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
(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, 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: 12/31/07
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, Washington, DC 20549-0102. 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
This material must be preceded or
accompanied by a current prospectus.
Annual Report
December 31, | | SMALL CAP FUND |
2007 | | SMALL-MID CAP FUND |
| | LARGE CAP FUND |
| | SELECT FUND |
| | LONG-SHORT FUND |
| | FINANCIAL LONG-SHORT FUND |
| | STRATEGIC INCOME FUND |
| | NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
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 | 20 |
Financial Statements | |
Schedules of Investments | 22 |
Statements of Assets & Liabilities | 35 |
Statements of Operations | 37 |
Statements of Changes in Net Assets | 38 |
Schedule of Capital Share Transactions | 40 |
Financial Highlights | 42 |
Notes to Financial Statements | 52 |
Report of Independent Registered Public Accounting Firm | 58 |
Other Items | 59 |
Schedule of Shareholder Expenses | 60 |
Management of the Trust | 62 |
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).
Dear Fellow Shareholders:
We are pleased to provide you with this year end update for the Diamond Hill Funds. Our focus remains on seeking out investment opportunities where the price-to-intrinsic value relationship provides an opportunity to earn an attractive rate of return while also providing a margin of safety. The following table summarizes the performance of the Diamond Hill Class A shares relative to their benchmarks as of December 31, 2007.
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| | | Total Return | | |
| NAV 12/31/07 | Three Months Ended 12/31/07 | Six Months Ended 12/31/07 | One Year Ended 12/31/07 | Three Years Ended 12/31/07 | Five Years Ended 12/31/07 | Ten Years Ended 12/31/07 | Since Inception | Inception Date |
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Small Cap Fund (DHSCX) | 22.53 | -4.17% | -9.23% | -3.79% | 5.15% | 17.68% | | 14.60% | 12/29/00 |
Russell 2000 | | -4.57% | -7.52% | -1.55% | 6.80% | 16.24% | | 8.13% | |
Small-Mid Cap Fund (DHMAX) | 10.50 | -3.48% | -6.97% | -0.91% | | | | 4.31% | 12/31/05 |
Russell 2500 | | -4.31% | -6.72% | 1.38% | | | | 8.51% | |
Large Cap Fund (DHLAX) | 16.25 | -2.01% | -0.14% | 5.42% | 12.12% | 17.63% | | 9.43% | 6/29/01 |
Russell 1000 | | -3.23% | -1.31% | 5.77% | 9.08% | 13.43% | | 4.77% | |
Select Fund (DHTAX) | 10.61 | -2.49% | -0.77% | 5.63% | | | | 9.57% | 12/31/05 |
Russell 3000 | | -3.35% | -1.84% | 5.13% | | | | 10.29% | |
Long-Short Fund (DIAMX) | 18.40 | 0.86% | 3.37% | 3.14% | 13.56% | 16.03% | | 10.00% | 6/30/00 |
Russell 1000 | | -3.23% | -1.31% | 5.77% | 9.08% | 13.43% | | 2.21% | |
Morningstar TM Long-Short Category Average | | -0.33% | -0.32% | 4.50% | 5.69% | 7.39% | | 5.01% | |
Financial Long-Short Fund (BANCX) | 16.20 | -14.39% | -17.83% | -17.05% | -1.09% | 9.87% | 8.13% | 10.05% | 8/1/97 |
S&P 1500 Supercomposite Financials (A) | | -14.03% | -17.64% | -18.32% | 1.18% | 8.79% | 4.97% | 5.57% | |
Strategic Income Fund (DSIAX) | 10.41 | -5.23% | -7.46% | -4.78% | 2.45% | 6.88% | | 7.44% | 9/30/02 |
Merril Lynch Domestic Master Index | | 3.11% | 6.16% | 7.17% | 4.66% | 4.49% | | 4.58% | |
Source: Diamond Hill Funds, Bloomberg LP and Frank Russell Company
Returns are shown without sales charges but include all other expenses. Returns greater than one year are annualized.
(A) | Returns for the S&P 1500 Supercomposite Financials are price change only before November 29, 2001 and total return thereafter. |
Equity Markets
The year 2007 was a difficult period for investors. During the year, we saw the buyout market heat up dramatically and then fizzle out. We saw credit spreads fall to very narrow levels, only to increase substantially by year end. For the first time in many years, concerns over inflation began to emerge, partially reflected in the high price of oil and gold, as well as the substantial devaluation of the U.S. dollar. Most disturbing for financial market participants were the mortgage meltdown and the associated fallout in the structured securities market (mortgage backed securities, CDOs, leveraged hedge funds, etc.). Look no further than the implosion in certain financial stocks (mortgage originators, large securities firms, bond insurers, and mortgage insurers) to see how deep the concerns have become. This “credit crisis” may have important consequences for the economy. For many years, investors have incorrectly predicted the “death of the U.S. consumer.” Easy credit, low savings rates and significant home equity extraction sustained consumer spending. One must now wonder if the credit crisis will impact consumers’ access to credit, which would impact the contribution of consumer spending to the U.S. economy, and the economies of our trading partners. Either way, one can have a healthy debate about whether credit driven consumption is in the long-term best interest of the U.S. economy.
The major U.S. indices had mixed results in 2007, with large cap stocks generating mediocre performance (S&P 500) up 5.5%. Mid-cap stocks (S&P 400) outperformed large cap stocks, rising 8%. Small cap stocks (S&P 600) were down fractionally. Digging a little deeper into market returns, in 2007 there was a strong style bias with “growth” stocks comfortably outperforming “value” stocks. In 2007, “factors” that were rewarded by the market included price momentum, earnings revisions, earnings growth, market cap, and the percentage of sales from foreign markets. One of the worst factors for 2007 was valuation. Diamond Hill focuses on our estimate of intrinsic value, which incorporates growth and value considerations. Nonetheless, performance in 2007 was better than what one might think given the aforementioned market context.
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Diamond Hill Funds Annual Report December 31, 2007 | Page 1 |
The performance of our equity funds in 2007 was mixed. Our funds with a bias towards large cap stocks (Long-Short, Large Cap and Select) had positive absolute returns. While positive for the year, Long-Short underperformed its long only benchmark, and its peers. In the Long-Short fund, we estimate that our longs outperformed our long only benchmark, while our aggregate short positions offset some of that performance. The Large Cap fund slightly underperformed its benchmark (which has growth and value stocks in it) but easily outperformed its value peers. The Select Fund outperformed its benchmark and peer group for the year. Our two funds with a bias towards mid cap and small cap stocks had negative absolute returns in 2007. The Small-Mid Cap fund trailed its index and its peer group. The Small Cap fund trailed its index, but outperformed its peer group. The performance of the Diamond Hill Financial Long-Short Fund reflected the difficulties created by the housing downturn and the associated financial debacle. The fund, while negative on a total return basis, outperformed its benchmark while trailing its peer group.
At various times during the past few years, we’ve expressed our concerns over the sustainability of earnings growth, the agency risk in the investment management business, and the shift from greed to fear in the financial markets. We’ve also talked about how investment managers are often defined by how they handle adversity. The current market environment is putting many to the test. We remain singularly focused on intrinsic value, which is driven by our estimate of normalized earnings and the 5 year estimated growth in those earnings. We continue to believe that our long term time horizon is a significant advantage vs. the market and our peers. Could the market go lower? We think that is the wrong question. The question we think makes more sense is, “For a long-term investor, do the current return opportunities compensate an investor for the risks he is taking?” We would like to close with an interesting observation. As of January 25, 2008, the date of this letter, the total return on the S&P 500 since its peak on March 24, 2000 is now negative. That is nearly eight years of negative returns (on a compound annual basis), and that is unusual. To us, this is not the time to focus on the negative. Rather, it is a time to look for opportunities in the market. In fact, we are finding more opportunities in the market than we have in some time. We are confident that our long-term focus will allow us to take advantage of the values created in a market that is currently gripped by fear.
Fixed Income Markets
Credit risk in the fixed income markets was an issue as well as problems in the sub-prime mortgage markets. These issues surfaced in spades in the second half of 2007, and the results have been more restrictive lending standards on the part of lenders, a dramatic slowdown in consumer spending, massive write-offs by the financial community and an increased skepticism of the value of risk assets. The Federal Reserve has begun a campaign to lower interest rates and provide liquidity to the financial system. While they will eventually be successful in stabilizing markets, many feel that they have been too slow to react and that they have a long way to go.
Our focus is on those factors that would indicate to us that the impending economic and credit downturn is fully discounted in the prices of the securities in which we invest. The frequency and magnitude of losses in the financial sector continue to accelerate, but we believe that we are getting closer to the point of maximum pain. Importantly, much of the losses have been offset by private equity and hybrid equity capital infusions and, to a lesser extent, dividend cuts. The Federal Reserve signaled that it is willing to more aggressively move the fed funds rate towards the two-year Treasury yield and, with increasingly weak economic data points likely in coming months, we can expect continued lower interest rates in the short end of the yield curve. There also seems to be some support building for a short-term fiscal response to the weak economy. It remains to be seen what that package might include and when it might become effective.
We are encouraged by our prospects over a long-term horizon. In the near term, we expect to face continued volatility, as the market struggles to discount a very uncertain outlook.
We thank you for your continued commitment to our investment philosophy. As fellow shareholders, we will work hard to continue to earn your trust.
Diamond Hill Capital Management, Inc.
