082		33,309,861
Merck & Co., Inc.		839,730		30,263,869
Pfizer, Inc.		1,772,737		31,040,625
Quest Diagnostics, Inc.		309,415		16,699,128
UnitedHealth Group, Inc.		594,961		21,484,042

				207,665,528


	Shares/		Fair
	Par Value		Value

Industrials — 14.1%
3M Co.		238,352		20,569,778
Dover Corp.		381,393		22,292,421
Fluor Corp.		205,965		13,647,241
Illinois Tool Works, Inc.		439,934		23,492,475
Parker Hannifin Corp.		286,999		24,768,014
Raytheon Co.		324,159		15,021,528
United Technologies Corp.		474,592		37,359,882

				157,151,339


Information Technology — 7.3%
Alliance Data Systems Corp.*^à		121,370		8,620,911
Cisco Systems, Inc.*		647,081		13,090,449
KLA-Tencor Corp.		551,415		21,306,675
Linear Technology Corp.^à		329,630		11,401,902
Microsoft Corp.		972,465		27,151,223

				81,571,160


Materials — 2.1%
Air Products & Chemicals, Inc.		253,370		23,044,001


Utilities — 0.5%
Dominion Resources, Inc.		127,057		5,427,875


Total Common Stocks			$	1,067,553,899


Repurchase Agreement — 1.3%
BNP Paribas Securities Corp., 0.17%, Agreement dated 12/31/10 to be repurchased at $14,224,602 on 1/3/11. Repurchase agreement is fully collateralized by various U.S. Government Agency securities with a range of rates from 0.0% — 6.3%, and maturities from 1/12/2011 through 6/5/2036^†	$	14,224,401	$	14,224,401

Diamond Hill Funds Annual Report December 31, 2010

Page 24

Diamond Hill Large Cap Fund
Schedule of Investments (Continued)
December 31, 2010


			Fair
	Shares		Value

Registered Investment Company — 3.1%
JPMorgan Prime Money Market Fund, Capital Shares		34,493,090	$	34,493,090


Total Investment Securities — 100.4% (Cost $967,943,687)**			$	1,116,271,390

Net Other Assets (Liabilities) — (0.4%)				(4,191,067	)


Net Assets — 100.0%			$	1,112,080,323


*		Non-income producing security.

**		Represents cost for financial reporting purposes.

^à		All or a portion of the security is on loan. The total market value of the securities on loan, as of December 31, 2010, was $13,832,824.

^†		This security, which was purchased using cash collateral received from securities on loan, represents collateral for securities loaned as of December 31, 2010.

See accompanying Notes to Financial Statements.

Diamond Hill Select Fund
Schedule of Investments
December 31, 2010


			Fair
	Shares		Value

Common Stocks — 95.5%
Consumer Discretionary — 3.8%
McDonald’s Corp.		10,585	$	812,505
Wal-Mart Stores, Inc.		15,440		832,679

				1,645,184


Consumer Staples — 14.4%
ConAgra Foods, Inc.		73,448		1,658,456
General Mills, Inc.		22,420		797,928
PepsiCo, Inc.		12,845		839,164
Procter & Gamble Co., The		19,625		1,262,476
Sysco Corp.		57,305		1,684,767

				6,242,791


Energy — 18.7%
Anadarko Petroleum Corp.		14,380		1,095,181
Apache Corp.		14,195		1,692,470
Cimarex Energy Co.		14,460		1,280,144
Devon Energy Corp.		18,735		1,470,885
Exterran Holdings, Inc.*^à		24,815		594,319
Occidental Petroleum Corp.		15,690		1,539,189
Southwestern Energy Co.*		12,075		451,967

				8,124,155


Financials — 19.7%
Arch Capital Group Ltd.*		7,295		642,325
Assurant, Inc.		15,065		580,304
Assured Guaranty Ltd.^à		68,915		1,219,795
JPMorgan Chase & Co.		35,945		1,524,787
Prudential Financial, Inc.		17,240		1,012,160
Travelers Cos., Inc., The		15,320		853,477
U.S. Bancorp		44,745		1,206,773
Wells Fargo & Co.		48,115		1,491,084

				8,530,705


Health Care — 17.5%
Abbott Laboratories		19,765		946,941
Baxter International, Inc.		20,290		1,027,080
Johnson & Johnson		16,320		1,009,392
Medtronic, Inc.		35,381		1,312,281
Merck & Co., Inc.		34,015		1,225,901
Pfizer, Inc.		59,100		1,034,841
UnitedHealth Group, Inc.		28,812		1,040,401

				7,596,837

Diamond Hill Funds Annual Report December 31, 2010

Page 25

Diamond Hill Select Fund
Schedule of Investments (Continued)
December 31, 2010


	Shares/		Fair
	Par Value		Value

Common Stocks — 95.5% continued
Industrials — 12.3%
3M Co.		9,265	$	799,569
Dover Corp.		23,100		1,350,195
Illinois Tool Works, Inc.		26,708		1,426,207
Parker Hannifin Corp.		4,910		423,733
United Technologies Corp.		16,655		1,311,082

				5,310,786


Information Technology — 6.5%
Cisco Systems, Inc.*		18,010		364,342
KLA-Tencor Corp.		11,285		436,053
Microsoft Corp.		41,150		1,148,908
Verigy Ltd.*		67,565		879,696

				2,828,999


Materials — 2.6%
Air Products & Chemicals, Inc.		12,375		1,125,506


Total Common Stocks			$	41,404,963


Repurchase Agreement — 1.3%
BNP Paribas Securities Corp., 0.17%,Agreement dated 12/31/10 to be repurchased at $547,242 on 1/3/11. Repurchase agreement is fully collateralized by various U.S. Government Agency securities with a range of rates from 0.0% — 6.3%, and maturities from 1/12/2011 through 6/5/2036^†	$	547,234	$	547,234


			Fair
	Shares		Value

Registered Investment Company — 4.4%
JPMorgan Prime Money Market Fund, Capital Shares		1,892,791	$	1,892,791


Total Investment Securities — 101.2% (Cost $37,289,413)**			$	43,844,988


Net Other Assets
(Liabilities) — (1.2%)				(534,861	)


Net Assets — 100.0%			$	43,310,127


*		Non-income producing security.

**		Represents cost for financial reporting purposes.

^à		All or a portion of the security is on loan. The total market value of the securities on loan, as of December 31, 2010, was $529,546.

^†		This security, which was purchased using cash collateral received from securities on loan, represents collateral for securities loaned as of December 31, 2010.

See accompanying Notes to Financial Statements.

Diamond Hill Funds Annual Report December 31, 2010

Page 26

Diamond Hill Long-Short Fund
Schedule of Investments
December 31, 2010


			Fair
	Shares		Value

Common Stocks — 93.1%
Consumer Discretionary — 3.8%
McDonald’s Corp.§		535,774	$	41,126,012
Wal-Mart Stores, Inc.		607,065		32,739,016

				73,865,028


Consumer Staples — 11.3%
ConAgra Foods, Inc.		1,711,065		38,635,847
General Mills, Inc.		1,109,337		39,481,304
PepsiCo, Inc.		809,115		52,859,483
Procter & Gamble Co., The		867,560		55,810,135
Sysco Corp.		1,023,452		30,089,489

				216,876,258


Energy — 20.2%
Anadarko Petroleum Corp.		1,235,228		94,074,965
Apache Corp.		714,801		85,225,723
Cimarex Energy Co.		83,600		7,401,108
Devon Energy Corp.		795,520		62,456,275
EOG Resources, Inc.		115,565		10,563,797
Exxon Mobil Corp.		597,008		43,653,225
Occidental Petroleum Corp.		866,113		84,965,685

				388,340,778


Financials — 16.1%
Assurant, Inc.§		650,100		25,041,852
Assured Guaranty Ltd.		1,609,215		28,483,106
JPMorgan Chase & Co.		1,120,145		47,516,551
PNC Financial Services Group, Inc.§		632,745		38,420,276
Prudential Financial, Inc.		701,430		41,180,955
Travelers Cos., Inc., The		850,295		47,369,935
U.S. Bancorp		1,486,702		40,096,353
Wells Fargo & Co.		1,337,285		41,442,462

				309,551,490


Health Care — 17.2%
Abbott Laboratories		1,023,465		49,034,208
Amgen, Inc.*§		169,095		9,283,315
Baxter International, Inc.		554,056		28,046,315
Johnson & Johnson		529,420		32,744,627
Medtronic, Inc.		1,375,082		51,001,791
Merck & Co., Inc.§		1,227,265		44,230,631
Pfizer, Inc.		2,746,150		48,085,087
Quest Diagnostics, Inc.		568,775		30,696,787
UnitedHealth Group, Inc.^à		1,045,130		37,739,644

				330,862,405


	Shares/		Fair
	Per Value		Value

Industrials — 15.3%
3M Co.		444,770	$	38,383,651
Dover Corp.		913,275		53,380,924
Fluor Corp.		327,105		21,673,977
Illinois Tool Works, Inc.		697,340		37,237,956
Parker Hannifin Corp.§		620,730		53,568,999
Raytheon Co.		497,862		23,070,925
United Technologies Corp.^à		844,965		66,515,645

				293,832,077


Information Technology — 6.5%
Alliance Data Systems Corp.*^à		246,745		17,526,297
Cisco Systems, Inc.*		1,250,009		25,287,682
KLA-Tencor Corp.§		978,133		37,795,059
Microsoft Corp.		1,594,640		44,522,349

				125,131,387


Materials — 2.2%
Air Products & Chemicals, Inc.		461,433		41,967,331


Utilities — 0.5%
Dominion Resources, Inc.		228,234		9,750,156


Total Common Stocks			$	1,790,176,910


Repurchase Agreement — 1.0%
BNP Paribas Securities Corp., 0.17%, Agreement dated 12/31/10 to be repurchased at $19,694,673 on 01/03/11. Repurchase agreement is fully collateralized by various U.S. Government Agency securities with a range of rates from 0%- 6.3% and maturities from 1/12/2011 through 6/5/2036^†	$	19,694,394	$	19,694,394

Diamond Hill Funds Annual Report December 31, 2010

Page 27

Diamond Hill Long-Short Fund
Schedule of Investments (Continued)
December 31, 2010


			Fair
	Shares		Value

Registered Investment Company — 6.2%
JPMorgan Prime Money Market Fund, Capital Shares		118,513,355	$	118,513,355


Total Investment Securities — 100.3% (Cost $1,570,607,986)**			$	1,928,384,659

Segregated Cash With Brokers — 28.5%				549,041,938

Securities Sold Short — (28.7)% (Proceeds $393,589,805)			$	(551,978,736	)

Net Other Assets
(Liabilities) — (0.1%)				(1,877,738	)


Net Assets — 100.0%			$	1,923,570,123


*		Non-income producing security.

**		Represents cost for financial reporting purposes.

^à		All or a portion of the security is on loan. The total market value of the securities on loan, as of December 31, 2010, was $19,234,244.

^†		This security, which was purchased using cash collateral received from securities on loan, represents collateral for securities loaned as of December 31, 2010.

§		Security position is either entirely or partially held in a segregated account as collateral for securities sold short and aggregates to a total market value of $114,494,798.

See accompanying Notes to Financial Statements.

Diamond Hill Long-Short Fund
Schedule of Investments Sold Short
December 31, 2010


			Fair
	Shares		Value

Common Stocks — 27.7%
Consumer Discretionary — 13.9%
Apollo Group, Inc., Class A*		243,380	$	9,611,076
Brunswick Corp.		1,311,835		24,583,788
Capella Education Co.*		144,020		9,588,852
Life Time Fitness, Inc.*		535,339		21,943,546
Macy’s, Inc.		1,513,935		38,302,555
MGM Resorts International*		2,642,961		39,247,971
NetFlix, Inc.*		60,505		10,630,728
Nordstrom, Inc.		523,160		22,171,521
Royal Caribbean Cruises Ltd.*		456,761		21,467,767
Sally Beauty Holdings, Inc.*		1,521,610		22,108,993
Sonic Corp.*		415,430		4,204,152
Strayer Education, Inc.		61,595		9,375,991
Tractor Supply Co.		429,929		20,847,257
Urban Outfitters, Inc.*		363,620		13,021,232

				267,105,429


Consumer Staples — 4.1%
Colgate-Palmolive Co.		399,575		32,113,843
H.J. Heinz Co.		332,483		16,444,609
Kraft Foods, Inc., Class A		1,007,355		31,741,756

				80,300,208


Financials — 0.5%
Moody’s Corp.		356,930		9,472,922


Health Care — 1.2%
Covance, Inc.*		445,390		22,897,500


Industrials — 2.4%
Avery Dennison Corp.		351,115		14,866,209
Boeing Co., The		469,555		30,643,159

				45,509,368


Information Technology — 3.9%
Advent Software, Inc.*		178,021		10,310,976
Akamai Technologies, Inc.*		627,195		29,509,525
Monster Worldwide, Inc.*		757,125		17,890,864
Salesforce.com, Inc.*		128,875		17,011,500

				74,722,865


Materials — 1.0%
Dow Chemical Co.		562,955		19,219,284

Diamond Hill Funds Annual Report December 31, 2010

Page 28

Diamond Hill Long-Short Fund
Schedule of Investments Sold Short (Continued)
December 31, 2010


			Fair
	Shares		Value

Common Stocks — 27.7% continued
Telecommunication Services — 0.7%
Sprint Nextel Corp.*		3,231,420	$	13,668,907


Total Common Stocks Sold Short			$	532,896,483


Exchange Traded Fund — 1.0%
iShares Russell 2000 Index Fund		243,925	$	19,082,253


Total Securities Sold Short (Proceeds $393,589,805)			$	551,978,736


*		Non-dividend expense producing security.

Percentages disclosed are based on total net assets of the Fund at December 31, 2010.

See accompanying Notes to Financial Statements.