Bill C. Dierker, CFA
Assistant Portfolio Manager
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Page 2 | Diamond Hill Funds Annual Report December 31, 2007 |
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Mission Statement, Pledge and Fundamental Principles |
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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. |
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| To successfully pursue our mission, we are: |
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| COMMITTED to the Graham-Buffett investment philosophy, with goals (over 5-year rolling periods) to outperform benchmarks and our peers, and achieve absolute returns sufficient for risk of asset class. |
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| DRIVEN by our conviction to create lasting value for clients and shareholders. |
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| MOTIVATED through ownership of Diamond Hill funds and company stock. |
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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. |
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| 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). |
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| There are four guiding principles to our investment philosophy: |
| Treat every investment as a partial ownership interest in that company |
| Invest with protection of capital, as well as return on capital, in mind |
| Have a long-term investment temperament |
| Recognize that market price and intrinsic value converge over time |
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| “Investment is most intelligent when it is most businesslike.” |
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| — BENJAMIN GRAHAM |
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Pledge | Consistent with our mission & investment philosophy, we pledge the following to all of our clients: |
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| 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 (at a premium 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. |
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| 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. |
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| 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. |
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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. |
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Diamond Hill Funds Annual Report December 31, 2007 | Page 3 |
| “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. |
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Our | Valuation |
fundamental | |
investment | Every share of stock has an intrinsic value that is independent of its current stock market price. |
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| At any point in time, the stock market price may be either significantly higher or lower than intrinsic value. |
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| 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. |
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| Over sufficiently long periods of time, five years and longer, the stock market price tends to converge with intrinsic value. |
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| Calculating Intrinsic Value Estimate |
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| We believe that we can determine a reasonable approximation of that intrinsic value in some cases. |
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| 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. |
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| 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. |
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| 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. |
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| The Diamond Hill investment process continually compares market price to our estimate of intrinsic value, which is updated over time as new information arises. |
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| Suitable Investments |
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| We only invest in a business when the stock market price is lower than our conservative assessment of per share intrinsic value (or at a premium for short positions). |
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| 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. |
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| 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. |
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Page 4 | Diamond Hill Funds Annual Report December 31, 2007 |
| Risk & Return |
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| 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. |
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| We do not define risk by price volatility. We define risk as the possibility that we are unable to obtain the return of the capital that we invest as well as a reasonable return on that capital when you need the capital for other purposes. If your time horizon is less than five years, then you should not invest that capital in the stock market. |
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Our fundamental strategic income principles | Yield & Return The primary goal for our strategic income strategy 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. We balance our income objective with a focus on total return. Over five-year rolling periods, 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. |
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| “You simply have to behave according to what is rational than according to what is fashionable.” |
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| — WARREN BUFFETT |
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Diamond Hill Funds Annual Report December 31, 2007 | Page 5 |
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Diamond Hill Small Cap Fund |
Performance Update |
Results (Class A) Since Inception*
| Year Ended 12/31/07 | Five Years Ended 12/31/07 | Since 12/29/00 Inception |
Diamond Hill Small Cap Fund (DHSCX) | (3.79%) | 17.68% | 14.60% |
Russell 2000 Index | (1.55%) | 16.24% | 8.13% |
* | The Fund return excludes any sales charges but includes all other expenses. Standardized returns are disclosed on the following page. Results longer than one year are annualized. |
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R.H. Dillon, CFA Co-Portfolio Manager |
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Thomas P. Schindler, CFA Co-Portfolio Manager |
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Christopher A. Welch, CFA Assistant Portfolio Manager |
The Diamond Hill Small Cap Fund - Class A returned a negative 3.79% in 2007, trailing the Russell 2000 return of negative 1.55%. The trailing 3-year annualized return of 5.15% also falls below the Russell 2000 Index comparable return of 6.80% while the trailing 5-year return of 17.68% exceeds the comparable Russell 2000 return of 16.24%, reflecting both strong absolute and relative performance in calendar years 2003 and 2004 and thus for the five year period overall.
In several ways, 2007 reversed longer-term trends in the marketplace. First, larger capitalization stocks meaningfully outperformed smaller capitalization stocks. Many market commentators have called for this to occur for the past several years citing among other things the length of time of the small cap outperformance cycle, large cap valuations becoming more compelling vis-à-vis small cap, and the benefits of greater multinational exposure as the U.S. economic growth lags global economic growth and the U.S. dollar has weakened relative to most major currencies. We have not disagreed with many of these sentiments, but 2007 has been the first calendar year these macro views have translated to a successful asset allocation call. Second, stocks generally categorized as “growth” outperformed those categorized as “value.” While we do not like to become preoccupied by these labels, because of the respective weighting in various style indices, this is generally stating the obvious fact that financials and consumer discretion fared very poorly in the stock market while information technology and healthcare fared relatively well. Third, while the Federal Reserve Bank had previously been raising short-term rates in order to return to something akin to a “neutral” monetary policy stance in the past several years, events in the credit markets caused a reversal at the Fed, which has begun to aggressively ease rates in an attempt to stimulate the U.S. economy as well as calm market participants who have rediscovered risk and demanded higher spreads to compensate them for that risk.
On the positive side, our investments in the energy sector were again positive contributors to returns in 2007 after a relatively poor 2006. Oil prices once again rose substantially year-over-year, while natural gas prices were flattish. Our energy holdings as a group have been much larger than the index and individual positions including Helmerich & Payne (a 4.4% position on 12/31/2007), Cimarex (4.6%), and Encore Acquisition (4.4%) are the largest in the Fund. With the exception of Lufkin Industries (1.5%) but including the now eliminated Tidewater, our energy stocks returned in a range of 17% to 65% in 2007. In 2006, many exploration and production companies experienced cost increases, primarily labor and equipment, leading to margin pressure. In 2007, revenue growth has been strong as a result of either the higher price for oil or production increases or both, leading to positive gains in year-over-year earnings at the same time valuations on trailing basis are in most cases well below the market in general.
Financial news in the second half of 2007 was dominated by developments in the housing and credit markets. The crux of the problem has been the coincidence of poor underwriting standards and now declining home prices. In the first part of this decade, housing prices appreciated well above historic norms, and at unprecedented rates in many markets, particularly the coasts. Factors contributing to higher home prices were the expansion of credit both from low interest rates (an outgrowth of the Fed’s policy to lower rates and narrower spreads due to lower risk premiums) and looser lending standards (higher percentage loan-to-value, the increasing share of adjustable rate, interest-only, stated income, and other “products” which many previously unqualified including “subprime” borrowers into the market) and market psychology. Now as defaults and foreclosure rates have skyrocketed, credit losses and provisions for future losses have increased.
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Page 6 | Diamond Hill Funds Annual Report December 31, 2007 |
While our portfolio had less in financials than the Russell 2000 Index, our holdings were impacted negatively. There were three financial holdings subject to acquisitions, First Charter, MAF Bancorp, and Eagle Hospitality that contributed positively to returns. Each of the other financial holdings declined during the year, in many cases substantially. One other holding, MoneyGram (1.0%), also experienced a substantial decline in its stock as a result of its investments in asset backed securities. This was particularly disappointing since the vast majority of the company’s value was represented by the money transfer business which is fee based and growing quite rapidly. The company also processed official checks for financial institutions which gave rise to a float-based portfolio that was the source of funds for the losing investments.
The other sector of the market which performed particularly poorly was consumer discretion. Spending has suffered in part due to the inability of consumers to utilize their homes as a source of cash. There has long been concern over the condition of household balance sheets, which while in the previous years had not led to a meaningful slowdown in consumer spending, may be finally taking its toll. In our Fund, a few retailers were notable examples. Finish Line, in addition to fundamental weakness, made a terrible offer to acquire Genesco, a company twice its market cap at very near the peak of the market in June. The offer consisted of cash to be financed nearly entirely by UBS. The merger is now tied up in the courts, but we have since sold our position at a considerable loss. Also, Charming Shoppes (0.9%), a retailer catering to plus size women, experienced lower earnings and subsequent stock price. Even auto retailer Penske Automotive (1.4%), which focuses nearly entirely on foreign nameplates including luxury automakers BMW and Mercedes, experienced a meaningful stock price decline despite continued solid earnings.
Industrial companies were a mixed lot in 2007. Lincoln Electric (1.8%), Kaydon (1.6%), and Toro (2.8%) all appreciated 17% or more. On the other hand, railcar companies Greenbrier (0.6%) and Trinity (1.1%) each declined more than 20% for the full year, mitigated by partial sales we made at higher prices during the year. Orders for most types of railcars declined this year and competition is intense, but backlogs remain reasonably healthy. Finally, AirTran (2.2%) and Frontier Airlines (0.4%) both declined during the year as higher fuel prices offset much of the improved revenues and traffic the industry experienced.
Thank you for your support, and we look forward to working with you in the coming years.
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R. H. Dillon, CFA | Thomas P. Schindler, CFA | Christopher A. Welch, CFA |
Co-Portfolio Manager | Co-Portfolio Manager | Assistant Portfolio Manager |
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Diamond Hill Funds Annual Report December 31, 2007 | Page 7 |
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%. |
(C) | Class A shares commenced operations on December 29, 2000. |
Past performance is no guarantee of future results. The principal value and investment return of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost.
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 Schedule of Investments |
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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 Discretionary | | | 18 | % | |
Consumer Staples | | | 6 | % | |
Energy | | | 24 | % | |
Financial | | | 15 | % | |
Health Care | | | 2 | % | |
Industrial | | | 14 | % | |
Information Technology | | | 2 | % | |
Materials | | | 1 | % | |
Utilities | | | 5 | % | |
Cash and Cash Equivalents | | | 13 | % | |
| | | 100 | % | |
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Page 8 | Diamond Hill Funds Annual Report December 31, 2007 |
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Diamond Hill Small-Mid Cap Fund |
Performance Update |
Results (Class A) Since Inception*
| | Year Ended 12/31/07 | | Since 12/31/05 Inception | |
Diamond Hill Small-Mid Cap Fund | | | (0.91 | %) | | 4.31 | % |
Russell 2500 Index | | | 1.38 | % | | 8.51 | % |
* | The Fund return excludes any sales charges but includes all other expenses. Standard returns are disclosed on the following page. |
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Christopher A. Welch, CFA Portfolio Manager |
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Christopher M. Bingaman, CFA Assistant Portfolio Manager |
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Thomas P. Schindler, CFA Assistant Portfolio Manager |
The Diamond Hill Small-Mid Cap Fund Class A load-waived shares returned negative 0.91% in 2007. This figure trailed the positive 1.38% return of the Russell 2500 Index. Given the 12/30/05 inception date, the fund does not yet have a performance record for 3 or 5 years.
One factor that negatively impacted the fund’s returns was the market’s emphasis on growth, and the corresponding poor returns to valuation, in 2007. The Russell 2500 Growth Index returned positive 9.7% compared to the negative 7.3% return of the Russell 2500 Value Index. While we use the style-neutral Russell 2500 Index as our benchmark, our stock selection process places a large emphasis on valuation, and that emphasis did not provide favorable results over the last 12 months. Valuation historically has proven to have little use as an indicator of short-term stock price movements, but it tends to be correlated with better performance over longer time periods such as 5 years.
Our energy holdings were strong contributors to performance during the year. We maintained a large weight in the sector throughout the period and were rewarded by our individual stock selections, led by greater than 55% returns in each of Helmerich & Payne (a 4.2% position on 12/31/2007), Noble Energy (2.2%) and Southwestern Energy (1.7%). The threat of domestic and possibly global recession is clearly a risk to energy stocks. However, we believe that the long-term fundamentals of the companies, the tight global supply-demand balance, and the increasing challenge in not only replacing declining production, but also adding new supplies of oil and natural gas to meet growing worldwide demand, support an attractive outlook over the next five years for our energy stocks. Energy continues to be our largest sector weight in the portfolio.
The strength in our energy stocks was offset by weakness in holdings in the consumer discretionary and financial sectors. Many of our retail industry investments fell significantly due to economic pressure on consumer spending as well as, in some cases such as Finish Line, company-specific issues. Financial stocks, in our case led by regional banks, were hit hard by the deteriorating credit environment. Hanmi Financial (0.5%) and Sovereign Bancorp (1.1%) both declined more than 50%.
The year-end cash position was 15%. Our relatively large cash holdings during the year added slightly to performance on both an absolute and relative basis, as we earned more on the cash than the 1.4% return for our benchmark. Our preference is to hold less cash, and we will continue to look for attractive opportunities to deploy cash into stocks trading at a discount to intrinsic value.
Thank you for your support, and we look forward to working with you in the coming years.