Diamond Hill Financial Long-Short Fund
Schedule of Investments
December 31, 2010


			Fair
	Shares		Value

Preferred Stocks — 4.1%
Banking Services — 1.0%
Citizens Funding Trust I, 7.50%*		7,130	$	113,082


Financial Services — 1.6%
Countrywide Capital V, 7.00%§		7,625		187,575


REITs & Real Estate Management — 1.5%
iStar Financial, Inc., 7.80%, Series F		10,387		183,850

Total Preferred Stocks			$	484,507


Common Stocks — 85.7%
Banking Services — 24.9%
BB&T Corp.		3,776		99,271
City National Corp.		1,500		92,040
First California Financial Group, Inc.*		28,801		80,643
First Financial Holdings, Inc.^à		12,529		144,209
First Niagara Financial Group, Inc.^à		12,655		176,917
First of Long Island Corp.^à		6,860		198,323
Huntington Bancshares, Inc.§		32,131		220,740
National Penn Bancshares, Inc.		22,185		178,145
PNC Financial Services Group, Inc.§		7,479		454,125
Popular, Inc.*		74,440		233,741
Sterling Bancorp		6,080		63,658
SunTrust Banks, Inc.		4,622		136,395
Wells Fargo & Co.§		27,716		858,919

				2,937,126


Commercial Banks — 4.5%
U.S. Bancorp§		19,858		535,570


Consumer Financial Services — 4.3%
American Express Co.		5,590		239,923
Discover Financial Services		14,510		268,870

				508,793


Financial Services — 17.1%
Bank of America Corp.		26,290		350,708
Bank of New York Mellon Corp.§		13,584		410,237
JPMorgan Chase & Co.		19,995		848,188
Morgan Stanley§		6,600		179,586
MVC Capital, Inc.^à		3,875		56,575
State Street Corp.		3,738		173,219

				2,018,513

Diamond Hill Funds Annual Report December 31, 2010

Page 29

Diamond Hill Financial Long-Short Fund
Schedule of Investments (Continued)
December 31, 2010


	Shares/		Fair
	Par Value		Value

Common Stocks — 85.7% continued
Insurance — 31.2%
Alleghany Corp.*		307	$	94,056
Allstate Corp.§		9,478		302,159
Arch Capital Group Ltd.*		1,871		164,741
Assurant, Inc.§		8,460		325,879
Assured Guaranty Ltd.^à		29,640		524,628
Chubb Corp., The		1,555		92,740
Hartford Financial Services Group, Inc.		9,268		245,509
HCC Insurance Holdings, Inc.		4,005		115,905
Horace Mann Educators Corp.		8,673		156,461
Marsh & McLennan Cos., Inc.		3,255		88,992
Old Republic International Corp.à		35,745		487,204
Prudential Financial, Inc.		7,410		435,041
Travelers Cos., Inc., The		6,165		343,452
XL Group plc		14,000		305,480

				3,682,247


IT Services — 1.4%
CoreLogic, Inc.		8,625		159,735


REITs & Real Estate Management — 2.3%
Redwood Trust, Inc. REIT		18,090		270,084


Total Common Stocks			$	10,112,068


Corporate Bond — 0.9%
Banking Services — 0.9%
Zions Bancorp., 7.75%, 9/23/14		105,000	$	109,464


Repurchase Agreement — 9.7%
BNP Paribas Securities Corp., 0.17%, Agreement dated 12/31/10 to be repurchased at $1,142,108 on 01/03/11. Repurchase agreement is fully collateralized by various U.S. Government Agency securities with a range of rates from 0% -6.3% and maturities from 1/12/11 through 6/5/2036^†	$	1,142,092	$	1,142,092


			Fair
	Shares		Value

Registered Investment Company — 9.5%
JPMorgan U.S. Government Money Market Fund, Capital Shares		1,124,139	$	1,124,139


Total Investment Securities — 109.9% (Cost $10,930,982)**			$	12,972,270

Segregated Cash With Brokers — 7.6%				893,638

Securities Sold Short — (7.7)% (Proceeds $862,370)				(909,840	)

Net Other Assets
(Liabilities) — (9.8%)				(1,159,421	)


Net Assets — 100.0%			$	11,796,647


*		Non-income producing security.

**		Represents cost for financial reporting purposes.

^à		All or a portion of the security is on loan. The total market value of the securities on loan, as of December 31, 2010, was $1,108,326.

^†		This security, which was purchased using cash collateral received from securities on loan, represents collateral for securities loaned as of December 31, 2010.

§		Security position is either entirely or partially held in a segregated account as collateral for securities sold short and aggregates to a total market value of $2,294,807.

REIT — Real Estate Investment Trust

See accompanying Notes to Financial Statements.

Diamond Hill Funds Annual Report December 31, 2010

Page 30

Diamond Hill Financial Long-Short Fund
Schedule of Investments Sold Short
December 31, 2010


			Fair
	Shares		Value

Common Stocks — 7.7%
Banking Services — 7.2%
Eagle Bancorp, Inc.*		12,485	$	180,158
First Bancorp		14,500		221,995
First Financial Bankshares, Inc.		3,105		158,914
United Bankshares, Inc.		5,895		172,134
WesBanco, Inc.		2,985		56,596
Westamerica Bancorp.		1,145		63,513

				853,310


Financial Services — 0.5%
Moody’s Corp.		2,130		56,530


Total Securities Sold Short (Proceeds $862,370)			$	909,840


*		Non-dividend expense producing security.

Percentages disclosed are based on total net assets of the Fund at December 31, 2010.

See accompanying Notes to Financial Statements.

Diamond Hill Strategic Income Fund
Schedule of Investments
December 31, 2010


	Shares/		Fair
	Par Value		Value

Collateralized Debt Obligations — 0.5%
Alesco Preferred Funding III, 5/4/2034*††	$	724,100		81,056
Alesco Preferred Funding Ltd., Series 6A, Class PPNE, 6/23/2030*††		336,608		70,997
Alesco Preferred Funding Ltd. IV, 7/30/2034*††		337,337		—
Alesco Preferred Funding Ltd. V, 12/23/2034*††		80,193		—
Alesco Preferred Funding VI PNN, 3/23/2035*††		621,631		131,779
Fort Sheridan ABS CDO Ltd., Series 2005-1A, Class PPN2, 11/5/2041*††		611,948		142,804
Taberna Preferred Funding Ltd., Series 2005-1A, Class PPN2, 7/5/2035*††		1,175,564		237,723

Total Collateralized Debt Obligations			$	664,359


Preferred Stocks — 1.1%
Eagle Hospitality Properties Trust, Inc., 8.25%, Series A*		21,007		20,377
Hartford Financial Services Group, Inc., 7.25%^à		60,135		1,546,600

Total Preferred Stocks			$	1,566,977

Diamond Hill Funds Annual Report December 31, 2010

Page 31

Diamond Hill Strategic Income Fund
Schedule of Investments (Continued)
December 31, 2010


	Par		Fair
	Value		Value

Corporate Bonds — 92.3%
Consumer Discretionary — 8.5%
Expedia, Inc., 7.46%, 8/15/18	$	1,700,000	$	1,938,000
Expedia, Inc., 8.50%, 7/1/16		3,000,000		3,285,000
Goodyear Tire & Rubber Co., The,10.50%, 5/15/16^à		3,550,000		4,047,000
Jarden Corp., 8.00%, 5/1/16		2,650,000		2,885,187

				12,155,187


Consumer Staples — 2.9%
Del Monte Corp., 6.75%, 2/15/15		2,625,000		2,680,781
TreeHouse Foods, Inc., 7.75%, 3/1/18		1,350,000		1,463,063

				4,143,844


Energy — 10.4%
Anadarko Petroleum Corp., 5.95%, 9/15/16		4,400,000		4,726,871
ATP Oil & Gas Corp., 11.88%, 5/1/15^{^}^à		1,900,000		1,795,500
Cimarex Energy Co., 7.13%, 5/1/17		4,640,000		4,814,000
Hornbeck Offshore Services, Inc. 6.13%, 12/1/14		3,550,000		3,550,000

				14,886,371


Financials — 24.1%
AmSouth Bank, Series AI, 4.85%, 4/1/13		1,850,000		1,794,500
CNA Financial Corp., 6.50%, 8/15/16		2,165,000		2,318,498
Discover Financial Services, 6.45%, 6/12/17		2,700,000		2,811,243
First Tennessee Bank NA, 4.50%, 5/15/13		1,400,000		1,413,374
First Tennessee Bank NA, 5.05%, 1/15/15		4,280,000		4,240,708
Huntington National Bank, 6.60%, 6/15/18		2,825,000		2,875,593
iStar Financial, Inc., Series B, 5.70%, 3/1/14^à		4,275,000		3,858,188
Nuveen Investments, Inc., 10.50%, 11/15/15		3,000,000		3,067,500
Regions Financial Corp., 5.75%, 6/15/15		3,000,000		2,936,250
Wilmington Trust Corp., 4.88%, 4/15/13		4,540,000		4,668,455
Zions Bancorp., 7.75%, 9/23/14		4,380,000		4,566,194

				34,550,503


Health Care — 5.7%
HCA, Inc., 9.25%, 11/15/16		3,725,000		3,974,109
Mylan, Inc., 7.63%, 7/15/17^{^}		4,000,000		4,255,000

				8,229,109


Industrials — 20.2%
Avis Budget Car Rental, 9.63%, 3/15/18		3,280,000		3,534,200
BE Aerospace, Inc., 8.50%, 7/1/18		4,620,000		5,058,900
Bristow Group, Inc. 7.50%, 9/15/17		1,665,000		1,756,575
Corrections Corp., 7.75%, 6/1/17		2,050,000		2,175,563
Iron Mountain, Inc., 6.63%, 1/1/16		4,075,000		4,090,281
Kansas City Southern de Mexico SA de CV, 7.38%, 6/1/14		3,155,000		3,296,975
Triumph Group, Inc., 8.00%, 11/15/17^à		2,700,000		2,808,000
United Rentals North America, Inc. 10.88%, 6/15/16		3,110,000		3,553,175
Westinghouse Air, 6.88%, 7/31/13		2,675,000		2,808,750

				29,082,419


Information Technology — 4.5%
KLA-Tencor Corp., 6.90%, 5/1/18		4,478,000		4,925,827
Mantech International Corp., 7.25%, 4/15/18		1,500,000		1,567,500

				6,493,327

Diamond Hill Funds Annual Report December 31, 2010

Page 32

Diamond Hill Strategic Income Fund
Schedule of Investments (Continued)
December 31, 2010


	Shares/		Fair
	Par Value		Value

Corporate Bonds — 92.3% continued
Materials — 9.9%
Crown Americas LLC / Crown Americas Capital Corp. II, 7.63%, 5/15/17	$	1,710,000	$	1,838,250
Crown Americas LLC, 7.75%, 11/15/15		1,550,000		1,612,000
Freeport-McMoRan Copper & Gold, Inc., 8.25%, 4/1/15		4,050,000		4,267,688
Nalco Co., 8.25%, 5/15/17		3,000,000		3,251,250
Owens-Brockway Glass Container, Inc., 6.75%, 12/1/14		3,175,000		3,230,562

				14,199,750


Telecommunication Services — 1.6%
Global Crossing Ltd., 12.00%, 9/15/15^à		2,000,000		2,255,000


Utilities — 4.5%
CenterPoint Energy, Inc., 5.95%, 2/1/17		2,525,000		2,712,974
Source Gas LLC, 5.90%, 4/1/17^{^}		4,000,000		3,827,432

				6,540,406

Total Corporate Bonds			$	132,535,916


Repurchase Agreement — 5.1%
BNP Paribas Securities Corp., 0.17%, Agreement dated 12/31/10 to be repurchased at $7,377,999 on 01/03/11. Repurchase agreement is fully collateralized by various U.S. Government Agency securities with a range of rates from 0%-6.3% and maturities from 1/12/2011 through 6/5/2036^†		7,377,894	$	7,377,894


Registered Investment Company — 6.2%
JPMorgan U.S. Government Money Market Fund, Capital Shares		8,855,116	$	8,855,116


Total Investment Securities — 105.2% (Cost $146,685,887)**			$	151,000,262

Net Other Assets (Liabilities) — (5.2%)				(7,483,780	)


Net Assets — 100.0%			$	143,516,482


*		Non-income producing security.

**		Represents cost for financial reporting purposes.

^à		All or a portion of the security is on loan. The total market value of the securities on loan, as of December 31, 2010, was $7,220,177.

^†		This security, which was purchased using cash collateral received from securities on loan, represents collateral for securities loaned as at December 31, 2010.

^{^}		Restricted securities not registered under the Securities Act of 1933 and deemed liquid based on procedures approved by the Board of Trustees are as follows:


						Value as
	Acquisition	Current		Fair		a % of
Security	Date	Cost		Value		Net Assets
ATP Oil & Gas Corp.	August-10	$	1,590,822	$	1,795,500		1.3	%
Mylan, Inc.	September-10		4,299,098		4,255,000		2.9	%
Source Gas LLC	March-10		3,851,372		3,827,432		2.7	%

		$	9,741,292	$	9,877,932		6.9	%


^††		Restricted and illiquid securities not registered under the Securities Act of 1933 and valued at fair value by management:


						Value as
	Acquisition	Current				a % of
Security	Date	Cost		Value		Net Assets
Alesco Preferred Funding III	March-05	$	724,100	$	81,056		0.1	%
Alesco Preferred Funding Ltd., Series 6A, Class PPNE	May-05		336,608		70,997		0.0	%
Alesco Preferred Funding Ltd. IV	May-05		337,337		—		0.0	%
Alesco Preferred Funding Ltd. V	October-04		80,180		—		0.0	%
Alesco Preferred Funding VI PNN	March-05		621,631		131,779		0.1	%
Fort Sheridan ABS CDO Ltd., Series 2005-1A, Class PPN2	March-05		510,639		142,804		0.1	%
Taberna Preferred Funding Ltd., Series 2005-1A, Class PPN2	March-05		1,036,829		237,723		0.2	%

		$	3,647,324	$	664,359		0.5	%

See accompanying Notes to Financial Statements.

Diamond Hill Funds Annual Report December 31, 2010

Page 33

Diamond Hill Funds

Statements of Assets & Liabilities
December 31, 2010


			Small-Mid
	Small Cap		Cap			Large Cap			Select
	Fund		Fund			Fund			Fund

Assets
Total investment securities, at cost	$	797,535,899	$	64,550,548		$	967,943,687		$	37,289,413
Investment securities, at value — including $85,494,357, $7,418,648, $13,832,824, and $529,546 of securities loaned for the Small Cap Fund, the Small-Mid Cap Fund, the Large Cap Fund and the Select Fund, respectively	$	856,643,902	$	69,506,411		$	1,102,046,989		$	43,297,754
Repurchase agreements, at value		88,253,222		7,636,520			14,224,401			547,234

Total investment securities, at value		944,897,124		77,142,931			1,116,271,390			43,844,988
Receivable for securities sold		—		101,446			—			—
Receivable for fund shares issued		1,733,270		762,629			10,647,116			60,259
Receivable for dividends and interest		387,593		27,006			1,562,083			53,548

Total Assets		947,017,987		78,034,012			1,128,480,589			43,958,795


Liabilities
Bank overdraft		—		—			4,727			—
Return of collateral for securities on loan		88,253,222		7,636,520			14,224,401			547,234
Payable for securities purchased		8,775,708		961,916			—			—
Payable for fund shares redeemed		449,782		24,109			1,234,810			59,923
Payable to Investment Adviser		560,396		42,100			548,176			25,179
Payable to Administrator		221,612		15,417			269,845			10,564
Accrued distribution and service fees		133,203		9,237			118,307			5,768

Total Liabilities		98,393,923		8,689,299			16,400,266			648,668


Net Assets	$	848,624,064	$	69,344,713		$	1,112,080,323		$	43,310,127


Components of Net Assets
Paid-in capital	$	699,013,402	$	56,957,095		$	1,036,540,866		$	38,736,896
Accumulated net investment income (loss)		337,270		8,693			3,339,169			305,599
Accumulated net realized gains (losses) from investment transactions		1,912,167		(213,458	)		(76,127,415	)		(2,287,943	)
Net unrealized appreciation (depreciation) on investments		147,361,225		12,592,383			148,327,703			6,555,575

Net Assets	$	848,624,064	$	69,344,713		$	1,112,080,323		$	43,310,127


Pricing of Class A Shares
Net assets attributable to Class A shares	$	501,236,534	$	17,216,078		$	459,659,167		$	7,436,651

Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value)		19,430,623		1,370,169			31,097,101			744,261

Net asset value and redemption price per share	$	25.80	$	12.56		$	14.78		$	9.99

Maximum offering price per share	$	27.16	$	13.22		$	15.56		$	10.52


Pricing of Class C Shares
Net assets attributable to Class C shares	$	35,092,595	$	7,417,334		$	29,274,173		$	4,254,424

Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value)		1,453,415		607,631			2,048,641			432,663

Net asset value, offering price and redemption price per share^(A)	$	24.14	$	12.21		$	14.29		$	9.83


Pricing of Class I Shares
Net assets attributable to Class I shares	$	312,294,935	$	44,711,301		$	623,146,983		$	31,619,052

Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value)		12,005,034		3,545,045			42,059,115			3,169,011

Net asset value, offering price and redemption price per share	$	26.01	$	12.61		$	14.82		$	9.98


^(A)		Redemption price per share varies based upon holding period.

See accompanying Notes to Financial Statements.

Diamond Hill Funds Annual Report December 31, 2010

Page 34

Diamond Hill Funds
Statements of Assets & Liabilities
December 31, 2010


				Financial			Strategic
	Long-Short			Long-Short			Income
	Fund			Fund			Fund

Assets
Total investment securities, at cost	$	1,570,607,986		$	10,930,982		$	146,685,887

Investment securities, at value — including $19,234,244, $1,108,326 and $7,220,177 of securities loaned for the Long-Short Fund, the Financial Long-Short Fund and the Strategic Income Fund, respectively	$	1,908,690,265		$	11,830,178		$	143,622,368
Repurchase agreements, at value		19,694,394			1,142,092			7,377,894

Total investment securities, at value		1,928,384,659			12,972,270			151,000,262
Cash		124,903			—			—
Deposits with brokers for securities sold short		549,041,938			893,638			—
Receivable for securities sold		19,702,328			22,215			—
Receivable for fund shares issued		6,575,218			2,659			28,375
Receivable for dividends and interest		2,117,619			14,131			2,310,881

Total Assets		2,505,946,665			13,904,913			153,339,518


Liabilities
Bank overdraft		—			—			368
Return of collateral for securities on loan		19,694,394			1,142,092			7,377,894
Securities sold short, at value (proceeds $393,589,805 for the Long-Short Fund and $862,370 for the Financial Long-Short Fund)		551,978,736			909,840			—
Payable for securities purchased		1,466,963			37,712			—
Payable for dividends on securities sold short		601,890			3,629			—
Payable for fund shares redeemed		6,415,155			129			2,319,149
Payable to Investment Adviser		1,462,568			9,836			62,487
Payable to Administrator		452,440			2,074			33,044
Accrued distribution and service fees		304,396			2,954			30,094

Total Liabilities		582,376,542			2,108,266			9,823,036


Net Assets	$	1,923,570,123		$	11,796,647		$	143,516,482


Components of Net Assets
Paid-in capital	$	2,329,514,145		$	24,310,799		$	157,916,027
Accumulated net investment income (loss)		2,198,193			14,479			65,646
Accumulated net realized gains (losses) from investment transactions		(607,529,957	)		(14,522,449	)		(18,779,566	)
Net unrealized appreciation (depreciation) on investments		199,387,742			1,993,818			4,314,375

Net Assets	$	1,923,570,123		$	11,796,647		$	143,516,482


Pricing of Class A Shares
Net assets attributable to Class A shares	$	698,670,192		$	8,542,638		$	42,359,665

Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value)		42,974,340			701,111			3,902,269

Net asset value and redemption price per share	$	16.26		$	12.18		$	10.86

Maximum offering price per share	$	17.12		$	12.82		$	11.25


Pricing of Class C Shares
Net assets attributable to Class C shares	$	179,213,705		$	1,380,522		$	24,264,265

Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value)		11,656,244			119,180			2,236,493

Net asset value, offering price and redemption price per share^(A)	$	15.37		$	11.58		$	10.85


Pricing of Class I Shares
Net assets attributable to Class I shares	$	1,045,686,226		$	1,873,487		$	76,892,552

Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value)		63,678,573			154,367			7,096,403

Net asset value, offering price and redemption price per share	$	16.42		$	12.14		$	10.84


^(A)		Redemption price per share varies based upon holding period.

See accompanying Notes to Financial Statements.

Diamond Hill Funds Annual Report December 31, 2010

Page 35

Diamond Hill Funds

Statements of Operations
For the year ended December 31, 2010


				Small-Mid
	Small Cap			Cap		Large Cap		Select
	Fund			Fund		Fund		Fund

Investment Income
Dividends	$	7,915,849		$	586,495	$	18,657,777	$	703,929
Interest income		120,693			—		—		—
Securities lending income		—			—		—		—

Total Investment Income		8,036,542			586,495		18,657,777		703,929


Expenses
Investment advisory fees		5,547,748			375,178		5,342,964		251,860
Administration fees		1,906,290			115,986		2,220,568		83,071
Distribution fees — Class A		1,115,015			27,601		984,431		18,784
Distribution and service fees — Class C		277,401			53,439		272,734		38,428
Accounting and custody fees		70,478			5,599		157,767		6,184

Net Expenses		8,916,932			577,803		8,978,464		398,327


Net Investment Income (Loss)		(880,390	)		8,692		9,679,313		305,602


Realized and Unrealized Gains (Losses) on Investments
Net realized gains (losses) from security sales		52,577,163			3,294,096		10,149,784		853,152
Net change in unrealized appreciation (depreciation) on investments		96,105,153			8,000,766		72,974,502		2,910,338

Net Realized and Unrealized Gains (Losses) on Investments		148,682,316			11,294,862		83,124,286		3,763,490


Change in Net Assets from Operations	$	147,801,926		$	11,303,554	$	92,803,599	$	4,069,092


				Financial		Strategic
	Long-Short			Long-Short		Income
	Fund			Fund		Fund

Investment Income
Dividends	$	35,974,222		$	199,545	$	—
Interest		230,013			22,010		9,765,463
Securities lending income		—			351		3,503

Total Investment Income		36,204,235			221,906		9,768,966


Expenses
Investment advisory fees		17,652,689			123,287		710,793
Administration fees		5,080,398			36,773		356,613
Distribution fees — Class A		2,101,569			23,412		111,048
Distribution and service fees — Class C		2,218,263			14,203		242,299
Accounting and custody fees		352,781			—		—
Dividend expense on securities sold short		6,600,340			18,182		—

Net Expenses		34,006,040			215,857		1,420,753


Net Investment Income (Loss)		2,198,195			6,049		8,348,213


Realized and Unrealized Gains (Losses) on Investments
Net realized gains (losses) from security sales		50,130,474			1,027,389		5,110,915
Net realized gains (losses) on closed short positions		(132,584,179	)		92,336		—
Net change in unrealized appreciation (depreciation) on investments		68,454,353			606,059		3,918,466

Net Realized and Unrealized Gains (Losses) on Investments		(13,999,352	)		1,725,784		9,029,381


Change in Net Assets from Operations	$	(11,801,157	)	$	1,731,833	$	17,377,594

See accompanying Notes to Financial Statements.

Diamond Hill Funds Annual Report December 31, 2010

Page 36

Diamond Hill Funds

Statements of Changes in Net Assets


							Small-Mid												Select
	Small Cap Fund						Cap Fund						Large Cap Fund						Fund
	For the Year			For the Year			For the Year			For the Year			For the Year			For the Year			For the Year			For the Year
	Ended			Ended			Ended			Ended			Ended			Ended			Ended			Ended
	December 31,			December 31,			December 31,			December 31,			December 31,			December 31,			December 31,			December 31,
	2010			2009			2010			2009			2010			2009			2010			2009

From Operations
Net investment income (loss)	$	(880,390	)	$	(256,931	)	$	8,692		$	95,349		$	9,679,313		$	5,281,842		$	305,602		$	160,821
Net realized gains (losses) from security sales		52,577,163			(30,591,178	)		3,294,096			126,013			10,149,784			(42,399,879	)		853,152			(1,050,906	)
Net change in unrealized appreciation (depreciation) on investments		96,105,153			152,197,640			8,000,766			10,341,281			72,974,502			187,761,340			2,910,338			6,173,332

Change in Net Assets from Operations		147,801,926			121,349,531			11,303,554			10,562,643			92,803,599			150,643,303			4,069,092			5,283,247


Distributions to Shareholders
From net investment income:
Class A		—			—			—			—			(3,174,891	)		(343,767	)		(5,324	)		—
Class C		—			—			—			—			(7,277	)		—			—			—
Class I		—			(54,353	)		(47,033	)		(47,498	)		(6,529,972	)		(1,566,079	)		(155,500	)		—
From net realized gains on investments:
Class A		(7,686,104	)		—			(4,694	)		—			—			—			—			—
Class C		(574,550	)		—			(2,217	)		—			—			—			—			—
Class I		(4,688,890	)		—			(13,348	)		—			—			—			—			—

Change in Net Assets from Distributions to Shareholders		(12,949,544	)		(54,353	)		(67,292	)		(47,498	)		(9,712,140	)		(1,909,846	)		(160,824	)		—


From Capital Transactions
Class A
Proceeds from shares sold		165,849,296			165,501,703			12,157,686			1,813,950			219,386,955			120,586,896			2,049,801			3,074,230
Reinvested distributions		7,134,182			—			4,133			—			3,000,868			324,714			4,779			—
Payments for shares redeemed		(195,854,251	)		(133,212,347	)		(5,901,187	)		(3,224,100	)		(140,028,087	)		(111,001,731	)		(2,211,552	)		(1,591,975	)

Change in Net Assets from Class A Share Transactions		(22,870,773	)		32,289,356			6,260,632			(1,410,150	)		82,359,736			9,909,879			(156,972	)		1,482,255


Class C
Proceeds from shares sold		10,432,535			5,040,434			3,003,957			1,013,000			8,599,012			4,801,305			1,462,563			948,652
Reinvested distributions		513,137			—			1,579			—			6,204			—			—			—
Payments for shares redeemed		(4,383,475	)		(3,440,142	)		(1,073,799	)		(633,515	)		(7,084,631	)		(5,732,858	)		(1,013,783	)		(1,644,815	)

Change in Net Assets from Class C Share Transactions		6,562,197			1,600,292			1,931,737			379,485			1,520,585			(931,553	)		448,780			(696,163	)


Class I
Proceeds from shares sold		267,239,689			66,954,429			14,273,930			7,136,181			322,102,816			180,703,538			8,271,464			13,945,012
Reinvested distributions		3,784,526			36,435			48,470			44,093			5,074,239			1,357,132			143,710			—
Payments for shares redeemed		(109,398,154	)		(18,310,499	)		(3,493,338	)		(2,869,276	)		(99,975,636	)		(38,625,467	)		(2,809,148	)		(1,395,089	)

Change in Net Assets from Class I Share Transactions		161,626,061			48,680,365			10,829,062			4,310,998			227,201,419			143,435,203			5,606,026			12,549,923


Total Change in Net Assets		280,169,867			203,865,191			30,257,693			13,795,478			394,173,199			301,146,986			9,806,102			18,619,262

Net Assets
Beginning of period		568,454,197			364,589,006			39,087,020			25,291,542			717,907,124			416,760,138			33,504,025			14,884,763

End of period	$	848,624,064		$	568,454,197		$	69,344,713			39,087,020		$	1,112,080,323		$	717,907,124		$	43,310,127			33,504,025


Accumulated Net Investment Income (Loss)	$	337,270		$	365,099		$	8,693			47,684		$	3,339,169		$	3,371,996		$	305,599			160,821

See accompanying Notes to Financial Statements.

Diamond Hill Funds Annual Report December 31, 2010

Page 37

Diamond Hill Funds
Statements of Changes in Net Assets


							Financial						Strategic
	Long-Short Fund						Long-Short Fund						Income Fund
	For the Year			For the Year			For the Year			For the Year			For the Year			For the Year
	Ended			Ended			Ended			Ended			Ended			Ended
	December 31,			December 31,			December 31,			December 31,			December 31,			December 31,
	2010			2009			2010			2009			2010			2009

From Operations
Net investment income (loss)	$	2,198,195		$	334,820		$	6,049		$	168,608		$	8,348,213		$	8,238,199
Net realized gains (losses) from security sales		50,130,474			(411,501,248	)		1,027,389			(4,538,905	)		5,110,915			(2,624,805	)
Net realized gains (losses) on closed short positions		(132,584,179	)		23,617,996			92,336			509,259			—			—
Net change in unrealized appreciation (depreciation) on investments		68,454,353			662,358,292			606,059			5,867,352			3,918,466			23,787,504

Change in Net Assets from Operations		(11,801,157	)		274,809,860			1,731,833			2,006,314			17,377,594			29,400,898


Distributions to Shareholders
From net investment income:
Class A		—			—			—			(111,864	)		(2,537,128	)		(2,466,249	)
Class C		—			—			—			(8,226	)		(1,215,833	)		(1,125,025	)
Class I		(334,787	)		(19,506	)		(3,500	)		(29,059	)		(4,529,534	)		(4,383,077	)

Change in Net Assets from Distributions to Shareholders		(334,787	)		(19,506	)		(3,500	)		(149,149	)		(8,282,495	)		(7,974,351	)


From Capital Transactions
Class A
Proceeds from shares sold		319,968,417			326,417,461			5,852,273			2,030,204			24,626,078			17,000,130
Reinvested distributions		—			—			—			101,838			1,852,244			1,877,048
Payments for shares redeemed		(569,340,467	)		(609,656,533	)		(6,742,636	)		(3,373,922	)		(27,978,007	)		(15,717,064	)

Change in Net Assets from Class A Share Transactions		(249,372,050	)		(283,239,072	)		(890,363	)		(1,241,880	)		(1,499,685	)		3,160,114


Class C
Proceeds from shares sold		25,789,006			33,230,041			455,017			244,546			6,405,155			7,386,298
Reinvested distributions		—			—			—			5,050			648,128			545,639
Payments for shares redeemed		(97,574,427	)		(92,651,580	)		(558,844	)		(926,675	)		(6,492,327	)		(3,935,967	)

Change in Net Assets from Class C Share Transactions		(71,785,421	)		(59,421,539	)		(103,827	)		(677,079	)		560,956			3,995,970


Class I
Proceeds from shares sold		725,972,530			290,532,180			2,442,106			1,056,937			18,456,655			12,143,607
Reinvested distributions		146,563			12,153			2,305			26,688			3,484,096			3,541,762
Payments for shares redeemed		(424,991,830	)		(313,649,974	)		(1,400,675	)		(1,174,200	)		(14,155,841	)		(12,875,853	)

Change in Net Assets from Class I Share Transactions		301,127,263			(23,105,641	)		1,043,736			(90,575	)		7,784,910			2,809,516


Total Change in Net Assets		(32,166,152	)		(90,975,898	)		1,777,879			(152,369	)		15,941,280			31,392,147

Net Assets
Beginning of year		1,955,736,275			2,046,712,173			10,018,768			10,171,137			127,575,202			96,183,055

End of year	$	1,923,570,123		$	1,955,736,275		$	11,796,647		$	10,018,768		$	143,516,482		$	127,575,202


Accumulated Net Investment Income (Loss)	$	2,198,193		$	334,785		$	14,479		$	15,179		$	65,646		$	1,871,109

See accompanying Notes to Financial Statements.