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Christopher A. Welch, CFA | Christopher M. Bingaman, CFA | Thomas P. Schindler, CFA Portfolio |
Portfolio Manager | Assistant Portfolio Manager | Assistant Portfolio Manager |
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Diamond Hill Funds Annual Report December 31, 2007 | Page 9 |
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 average annual total returns shown above are adjusted for maximum applicable sales charge of 5.00%. |
(C) | Class A shares commenced operations on December 31, 2005. |
| Past performance is no guarantee of future results. The principal value and investment return of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. |
| 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 Schedule 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 Discretionary | | 17 | % | |
Consumer Staples | | | 5 | % | |
Energy | | | 21 | % | |
Financial | | | 16 | % | |
Health Care | | | 1 | % | |
Industrial | | | 14 | % | |
Information Technology | | | 2 | % | |
Materials | | | 4 | % | |
Utilities | | | 5 | % | |
Cash and Cash Equivalents | | | 15 | % | |
| | | 100 | % | |
|
Page 10 | Diamond Hill Funds Annual Report December 31, 2007 |
|
Diamond Hill Large Cap Fund |
Performance Update |
Results (Class A) Since Inception*
| Year Ended 12/31/07 | Five Years Ended 12/31/07 | Since 6/29/01 Inception |
Diamond Hill Large Cap Fund (DHLAX) | 5.42% | 17.63% | 9.43% |
Russell 1000 Index | 5.77% | 13.43% | 4.77% |
* | The Fund return excludes any sales charges but includes all other expenses. Standardized returns are disclosed on the following page. Results longer than one year are annualized. |
|
|
Charles S. Bath, CFA Portfolio Manager |
|
|
William C. Dierker, CFA Assistant Portfolio Manager |
The Diamond Hill Large Cap Fund Class A load-waived shares returned 5.42% in 2007 compared to 5.77% for the Russell 1000 Index. While only approximating market returns in 2007, We remain pleased with the long-term performance of the Fund in both relative and absolute terms. While the second half of 2007 was difficult for the market in general, the long-term returns for the Fund have been attractive.
Energy continued to dominate the portfolio in 2007. For most of the year the portfolio weighting in the sector approximated 20% and the strong performance of these stocks was important to the performance of the overall portfolio. Apache Corp. (a 6.8% position on 12/31/2007) our largest energy holding was up over 60% for the year. Devon Energy (5.9%), our second largest energy holding was up over 30% in 2007. We did make a significant change in our energy holdings when we sold our large position in Conoco Phillips in the 4th quarter to invest in other opportunities in the sector.
Commodity related names not directly tied to energy were also some of the biggest gainers in 2007. Fluor Corp. (1.3%), an engineering company was the biggest percentage gainer for the year. Copper company Freeport McMoran (2.1%) was another large commodity company which increased more than 50% for the year. In a broad sense, it was the commodity and energy stocks which dominated as the biggest positive contributors to the portfolio.
Most of the disappointments in the year were related to the financial services industry or were technology companies reporting disappointing results. Companies such as Lexmark and Advanced Micro Devices reported surprisingly poor results and were eliminated from the portfolio. However, their negative performance was a drag on the portfolio. Financial services companies such as American International Group (3.4%) and Wells Fargo (3.2%) were down due to the turmoil in the financial services sector as well as some disappointment surrounding their operating results. Unfortunately, Merrill Lynch (1.7%) was down over 40% due to the losses in its portfolio related to the subprime mortgage market. Although the performance of the financial services stocks was disappointing, the portfolio’s exposure to that sector was significantly less than the market weighting until we made significant additional purchases at the end of November. This underweighting helped the relative performance of the portfolio.
As of year-end I have been managing the Diamond Hill Large Cap portfolio for over 5 years. I have been pleased with the performance of the portfolio over that time and we want to thank shareholders for their continued support.
| |
| |
Charles S. Bath, CFA | Bill C. Dierker, CFA |
Portfolio Manager | Assistant Portfolio Manager |
|
Diamond Hill Funds Annual Report December 31, 2007 | Page 11 |
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.
Past performance is no guarantee of future results. The principal value and investment return of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost.
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 Schedule 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 |
Consumer Discretionary | | | 11 | % | |
Consumer Staples | | | 10 | % | |
Energy | | | 21 | % | |
Financial | | | 21 | % | |
Health Care | | | 11 | % | |
Industrial | | | 9 | % | |
Information Technology | | | 2 | % | |
Materials | | | 10 | % | |
Cash and Cash Equivalents | | | 5 | % | |
| | | 100 | % | |
|
Page 12 | Diamond Hill Funds Annual Report December 31, 2007 |
|
Diamond Hill Select Fund |
|
Performance Update |
|
Results (Class A) Since Inception*
| Year Ended 12/31/07 | Since 12/31/05 Inception |
Diamond Hill Select Fund | 5.63% | 9.57% |
Russell 3000 Index | 5.13% | 10.29% |
* | The Fund return excludes any sales charges but includes all other expenses. Standard returns are disclosed on the following page. |
|
William C. Dierker, CFA Portfolio Manager |
|
|
Charles S. Bath, CFA Assistant Portfolio Manager |
The year 2007 was mixed for the Diamond Hill Select Fund. The load-waived Class A shares enjoyed a total return of 5.63%. While this performance would normally represent a below average return for a long only equity strategy, it did exceed the 5.13% annual return of the Russell 3000 Index, the Fund’s benchmark, and the Fund’s value peers during a difficult time in the market. Since the inception of the Select Fund at the end of 2005, the Fund’s compounded annual return has been 9.57%. This has trailed the benchmark return of 10.29%. At the beginning of 2007, we were finding better value in large cap stocks. This orientation helped results, as large cap stocks did well, particularly late in the year as investors started to worry about the direction of the economy. The Select Fund’s flexibility allows us to focus the fund’s holdings on where we see the best values. While we are agnostic when it comes to capitalization, the Fund is still heavily weighted in investments drawn from our Large Cap Fund. We retain the ability to draw upon ideas from our Small-Mid Cap and Small Cap fund. When the market presents us with attractive values in those parts of the market, we take advantage of those opportunities.
During 2007, the fund continued to benefit from our investments in the energy and materials sector. Investments in energy companies Apache (a 6.0% position on 12/31/2007), Devon (5.3%), ConocoPhillips, Anadarko Petroleum (3.4%) and Occidental Petroleum (2.2%) generated important contributions to the return of the Fund. Investments in Fluor (0.8%), Freeport-McMoRan Copper & Gold (2.4%), Union Pacific and Weyerhaeuser also contributed to the performance of the Fund. The fund also benefited by an underweight in the financial sector. The S&P 1500 Financial Index was down over 18% for the year, and being underweighted in financials contributed to our absolute and relative performance. Our underweight in Financials also better positioned us to be able to take advantage of the values that started to emerge in the financial sector late in the year. In 2007, positions that detracted from performance were generally companies that had disappointing performance in their businesses, or were exposed to the difficulties in the mortgage market. These positions included American International Group (3.7%), Lexmark International, Citigroup, Advance Micro Devices, AirTran (1.0%). As of year end, we continued to hold American International Group (3.7%), AirTran (1.0%) and ACCO Brands (0.9%).
The equity market continues to come to grips with the economic and company specific fallout from the dramatic slowdown in the housing market and the associated impacts in the financial markets (asset write-downs, ratings downgrades, significant dilution from new equity capital, etc.). While this is a trying time for investors, we believe that our long-term investment horizon will put us in the enviable position of taking advantage of the opportunities being created by the fear that is increasingly evident in the market. We appreciate your continued support. As fellow shareholders, we will continue to act in your best interests.
| |
| |
William C. Dierker, CFA | Charles S. Bath, CFA |
Portfolio Manager | Assistant Portfolio Manager |
|
Diamond Hill Funds Annual Report December 31, 2007 | Page 13 |
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 average annual total returns shown above are adjusted for maximum applicable sales charge of 5.00%. |
(C) | Class A shares commenced operations on December 31, 2005. |
| Past performance is no guarantee of future results. The principal value and investment return of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. |
| 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 Schedule 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 |
Consumer Discretionary | | | 13 | % | |
Consumer Staples | | | 9 | % | |
Energy | | | 20 | % | |
Financial | | | 17 | % | |
Health Care | | | 13 | % | |
Industrial | | | 9 | % | |
Information Technology | | | 5 | % | |
Materials | | | 11 | % | |
Cash and Cash Equivalents | | | 3 | % | |
| | | 100 | % | |
|
Page 14 | Diamond Hill Funds Annual Report December 31, 2007 |
|
Diamond Hill Long-Short Fund |
Results (Class A) Since Inception*
| Year Ended 12/31/07 | Five Years Ended 12/31/07 | Since 6/30/00 Inception |
Diamond Hill Long-Short Fund (DIAMX) | 3.14% | 16.03% | 10.00% |
Russell 1000 Index | 5.77% | 13.43% | 2.21% |
Morningstar™ Long-Short Category Average | 4.50% | 7.39% | 5.01% |
* | The Fund return excludes any sales charges but includes all other expenses. Standardized returns are disclosed on the following page. Results longer than one year are annualized. |
|
R.H. Dillon, CFA Co-Portfolio Manager |
|
|
Charles S. Bath, CFA Co-Portfolio Manager |
|
|
Christopher M. Bingaman, CFA Assistant Portfolio Manager |
The Diamond Hill Long-Short Fund Class A, load-waived shares returned 3.14% in 2007 compared to 5.77% for the Russell 1000 Index and 4.50% for the Morningstar Long-Short Category Average. This year’s anemic return comes in the fifth consecutive year of positive results for the fund and the long-only benchmark. Given the fund’s long-short structure, our expectation is for the fund to perform better than the long-only benchmark in down markets; conversely the fund may do worse in up markets.
Once again in 2007, energy holdings represented our largest exposure for the long portion of the fund and they served the fund well. We have held both Apache (a 6.8% position on 12/31/2007) and Devon (5.6%) for several years, and both stocks were up significantly last year. Another important performer was McDonalds (4.4%), a stock purchased in 2006. In total, the long portion of the fund’s performance was in line with the long-only Russell 1000 Index.
The performance of the short portfolio was disappointing last year. While half of the positions provided a positive contribution to the fund, the three largest positions actually were among the worst performers (for a short position, which means the stock went up). Ironically, two of the three, Apollo (1.6%) and Apple (1.3%) were positive contributors in 2007. The third, Amazon (2.2%) went against us, as the company’s profitability levels were considerably better than our estimates. We increased our estimates of intrinsic value for all three companies, and subsequently trimmed position sizes during the year, however because the stocks appreciated above those higher estimates we ended the year short positions in all three.
During most five year periods, we would expect the stock market to provide positive returns. While we certainly understand that during shorter periods like 12 months we may trail a long-only benchmark during a strong market, over time our goal is to have the short positions provide a positive contribution to return to the portfolio.
We want to thank shareholders for their support in 2007. We look forward to working with you in the years ahead.
| | |
| | |
R.H. Dillon, CFA | Charles S. Bath, CFA | Christopher M. Bingaman, CFA |
Co-Portfolio Manger | Co-Portfolio Manager | Assistant Portfolio Manager |
|
Diamond Hill Funds Annual Report December 31, 2007 | Page 15 |
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 Morningstar™ Long-Short Category Average
(A) | The chart above represents the performance of Class A shares only, which will vary from the performance of Class C and Class I-hares 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 30, 2000. |
Past performance is no guarantee of future results. The principal value and investment return of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
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 Schedule 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 Long Portfolio | | % of Net Assets |
Long Portfolio | | | | | |
Consumer Discretionary | 9% | | | 11% | |
Consumer Staples | 7% | | | 8% | |
Energy | 18% | | | 21% | |
Financial | 16% | | | 18% | |
Health Care | 9% | | | 11% | |
Industrial | 8% | | | 9% | |
Information Technology | 3% | | | 3% | |
Materials | 8% | | | 10% | |
Cash & Cash Equivalents | 22% | | | 9% | |
| 100% | | | | |
| | | | | |
Short Portfolio | % of Short Portfolio | | | | |
Consumer Discretionary | 48% | | | -14% | |
Consumer Staples | 10% | | | -3% | |
Health Care | 8% | | | -2% | |
Industrial | 4% | | | -1% | |
Information Technology | 15% | | | -5% | |
Exchange Traded Funds | 15% | | | -5% | |
| 100% | | | | |
| | | | | |
Other | | | | | |
Segregated Cash with Brokers | | | | 30% | |
| | | | 100% | |
|
Page 16 | Diamond Hill Funds Annual Report December 31, 2007 |
|
Diamond Hill Financial Long-Short Fund |
Performance Update |
|
Results (Class A) Since Inception*
| Year Ended 12/31/07 | Five Years Ended 12/31/07 | Since 8/1/97 Inception |
Diamond Hill Financial Long-Short Fund (BANCX) | (17.05%) | 9.87% | 10.05% |
S&P 1500 SuperComposite Financial Index | (18.32%) | 8.79% | 5.57% |
* | The Fund return excludes any sales charges but includes all other expenses. Standardized returns are disclosed on the following page. Results longer than one year are annualized. |
|
Christopher M. Bingaman, CFA Portfolio Manager |
|
|
William C. Dierker, CFA Assistant Portfolio Manager |
Thank you for your interest in the Diamond Hill Financial Long-Short Fund.
As evidenced by a negative 17.05% total return of the load-waived Class A shares, 2007 was an extremely challenging year for the Diamond Hill Financial Long-Short Fund. The Fund’s primary benchmark (the S&P 1500 SuperComposite Financials Index) posted a slightly worse total return of negative 18.32%. With the exception of a slight decline in the small cap Russell 2000 Index, U.S. equity indices were generally in positive territory for the year, albeit modestly. The disparity in performance between the financial sector and the rest of the equity market was obviously quite substantial and marked the first time since 1999 that the sector underperformed by such a wide margin. Overall, I would characterize the performance of the Fund in 2007 as disappointing given the cash levels and short positions that were maintained throughout the year. The short portfolio performed very well during the year and provided some very sizable gains. However, given our heavy long bias in the portfolio, these were more than offset by declines in most of our long positions. Especially hard hit were the diversified financials (Citigroup (a 3.7% position on 12/31/2007) and AIG (5.8%)), the investment banks (Merrill Lynch (3.9%) and Morgan Stanley (2.4%)) and most of our mid and small cap bank investments. Upside performers in the sector were few and far between during 2007. In the Fund, two insurance names (Assurant (1.6%) and PartnerRE (1.2%)) were both up nicely during the year, while small cap bank First Charter of Charlotte, NC (1.5%) was added to the portfolio and subsequently announced a merger agreement with Fifth Third at a substantial premium. Also, Bank of New York Mellon (3.1%) completed its merger during the year and continued to perform reasonably well. Finally, as we frequently communicate to both current and prospective investors, we judge ourselves based on long-term returns (rolling five year periods) and on that front remain satisfied that shareholders have received sufficient absolute returns which were also ahead of relevant benchmarks for the period ending December 31, 2007.
Looking forward we expect much better returns in the near future for the financial sector. The dramatically changing credit environment during 2007 caused tremendous unease and in some instances even panic. It now appears that the deterioration in credit and other pressures in many areas of the sector are fully, if not overly, discounted into the stocks. As is often the case with many of the credit sensitive areas (bank, thrifts, etc.), the stocks appear to be valued at near trough valuation levels on well below normalized earnings levels. In terms of fundamentals, many areas of the sector are still struggling however, in many ways the stress of the recent past will allow for substantial improvement going forward. Capacity has been removed in many areas (most notably in mortgage finance) and credit spreads have widened allowing for improved risk-adjusted margins on many credit based products. Also, the changes in the structured finance market may actually help many domestic lending institutions as they once again become the primary source of funds for many types of consumer credit. Therefore, given this outlook for the sector, we have been adding to our long positions and continuing to reduce short exposure. Two examples of recent additions to the Fund are Synovus Financial (2.4%) and Huntington Bancshares (3.6%). In both cases, the stocks are currently trading at substantial discounts to our estimate of intrinsic value and both may be excellent acquisition candidates in the next few years. Regarding merger and acquisition in general, we do not expect a pick up in deal activity in the near term however continued consolidation within the banking and thrift industries during the next couple of years is likely given the continuing secular growth challenges and opportunities for significant efficiency gains. As one might expect from looking at the portfolio, we continue to see the most attractive risk reward situations in the large cap area of the sector, however for the first time in at least three years, many small and mid cap banks are once again priced at very attractive levels.
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Diamond Hill Funds Annual Report December 31, 2007 | Page 17 |
As in the past, we continue to believe shareholders in the fund will benefit from a relatively concentrated portfolio. We typically hold between 30 and 40 stocks with an average position size of roughly 3%. Also, as many of you already know, we have elected to maintain the portfolio as a long-short fund for the foreseeable future. We do not intend to do this as a ‘hedge’ to mitigate our long exposure/volatility, but instead as a way to enhance our performance over time. 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.
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| |
Christopher M. Bingaman, CFA | William C. Dierker, CFA |
Portfolio Manager | Assistant Portfolio Manager |
|
Page 18 | Diamond Hill Funds Annual Report December 31, 2007 |
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 SuperComposite 1500 Financial Index and the NASDAQ Bank Index
(A) | The chart above represents the performance of Class A shares only, which will vary from the performance of Class C 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 August 1, 1997. |
Past performance is no guarantee of future results. The principal value and investment return of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
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 Schedule 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.
| % of Long | | % of Net |
Sector Allocation | Portfolio | | Assets |
Long Portfolio | | | | | |
Common Stocks: | | | | | |
Finance - Banks & Thrifts | 44% | | | 51% | |
Finance - Broker Dealer | 5% | | | 6% | |
Finance - Diversified | 7% | | | 8% | |
Finance - Specialties | 2% | | | 2% | |
Insurance | 13% | | | 15% | |
Cash & Cash Equivalents | 26% | | | 8% | |
Preferred Stocks: | | | | | |
Finance | 2% | | | 2% | |
Real Estate Investment Trust | 1% | | | 2% | |
| 100% | | | | |
| | | | | |
Short Portfolio | % of Short | | | | |
Common Stocks: | Portfolio | | | | |
Finance - Banks & Thrifts | 75% | | | -7% | |
Exchange Traded Fund | 25% | | | -2% | |
| 100% | | | | |
Other | | | | | |
Segregated Cash with Brokers | | | | 15% | |
| | | | 100% | |
|
Diamond Hill Funds Annual Report December 31, 2007 | Page 19 |
|
Diamond Hill Strategic Income Fund |
Performance Update |
|
Results (Class A) Since Inception*
| | Year Ended 12/31/07 | | Five Years Ended 12/31/07 | | Since 9/30/02 Inception | |
Diamond Hill Strategic Income Fund (DSIAX) | | | (4.78 | %) | | 6.88 | % | | 7.44 | % |
Merrill Lynch Domestic Master Index | | | 7.17 | % | | 4.49 | % | | 4.58 | % |
* | The Fund return excludes any sales charges but includes all other expenses. Standardized returns are disclosed on the following page. Results longer than one year are annualized. |
|
Kent Rinker Co-Portfolio Manager |
|
|
William Zox, CFA, J.D., LL.M. Co-Portfolio Manager |
|
|
Rick Moore, CFA Assistant Portfolio Manager |
The year, 2007, was the most difficult year in the history of the Diamond Hill Strategic Income Fund. In fact, the credit conditions that became apparent throughout the second half of the year were unlike any that we have seen in the last 30 years. The Fund's load-waived Class A shares declined 4.78% compared to a gain of 7.17% for the Merrill Lynch Domestic Master Index. The returns for the Index were heavily influenced by a dramatic decline in U. S. Treasury yields. On the other hand, the poor performance of the Fund was primarily caused by our 40-45% exposure to the preferred securities market. This market, which has consistently shown positive results, had a very poor second half of the year and an equally poor 2007. For example, the preferred market had a negative return of 9.2% in the fourth quarter and a negative return of 11.3% for the calendar year.
Since this market caused the negative returns in our portfolio, our year-end comments will focus primarily on the preferred securities area. The first thing to understand is that this market is made up primarily of issues that are backed by financial concerns and some of these issues can be relatively small in total size. Therefore, when the credit markets became frozen and illiquid, these issues were in the center of the storm. Prices dropped dramatically, on little volume.
In response to the deteriorating credit conditions in the markets, we raised our allocation to cash and callable agency securities to a range of 15-30%, and we kept the portfolio at the higher end of this range. While this helped somewhat, we did, however, maintain our large preferred allocation through the balance of the year for several reasons. First, we did not believe that Treasuries offered sufficient yield to meet our income objectives. Second, we felt that preferreds offered attractive yields, with much higher credit quality than high-yield bonds. Within our preferred allocation, we swapped out of a number of non-rated REIT preferreds for preferreds issued by much larger, highly rated financial institutions. Over the last two quarters, this position has been punished by the market. However, over the long-term, these trades should be quite rewarding. All of the preferred securities in the Strategic Income Fund are senior in priority to the common equity. Corporate managers should now realize that their highest priority is to restore the market's faith in their creditworthiness. Virtually all of the issuers in this market are raising capital and doing what they can to shore up their balance sheets.
It is our opinion that, over the next several years, the preferred issuers will focus on restoring their credit and spreads over Treasuries will revert back to a more normal level.
Our confidence in the long-term, from today's levels, is tempered by our concerns with the markets over the next several months and possibly quarters. We still have a difficult credit environment to deal with. However, we look for substantial easing in monetary policy from the Federal Reserve and we will probably see some sort of short-term fiscal policy that will attempt to provide relief to the financial markets. We will also see some dividend cuts and some corporate layoffs.