Diamond Hill Funds Annual Report December 31, 2010

Page 38

Diamond Hill Funds

Schedule of Share Transactions


							Small-Mid
	Small Cap Fund						Cap Fund							Large Cap Fund						Select Fund
	For the Year			For the Year			For the Year				For the Year			For the Year			For the Year			For the Year			For the Year
	Ended			Ended			Ended				Ended			Ended			Ended			Ended			Ended
	December 31,			December 31,			December 31,				December 31,			December 31,			December 31,			December 31,			December 31,
	2010			2009			2010				2009			2010			2009			2010			2009

Shares
Class A Shares:
Issued		7,155,291			9,915,026			1,077,346				206,040			15,937,265			11,032,156			222,167			388,569
Reinvested		278,244			—			331				—			203,173			23,583			478			—
Redeemed		(8,587,264	)		(8,013,473	)		(550,505	)			(404,330	)		(10,326,539	)		(10,100,394	)		(244,323	)		(213,578	)

Change in shares outstanding		(1,153,729	)		1,901,553			527,172				(198,290	)		5,813,899			955,345			(21,678	)		174,991
Class C Shares:
Issued		481,177			294,883			273,718				114,617			652,105			435,501			155,983			114,127
Reinvested		21,372			—			130		��		—			434			—			—			—
Redeemed		(200,794	)		(211,267	)		(102,293	)			(86,699	)		(535,306	)		(530,358	)		(111,650	)		(222,124	)

Change in shares outstanding		301,755			83,616			171,555				27,918			117,233			(94,857	)		44,333			(107,997	)
Class I Shares:
Issued		11,575,522			3,702,914			1,301,149				840,763			23,434,165			15,289,754			896,622			1,660,685
Reinvested		146,346			1,681			3,835				4,264			342,623			98,414			14,400			—
Redeemed		(4,694,221	)		(1,082,213	)		(311,832	)			(336,473	)		(7,205,259	)		(3,381,441	)		(306,496	)		(205,003	)

Change in shares outstanding		7,027,647			2,622,382			993,152				508,554			16,571,529			12,006,727			604,526			1,455,682


	Long-Short Fund						Financial Long-Short Fund						Strategic Income Fund
	For the Year			For the Year			For the Year			For the Year			For the Year			For the Year
	Ended			Ended			Ended			Ended			Ended			Ended
	December 31,			December 31,			December 31,			December 31,			December 31,			December 31,
	2010			2009			2010			2009			2010			2009

Shares
Class A Shares:
Issued		20,215,595			22,613,604			524,460			266,862			2,319,678			1,851,057
Reinvested		—			—			—			9,717			173,782			206,797
Redeemed		(36,439,875	)		(43,760,256	)		(595,480	)		(400,451	)		(2,634,548	)		(1,792,642	)

Change in shares outstanding		(16,224,280	)		(21,146,652	)		(71,020	)		(123,872	)		(141,088	)		265,212
Class C Shares:
Issued		1,699,414			2,381,033			41,998			32,612			604,466			787,746
Reinvested		—			—			—			503			60,738			60,527
Redeemed		(6,546,127	)		(6,823,760	)		(52,413	)		(133,348	)		(608,807	)		(449,334	)

Change in shares outstanding		(4,846,713	)		(4,442,727	)		(10,415	)		(100,233	)		56,397			398,939
Class I Shares:
Issued		45,807,193			19,632,070			215,283			100,731			1,738,613			1,313,557
Reinvested		8,942			730			190			2,564			327,091			392,948
Redeemed		(26,843,681	)		(22,353,381	)		(125,867	)		(122,675	)		(1,324,791	)		(1,427,450	)

Change in shares outstanding		18,972,454			(2,720,581	)		89,606			(19,380	)		740,913			279,055

See accompanying Notes to Financial Statements.

Diamond Hill Funds Annual Report December 31, 2010

Page 39

Diamond Hill Funds

Financial Highlights

For a share outstanding throughout each year


	Year Ended			Year Ended			Year Ended			Year Ended			Year Ended
	December 31,			December 31,			December 31,			December 31,			December 31,
	2010			2009			2008			2007			2006

Diamond Hill Small Cap Fund — Class A
Net asset value at beginning of period	$	21.31		$	16.53		$	22.53		$	25.03		$	23.95

Income (loss) from investment operations:
Net investment income (loss)		(0.05	)		(0.01	)		0.13			0.08			0.09
Net realized and unrealized gains (losses) on investments		4.95			4.79			(5.98	)		(1.00	)		1.60

Total from investment operations		4.90			4.78			(5.85	)		(0.92	)		1.69

Less distributions:
Dividends from net investment income		—			—			(0.12	)		(0.08	)		(0.09	)
Distributions from net realized gains		(0.41	)		—			(0.03	)		(1.50	)		(0.52	)

Total distributions		(0.41	)		—			(0.15	)		(1.58	)		(0.61	)

Net asset value at end of period	$	25.80		$	21.31		$	16.53		$	22.53		$	25.03

Total return^(A)		22.99	%		28.92	%		(25.99	%)		(3.79	%)		7.03	%

Net assets at end of period (000s)	$	501,237		$	438,722		$	308,832		$	315,378		$	431,524

Ratio of net expenses to average net assets		1.37	%		1.38	%		1.35	%		1.39	%		1.42	%
Ratio of net investment income (loss) to average net assets		(0.24	%)		(0.09	%)		0.75	%		0.29	%		0.38	%
Ratio of gross expenses to average net assets		1.37	%		1.38	%		1.35	%		1.39	%		1.42	%
Portfolio turnover rate^(B)		35	%		47	%		47	%		21	%		30	%

Diamond Hill Small Cap Fund — Class C
Net asset value at beginning of period	$	20.12		$	15.72		$	21.44		$	24.00		$	23.08

Income (loss) from investment operations:
Net investment income (loss)		(0.16	)		(0.13	)		(0.01	)		(0.15	)		(0.10	)
Net realized and unrealized gains (losses) on investments		4.59			4.53			(5.68	)		(0.91	)		1.54

Total from investment operations		4.43			4.40			(5.69	)		(1.06	)		1.44

Less distributions:
Distributions from net realized gains		(0.41	)		—			(0.03	)		(1.50	)		(0.52	)

Total distributions		(0.41	)		—			(0.03	)		(1.50	)		(0.52	)

Net asset value at end of period	$	24.14		$	20.12		$	15.72		$	21.44		$	24.00

Total return^(A)		22.01	%		27.99	%		(26.55	%)		(4.51	%)		6.23	%

Net assets at end of period (000s)	$	35,093		$	23,172		$	16,790		$	25,158		$	35,035

Ratio of net expenses to average net assets		2.12	%		2.13	%		2.11	%		2.14	%		2.17	%
Ratio of net investment income (loss) to average net assets		(0.96	%)		(0.83	%)		(0.03	%)		(0.46	%)		(0.37	%)
Ratio of gross expenses to average net assets		2.12	%		2.13	%		2.11	%		2.14	%		2.17	%
Portfolio turnover rate^(B)		35	%		47	%		47	%		21	%		30	%

Diamond Hill Small Cap Fund — Class I
Net asset value at beginning of period	$	21.41		$	16.55		$	22.57		$	25.08		$	23.99

Income (loss) from investment operations:
Net investment income (loss)		0.00	^(C)		0.04			0.17			0.22			0.21
Net realized and unrealized gains (losses) on investments		5.01			4.83			(5.97	)		(1.05	)		1.59

Total from investment operations		5.01			4.87			(5.80	)		(0.83	)		1.80

Less distributions:
Dividends from net investment income		—			(0.01	)		(0.19	)		(0.18	)		(0.19	)
Distributions from net realized gains		(0.41	)		—			(0.03	)		(1.50	)		(0.52	)

Total distributions		(0.41	)		(0.01	)		(0.22	)		(1.68	)		(0.71	)

Net asset value at end of period	$	26.01		$	21.41		$	16.55		$	22.57		$	25.08

Total return		23.39	%		29.43	%		(25.69	%)		(3.41	)%		7.49	%

Net assets at end of period (000s)	$	312,295		$	106,561		$	38,967		$	32,057		$	51,381

Ratio of net expenses to average net assets		1.00	%		0.99	%		0.98	%		0.98	%		0.99	%
Ratio of net investment income (loss) to average net assets		0.20	%		0.30	%		1.17	%		0.69	%		0.82	%
Ratio of gross expenses to average net assets		1.00	%		0.99	%		0.98	%		0.98	%		0.99	%
Portfolio turnover rate^(B)		35	%		47	%		47	%		21	%		30	%


^(A)		Total returns shown exclude the effect of applicable sales charges.

^(B)		Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued.

^(C)		Amount is less than $0.005.

See accompanying Notes to Financial Statements.

Diamond Hill Funds Annual Report December 31, 2010

Page 40

Diamond Hill Funds
Financial Highlights

For a share outstanding throughout each year


	Year Ended			Year Ended			Year Ended			Year Ended			Year Ended
	December 31,			December 31,			December 31,			December 31,			December 31,
	2010			2009			2008			2007			2006

Diamond Hill Small-Mid Cap Fund — Class A
Net asset value at beginning of period	$	10.22		$	7.26		$	10.50		$	10.91		$	10.00

Income (loss) from investment operations:
Net investment income (loss)		(0.04	)		0.03			0.10			0.06			0.04
Net realized and unrealized gains (losses) on investments		2.38			2.93			(3.25	)		(0.15	)		0.94

Total from investment operations		2.34			2.96			(3.15	)		(0.09	)		0.98

Less Distributions:
Dividends from net investment income		—			—			(0.09	)		(0.04	)		(0.01	)
Distributions from net realized gains		(0.00	)^(A)		—			—			(0.28	)		(0.06	)

Total distributions		(0.00	)		—			(0.09	)		(0.32	)		(0.07	)

Net asset value at end of period	$	12.56		$	10.22		$	7.26		$	10.50		$	10.91

Total return^(A)		23.03	%		40.77	%		(30.01	%)		(0.91	%)		9.81	%

Net assets at end of period (000s)	$	17,216		$	8,616		$	7,557		$	10,549		$	9,608

Ratio of net expenses to average net assets		1.32	%		1.33	%		1.32	%		1.33	%		1.21	%
Ratio of net investment income (loss) to average net assets		(0.17	%)		0.17	%		1.11	%		0.54	%		0.49	%
Ratio of gross expenses to average net assets		1.32	%		1.33	%		1.32	%		1.34	%		1.34	%
Portfolio turnover rate^(B)		35	%		74	%		91	%		39	%		33	%

Diamond Hill Small-Mid Cap Fund — Class C
Net asset value at beginning of period	$	10.00		$	7.15		$	10.40		$	10.85		$	10.00

Income (loss) from investment operations:
Net investment income (loss)		(0.05	)		(0.04	)		0.04			(0.02	)		(0.02	)
Net realized and unrealized gains (losses) on investments		2.26			2.89			(3.22	)		(0.15	)		0.93

Total from investment operations		2.21			2.85			(3.18	)		(0.17	)		0.91

Less distributions:
Dividends from net investment income		—			—			(0.07	)		—			—
Distributions from net realized gains		(0.00	)^(A)		—			—			(0.28	)		(0.06	)

Total distributions		(0.00	)		—			(0.07	)		(0.28	)		(0.06	)

Net asset value at end of period	$	12.21		$	10.00		$	7.15		$	10.40		$	10.85

Total return^(A)		22.14	%		39.86	%		(30.54	%)		(1.65	%)		9.08	%

Net assets at end of period (000s)	$	7,417		$	4,361		$	2,920		$	2,388		$	2,368

Ratio of net expenses to average net assets		2.07	%		2.08	%		2.05	%		2.08	%		2.00	%
Ratio of net investment income (loss) to average net assets		(0.90	%)		(0.59	%)		0.48	%		(0.21	%)		(0.27	%)
Ratio of gross expenses to average net assets		2.07	%		2.08	%		2.05	%		2.09	%		2.11	%
Portfolio turnover rate^(B)		35	%		74	%		91	%		39	%		33	%

Diamond Hill Small-Mid Cap Fund — Class I
Net asset value at beginning of period	$	10.23		$	7.25		$	10.50		$	10.91		$	10.00

Income (loss) from investment operations:
Net investment income (loss)		0.02			0.04			0.13			0.09			0.04
Net realized and unrealized gains (losses) on investments		2.37			2.96			(3.26	)		(0.13	)		0.98

Total from investment operations		2.39			3.00			(3.13	)		(0.04	)		1.02

Less distributions:
Dividends from net investment income		(0.01	)		(0.02	)		(0.12	)		(0.09	)		(0.05	)
Distributions from net realized gains		(0.00	)^(A)		—			—			(0.28	)		(0.06	)

Total distributions		(0.01	)		(0.02	)		(0.12	)		(0.37	)		(0.11	)

Net asset value at end of period	$	12.61		$	10.23		$	7.25		$	10.50		$	10.91

Total return		23.43	%		41.36	%		(29.77	%)		(0.44	%)		10.18	%

Net assets at end of period (000s)	$	44,711		$	26,110		$	14,815		$	18,478		$	11,986

Ratio of net expenses to average net assets		0.95	%		0.94	%		0.93	%		0.93	%		0.90	%
Ratio of net investment income (loss) to average net assets		0.22	%		0.54	%		1.49	%		0.97	%		1.01	%
Ratio of gross expenses to average net assets		0.95	%		0.94	%		0.93	%		0.94	%		0.98	%
Portfolio turnover rate^(B)		35	%		74	%		91	%		39	%		33	%


^(A)		Amount is less than $0.005.

^(B)		Total returns shown exclude the effect of applicable sales charges.

^(C)		Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued.

See accompanying Notes to Financial Statements.

Diamond Hill Funds Annual Report December 31, 2010

Page 41

Diamond Hill Funds
Financial Highlights

For a share outstanding throughout each year


	Year Ended			Year Ended			Year Ended			Year Ended			Year Ended
	December 31,			December 31,			December 31,			December 31,			December 31,
	2010			2009			2008			2007			2006

Diamond Hill Large Cap Fund — Class A
Net asset value at beginning of period	$	13.62		$	10.47		$	16.25		$	16.36		$	14.44

Income (loss) from investment operations:
Net investment income (loss)		0.10			0.10			0.15			0.21			0.15
Net realized and unrealized gains (losses) on investments		1.17			3.06			(5.69	)		0.69			2.03

Total from investment operations		1.27			3.16			(5.54	)		0.90			2.18

Less Distributions:
Dividends from net investment income		(0.11	)		(0.01	)		(0.14	)		(0.19	)		(0.14	)
Distributions from net realized gains		—			—			(0.10	)		(0.82	)		(0.12	)

Total distributions		(0.11	)		(0.01	)		(0.24	)		(1.01	)		(0.26	)

Net asset value at end of period	$	14.78		$	13.62		$	10.47		$	16.25		$	16.36

Total return^(A)		9.29	%		30.21	%		(34.06	%)		5.42	%		15.06	%

Net assets at end of period (000s)	$	459,659		$	344,456		$	254,688		$	309,617		$	338,286

Ratio of net expenses to average net assets		1.18	%		1.18	%		1.16	%		1.18	%		1.21	%
Ratio of net investment income (loss) to average net assets		0.90	%		0.91	%		1.23	%		1.15	%		1.32	%
Ratio of gross expenses to average net assets		1.18	%		1.18	%		1.16	%		1.19	%		1.21	%
Portfolio turnover rate^(B)		16	%		31	%		28	%		44	%		32	%

Diamond Hill Large Cap Fund — Class C
Net asset value at beginning of period	$	13.18		$	10.19		$	15.84		$	15.99		$	14.15

Income (loss) from investment operations:
Net investment income (loss)		0.02			0.02			0.06			0.06			0.06
Net realized and unrealized gains (losses) on investments		1.09			2.97			(5.55	)		0.70			1.95

Total from investment operations		1.11			2.99			(5.49	)		0.76			2.01

Less distributions:
Dividends from net investment income		(0.00	)^(C)		—			(0.06	)		(0.09	)		(0.05	)
Distributions from net realized gains		—			—			(0.10	)		(0.82	)		(0.12	)