We believe that the income from our portfolio is quite secure and that the valuations of our holdings are very attractive. Therefore, we are encouraged by our investment potential over a long-term horizon.
| | |
| | |
Kent Rinker | William Zox, CFA, J.D., LL.M. | Rick Moore, CFA |
Co-Portfolio Manager | Co-Portfolio Manager | Assistant Portfolio Manager |
|
Page 20 | Diamond Hill Funds Annual Report December 31, 2007 |
Comparison of the Change in Value of a $10,000 Investment in the Diamond Hill Strategic Income Fund - Class A(A) and the Merrill Lynch Domestic Master 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. |
Past performance is no guarantee of future results. The principal value and investment return of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
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 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 |
Finance Common Stock | | | 4 | % | |
REIT Common Stock | | | 3 | % | |
REIT Preferred Stock | | | 10 | % | |
Trust Preferred Stock | | | 33 | % | |
Collateralized Debt Obligations | | | 2 | % | |
Corporate Bonds - Maturing > 2 Years | | | 22 | % | |
Corporate Bonds - Maturing or | | | | | |
Likely to Be Called < 2 Years | | | 4 | % | |
U.S. Government or Agency Securities | | | 5 | % | |
Cash and Cash Equivalents | | | 17 | % | |
| | | 100 | % | |
|
Diamond Hill Funds Annual Report December 31, 2007 | Page 21 |
Diamond Hill Small Cap Fund
Schedule of Investments
December 31, 2007
| | Shares | | Market Value | |
| | | | | |
Preferred Stock — 1.2% | | | | | |
Financial — 1.2% | | | | | |
Mid-America Apartment | | | | | |
Communities, Inc. - REIT ◊ | | | 108,854 | | $ | 4,653,509 | |
| | | | | | | |
Common Stocks — 86.2% | | | | | | | |
Consumer Discretionary — 18.6% | | | | | | | |
Aaron Rents, Inc. ◊ | | | 370,000 | | | 7,118,800 | |
Acco Brands Corp.* | | | 450,000 | | | 7,218,000 | |
American Greetings Corp. ◊ | | | 371,500 | | | 7,541,450 | |
Belo Corp. ◊ | | | 231,000 | | | 4,028,640 | |
Brink's Co., The ◊ | | | 145,000 | | | 8,662,300 | |
Callaway Golf Co. ◊ | | | 440,400 | | | 7,676,172 | |
Charming Shoppes, Inc.* ◊ | | | 646,200 | | | 3,495,942 | |
K-Swiss, Inc. ◊ | | | 327,100 | | | 5,920,510 | |
MoneyGram International, Inc. ◊ | | | 242,960 | | | 3,734,295 | |
Penske Automotive Group, Inc. ◊ | | | 300,000 | | | 5,238,000 | |
Steiner Leisure Ltd.* ◊ | | | 197,100 | | | 8,703,936 | |
| | | | | | 69,338,045 | |
| | | | | | | |
Consumer Staples — 6.2% | | | | | | | |
Del Monte Foods Co. | | | 500,000 | | | 4,730,000 | |
Flowers Foods, Inc. ◊ | | | 326,700 | | | 7,648,047 | |
Hanesbrands, Inc.* | | | 300,000 | | | 8,151,000 | |
Lance, Inc. ◊ | | | 120,457 | | | 2,459,732 | |
| | | | | | 22,988,779 | |
| | | | | | | |
Energy — 23.9% | | | | | | | |
Berry Petroleum Co. ◊ | | | 178,400 | | | 7,929,880 | |
Cimarex Energy Co. ◊ | | | 400,000 | | | 17,011,999 | |
Encore Acquisition Co.* ◊ | | | 489,298 | | | 16,327,874 | |
Helmerich & Payne, Inc. ◊ | | | 410,300 | | | 16,440,720 | |
Hornbeck Offshore Services, Inc.* ◊ | | | 174,050 | | | 7,823,548 | |
Lufkin Industries, Inc. | | | 95,000 | | | 5,442,550 | |
Southwestern Energy Co.* | | | 112,800 | | | 6,285,216 | |
Whiting Petroleum Corp.* ◊ | | | 200,195 | | | 11,543,244 | |
| | | | | | 88,805,031 | |
| | | | | | | |
Financial — 14.5% | | | | | | | |
1st Source Corp. | | | 263,700 | | | 4,564,647 | |
Banner Corp. ◊ | | | 178,840 | | | 5,138,073 | |
Capital Corp. of the West ◊ | | | 242,100 | | | 4,704,003 | |
Centennial Bank Holdings, Inc.* ◊ | | | 743,300 | | | 4,296,274 | |
First State Bancorp ◊ | | | 483,720 | | | 6,723,708 | |
Hanmi Financial Corp. ◊ | | | 398,000 | | | 3,430,760 | |
Hanover Insurance Group | | | 135,000 | | | 6,183,000 | |
Imperial Capital Bancorp, Inc. | | | 167,200 | | | 3,059,760 | |
Taylor Capital Group, Inc. | | | 235,200 | | | 4,798,080 | |
UCBH Holdings, Inc. ◊ | | | 296,700 | | | 4,201,272 | |
United Fire & Casualty Co. ◊ | | | 236,400 | | | 6,876,876 | |
| | | | | | 53,976,453 | |
| | | | | | | |
Health Care — 1.7% | | | | | | | |
Analogic Corp. | | | 95,275 | | | 6,452,023 | |
| | | | | | | |
Industrial — 13.9% | | | | | | | |
AirTran Holdings, Inc.* ◊ | | | 1,165,000 | | | 8,341,400 | |
Apogee Enterprises, Inc. ◊ | | | 209,650 | | | 3,587,112 | |
Frontier Airlines Holdings, Inc.* ◊ | | | 310,600 | | | 1,633,756 | |
Gehl Co.* ◊ | | | 100,000 | | | 1,604,000 | |
Greenbrier Companies, Inc., The ◊ | | | 101,400 | | | 2,257,164 | |
Griffon Corp.* ◊ | | | 170,000 | | | 2,116,500 | |
Kaydon Corp. ◊ | | | 110,800 | | | 6,043,032 | |
Lincoln Electric Holdings, Inc. ◊ | | | 97,100 | | | 6,911,578 | |
Toro Co., The ◊ | | | 192,800 | | | 10,496,032 | |
Trinity Industries, Inc. ◊ | | | 144,650 | | | 4,015,484 | |
Werner Enterprises, Inc. ◊ | | | 278,390 | | | 4,740,982 | |
| | | | | | 51,747,040 | |
| | | | | | | |
Information Technology — 1.7% | | | | | | | |
Verigy Ltd.* | | | 231,020 | | | 6,276,814 | |
| | | | | | | |
Materials — 0.5% | | | | | | | |
Century Aluminum Co.* ◊ | | | 36,100 | | | 1,947,234 | |
| | | | | | | |
Utilities — 5.2% | | | | | | | |
Integrys Energy Group, Inc. ◊ | | | 147,610 | | | 7,629,961 | |
UGI Corp. ◊ | | | 243,200 | | | 6,627,200 | |
WGL Holdings, Inc. ◊ | | | 157,500 | | | 5,159,700 | |
| | | | | | 19,416,861 | |
| | | | | | | |
Total Common Stocks | | | | | $ | 320,948,280 | |
|
Page 22 | Diamond Hill Funds Annual Report December 31, 2007 |
Diamond Hill Small Cap Fund
Schedule of Investments (Continued)
December 31, 2007
| | Shares | | Market Value | |
| | | | | |
Registered Investment Companies — 59.8% | | | | | | | |
First American Prime | | | | | | | |
Obligations Fund - Class Z | | | 6,476,206 | | $ | 6,476,206 | |
Mount Vernon Securities | | | | | | | |
Lending Prime Portfolio †† | | | 173,001,157 | | | 173,001,157 | |
Reserve Primary Fund - Class 12 | | | 43,479,131 | | | 43,479,131 | |
| | | | | | | |
Total Registered Investment Companies | | | | | $ | 222,956,494 | |
| | | | | | | |
Total Investment Securities — 147.2% | | | | | | | |
(Cost $540,693,405)** | | | | | $ | 548,558,283 | |
| | | | | | | |
Liabilities In Excess | | | | | | | |
Of Other Assets — (47.2%) | | | | | | (175,964,549 | ) |
| | | | | | | |
Net Assets — 100.0% | | | | | $ | 372,593,734 | |
* | Non-income producing security. |
** | Represents cost for financial reporting purposes. |
◊ | All or portion of the security is on loan. The total value of the securities on loan, as of December 31, 2007, was $164,626,402. |
†† | Represents collateral for securities loaned. |
REIT - Real Estate Investment Trust
See accompanying Notes to Financial Statements.
Diamond Hill Small-Mid Cap Fund
Schedule of Investments
December 31, 2007
| | Shares | | Market Value | |
| | | | | |
Preferred Stock — 1.0% | | | | | | | |
Financial — 1.0% | | | | | | | |
Mid-America Apartment | | | | | | | |
Communities, Inc. - REIT ◊ | | | 7,100 | | $ | 303,525 | |
| | | | | | | |
Common Stocks — 83.8% | | | | | | | |
Consumer Discretionary — 17.2% | | | | | | | |
Aaron Rents, Inc. ◊ | | | 24,300 | | | 467,532 | |
Acco Brands Corp.* | | | 39,500 | | | 633,580 | |
American Greetings Corp. ◊ | | | 15,600 | | | 316,680 | |
Belo Corp. ◊ | | | 24,900 | | | 434,256 | |
Black & Decker Corp., The ◊ | | | 7,760 | | | 540,484 | |
Brink's Co., The | | | 9,500 | | | 567,530 | |
Callaway Golf Co. ◊ | | | 24,050 | | | 419,192 | |
Charming Shoppes, Inc.* ◊ | | | 39,500 | | | 213,695 | |
Circuit City Stores, Inc. ◊ | | | 25,000 | | | 105,000 | |
K-Swiss, Inc. ◊ | | | 27,500 | | | 497,750 | |
MoneyGram International, Inc. ◊ | | | 16,903 | | | 259,799 | |
Office Depot, Inc.* | | | 22,900 | | | 318,539 | |
Penske Automotive Group, Inc. | | | 16,200 | | | 282,852 | |
Steiner Leisure Ltd.* ◊ | | | 8,000 | | | 353,280 | |
| | | | | | 5,410,169 | |
| | | | | | | |
Consumer Staples — 4.7% | | | | | | | |
Del Monte Foods Co. | | | 41,900 | | | 396,374 | |
Flowers Foods, Inc. ◊ | | | 15,350 | | | 359,344 | |
Hanesbrands, Inc.* ◊ | | | 19,600 | | | 532,532 | |
Lance, Inc. ◊ | | | 8,900 | | | 181,738 | |
| | | | | | 1,469,988 | |
| | | | | | | |
Energy — 21.3% | | | | | | | |
Berry Petroleum Co. ◊ | | | 9,200 | | | 408,940 | |
Cimarex Energy Co. | | | 26,300 | | | 1,118,539 | |
Encore Acquisition Co.* ◊ | | | 30,495 | | | 1,017,618 | |
Helmerich & Payne, Inc. ◊ | | | 33,200 | | | 1,330,324 | |
Hornbeck Offshore Services, Inc.* ◊ | | | 11,200 | | | 503,440 | |
Lufkin Industries, Inc. | | | 6,300 | | | 360,927 | |
Noble Energy, Inc. | | | 8,730 | | | 694,210 | |
Southwestern Energy Co.* | | | 9,620 | | | 536,026 | |
Whiting Petroleum Corp.* | | | 11,790 | | | 679,811 | |
| | | | | | 6,649,835 | |
|
Diamond Hill Funds Annual Report December 31, 2007 | Page 23 |
Diamond Hill Small-Mid Cap Fund
Schedule of Investments (Continued)
December 31, 2007
| | Shares | | Market Value | |
| | | | | |
Financial — 14.7% | | | | | |
1st Source Corp. | | | 21,100 | | $ | 365,241 | |
Assurant, Inc. ◊ | | | 6,400 | | | 428,160 | |
Centennial Bank Holdings, Inc.* | | | 46,200 | | | 267,036 | |
City National Corp. ◊ | | | 6,300 | | | 375,165 | |
Comerica, Inc. ◊ | | | 8,500 | | | 370,005 | |
Hanmi Financial Corp. | | | 19,595 | | | 168,909 | |
Hanover Insurance Group | | | 9,700 | | | 444,260 | |
Huntington Bancshares, Inc. | | | 39,800 | | | 587,448 | |
Sovereign Bancorp, Inc. ◊ | | | 30,300 | | | 345,420 | |
Synovus Financial Corp. | | | 20,400 | | | 491,232 | |
UCBH Holdings, Inc. ◊ | | | 21,520 | | | 304,723 | |
United Fire & Casualty Co. | | | 16,700 | | | 485,803 | |
| | | | | | 4,633,402 | |
| | | | | | | |
Health Care — 1.6% | | | | | | | |
Analogic Corp. | | | 7,600 | | | 514,672 | |
| | | | | | | |
Industrial — 14.3% | | | | | | | |
AirTran Holdings, Inc.* ◊ | | | 79,200 | | | 567,072 | |
Dover Corp. | | | 18,100 | | | 834,230 | |
Fluor Corp. ◊ | | | 5,000 | | | 728,600 | |
Lincoln Electric Holdings, Inc. | | | 4,990 | | | 355,188 | |
Pentair, Inc. ◊ | | | 4,700 | | | 163,607 | |
Toro Co., The ◊ | | | 11,200 | | | 609,728 | |
Trinity Industries, Inc. ◊ | | | 18,100 | | | 502,456 | |
U.S. Airways Group, Inc.* | | | 24,760 | | | 364,220 | |
Werner Enterprises, Inc. ◊ | | | 20,810 | | | 354,394 | |
| | | | | | 4,479,495 | |
| | | | | | | |
Information Technology — 1.7% | | | | | | | |
Verigy Ltd.* | | | 19,485 | | | 529,407 | |
| | | | | | | |
Materials — 3.5% | | | | | | | |
Domtar Corp.* | | | 67,060 | | | 515,691 | |
MeadWestvaco Corp. | | | 18,500 | | | 579,050 | |
| | | | | | 1,094,741 | |
| | | | | | | |
Utilities — 4.9% | | | | | | | |
Energen Corp. | | | 7,000 | | | 449,610 | |
Integrys Energy Group, Inc. | | | 11,120 | | | 574,793 | |
UGI Corp. | | | 6,800 | | | 185,300 | |
WGL Holdings, Inc. ◊ | | | 10,100 | | | 330,876 | |
| | | | | | 1,540,579 | |
| | | | | | | |
Total Common Stocks | | | | | $ | 26,322,288 | |
| | | | | | | |
Registered Investment Companies — 53.9% | | | | | | | |
First American Prime | | | | | | | |
Obligations Fund - Class Z | | | 679,395 | | $ | 679,395 | |
Mount Vernon Securities | | | | | | | |
Lending Prime Portfolio †† | | | 12,188,594 | | | 12,188,594 | |
Reserve Primary Fund - Class 12 | | | 4,078,768 | | | 4,078,768 | |
| | | | | | | |
Total Registered | | | | | | | |
Investment Companies | | | | | $ | 16,946,757 | |
| | | | | | | |
Total Investment Securities — 138.7% | | | | | | | |
(Cost $43,983,924)** | | | | | $ | 43,572,570 | |
| | | | | | | |
Liabilities In Excess | | | | | | | |
Of Other Assets — (38.7%) | | | | | | (12,157,353 | ) |
| | | | | | | |
Net Assets — 100.0% | | | | | $ | 31,415,217 | |
* | Non-income producing security. |
** | Represents cost for financial reporting purposes. |
◊ | All or portion of the security is on loan. The total value of the securities on loan, as of December 31, 2007, was $11,591,944. |
†† | Represents collateral for securities loaned. |
REIT - Real Estate Investment Trust
See accompanying Notes to Financial Statements.
|
Page 24 | Diamond Hill Funds Annual Report December 31, 2007 |
Diamond Hill Large Cap Fund
Schedule of Investments (Continued)
December 31, 2007
| | Shares | | Market Value | |
| | | | | |
Common Stocks — 95.2% | | | | | | | |
Consumer Discretionary — 11.1% | | | | | | | |
Black & Decker Corp., The ◊ | | | 71,730 | | $ | 4,995,995 | |
Fortune Brands, Inc. | | | 80,675 | | | 5,837,643 | |
Gannett Co., Inc. | | | 138,700 | | | 5,409,300 | |
Kohl's Corp.* | | | 191,750 | | | 8,782,150 | |
McDonald’s Corp. | | | 371,200 | | | 21,867,392 | |
| | | | | | 46,892,480 | |
| | | | | | | |
Consumer Staples — 10.0% | | | | | | | |
ConAgra Foods, Inc. | | | 158,450 | | | 3,769,526 | |
General Mills, Inc. | | | 150,720 | | | 8,591,040 | |
Hanesbrands, Inc.* | | | 166,963 | | | 4,536,385 | |
Kimberly-Clark Corp. | | | 114,685 | | | 7,952,258 | |
Sara Lee Corp. | | | 586,715 | | | 9,422,642 | |
Sysco Corp. | | | 249,720 | | | 7,793,761 | |
| | | | | | 42,065,612 | |
| | | | | | | |
Energy — 21.1% | | | | | | | |
Anadarko Petroleum Corp. | | | 198,120 | | | 13,014,503 | |
Apache Corp. | | | 264,280 | | | 28,420,670 | |
Devon Energy Corp. | | | 281,100 | | | 24,992,601 | |
Occidental Petroleum Corp. | | | 128,230 | | | 9,872,428 | |
XTO Energy, Inc. | | | 243,187 | | | 12,490,084 | |
| | | | | | 88,790,286 | |
| | | | | | | |
Financial — 20.7% | | | | | | | |
Allstate Corp. | | | 48,800 | | | 2,548,824 | |
American International Group, Inc. | | | 247,440 | | | 14,425,752 | |
Bank of America Corp. | | | 133,740 | | | 5,518,112 | |
Bank of New York Mellon Corp. ◊ | | | 118,461 | | | 5,776,158 | |
Huntington Bancshares, Inc. | | | 431,506 | | | 6,369,029 | |
Merrill Lynch & Co., Inc. ◊ | | | 136,900 | | | 7,348,792 | |
Synovus Financial Corp. ◊ | | | 264,170 | | | 6,361,214 | |
U.S. Bancorp | | | 466,120 | | | 14,794,649 | |
Wachovia Corp. | | | 190,640 | | | 7,250,039 | |
Washington Mutual, Inc. ◊ | | | 240,130 | | | 3,268,169 | |
Wells Fargo & Co. | | | 441,155 | | | 13,318,469 | |
| | | | | | 86,979,207 | |
| | | | | | | |
Health Care — 11.2% | | | | | | | |
Abbott Laboratories | | | 188,610 | | $ | 10,590,452 | |
Cardinal Health, Inc. ◊ | | | 126,300 | | | 7,293,825 | |
Johnson & Johnson | | | 122,900 | | | 8,197,430 | |
Medtronic, Inc. | | | 161,609 | | | 8,124,084 | |
Pfizer, Inc. | | | 118,850 | | | 2,701,461 | |
UnitedHealth Group, Inc. | | | 95,690 | | | 5,569,158 | |
Wellpoint, Inc.* | | | 51,570 | | | 4,524,236 | |
| | | | | | 47,000,646 | |
| | | | | | | |
Industrial — 9.0% | | | | | | | |
Dover Corp. | | | 187,240 | | | 8,629,892 | |
Fluor Corp. ◊ | | | 37,910 | | | 5,524,245 | |
Illinois Tool Works, Inc. ◊ | | | 145,110 | | | 7,769,189 | |
Parker Hannifin Corp. ◊ | | | 24,540 | | | 1,848,107 | |
Southwest Airlines Co. ◊ | | | 351,170 | | | 4,284,274 | |
United Technologies Corp. | | | 129,150 | | | 9,885,142 | |
| | | | | | 37,940,849 | |
| | | | | | | |
Information Technology — 2.0% | | | | | | | |
Microsoft Corp. | | | 242,200 | | | 8,622,320 | |
| | | | | | | |
Materials — 10.1% | | | | | | | |
Domtar Corp.* | | | 634,488 | | | 4,879,213 | |
Dow Chemical Co. | | | 192,350 | | | 7,582,437 | |
Freeport McMoRan | | | | | | | |
Copper & Gold, Inc. | | | 87,310 | | | 8,944,036 | |
International Paper Co. ◊ | | | 270,463 | | | 8,757,592 | |
MeadWestvaco Corp. | | | 268,850 | | | 8,415,005 | |
Rohm & Haas Co. ◊ | | | 74,885 | | | 3,974,147 | |
| | | | | | 42,552,430 | |
| | | | | | | |
Total Common Stocks | | | | | $ | 400,843,830 | |
| | | | | | | |
Registered Investment Companies — 13.3% | | | | | | | |
First American Prime | | | | | | | |
Obligations Fund - Class Z | | | 1,597,713 | | $ | 1,597,713 | |
Mount Vernon Securities | | | | | | | |
Lending Prime Portfolio †† | | | 40,262,091 | | | 40,262,091 | |
Reserve Primary Fund - Class 12 | | | 13,921,887 | | | 13,921,887 | |
| | | | | | | |
Total Registered | | | | | | | |
Investment Companies | | | | | $ | 55,781,691 | |
|
Diamond Hill Funds Annual Report December 31, 2007 | Page 25 |
Diamond Hill Large Cap Fund
Schedule of Investments (Continued)
December 31, 2007
| | Market Value | |
| | | |
Total Investment Securities — 108.5% | | | | |
(Cost $418,337,025)** | | $ | 456,625,521 | |
| | | | |
Liabilities In Excess | | | | |
Of Other Assets — (8.5%) | | | (35,795,152 | ) |
| | | | |
Net Assets — 100.0% | | $ | 420,830,369 | |
* | Non-income producing security. |
** | Represents cost for financial reporting purposes. |
◊ | All or portion of the security is on loan. The total value of the securities on loan, as of December 31, 2007, was $38,977,200. |
†† | Represents collateral for securities loaned. |
See accompanying Notes to Financial Statements.