Total distributions		(0.00	)^(C)		—			(0.16	)		(0.91	)		(0.17	)

Net asset value at end of period	$	14.29		$	13.18		$	10.19		$	15.84		$	15.99

Total return^(A)		8.45	%		29.34	%		(34.64	%)		4.68	%		14.18	%

Net assets at end of period (000s)	$	29,274		$	25,454		$	20,656		$	27,084		$	22,438

Ratio of net expenses to average net assets		1.93	%		1.93	%		1.91	%		1.93	%		1.96	%
Ratio of net investment income (loss) to average net assets		0.15	%		0.17	%		0.48	%		0.43	%		0.57	%
Ratio of gross expenses to average net assets		1.93	%		1.93	%		1.91	%		1.93	%		1.96	%
Portfolio turnover rate^(B)		16	%		31	%		28	%		44	%		32	%

Diamond Hill Large Cap Fund — Class I
Net asset value at beginning of period	$	13.65		$	10.49		$	16.29		$	16.40		$	14.47

Income (loss) from investment operations:
Net investment income (loss)		0.13			0.11			0.23			0.25			0.13
Net realized and unrealized gains (losses) on investments		1.20			3.11			(5.74	)		0.73			2.12

Total from investment operations		1.33			3.22			(5.51	)		0.98			2.25

Less distributions:
Dividends from net investment income		(0.16	)		(0.06	)		(0.19	)		(0.27	)		(0.20	)
Distributions from net realized gains		—			—			(0.10	)		(0.82	)		(0.12	)

Total distributions		(0.16	)		(0.06	)		(0.29	)		(1.09	)		(0.32	)

Net asset value at end of period	$	14.82		$	13.65		$	10.49		$	16.29		$	16.40

Total return		9.72	%		30.71	%		(33.82	%)		5.88	%		15.49	%

Net assets at end of period (000s)	$	623,147		$	347,998		$	141,416		$	84,129		$	59,182

Ratio of net expenses to average net assets		0.81	%		0.79	%		0.78	%		0.78	%		0.78	%
Ratio of net investment income (loss) to average net assets		1.29	%		1.28	%		1.67	%		1.60	%		1.82	%
Ratio of gross expenses to average net assets		0.81	%		0.79	%		0.78	%		0.78	%		0.78	%
Portfolio turnover rate^(B)		16	%		31	%		28	%		44	%		32	%


^(A)		Total returns shown exclude the effect of applicable sales charges.

^(B)		Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued.

^(C)		Amount is less than $0.005.

See accompanying Notes to Financial Statements.

Diamond Hill Funds Annual Report December 31, 2010

Page 42

Diamond Hill Funds
Financial Highlights

For a share outstanding throughout each year

	��
	Year Ended			Year Ended			Year Ended			Year Ended			Year Ended
	December 31,			December 31,			December 31,			December 31,			December 31,
	2010			2009			2008			2007			2006

Diamond Hill Select Fund — Class A
Net asset value at beginning of period	$	9.02		$	6.82		$	10.61		$	11.17		$	10.00

Income (loss) from investment operations:
Net investment income (loss)		0.07			0.04			0.09			0.12			0.10
Net realized and unrealized gains (losses) on investments		0.91			2.16			(3.55	)		0.53			1.27

Total from investment operations		0.98			2.20			(3.46	)		0.65			1.37

Less Distributions:
Dividends from net investment income		(0.01	)		—			(0.08	)		(0.09	)		(0.08	)
Distributions from net realized gains		—			—			(0.25	)		(1.12	)		(0.12	)

Total distributions		(0.01	)		—			(0.33	)		(1.21	)		(0.20	)

Net asset value at end of period	$	9.99		$	9.02		$	6.82		$	10.61		$	11.17

Total return^(A)		10.83	%		32.26	%		(32.68	%)		5.63	%		13.66	%

Net assets at end of period (000s)	$	7,437		$	6,910		$	4,030		$	6,841		$	10,036

Ratio of net expenses to average net assets		1.28	%		1.28	%		1.28	%		1.29	%		1.31	%
Ratio of net investment income (loss) to average net assets		0.67	%		0.60	%		1.10	%		0.90	%		1.04	%
Ratio of gross expenses to average net assets		1.28	%		1.28	%		1.28	%		1.29	%		1.32	%
Portfolio turnover rate^(B)		18	%		57	%		85	%		55	%		80	%

Diamond Hill Select Fund — Class C
Net asset value at beginning of period	$	8.94		$	6.78		$	10.56		$	11.16		$	10.00

Income (loss) from investment operations:
Net investment income (loss)		(0.01	)		0.01			0.02			0.02			0.02
Net realized and unrealized gains (losses) on investments		0.90			2.15			(3.55	)		0.54			1.30

Total from investment operations		0.89			2.16			(3.53	)		0.56			1.32

Less distributions:
Dividends from net investment income		—			—			—			(0.04	)		(0.04	)
Distributions from net realized gains		—			—			(0.25	)		(1.12	)		(0.12	)

Total distributions		—			—			(0.25	)		(1.16	)		(0.16	)

Net asset value at end of period	$	9.83		$	8.94		$	6.78		$	10.56		$	11.16

Total return^(A)		9.96	%		31.86	%		(33.48	%)		4.78	%		13.11	%

Net assets at end of period (000s)	$	4,254		$	3,472		$	3,366		$	6,912		$	5,661

Ratio of net expenses to average net assets		2.03	%		2.03	%		2.01	%		2.03	%		2.05	%
Ratio of net investment income (loss) to average net assets		(0.08	%)		0.07	%		0.28	%		0.23	%		0.32	%
Ratio of gross expenses to average net assets		2.03	%		2.03	%		2.02	%		2.04	%		2.06	%
Portfolio turnover rate^(B)		18	%		57	%		85	%		55	%		80	%

Diamond Hill Select Fund — Class I
Net asset value at beginning of period	$	9.02		$	6.75		$	10.59		$	11.16		$	10.00

Income (loss) from investment operations:
Net investment income (loss)		0.07			0.05			0.11			0.13			0.09
Net realized and unrealized gains (losses) on investments		0.94			2.22			(3.58	)		0.57			1.32

Total from investment operations		1.01			2.27			(3.47	)		0.70			1.41

Less distributions:
Dividends from net investment income		(0.05	)		—			(0.12	)		(0.15	)		(0.13	)
Distributions from net realized gains		—			—			(0.25	)		(1.12	)		(0.12	)

Total distributions		(0.05	)		—			(0.37	)		(1.27	)		(0.25	)

Net asset value at end of period	$	9.98		$	9.02		$	6.75		$	10.59		$	11.16

Total return		11.19	%		33.63	%		(32.85	%)		6.10	%		14.04	%

Net assets at end of period (000s)	$	31,619		$	23,122		$	7,489		$	4,667		$	3,220

Ratio of net expenses to average net assets		0.91	%		0.89	%		0.87	%		0.88	%		0.84	%
Ratio of net investment (loss) income to average net assets		1.05	%		1.29	%		1.58	%		1.37	%		1.47	%
Ratio of gross expenses to average net assets		0.91	%		0.89	%		0.87	%		0.89	%		0.86	%
Portfolio turnover rate^(B)		18	%		57	%		85	%		55	%		80	%


^(A)		Total returns shown exclude the effect of applicable sales charges.

^(B)		Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued.

See accompanying Notes to Financial Statements.

Diamond Hill Funds Annual Report December 31, 2010

Page 43

Diamond Hill Funds
Financial Highlights

For a share outstanding throughout each year


	Year Ended			Year Ended			Year Ended			Year Ended			Year Ended
	December 31,			December 31,			December 31,			December 31,			December 31,
	2010			2009			2008			2007			2006

Diamond Hill Long-Short Fund — Class A
Net asset value at beginning of period	$	16.31		$	13.83		$	18.40		$	18.57		$	16.46

Income (loss) from investment operations:
Net investment income (loss)		0.00	^(A)		0.00	^(A)		0.16			0.44			0.26
Net realized and unrealized gains (losses) on investments		(0.05	)		2.48			(4.52	)		0.16			2.52

Total from investment operations		(0.05	)		2.48			(4.36	)		0.60			2.78

Less Distributions:
Dividends from net investment income		—			—			(0.15	)		(0.42	)		(0.25	)
Distributions from net realized gains		—			—			(0.06	)		(0.35	)		(0.42	)

Total distributions		—			—			(0.21	)		(0.77	)		(0.67	)

Net asset value at end of period	$	16.26		$	16.31		$	13.83		$	18.40		$	18.57

Total return^(B)		(0.31	%)		17.93	%		(23.65	%)		3.14	%		16.89	%

Net assets at end of period (000s)	$	698,670		$	965,382		$	1,110,982		$	965,259		$	773,161

Ratio of net expenses to average net assets		1.81	%		1.85	%		1.62	%		1.69	%		1.77	%
Ratio of net investment income (loss) to average net assets		0.01	%		0.00	%^(D)		0.95	%		2.46	%		2.15	%
Ratio of gross expenses to average net assets		1.81	%		1.85	%		1.62	%		1.69	%		1.77	%
Ratio of net expenses to average net assets, excluding dividends on securities sold short		1.48	%		1.48	%		1.45	%		1.48	%		1.51	%
Portfolio turnover rate^(C)		43	%		44	%		59	%		59	%		83	%

Diamond Hill Long-Short Fund — Class C
Net asset value at beginning of period	$	15.54		$	13.28		$	17.65		$	17.88		$	15.92

Income (loss) from investment operations:
Net investment income (loss)		(0.19	)		(0.12	)		0.04			0.27			0.16
Net realized and unrealized gains (losses) on investments		0.02			2.38			(4.32	)		0.16			2.38

Total from investment operations		(0.17	)		2.26			(4.28	)		0.43			2.54

Less distributions:
Dividends from net investment income		—			—			(0.03	)		(0.31	)		(0.16	)
Distributions from net realized gains		—			—			(0.06	)		(0.35	)		(0.42	)

Total distributions		—			—			(0.09	)		(0.66	)		(0.58	)

Net asset value at end of period	$	15.37		$	15.54		$	13.28		$	17.65		$	17.88

Total return^(B)		(1.09	%)		17.02	%		(24.26	%)		2.41	%		15.98	%

Net assets at end of period (000s)	$	179,214		$	256,445		$	278,069		$	303,392		$	188,550

Ratio of net expenses to average net assets		2.56	%		2.60	%		2.37	%		2.44	%		2.52	%
Ratio of net investment income (loss) to average net assets		(0.73	%)		(0.76	%)		0.22	%		1.72	%		1.40	%
Ratio of gross expenses to average net assets		2.56	%		2.60	%		2.37	%		2.44	%		2.52	%
Ratio of net expenses to average net assets, excluding dividends on securities sold short		2.23	%		2.23	%		2.20	%		2.23	%		2.26	%
Portfolio turnover rate^(C)		43	%		44	%		59	%		59	%		83	%

Diamond Hill Long-Short Fund — Class I
Net asset value at beginning of period	$	16.42		$	13.87		$	18.46		$	18.63		$	16.49

Income (loss) from investment operations:
Net investment income (loss)		0.04			0.05			0.19			0.48			0.28
Net realized and unrealized gains (losses) on investments		(0.03	)		2.50			(4.51	)		0.19			2.59

Total from investment operations		0.01			2.55			(4.32	)		0.67			2.87

Less distributions:
Dividends from net investment income		(0.01	)		(0.00	)^(A)		(0.21	)		(0.49	)		(0.31	)
Distributions from net realized gains		—			—			(0.06	)		(0.35	)		(0.42	)

Total distributions		(0.01	)		(0.00	)^(A)		(0.27	)		(0.84	)		(0.73	)

Net asset value at end of period	$	16.42		$	16.42		$	13.87		$	18.46		$	18.63

Total return		0.03	%		18.39	%		(23.36	%)		3.59	%		17.37	%

Net assets at end of period (000s)	$	1,045,686		$	733,909		$	657,662		$	500,425		$	290,734

Ratio of net expenses to average net assets		1.46	%		1.47	%		1.24	%		1.29	%		1.34	%
Ratio of net investment income (loss) to average net assets		0.42	%		0.37	%		1.33	%		2.87	%		2.60	%
Ratio of gross expenses to average net assets		1.46	%		1.47	%		1.24	%		1.29	%		1.34	%
Ratio of net expenses to average net assets, excluding dividends on securities sold short		1.11	%		1.10	%		1.08	%		1.08	%		1.08	%
Portfolio turnover rate^(C)		43	%		44	%		59	%		59	%		83	%


^(A)		Amount is less than $0.005.

^(B)		Total returns shown exclude the effect of applicable sales charges.

^(C)		Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued.

^(D)		Amount is less than 0.005%.

See accompanying Notes to Financial Statements.

Diamond Hill Funds Annual Report December 31, 2010

Page 44

Diamond Hill Funds
Financial Highlights

For a share outstanding throughout each year


	Year Ended			Year Ended			Year Ended			Year Ended			Year Ended
	December 31,			December 31,			December 31,			December 31,			December 31,
	2010			2009			2008			2007			2006

Diamond Hill Financial Long-Short Fund — Class A
Net asset value at beginning of period	$	10.43		$	8.48		$	16.20		$	20.90		$	18.48

Income (loss) from investment operations:
Net investment income (loss)		0.02			0.16	^(D)		0.45			0.49			0.23
Net realized and unrealized gains (losses) on investments		1.73			1.94			(7.74	)		(4.04	)		2.79

Total from investment operations		1.75			2.10			(7.29	)		(3.55	)		3.02

Less distributions:
Dividends from net investment income		—			(0.15	)		(0.42	)		(0.47	)		(0.24	)
Distributions from net realized gains		—			—			(0.01	)		(0.68	)		(0.36	)

Total distributions		—			(0.15	)		(0.43	)		(1.15	)		(0.60	)

Net asset value at end of period	$	12.18		$	10.43		$	8.48		$	16.20		$	20.90

Total return^(B)		16.78	%		24.73	%		(44.98	%)		(17.05	%)		16.35	%

Net assets at end of period (000s)	$	8,543		$	8,053		$	7,596		$	27,597		$	38,978

Ratio of net expenses to average net assets		1.71	%		1.77	%		1.85	%		1.81	%		1.70	%
Ratio of net investment income (loss) to average net assets		0.09	%		1.92	%		2.37	%		2.17	%		1.80	%
Ratio of gross expenses to average net assets		1.71	%		1.77	%		1.85	%		1.82	%		1.70	%
Ratio of net expenses to average net assets, excluding dividends on securities sold short		1.56	%		1.58	%		1.56	%		1.59	%		1.62	%
Portfolio turnover rate^(C)		60	%		85	%		74	%		55	%		45	%

Diamond Hill Financial Long-Short Fund — Class C
Net asset value at beginning of period	$	9.99		$	8.12		$	15.60		$	20.10		$	17.84

Income (loss) from investment operations:
Net investment income (loss)		(0.10	)		0.09	^(D)		0.21			0.34			0.13
Net realized and unrealized gains (losses) on investments		1.69			1.84			(7.31	)		(3.88	)		2.63

Total from investment operations		1.59			1.93			(7.10	)		(3.54	)		2.76

Less distributions:
Dividends from net investment income		—			(0.06	)		(0.37	)		(0.28	)		(0.14	)
Distributions from net realized gains		—			—			(0.01	)		(0.68	)		(0.36	)

Total distributions		—			(0.06	)		(0.38	)		(0.96	)		(0.50	)