Diamond Hill Select Fund
Schedule of Investments
December 31, 2007
| | Shares | | Market Value | |
| | | | | |
Common Stocks — 96.7% | | | | | | | |
Consumer Discretionary — 12.5% | | | | | | | |
Aaron Rents, Inc. ◊ | | | 4,682 | | $ | 90,082 | |
Acco Brands Corp.* ◊ | | | 9,900 | | | 158,796 | |
Black & Decker Corp., The ◊ | | | 4,705 | | | 327,703 | |
Fortune Brands, Inc. | | | 2,660 | | | 192,478 | |
Gannett Co., Inc. ◊ | | | 7,700 | | | 300,300 | |
Kohl's Corp.* | | | 8,975 | | | 411,055 | |
McDonald’s Corp. | | | 14,050 | | | 827,685 | |
| | | | | | 2,308,099 | |
| | | | | | | |
Consumer Staples — 9.4% | | | | | | | |
ConAgra Foods, Inc. | | | 8,463 | | | 201,335 | |
General Mills, Inc. | | | 7,305 | | | 416,385 | |
Hanesbrands, Inc.* ◊ | | | 11,361 | | | 308,678 | |
Sara Lee Corp. | | | 26,050 | | | 418,364 | |
Sysco Corp. | | | 12,140 | | | 378,889 | |
| | | | | | 1,723,651 | |
| | | | | | | |
Energy — 20.2% | | | | | | | |
Anadarko Petroleum Corp. | | | 9,480 | | | 622,741 | |
Apache Corp. | | | 10,300 | | | 1,107,662 | |
Devon Energy Corp. | | | 11,040 | | | 981,566 | |
Occidental Petroleum Corp. | | | 5,330 | | | 410,357 | |
XTO Energy, Inc. | | | 11,493 | | | 590,280 | |
| | | | | | 3,712,606 | |
| | | | | | | |
Financial — 16.6% | | | | | | | |
American International Group, Inc. | | | 11,825 | | | 689,398 | |
Huntington Bancshares, Inc. | | | 20,638 | | | 304,617 | |
Merrill Lynch & Co., Inc. ◊ | | | 6,580 | | | 353,214 | |
Synovus Financial Corp. | | | 12,650 | | | 304,612 | |
U.S. Bancorp | | | 22,525 | | | 714,943 | |
Wells Fargo & Co. | | | 23,140 | | | 698,597 | |
| | | | | | 3,065,381 | |
| | | | | | | |
Health Care — 13.4% | | | | | | | |
Abbott Laboratories | | | 7,920 | | | 444,708 | |
Cardinal Health, Inc. ◊ | | | 9,650 | | | 557,288 | |
Johnson & Johnson | | | 7,160 | | | 477,572 | |
Medtronic, Inc. | | | 10,116 | | | 508,531 | |
UnitedHealth Group, Inc. | | | 8,322 | | | 484,340 | |
| | | | | | 2,472,439 | |
|
Page 26 | Diamond Hill Funds Annual Report December 31, 2007 |
Diamond Hill Select Fund
Schedule of Investments (Continued)
December 31, 2007
| | Shares | | Market Value | |
| | | | | | | |
Industrial — 8.7% | | | | | | | |
AirTran Holdings, Inc.* ◊ | | | 24,700 | | $ | 176,852 | |
Dover Corp. | | | 9,000 | | | 414,810 | |
Fluor Corp. | | | 1,070 | | | 155,920 | |
Illinois Tool Works, Inc. ◊ | | | 7,583 | | | 405,994 | |
United Technologies Corp. | | | 5,925 | | | 453,500 | |
| | | | | | 1,607,076 | |
| | | | | | | |
Information Technology — 4.7% | | | | | | | |
Microsoft Corp. | | | 24,300 | | | 865,080 | |
| | | | | | | |
Materials — 11.2% | | | | | | | |
Domtar Corp.* | | | 35,791 | | | 275,233 | |
Dow Chemical Co. | | | 9,650 | | | 380,403 | |
Freeport McMoRan | | | | | | | |
Copper & Gold, Inc. | | | 4,247 | | | 435,062 | |
International Paper Co. ◊ | | | 11,439 | | | 370,395 | |
MeadWestvaco Corp. | | | 13,475 | | | 421,768 | |
Rohm & Haas Co. ◊ | | | 3,300 | | | 175,131 | |
| | | | | | 2,057,992 | |
| | | | | | | |
Total Common Stocks | | | | | $ | 17,812,324 | |
| | | | | | | |
Registered Investment Companies — 21.4% | | | | | | | |
First American Prime | | | | | | | |
Obligations Fund - Class Z | | | 50,924 | | $ | 50,924 | |
Mount Vernon Securities | | | | | | | |
Lending Prime Portfolio †† | | | 3,316,038 | | | 3,316,038 | |
Reserve Primary Fund - Class 12 | | | 576,382 | | | 576,382 | |
| | | | | | | |
Total Registered | | | | | | | |
Investment Companies | | | | | $ | 3,943,344 | |
| | | | | | | |
Total Investment Securities — 118.1% | | | | | | | |
(Cost $20,513,703)** | | | | | $ | 21,755,668 | |
| | | | | | | |
Liabilities In Excess | | | | | | | |
Of Other Assets— (18.1%) | | | | | | (3,334,868 | ) |
| | | | | | | |
Net Assets — 100.0% | | | | | $ | 18,420,800 | |
* | Non-income producing security. |
** | Represents cost for financial reporting purposes |
◊ | All or portion of the security is on loan. The total value of the securities on loan, as of December 31, 2007, was $3,192,040. |
†† | Represents collateral for securities loaned. |
See accompanying Notes to Financial Statements.
Diamond Hill Long-Short Fund
Schedule of Investments
December 31, 2007
| | Shares | | Market Value | |
| | | | | |
Common Stocks — 89.4% | | | | | | | |
Consumer Discretionary — 10.6% | | | | | | | |
Acco Brands Corp.* † ◊ | | | 488,184 | | $ | 7,830,471 | |
Black & Decker Corp., The † ◊ | | | 318,484 | | | 22,182,411 | |
Fortune Brands, Inc. † ◊ | | | 351,325 | | | 25,421,877 | |
Gannett Co., Inc. † ◊ | | | 472,290 | | | 18,419,310 | |
Kohl's Corp.* † | | | 797,068 | | | 36,505,714 | |
McDonald’s Corp. † | | | 1,313,169 | | | 77,358,786 | |
| | | | | | 187,718,569 | |
| | | | | | | |
Consumer Staples — 8.2% | | | | | | | |
ConAgra Foods, Inc. † | | | 816,530 | | | 19,425,249 | |
General Mills, Inc. † | | | 609,500 | | | 34,741,500 | |
Hanesbrands, Inc.* † ◊ | | | 673,331 | | | 18,294,403 | |
Sara Lee Corp. † | | | 2,536,020 | | | 40,728,481 | |
Sysco Corp. † | | | 1,030,317 | | | 32,156,194 | |
| | | | | | 145,345,827 | |
| | | | | | | |
Energy — 20.6% | | | | | | | |
Anadarko Petroleum Corp. † | | | 810,990 | | | 53,273,933 | |
Apache Corp. † | | | 1,113,600 | | | 119,756,543 | |
Devon Energy Corp. † | | | 1,116,550 | | | 99,272,461 | |
Occidental Petroleum Corp. † | | | 486,430 | | | 37,450,246 | |
XTO Energy, Inc. † | | | 1,082,707 | | | 55,607,832 | |
| | | | | | 365,361,015 | |
| | | | | | | |
Financial — 17.7% | | | | | | | |
American International Group, Inc. † | | | 991,875 | | | 57,826,313 | |
Huntington Bancshares, Inc. † ◊ | | | 1,821,458 | | | 26,884,720 | |
Merrill Lynch & Co., Inc. † ◊ | | | 571,270 | | | 30,665,774 | |
Synovus Financial Corp. † ◊ | | | 1,064,900 | | | 25,642,792 | |
U.S. Bancorp † ◊ | | | 1,960,110 | | | 62,213,890 | |
Wachovia Corp. † ◊ | | | 795,700 | | | 30,260,471 | |
Washington Mutual, Inc.* † ◊ | | | 1,335,780 | | | 18,179,966 | |
Wells Fargo & Co. † ◊ | | | 2,008,440 | | | 60,634,804 | |
| | | | | | 312,308,730 | |
| | | | | | | |
Health Care — 10.5% | | | | | | | |
Abbott Laboratories † | | | 790,500 | | | 44,386,575 | |
Cardinal Health, Inc. † ◊ | | | 545,900 | | | 31,525,725 | |
Johnson & Johnson † | | | 610,300 | | | 40,707,010 | |
Medtronic, Inc. † | | | 754,256 | | | 37,916,449 | |
UnitedHealth Group, Inc. † | | | 530,080 | | | 30,850,656 | |
| | | | | | 185,386,415 | |
|
Diamond Hill Funds Annual Report December 31, 2007 | Page 27 |
Diamond Hill Long-Short Fund
Schedule of Investments (Continued)
December 31, 2007
| | Shares | | Market Value | |
| | | | | |
Industrial — 9.3% | | | | | | | |
AirTran Holdings, Inc.* † ◊ | | | 1,462,150 | | $ | 10,468,994 | |
Dover Corp. † ◊ | | | 753,320 | | | 34,720,519 | |
Fluor Corp. † ◊ | | | 194,040 | | | 28,275,509 | |
Illinois Tool Works, Inc. † ◊ | | | 608,180 | | | 32,561,957 | |
Trinity Industries, Inc. † ◊ | | | 520,909 | | | 14,460,434 | |
United Technologies Corp. † | | | 572,130 | | | 43,790,830 | |
| | | | | | 164,278,243 | |
| | | | | | | |
Information Technology — 2.9% | | | | | | | |
Microsoft Corp. † | | | 1,458,025 | | | 51,905,690 | |
| | | | | | | |
Materials — 9.6% | | | | | | | |
Domtar Corp.* † ◊ | | | 2,529,627 | | | 19,452,832 | |
Dow Chemical Co. † ◊ | | | 759,650 | | | 29,945,403 | |
Freeport McMoRan | | | | | | | |
Copper & Gold, Inc. † | | | 367,145 | | | 37,610,333 | |
International Paper Co. † ◊ | | | 1,053,342 | | | 34,107,214 | |
MeadWestvaco Corp. † | | | 1,025,550 | | | 32,099,715 | |
Rohm & Haas Co. † ◊ | | | 309,797 | | | 16,440,927 | |
| | | | | | 169,656,424 | |
| | | | | | | |
Total Common Stocks | | | | | $ | 1,581,960,913 | |
| | | | | | | |
Registered Investment Companies — 22.7% | | | | | | | |
First American Prime | | | | | | | |
Obligations Fund - Class Z | | | 21,277,927 | | | 21,277,927 | |
Mount Vernon Securities | | | | | | | |
Lending Prime Portfolio †† | | | 218,967,609 | | | 218,967,609 | |
Reserve Primary Fund - Class 12 | | | 161,043,961 | | | 161,043,961 | |
| | | | | | | |
Total Registered | | | | | | | |
Investment Companies | | | | | $ | 401,289,497 | |
| | | | | | | |
Total Investment Securities — 112.1% | | | | | | | |
(Cost $1,875,156,740)** | | | | | $ | 1,983,250,410 | |
| | | | | | | |
Segregated Cash | | | | | | | |
With Brokers — 30.2% | | | | | $ | 534,479,835 | |
| | | | | | | |
Securities Sold Short — (29.8%) | | | | | | (527,362,613 | ) |
(Proceeds $509,311,696) | | | | | | | |
| | | | | | | |
Liabilities In Excess | | | | | | | |
Of Other Assets — (12.5%) | | | | | | (221,290,722 | ) |
| | | | | | | |
Net Assets — 100.0% | | | | | $ | 1,769,076,910 | |
| | | | | | | |
* | Non-income producing security. |
** | Represents cost for financial reporting purposes. |
† | Security position is either entirely or partially held in a segregated account as collateral for securities sold short aggregating a total market value of $1,581,960,913. |
◊ | All or portion of the security is on loan. The total value of the securities on loan, as of December 31, 2007, was $209,873,464. |
†† | Represents collateral for securities on loaned. |
See accompanying Notes to Financial Statements.