Net asset value at end of period	$	11.58		$	9.99		$	8.12		$	15.60		$	20.10

Total return^(B)		15.92	%		23.81	%		(45.49	%)		(17.68	%)		15.47	%

Net assets at end of period (000s)	$	1,381		$	1,295		$	1,866		$	3,287		$	4,620

Ratio of net expenses to average net assets		2.46	%		2.52	%		2.58	%		2.56	%		2.45	%
Ratio of net investment income (loss) to average net assets		(0.66	%)		1.17	%		1.76	%		1.42	%		1.03	%
Ratio of gross expenses to average net assets		2.46	%		2.52	%		2.58	%		2.57	%		2.45	%
Ratio of net expenses to average net assets, excluding dividends on securities sold short		2.31	%		2.35	%		2.30	%		2.34	%		2.37	%
Portfolio turnover rate^(C)		60	%		85	%		74	%		55	%		45	%

Diamond Hill Financial Long-Short Fund — Class I^(A)
Net asset value at beginning of period	$	10.37		$	8.43		$	16.18		$	20.90

Income (loss) from investment operations:
Net investment income (loss)		0.08			0.21	^(D)		0.63			0.37
Net realized and unrealized gains (losses) on investments		1.71			1.92			(7.89	)		(3.83	)

Total from investment operations		1.79			2.13			(7.26	)		(3.46	)

Less distributions:
Dividends from net investment income		(0.02	)		(0.19	)		(0.48	)		(0.58	)
Distributions from net realized gains		—			—			(0.01	)		(0.68	)

Total distributions		(0.02	)		(0.19	)		(0.49	)		(1.26	)

Net asset value at end of period	$	12.14		$	10.37		$	8.43		$	16.18

Total return		17.29	%		25.31	%		(44.79	%)		(16.61	%)

Net assets at end of period (000s)	$	1,873		$	671		$	709		$	2,464

Ratio of net expenses to average net assets		1.34	%		1.38	%		1.47	%		1.41	%
Ratio of net investment income (loss) to average net assets		0.45	%		2.45	%		2.80	%		2.96	%
Ratio of gross expenses to average net assets		1.34	%		1.38	%		1.47	%		1.42	%
Ratio of net expenses to average net assets, excluding dividends on securities sold short		1.19	%		1.19	%		1.18	%		1.18	%
Portfolio turnover rate^(C)		60	%		85	%		74	%		55	%


^(A)		Class I commenced operations on December 31, 2006, and commenced public offering and investment operations on January 3, 2007.

^(B)		Total returns shown exclude the effect of applicable sales charges.

^(C)		Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued.

^(D)		Net investment income per share has been calculated using the average daily shares outstanding during the period.

See accompanying Notes to Financial Statements.

Diamond Hill Funds Annual Report December 31, 2010

Page 45

Diamond Hill Funds
Financial Highlights

For a share outstanding throughout each period


	Year Ended			Year Ended			Year Ended			Year Ended			Year Ended
	December 31,			December 31,			December 31,			December 31,			December 31,
	2010			2009			2008			2007			2006

Diamond Hill Strategic Income Fund — Class A
Net asset value at beginning of period	$	10.15		$	8.28		$	10.41		$	11.71		$	11.25

Income (loss) from investment operations:
Net investment income (loss)		0.64			0.69			0.71			0.68			0.70
Net realized and unrealized gains (losses) on investments		0.69			1.86			(2.19	)		(1.20	)		0.42

Total from investment operations		1.33			2.55			(1.48	)		(0.52	)		1.12

Less distributions:
Dividends from net investment income		(0.62	)		(0.68	)		(0.64	)		(0.67	)		(0.66	)
Distributions from net realized gains		—			—			—			(0.11	)		—
Return of Capital		—			—			(0.01	)		—			—

Total distributions		(0.62	)		(0.68	)		(0.65	)		(0.78	)		(0.66	)

Net asset value at end of period	$	10.86		$	10.15		$	8.28		$	10.41		$	11.71

Total return^(A)		13.33	%		32.13	%		(14.79	%)		(4.78	%)		10.26	%

Net assets at end of period (000s)	$	42,360		$	41,048		$	31,268		$	54,435		$	49,372

Ratio of net expenses to average net assets		1.06	%		1.08	%		1.06	%		1.08	%		1.12	%
Ratio of net investment income (loss) to average net assets		5.81	%		7.64	%		6.60	%		6.15	%		6.38	%
Ratio of gross expenses to average net assets		1.06	%		1.08	%		1.06	%		1.09	%		1.12	%
Portfolio turnover rate^(B)		68	%		83	%		95	%		142	%		43	%

Diamond Hill Strategic Income Fund — Class C
Net asset value at beginning of period	$	10.15		$	8.27		$	10.41		$	11.70		$	11.24

Income (loss) from investment operations:
Net investment income (loss)		0.54			0.58			0.65			0.62			0.62
Net realized and unrealized gains (losses) on investments		0.70			1.91			(2.21	)		(1.22	)		0.41

Total from investment operations		1.24			2.49			(1.56	)		(0.60	)		1.03

Less distributions:
Dividends from net investment income		(0.54	)		(0.61	)		(0.57	)		(0.58	)		(0.57	)
Distributions from net realized gains		—			—			—			(0.11	)		—
Return of Capital		—			—			(0.01	)		—			—

Total distributions		(0.54	)		(0.61	)		(0.58	)		(0.69	)		(0.57	)

Net asset value at end of period	$	10.85		$	10.15		$	8.27		$	10.41		$	11.70

Total return^(A)		12.39	%		31.34	%		(15.51	%)		(5.43	%)		9.43	%

Net assets at end of period (000s)	$	24,264		$	22,120		$	14,730		$	24,638		$	26,908

Ratio of net expenses to average net assets		1.81	%		1.83	%		1.80	%		1.83	%		1.87	%
Ratio of net investment income (loss) to average net assets		5.06	%		6.88	%		5.87	%		5.35	%		5.63	%
Ratio of gross expenses to average net assets		1.81	%		1.83	%		1.81	%		1.84	%		1.87	%
Portfolio turnover rate^(B)		68	%		83	%		95	%		142	%		43	%

Diamond Hill Strategic Income Fund — Class I
Net asset value at beginning of period	$	10.13		$	8.26		$	10.40		$	11.69		$	11.23

Income (loss) from investment operations:
Net investment income (loss)		0.64			0.73			0.70			0.71			0.73
Net realized and unrealized gains (losses) on investments		0.72			1.85			(2.15	)		(1.17	)		0.44

Total from investment operations		1.36			2.58			(1.45	)		(0.46	)		1.17

Less distributions:
Dividends from net investment income		(0.65	)		(0.71	)		(0.68	)		(0.72	)		(0.71	)
Distributions from net realized gains		—			—			—			(0.11	)		—
Return of Capital		—			—			(0.01	)		—			—

Total distributions		(0.65	)		(0.71	)		(0.69	)		(0.83	)		(0.71	)

Net asset value at end of period	$	10.84		$	10.13		$	8.26		$	10.40		$	11.69

Total return		13.77	%		32.69	%		(14.55	%)		(4.31	%)		10.74	%

Net assets at end of period (000s)	$	76,893		$	64,407		$	50,185		$	70,205		$	54,302

Ratio of net expenses to average net assets		0.69	%		0.69	%		0.67	%		0.68	%		0.68	%
Ratio of net investment income (loss) to average net assets		6.18	%		8.05	%		7.05	%		6.62	%		6.89	%
Ratio of gross expenses to average net assets		0.69	%		0.69	%		0.68	%		0.68	%		0.68	%
Portfolio turnover rate^(B)		68	%		83	%		95	%		142	%		43	%


^(A)		Total returns shown exclude the effect of applicable sales charges.

^(B)		Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued.

See accompanying Notes to Financial Statements.

Diamond Hill Funds Annual Report December 31, 2010

Page 46

Diamond Hill Funds

Notes to Financial Statements
December 31, 2010

Organization

The Diamond Hill Small Cap Fund (“Small Cap Fund”), Diamond Hill Small-Mid Cap Fund (“Small-Mid Cap Fund”), Diamond Hill Large Cap Fund (“Large Cap Fund”), Diamond Hill Select Fund (“Select Fund”), Diamond Hill Long-Short Fund (“Long-Short Fund”), Diamond Hill Financial Long-Short Fund (“Financial Long-Short Fund”) and Diamond Hill Strategic Income Fund (“Strategic Income Fund”), are each a series of the Diamond Hill Funds (the “Trust”) (each a “Fund” and collectively the “Funds”). The Trust is an Ohio business trust, which is registered under the Investment Company Act of 1940, as amended, (the “1940 Act”) as an open-end, management investment company. Each Fund is a diversified series of the Trust.

The Funds offer three classes of shares: Class A, Class C and Class I. Each class of shares for each Fund has identical rights and privileges except with respect to distribution (12b-1) and service fees, voting rights on matters affecting a single class of shares, exchange privileges of each class of shares and sales charges. Class A has a maximum sales charge on purchases of 5.00% as a percentage of the original purchase price except for Strategic Income Fund which is 3.50%. Class C has a contingent deferred sales charge of 1.00% for shares redeemed within a year of the purchase date.

Significant Accounting Policies

The following is a summary of the Funds’ significant accounting policies:

Estimates — The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

Security valuation — The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The valuation techniques used to determine fair value are further described below.

Listed securities for which market quotations are readily available are valued at the closing prices as determined by the primary exchange where the securities are traded. Unlisted securities or listed securities for which the latest sales prices are not readily available are valued at the closing bid price in the principal market where such securities are normally traded. Debt securities are valued on the basis of valuations provided by dealers or by an independent pricing service that determines valuations based upon market transactions for normal, institutional-size trading units of similar securities. Short-term debt investments of sufficient credit quality maturing in less than 61 days are valued at amortized cost, which approximates fair value. Investments in other investment companies are valued at their reported net asset value. Securities for which market quotations are not readily available (e.g., an approved pricing service does not provide a price, certain stale prices, or an event occurs that materially affects the furnished price) are valued by the Fair Value Committee. In these cases, the Fair Value Committee established and appointed by the Trustees determines in good faith, subject to Trust procedures, the fair value of portfolio securities held by a Fund (“good faith fair valuation”). When a good faith fair valuation of a security is required, consideration is generally given to a number of factors, including, but not limited to the following: dealer quotes, published analyses by dealers or analysts of the situation at issue, transactions implicitly valuing the security (such as a merger, tender offer, etc.), the value of other securities or contracts which derive their value from the security at issue, and the implications (whether negative or positive) of the circumstances which have caused trading in the security to halt. Approximately 0.5% of the Strategic Income Fund’s net assets are being valued using estimates provided by the Fair Value Committee. The Fair Value Committee relied heavily upon analysis of the Strategic Income Fund’s portfolio manager in the absence of readily ascertainable market values. These values may differ from the values that would have been used had a ready market for these securities existed, and the differences could be material.

The valuation techniques described maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. These inputs are summarized in the three broad levels listed below:


• Level 1 —		quoted prices in active markets for identical securities


• Level 2 —		other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)

Diamond Hill Funds Annual Report December 31, 2010

Page 47

Diamond Hill Funds
Notes to Financial Statements (Continued)
December 31, 2010


• Level 3 —		significant unobservable inputs (including the Funds’ own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. For example, short-term debt securities of sufficient credit quality maturing in less than 61 days are valued using amortized cost in accordance with rules under the 1940 Act. Generally, amortized cost approximates the current fair value of a security, but since the value is not obtained from a quoted price in an active market, such securities are reflected as Level 2. The following is a summary of the inputs used to value the Funds’ investments as of December 31, 2010:


			Level 2 —
	Level 1 —		Other Significant
	Quoted Prices		Observable Inputs
Investments in Securities: (Assets)
Small Cap Fund
Common Stocks*	$	698,895,106	$	—
Registered Investment Companies		157,748,796		—
Repurchase Agreements		—		88,253,222

Total		856,643,902		88,253,222
Small-Mid Cap Fund
Common Stocks*		59,063,312		—
Registered Investment Companies		10,443,099		—
Repurchase Agreements		—		7,636,520

Total		69,506,411		7,636,520
Large Cap Fund
Common Stocks*		1,067,553,899		—
Registered Investment Companies		34,493,090		—
Repurchase Agreements		—		14,224,401

Total		1,102,046,989		14,224,401
Select Fund
Common Stocks*		41,404,963		—
Registered Investment Companies		1,892,791		—
Repurchase Agreements		—		547,234

Total		43,297,754		547,234
Long-Short Fund
Common Stocks*		1,790,176,910		—
Registered Investment Companies		118,513,355		—
Repurchase Agreements		—		19,694,394

Total		1,908,690,265		19,694,394
Financial Long-Short Fund
Common Stocks*		10,112,068		—
Preferred Stocks*		—		484,507
Corporate Bonds*		—		109,464
Registered Investment Companies		1,124,139		—
Repurchase Agreements		—		1,142,092

Total		11,236,207		1,736,063
Strategic Income Fund
Preferred Stocks*		1,546,600		20,377
Corporate Bonds*		—		132,535,916
Collateralized Debt Obligations		—		664,359
Registered Investment Companies		8,855,116		—
Repurchase Agreements		—		7,377,894

Total		10,401,716		140,598,546

Diamond Hill Funds Annual Report December 31, 2010

Page 48

Diamond Hill Funds
Notes to Financial Statements (Continued)
December 31, 2010

Investment in Securities Sold Short: (Liabilities)


				Level 2 —
	Level 1 —			Other Significant
	Quoted Prices			Observable Inputs
Long-Short Fund
Common Stocks*	$	(532,896,483	)	$	—
Exchange Traded Funds		(19,082,253	)		—

Total		(551,978,736	)	$	—
Financial Long-Short Fund
Common Stocks*		(909,840	)		—


*		See Schedule of Investments and Schedule of Securities Sold Short for industry classification.

There were no significant transfers in and out of Levels 1, 2, or 3 during the year ended December 31, 2010 and the Funds held no Level 3 securities at December 31, 2010.

Short sales — The Long-Short Fund, Financial Long-Short Fund and Strategic Income Fund may sell a security they do not own in anticipation of a decline in the value of that security. When the Funds sell a security short, they must borrow the security sold short and deliver it to the broker-dealer through which they made the short sale. A gain, limited to the price at which the Funds sold the security short, or a loss, unlimited in size, will be recognized upon closing a short sale. Cash received from short sales is maintained by brokers and is used to meet margin requirements for short calls. It is included as “Deposits with brokers for securities sold short” on the Statements of Assets & Liabilities.

Securities Lending — Under the terms of the securities lending agreement with JPMorgan Chase Bank, N.A. (“JPMorgan”), JPMorgan is authorized to loan securities on behalf of the Funds to approved borrowers. In exchange, the Funds receive cash collateral in the amount of at least 100% of the value of the securities loaned. The cash collateral is invested in short term instruments as noted in the Schedules of Investments. Although risk is mitigated by the collateral, the Funds could experience a delay in recovering their securities and possible loss of income or value if the borrower fails to return them. The agreement indemnifies the Funds from losses incurred in the event of a borrower’s material default of the terms and conditions of the borrower agreement. The agreement provides that after predetermined rebates to brokers, net securities lending income shall first be solely paid as credits and offset against costs and other charges incurred by each Fund with JPMorgan. Any remaining securities lending revenue is then paid to the Funds as securities lending income.

As of December 31, 2010, the value of securities loaned and the collateral held were as follows:


	Fair Value of		Fair Value of
	Securities Loaned		Collateral Received
Small Cap Fund	$	85,494,357	$	88,253,222
Small-Mid Cap Fund	$	7,418,648	$	7,636,520
Large Cap Fund	$	13,832,824	$	14,224,401
Select Fund	$	529,546	$	547,234
Long-Short Fund	$	19,234,244	$	19,694,394
Financial Long-Short Fund	$	1,108,326	$	1,142,092
Strategic Income Fund	$	7,220,177	$	7,377,894

Security transactions — Throughout the reporting period, investment transactions are recorded no later than the first business day following trade date. For financial reporting purposes, investments are reported on trade date on the last business day of the reporting period. The specific identification method is used for determining realized gains or losses for financial statements and income tax purposes. Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis. Discounts and premiums on securities purchased are amortized using the daily effective yield method. The Funds record distributions received from investments in Real Estate Investment Trusts (REITS) in excess of income from underlying investments as a reduction of cost of investments and/or realized gain. Such amounts are based on estimates if actual amounts are not available and actual amounts of income, realized gain and return of capital may differ from the estimated amounts. The Funds adjust the estimated amounts once the issuers provide information about the actual composition of the distributions.

Diamond Hill Funds Annual Report December 31, 2010

Page 49

Diamond Hill Funds
Notes to Financial Statements (Continued)
December 31, 2010

Share valuation — The net asset value per share of each class of shares of each Fund is calculated daily by dividing the total value of a Fund’s assets attributable to that class, less liabilities attributable to that class, by the number of shares of that class outstanding.

Federal income taxes — Each Fund’s policy is to continue to comply with the requirements of the Internal Revenue Code that are applicable to regulated investment companies and to distribute substantially all of its taxable net investment income and any net realized capital gains to its shareholders. The Funds have analyzed their tax positions taken on Federal income tax returns for all open tax years (tax years ended December 31, 2007 through 2010) and have concluded that no provision for income tax is required in their financial statements.

Distributions to shareholders — Dividends from net investment income are declared and paid monthly for the Strategic Income Fund. Dividends from net investment income are declared and paid on an annual basis for the Small Cap Fund, Small-Mid Cap Fund, Large Cap Fund, Select Fund, Long-Short Fund, and Financial Long-Short Fund. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share rates are due to differences in separate class expenses. Net realized capital gains, if any, are distributed at least annually. Distributions from net investment income and from net capital gains are determined in accordance with U.S. income tax regulations, which may differ from GAAP. These differences are primarily due to differing treatments for paydown gains and losses on mortgage-backed securities, expiring capital loss carry-forwards, and deferrals of certain losses. Permanent book and tax basis differences are reclassified among the components of net assets. Certain Funds may utilize earnings and profits distributed to shareholders on redemption of shares as part of the dividends paid deduction for income tax purposes.

Allocations — Investment income earned, realized capital gains and losses, and unrealized appreciation and depreciation for the Funds are allocated daily to each class of shares based upon its proportionate share of total net assets of the Fund. Class specific expenses are charged directly to the class incurring the expense. Common expenses, which are not attributable to a specific class, are allocated daily to each class of shares based upon its proportionate share of total net assets of the Fund. Expenses not directly billed to a Fund are allocated proportionally among all Funds daily in relation to net assets of each Fund or another reasonable measure.

Investment Transactions

For the year ended December 31, 2010, the purchases and sales (including maturities) of investment securities (excluding short-term securities and U.S. government obligations) were as follows:


	Purchases		Sales
Small Cap Fund	$	290,593,245	$	199,903,168
Small-Mid Cap Fund	$	30,370,826	$	14,816,326
Large Cap Fund	$	443,413,926	$	131,813,410
Select Fund	$	13,472,826	$	5,891,528
Long-Short Fund	$	926,072,068	$	787,433,515
Financial Long-Short Fund	$	6,785,732	$	7,835,694
Strategic Income Fund	$	87,197,235	$	90,443,419

The Funds pay commissions on the purchase and sale of investment securities. The commissions are treated as transaction costs and, therefore, are included as part of the cost of purchases or net proceeds on the sale of investment securities and are not included in the presentation of Fund expenses on the Statements of Operations. No portion of the commissions paid during the period was used to purchase so-called “soft dollar” services as defined in Section 28(e) of the Securities Exchange Act of 1934. The Funds paid the following commissions during the year ended December 31, 2010:


			Total Commissions
			Used to Pay for		Commissions as a %
	Total Commissions		Soft Dollars Services		of Average Net Assets
Small Cap Fund	$	462,830	$	—		0.07	%
Small-Mid Cap Fund	$	43,597	$	—		0.09	%

Diamond Hill Funds Annual Report December 31, 2010

Page 50

Diamond Hill Funds
Notes to Financial Statements (Continued)
December 31, 2010


			Total Commissions
			Used to Pay for		Commissions as a %
	Total Commissions		Soft Dollars Services		of Average Net Assets
Large Cap Fund	$	403,166	$	—		0.05	%
Select Fund	$	13,701	$	—		0.04	%
Long-Short Fund	$	1,164,202	$	—		0.06	%
Financial Long-Short Fund	$	11,979	$	—		0.10	%
Strategic Income Fund	$	8.181	$	—		0.01	%

New Accounting Pronouncement

In January 2010, the FASB issued new guidance as an amendment to fair value measurements and disclosures. The new guidance adds new requirements for disclosure about transfers into and out of level 1 and level 2 fair value measurements and separate disclosures about purchases, sales, issuances, and settlements relating to level 3 measurements. The guidance also clarifies existing fair value disclosures about the level of disaggregation and about input and valuation techniques in level 2 and level 3 fair value measurements. The Funds have adopted this amendment.

Investment Advisory Fees and Other Transactions with Affiliates

The Small Cap Fund, Small-Mid Cap Fund, Large Cap Fund, Select Fund, Long-Short Fund, Financial Long-Short Fund, and Strategic Income Fund each receive investment management and advisory services from Diamond Hill Capital Management, Inc. (“DHCM”) under management agreements that provide for fees to be paid at an annual rate of 0.80%, 0.75%, 0.60%, 0.70%, 0.90%, 1.00%, and 0.50% of the Funds’ average daily net assets, respectively. The advisory agreements are subject to annual approval by the Board of Trustees. In addition, each Fund has entered into an administrative services agreement whereby DHCM (“Administrator”) is paid a fee at an annual rate of 0.30% for Class A and Class C Shares and 0.19% for Class I shares of each class’ average daily net assets. Prior to April 30, 2010, the fees paid by Class A, Class C, and Class I shares were paid at an annual rate of 0.34%, 0.34% and 0.20% of each classes’ average daily net assets, respectively. These administrative fees are used to pay most of the Funds’ operating expenses except advisory, distribution, fund accounting, custody, brokerage, taxes, interest, dividend expense on securities sold short, and extraordinary expenses.

Pursuant to rule 12b-1 of the 1940 Act, each Fund has adopted a distribution plan (together, the “Plans”). Under the Plans, Class A shares pay a distribution fee at an annual rate of 0.25% of Class A average daily net assets. Class C shares pay a distribution and shareholder-servicing fee at an annual rate of 0.75% and 0.25%, respectively, of Class C average daily net assets. Class I shares are not subject to any distribution or shareholder-servicing fees. The Trust entered into a Distribution Agreement on behalf of the Funds with BHIL Distributors, Inc. (“Distributor”), an affiliate of DHCM. Pursuant to the Distribution Agreement, the Distributor acts as principal underwriter of each Fund’s shares.

For the year ended December 31, 2010, the Distributor received the following amounts in sales commissions from the sales of Class A shares of the Funds as follows:


Small Cap Fund	$	13,944
Small-Mid Cap Fund	$	3,260
Large Cap Fund	$	13,301
Select Fund	$	797
Long-Short Fund	$	25,310
Financial Long-Short Fund	$	3,790
Strategic Income Fund	$	2,040

Diamond Hill Funds Annual Report December 31, 2010

Page 51

Diamond Hill Funds
Notes to Financial Statements (Continued)
December 31, 2010

DHCM, as the financing agent for Class C shares, received contingent deferred sales charges relating to the redemptions of Class C shares of the Funds for the year ended December 31, 2010 as follows:


Small Cap Fund	$	1,500
Small-Mid Cap Fund	$	857
Large Cap Fund	$	3,827
Select Fund	$	170
Long-Short Fund	$	21,048
Financial Long-Short Fund	$	497
Strategic Income Fund	$	15,114

Certain officers of the Trust are affiliated with DHCM or the Distributor. Such officers receive no compensation from the Funds for serving in their respective roles.

Trustee Fees

The Independent Trustees are compensated for their services to the Funds by Diamond Hill Capital Management as part of the administration services agreement. The Independent Trustees were paid $135,300 in fees during the year ended December 31, 2010.

Commitments and Contingencies

The Funds indemnify the Trust’s officers and Trustees for certain liabilities that might arise from their performance of their duties to the Funds. Additionally, in the normal course of business, the Funds enter into contracts that contain a variety of representations and warranties and which provide general indemnifications. The Funds’ maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Funds that have not yet occurred. However, based on experience, the Funds expect the risk of loss to be remote.

Federal Tax Information

The amount and character of income and capital gain distributions paid by the Funds are determined in accordance with Federal income tax regulations which may differ from GAAP. The tax character of distributions paid may differ from the character of distributions shown on the Statements of Changes in Net Assets, as items such as short-term capital gains are treated as ordinary income for tax purposes.

The tax character of distributions paid during 2010 and 2009 was as follows:


	Small Cap Fund				Small-Mid Cap Fund				Large Cap Fund				Select Fund
	2010		2009		2010		2009		2010		2009		2010		2009

Distributions paid from:
Ordinary income	$	—	$	54,353	$	47,033	$	47,498	$	9,712,140	$	1,909,846	$	160,824	$	—
Long-term capital gains		12,949,544		—		20,259		—		—		—		—		—

Total distributions	$	12,949,544	$	54,353	$	67,292	$	47,498	$	9,712,140	$	1,909,846	$	160,824	$	—


	Long-Short Fund				Financial Long-Short Fund				Strategic Income Fund
	2010		2009		2010		2009		2010		2009

Distributions paid from:
Ordinary income	$	334,787	$	19,506	$	3,500	$	149,149	$	8,282,495	$	7,974,351
Long-term capital gains		—		—		—		—		—		—

Total distributions	$	334,787	$	19,506	$	3,500	$	149,149	$	8,282,495	$	7,974,351

Diamond Hill Funds Annual Report December 31, 2010

Page 52

Diamond Hill Funds
Notes to Financial Statements (Continued)
December 31, 2010

The following information is computed on a tax basis for each item as of December 31, 2010:


	Small			Small-Mid			Large			Select
	Cap Fund			Cap Fund			Cap Fund			Fund

Tax cost of portfolio investments	$	799,223,282		$	65,297,711		$	968,915,343		$	38,183,144

Gross unrealized appreciation		166,520,300			12,657,947			166,120,228			6,341,358
Gross unrealized depreciation		(20,846,458	)		(812,727	)		(18,764,181	)		(679,514	)

Net unrealized appreciation		145,673,842			11,845,220			147,356,047			5,661,844
Undistributed ordinary income		—			8,693			3,339,169			305,599
Undistributed capital gains		3,936,820			533,705			—			—
Capital loss carryforwards		—			—			(75,155,759	)		(1,394,212	)
Post-October losses		—			—			—			—
Other temporary differences		—			—			—			—

Accumulated earnings	$	149,610,662		$	12,387,618		$	75,539,457		$	4,573,231


				Financial			Strategic
	Long-Short			Long-Short			Income
	Fund			Fund			Fund

Tax cost of portfolio investments	$	1,576,377,207		$	11,107,374		$	146,700,386

Gross unrealized appreciation		380,851,386			2,053,560			8,094,470
Gross unrealized depreciation		(187,232,865	)		(236,134	)		(3,794,594	)

Net unrealized appreciation		193,618,521			1,817,426			4,299,876
Undistributed ordinary income		2,198,193			2,549			80,145
Capital loss carryforwards		(588,182,583	)		(14,334,127	)		(17,410,085	)
Post-October losses		(13,578,153	)		—			(1,369,481	)

Accumulated deficit	$	(405,944,022	)	$	(12,514,152	)	$	(14,399,545	)

The difference between book basis and tax basis net unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales, investments in Real Estate Investment Trusts and contributed securities.

As of December 31, 2010, the Funds had net capital loss carryforwards expiring as follows:


			Expires
	Amount		December 31,

Large Cap Fund	$	33,876,572		2016
		41,279,187		2017

	$	75,155,759

Select Fund	$	1,394,212		2017

		1,394,212

	$	101,454,175		2016
Long-Short Fund	$	417,551,311		2017
		69,177,097		2018

	$	588,182,583

Financial Long-Short Fund	$	7,793,999		2016
		6,540,128		2017

	$	14,334,127

Strategic Income Fund	$	12,138,231		2016
		5,271,854		2017

	$	17,410,085

The Small Cap Fund, Small-Mid Cap Fund, Large Cap Fund, Select Fund, Financial Long Short Fund and Strategic Income Fund utilized $35,690,799, $2,458,151, $9,557,631, $749,662, $1,102,518, and $6,480,396, respectively, of losses in the current fiscal year.

The Funds also elected to defer until their subsequent tax year capital losses incurred after October 31, 2010. The capital loss carryforwards and “Post-October” losses may be utilized in future years to offset net realized capital gains, if any, prior to distributing such gains to shareholders.

Diamond Hill Funds Annual Report December 31, 2010

Page 53

Diamond Hill Funds
Notes to Financial Statements (Continued)
December 31, 2010

The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Fund. In general, the provisions of the Act will be effective for the Fund’s fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of the fund’s pre-enactment capital loss carryovers may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers. Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Tax Information” section of the notes to financial statements beginning in 2011 reporting periods.

Reclassification of capital accounts — Reclassifications result primarily from the difference in the tax treatment of net investment losses, distributions in excess of net investment income, investments in Real Estate Investment Trusts and contributed securities. The following reclassifications have no impact on the net assets or net asset value per share of the Funds and are designed to present the Funds’ capital accounts on a tax basis:


				Undistributed			Accumulated
	Paid-In			Net Investment			Net Realized
	Capital			Income (Loss)			Gains (Losses)

Small Cap Fund	$	(852,561	)	$	852,631		$	(70	)
Small-Mid Cap Fund		650			(650	)		—
Financial Long-Short Fund		9,459			(3,249	)		(6,210	)
Strategic Income Fund		263,918			(1,871,181	)		1,607,263

Subsequent Events

The Funds evaluated events from December 31, 2010 through the date that these financial statements were issued. There were no subsequent events to report that would have a material impact on the Funds’ financial statements.

Diamond Hill Funds Annual Report December 31, 2010

Page 54

Report of Independent Registered Public Accounting Firm

The Board of Trustees and Shareholders
of the Diamond Hill Funds:

We have audited the accompanying statements of assets and liabilities of the Diamond Hill Funds (comprised of the Diamond Hill Small Cap Fund, Diamond Hill Small-Mid Cap Fund, Diamond Hill Large Cap Fund, Diamond Hill Select Fund, Diamond Hill Long-Short Fund, Diamond Hill Financial Long-Short Fund, and Diamond Hill Strategic Income Fund) (collectively, the “Funds”), including the schedules of investments, as of December 31, 2010, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian and brokers or by other auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Diamond Hill Funds at December 31, 2010, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.

Cincinnati, Ohio
February 25, 2011

Diamond Hill Funds Annual Report December 31, 2010

Page 55

Diamond Hill Funds

Other Items
December 31, 2010
(Unaudited)

Proxy Voting

The investment adviser is responsible for exercising the voting rights associated with the securities purchased and held by the Funds. A description of the policies and procedures that the advisor uses in fulfilling this responsibility and information regarding how those proxies were voted during the twelve month period ended June 30 are available without charge upon request by calling toll free 1-888-226-5595 or on the Securities and Exchange Commission’s website at http://www.sec.gov.

Portfolio Disclosure

The Trust files a complete listing of portfolio holdings as of the end of the first and third quarters of each fiscal year on Form N-Q and each second and fourth quarters of each fiscal year on Form N-CSR. The complete listing (i) is available on the Commission’s website; (ii) may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; and (iii) will be made available to shareholders upon request by calling 1-888-226-5595. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Monthly portfolio holdings are also available on www.diamond-hill.com.

Dividends Received Deduction

For corporate shareholders, the following ordinary dividends paid during the year ended December 31, 2010 qualify for the corporate dividends received deduction:


Small-Mid Cap Fund	100.00	%
Large Cap Fund	100.00	%
Select Fund	100.00	%
Long-Short Fund	100.00	%
Financial Long-Short Fund	100.00	%
Strategic Income Fund	1.83	%

Qualified Dividend Income

The Funds designated the maximum amount allowable of their net taxable income as qualified dividend income as provided in the Jobs and Growth Tax Relief Reconciliation Act of 2003. This amount was reflected on form 1099-div for the calendar year 2010.

Diamond Hill Funds Annual Report December 31, 2010

Page 56

Diamond Hill Funds

Schedule of Shareholder Expenses
Hypothetical Example of a $1,000 Investment at Beginning of Period
(Unaudited)

As a Fund shareholder, you may incur two types of costs: (1) transaction costs, including wire redemption fees and sales charges (loads) as applicable; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transactional costs or other fees that may apply, such as fees for low balance accounts. Therefore, the examples are useful in comparing ongoing costs only and will not help you determine the relative total cost of owning different funds. In addition, if these transactional costs and other fees were included, your costs would have been higher.

These examples are based on an investment of $1,000 invested at July 1, 2010 and held for the entire period from July 1, 2010 through December 31, 2010.

The Actual Expense example below provides information about actual account values and actual expenses. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses paid during period” to estimate the expenses you paid on your account during this period.

The Hypothetical Expense example below provides information about hypothetical account values and hypothetical expenses based on each Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not each Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in this Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.


														Fund’s
	Account value				Account value					Expenses paid				annualized
	at the beginning				at the end					during				expense
	of the period ($)				of the period ($)					the period ($)*				ratio (%)
	Actual		Hypothetical		Actual			Hypothetical		Actual		Hypothetical		Actual

Small Cap Fund
Class A		1,000.00		1,000.00		1,224.70			1,018.25		7.74		7.02		1.38
Class C		1,000.00		1,000.00		1,219.50	��		1,014.52		11.86		10.76		2.12
Class I		1,000.00		1,000.00		1,226.50			1,020.11		5.67		5.14		1.01
Small-Mid Cap Fund
Class A		1,000.00		1,000.00		1,238.80			1,018.55		7.45		6.72		1.32
Class C		1,000.00		1,000.00		1,233.70			1,014.77		11.65		10.51		2.07
Class I		1,000.00		1,000.00		1,240.40			1,020.37		5.42		4.89		0.96
Large Cap Fund
Class A		1,000.00		1,000.00		1,197.50			1,019.31		6.48		5.96		1.17
Class C		1,000.00		1,000.00		1,193.10			1,015.53		10.61		9.75		1.92
Class I		1,000.00		1,000.00		1,200.10			1,021.12		4.49		4.13		0.81
Select Fund
Class A		1,000.00		1,000.00		1,200.10			1,018.80		7.04		6.46		1.27
Class C		1,000.00		1,000.00		1,195.90			1,015.02		11.18		10.26		2.02
Class I		1,000.00		1,000.00		1,202.60			1,020.62		5.05		4.63		0.91
Long-Short Fund
Class A		1,000.00		1,000.00		1,102.37			1,015.88		9.80		9.40		1.85
Class C		1,000.00		1,000.00		1,097.86			1,012.10		13.75		13.19		2.60
Class I		1,000.00		1,000.00		1,103.85			1,017.64		7.95		7.63		1.50

Diamond Hill Funds Annual Report December 31, 2010

Page 57

Diamond Hill Funds
Schedule of Shareholder Expenses
Hypothetical Example of a $1,000 Investment at Beginning of Period
(Unaudited) Continued


													Fund’s
	Account value				Account value				Expenses paid				annualized
	at the beginning				at the end				during				expense
	of the period ($)				of the period ($)				the period ($)*				ratio (%)
	Actual		Hypothetical		Actual		Hypothetical		Actual		Hypothetical		Actual

Financial Long-Short Fund
Class A		1,000.00		1,000.00		1,154.50		1,016.38		9.50		8.89		1.75
Class C		1,000.00		1,000.00		1,149.95		1,012.60		13.55		12.68		2.50
Class I		1,000.00		1,000.00		1,157.26		1,018.20		7.56		7.07		1.39
Strategic Income Fund
Class A		1,000.00		1,000.00		1,059.70		1,019.71		5.66		5.55		1.09
Class C		1,000.00		1,000.00		1,055.70		1,015.93		9.53		9.35		1.84
Class I		1,000.00		1,000.00		1,061.70		1,021.53		3.79		3.72		0.73


* -		Expenses are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year (to reflect the one-half year period).

You can find more information about the Fund’s expenses, including annual expense ratios for historical periods in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to the Fund’s prospectus. The prospectus presents hypothetical shareholder costs over various time periods based upon a $10,000 investment and a return of 5% a year. This standardized example, which appears in all mutual fund prospectuses, may be useful to you in comparing the costs of investing in different funds.

Diamond Hill Funds Annual Report December 31, 2010

Page 58

Diamond Hill Funds

Management of the Trust (unaudited)

Listed in the charts below is basic information regarding the Trustees and officers of the Trust.

INDEPENDENT TRUSTEES:


				Number of
				Portfolios in
Name/				Fund Complex
Address/¹	Position(s)	Term of Office² and	Principal Occupation(s)	Overseen by
Age	Held with Trust	Length of Time Served	At Least The Last 5 Years	Trustee³

Thomas E. Line Year of Birth: 1967	Chairman Trustee	Since November 2005	Senior Managing Director and Chief Financial Officer, Red Capital Group, October 2005 to the present;		7

Elizabeth P. Kessler Year of Birth: 1968	Trustee	Since November 2005	Attorney and Partner-in-charge, Columbus Ohio office — Jones Day		7

D’Ray Moore Rice Year of Birth: 1959	Trustee	Since August 2007	Retired, Community Volunteer. Trustee of American Performance Funds from October 2004 to October 2007.		7

George A. Skestos Year of Birth: 1968	Trustee	Since August 2000	Managing Member, Arcadia Holdings, LLC (private investment banking firm), May 2001 to the present; President of Homewood Corporation (real estate development firm), January 2000 to the present.		7

PRINCIPAL OFFICERS:


Name/
Address/¹	Position(s)	Term of Office and	Principal Occupation(s)
Age	Held with Trust	Length of Time Served	At Least the Last 5 Years

James F. Laird, Jr. Year of Birth: 1957	President	Since December 2001	Chief Financial Officer of Diamond Hill Investment Group, Inc., since December 2001.

Gary R. Young Year of Birth: 1969	Chief Administration Officer and Secretary	Since October 2010 Since May 2004	Controller of Diamond Hill Investment Group, Inc. since April 2004. Chief Compliance Officer of Diamond Hill Capital Management Inc., since October 2010.

Trent M. Statczar Year of Birth: 1971	Treasurer	Since October 2010	Director, Beacon Hill Fund Services, Inc. 2008 to present:Vice President, Citi Fund Services Ohio, Inc. from 2004 to 2007.

George L. Stevens Year of Birth: 1951	Chief Compliance Officer	Since October 2010	Director, Beacon Hill Fund Services, Inc. 2008 to present: Vice President, Citi Fund Services Ohio, Inc. from 2004 to 2007.


¹		The address of each Trustee and Officer is 325 John H. McConnell Boulevard — Suite 200, Columbus, Ohio 43215.

²		Each Trustee is elected to serve in accordance with the Declaration of Trust and Bylaws of the Trust until his or her successor is duly elected and qualified.

³		No other directorships are held by any Trustee.

The Statement of Additional Information contains additional information about the Trustees and is available without charge on www.diamond-hill.com or by calling 1-888-226-5595.

Diamond Hill Funds Annual Report December 31, 2010

Page 59

NOTICE OF PRIVACY POLICY

In order to enhance our ability to provide you with the best service possible, the Diamond Hill Funds (referred to as “we” or “us”) collects, uses and shares certain information about you. This policy explains what information we collect and with whom we share it. The practices described in this policy are applicable to all customers, including prospective, current and former customers. The policy also explains how we protect the security and confidentiality of certain customer information. We make reference to our “affiliates” in this policy. Affiliates are companies related to us by common control, including Diamond Hill Capital Management, Inc., Diamond Hill Investment Group, Inc., Beacon Hill Fund Services, and BHIL Distributors, Inc.

SAFEGUARDING PRIVACY

We maintain physical, electronic and procedural safeguards that comply with federal standards to ensure the safety of non-public personal customer information.

INFORMATION WE COLLECT AND SOURCES OF INFORMATION

We may collect information about our customers to help identify you, evaluate your application, service and manage your account and offer services and products you may find valuable. We collect this information from a variety of sources including:

	•		Information we receive from you on applications or other forms (e.g. your name, address, date of birth, social security number and investment information).

	•		Information about your transactions and experiences with us and our affiliates (e.g. your account balance, transaction history and investment selections); and

	•		Information we obtain from third parties regarding their brokerage, investment advisory, custodial or other relationships with you (e.g. your account number, account balance and transaction history).

INFORMATION WE SHARE WITH SERVICE PROVIDERS

We may disclose all non-public personal information we collect, as described above, to companies (including affiliates) that perform services on our behalf, including those that assist us in responding to inquiries, processing transactions, preparing and mailing account statements and other forms of shareholder services provided they use the information solely for these purposes and they enter into a confidentiality agreement regarding the information.

INFORMATION WE SHARE WITH AFFILIATES

Our affiliates are financial service providers that offer investment advisory, brokerage and other financial services. In addition to the information we share with affiliates that provide services to us, we may share information among our affiliates to better assist you in achieving your financial goals.

PRIVACY PROMISE FOR CUSTOMERS

We will safeguard, according to federal standards of security and confidentiality, any non-public personal information our customers share with us.

We will limit the collection and use of non-public customer information to the minimum necessary to deliver superior service to our customers that includes advising our customers about our products and services and to administer our business.

We will permit only authorized employees who are trained in the proper handling of non-public customer information to have access to that information.

We will not reveal non-public customer information to any external organization unless we have previously informed the customer in disclosures or agreements, have been authorized by the customer or are required by law or our regulators.

We value you as a customer and take your personal privacy seriously. We will inform you of our policies for collecting, using, securing and sharing non-public personal information the first time we do business and every year that you are a customer of The Diamond Hill Funds or anytime we make a material change to our privacy policy.

Diamond Hill Funds Annual Report December 31, 2010

Page 60

[This page has been left blank intentionally.]

325 John H. McConnell Blvd., Suite 200 Columbus, Ohio 43215 614.255.3333 www.diamond-hill.com Investment Adviser Diamond Hill Capital Management, Inc. Distributor BHIL Distributors, Inc. For additional information, call: J.P. Morgan Chase Bank N.A. TOLL FREE 888.226.5595

Item 2. Code of Ethics.

As of the end of the period covered by this report, the registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The Code of Ethics is included as Exhibit 12(a)(1).

During the period covered by the report, with respect to the registrant’s code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions; there have been no amendments to, nor any waivers granted from, a provision that relates to any element of the code of ethics definition enumerated in paragraph (b) of this Item 2.

Item 3. Audit Committee Financial Expert.

The registrant’s Board of Trustees has determined that the registrant has at least one audit committee financial expert serving on its audit committee. Mr. Thomas E. Line is the registrant’s “audit committee financial expert” and is “independent” (as each term is defined in Item 3 of Form N-CSR).

Item 4. Principal Accountant Fees and Services.

(a) Audit Fees. Audit fees totaled $100,900 and $98,000 in fiscal 2010 and 2009, respectively. 2010 and 2009 fees include fees associated with the annual audit and filings of the registrant’s Form N-1A and Form N-SAR.

(b) Audit-Related Fees. There were no audit-related fees in fiscal 2010 and 2009.

(d) All Other Fees. There were no other fees in fiscal 2010 and 2009.

(e)(1) Audit Committee Pre-Approval Policies. The Audit Committee’s pre-approval policies describe the types of audit, audit-related, tax and other services that may receive the general pre-approval of the Audit Committee. The pre-approval policies provide that annual audit service fees, tax services not specifically granted pre-approval, services exceeding pre-approved cost levels and other services that have not received general pre-approval will be subject to specific pre-approval by the Audit Committee. The pre-approval policies further provide that the Committee may grant general pre-approval to other audit services (statutory audits and services associated with SEC registration statements, periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings), audit-related services (accounting consultations related to accounting, financial reporting or disclosure matters not classified as “audit services,” assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities, agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters and assistance with internal control reporting requirements under Form N-SAR and Form N-CSR), tax services that have historically been provided by the auditor that the Committee believes would not impair the independence of the auditor and are consistent with the SEC’s rules on auditor independence and permissible non-audit services classified as “all other services” that are routine and recurring services.

(e)(2) 0.0% in fiscal 2010 and 2009.

(f) Not applicable.

(g) The aggregate non-audit fees for services to the registrant, its investment adviser and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant were $79,600 and $79,300 in 2010 and 2009, respectively.

(h) Not applicable

Item 5. Audit Committee of Listed Companies.

Not applicable.

Item 6. Schedule of Investments.

(a) The Schedule of Investments included in the Report to Shareholders filed under Item 1 of this Form.

(b) Not applicable

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Not applicable.

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

Not Applicable.

Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers.

Not Applicable.

Item 10. Submission of Matters to a Vote of Security Holders.

Not Applicable.

Item 11. Controls and Procedures.

(a) Based on an evaluation of the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940), as of a date within 90 days of the filing date of this report, the registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures are effective.

(b) There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 12. Exhibits.

(a)(1)		Code of Ethics for Senior Financial Officers is filed herewith.

(a)(2)		Certifications required by Item 12(a) of Form N-CSR are filed herewith.

(a)(3)		Not applicable.

(b)		Certifications required by Item 12(b) of Form N-CSR is furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

(Registrant) Diamond Hill Funds

By (Signature and Title)


/s/ James F. Laird, Jr. James F. Laird, Jr.
President

Date: February 28, 2011

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By (Signature and Title)


/s/ James F. Laird, Jr. James F. Laird, Jr.
President

Date: February 28, 2011

By (Signature and Title)


/s/ Trent M. Statczar Trent M. Statczar
Treasurer

Date: February 28, 2011

Diamond Hill All Cap Select Fund (DHTYX) N-CSRCertified annual shareholder report (management investment company)