|
Page 28 | Diamond Hill Funds Annual Report December 31, 2007 |
Diamond Hill Long-Short Fund
Schedule of Securities Sold Short
December 31, 2007
| | Shares | | Market Value | |
| | | | | |
Common Stocks — 84.5% | | | | | | | |
Consumer Discretionary — 47.9% | | | | | | | |
Amazon.com, Inc.* | | | 429,441 | | $ | 39,783,414 | |
Apollo Group, Inc.* | | | 404,781 | | | 28,395,387 | |
Career Education Corp.* | | | 694,850 | | | 17,468,529 | |
Corinthian Colleges, Inc.* | | | 1,035,990 | | | 15,954,246 | |
DIRECTV Group, Inc., The* | | | 371,850 | | | 8,597,172 | |
EchoStar Communications | | | | | | | |
Corp., Class A* | | | 146,941 | | | 5,542,615 | |
Ford Motor Co.* | | | 3,569,000 | | | 24,019,370 | |
J. Crew Group, Inc.* | | | 258,190 | | | 12,447,340 | |
Life Time Fitness, Inc.* | | | 676,376 | | | 33,602,360 | |
RadioShack Corp. | | | 1,879,505 | | | 31,688,454 | |
Red Robin Gourmet Burgers, Inc.* | | | 236,895 | | | 7,578,271 | |
Sears Holding Corp.* | | | 85,500 | | | 8,725,275 | |
Urban Outfitters, Inc.* | | | 640,350 | | | 17,455,941 | |
Williams-Sonoma, Inc. | | | 45,545 | | | 1,179,615 | |
| | | | | | 252,437,989 | |
| | | | | | | |
Consumer Staples — 9.7% | | | | | | | |
Colgate-Palmolive Co. | | | 212,200 | | | 16,543,112 | |
Dean Foods Co. | | | 294,769 | | | 7,622,727 | |
Kraft Foods, Inc. | | | 239,910 | | | 7,828,263 | |
Procter & Gamble Co. | | | 263,700 | | | 19,360,854 | |
| | | | | | 51,354,956 | |
| | | | | | | |
Health Care — 7.8% | | | | | | | |
Laboratory Corp. of | | | | | | | |
America Holdings* | | | 295,588 | | | 22,325,762 | |
Omnicare, Inc. | | | 397,470 | | | 9,066,290 | |
Quest Diagnostics, Inc. | | | 182,450 | | | 9,651,605 | |
| | | | | | 41,043,657 | |
| | | | | | | |
Industrial — 3.8% | | | | | | | |
CSX Corp. | | | 457,520 | | | 20,121,729 | |
| | | | | | | |
Information Technology — 15.3% | | | | | | | |
Apple, Inc.* | | | 119,270 | | | 23,625,002 | |
Electronic Arts, Inc.* | | | 147,210 | | | 8,598,536 | |
Juniper Networks, Inc.* | | | 565,420 | | | 18,771,944 | |
Salesforce.com, Inc.* | | | 474,649 | | | 29,755,746 | |
| | | | | | 80,751,228 | |
| | | | | | | |
Total Common Stocks Sold Short | | | | | $ | 445,709,559 | |
| | | | | | | |
Exchange Traded Funds — 15.5% | | | | | | | |
Internet HOLDRs Trust | | | 135,350 | | $ | 8,012,721 | |
iShares Russell 2000 Index Fund | | | 684,150 | | | 52,029,607 | |
PoweShares QQQ | | | 421,755 | | | 21,610,726 | |
| | | | | | | |
Total Exchange Traded | | | | | | | |
Funds Sold Short | | | | | $ | 81,653,054 | |
| | | | | | | |
Total Securities Sold Short | | | | | | | |
(Proceeds $509,311,696) | | | | | $ | 527,362,613 | |
* Non-dividend expense producing security.
See accompanying Notes to Financial Statements.
|
Diamond Hill Funds Annual Report December 31, 2007 | Page 29 |
Diamond Hill Financial Long-Short Fund
Schedule of Investments
December 31, 2007
| | Shares | | Market Value | |
| | | | | |
Preferred Stocks — 3.6% | | | | | | | |
Financial — 2.0% | | | | | | | |
Countrywide | | | | | | | |
Capital V, 7.00%, 11/1/36 † | | | 60,000 | | $ | 687,000 | |
| | | | | | | |
Real Estate Investment Trust — 1.6% | | | | | | | |
Mid-America Apartment | | | | | | | |
Communities, Inc. - REIT † ◊ | | | 12,389 | | | 529,630 | |
Total Preferred Stocks | | | | | $ | 1,216,630 | |
| | | | | | | |
Common Stocks — 82.8% | | | | | | | |
Finance - Banks & Thrifts — 51.0% | | | | | | | |
1st Source Corp. † | | | 24,000 | | | 415,440 | |
Bank of New York Mellon Corp. † | | | 21,283 | | | 1,037,759 | |
Banner Corp. † | | | 18,400 | | | 528,632 | |
Capital Corp. of the West † | | | 27,943 | | | 542,932 | |
Centennial Bank Holdings, Inc.* † | | | 50,000 | | | 289,000 | |
City National Corp. † ◊ | | | 10,550 | | | 628,253 | |
Comerica, Inc. † ◊ | | | 14,400 | | | 626,832 | |
First Charter Corp. † ◊ | | | 16,200 | | | 483,732 | |
First National Lincoln Corp. † | | | 9,968 | | | 145,932 | |
First State Bancorp † | | | 44,580 | | | 619,662 | |
Greene County Bancshares, Inc. † | | | 12,865 | | | 247,008 | |
Hanmi Financial Corp. † | | | 32,040 | | | 276,185 | |
Huntington Bancshares, Inc. † | | | 81,150 | | | 1,197,774 | |
Imperial Capital Bancorp, Inc. † | | | 12,067 | | | 220,826 | |
iStar Financial, Inc. † ◊ | | | 24,000 | | | 625,200 | |
PNC Financial Services Group, Inc. † ◊ | | | 14,000 | | | 919,100 | |
Sovereign Bancorp, Inc. † ◊ | | | 50,100 | | | 571,140 | |
Synovus Financial Corp. �� | | | 32,500 | | | 782,600 | |
Taylor Capital Group, Inc. † | | | 18,150 | | | 370,260 | |
U.S. Bancorp † | | | 60,000 | | | 1,904,400 | |
UCBH Holdings, Inc. † ◊ | | | 34,920 | | | 494,467 | |
Wachovia Corp. † | | | 37,680 | | | 1,432,970 | |
Washington Mutual, Inc.* † ◊ | | | 62,000 | | | 843,820 | |
Wells Fargo & Co. † | | | 60,000 | | | 1,811,400 | |
| | | | | | 17,015,324 | |
| | | | | | | |
Finance - Broker Dealer — 6.3% | | | | | | | |
Merrill Lynch & Co., Inc. † ◊ | | | 24,000 | | | 1,288,320 | |
Morgan Stanley † ◊ | | | 15,000 | | | 796,650 | |
| | | | | | 2,084,970 | |
| | | | | | | |
Financial - Diversified — 8.0% | | | | | | | |
Bank of America Corp. † | | | 34,474 | | | 1,422,397 | |
Citigroup, Inc. † | | | 41,700 | | | 1,227,648 | |
| | | | | | 2,650,045 | |
| | | | | | | |
Financial Specialties — 2.2% | | | | | | | |
Discover Financial Services † ◊ | | | 27,000 | | | 407,160 | |
Freddie Mac † | | | 10,000 | | | 340,700 | |
| | | | | | 747,860 | |
| | | | | | | |
Insurance — 15.3% | | | | | | | |
Allstate Corp. † | | | 18,000 | | | 940,140 | |
American International Group, Inc. † | | | 33,000 | | | 1,923,900 | |
Assurant, Inc. † ◊ | | | 8,000 | | | 535,200 | |
Hanover Insurance Group, Inc. † | | | 12,000 | | | 549,600 | |
PartnerRe Ltd. † | | | 5,000 | | | 412,650 | |
United Fire & Casualty Co. † | | | 25,000 | | | 727,250 | |
| | | | | | 5,088,740 | |
| | | | | | | |
Total Common Stocks | | | | | $ | 27,586,939 | |
| | | | | | | |
Registered Investment Companies — 29.8% | | | | | | | |
First American Prime | | | | | | | |
Obligations Fund - Class Z | | | 194,117 | | $ | 194,117 | |
Mount Vernon Securities | | | | | | | |
Lending Prime Portfolio †† | | | 7,786,594 | | | 7,786,594 | |
Reserve Primary Fund - Class 12 | | | 1,956,499 | | | 1,956,499 | |
| | | | | | | |
Total Registered | | | | | | | |
Investment Companies | | | | | $ | 9,937,210 | |
| | | | | | | |
Total Investment Securities — 116.2% | | | | | | | |
(Cost $42,571,906)** | | | | | $ | 38,740,779 | |
|
Page 30 | Diamond Hill Funds Annual Report December 31, 2007 |
Diamond Hill Financial Long-Short Fund
Schedule of Investments (Continued)
December 31, 2007
| | Market Value | |
| | | |
Segregated Cash | | | | |
With Brokers — 15.0% | | $ | 5,002,051 | |
| | | | |
Securities Sold Short — (9.0%) | | | (3,007,090 | ) |
(Proceeds $3,723,605) | | | | |
| | | | |
Liabilities In Excess | | | | |
Of Other Assets — (22.2%) | | | (7,387,905 | ) |
| | | | |
Net Assets — 100.0% | | $ | 33,347,835 | |
* | Non-income producing security. |
** | Represents cost for financial reporting purposes. |
† | Security position is either entirely or partially held in a segregated account as collateral for securities sold short aggregating a total market value of $28,803,569. |
◊ | All or portion of the security is on loan. The total value of the securities on loan, as of December 31, 2007, was $7,512,678. |
†† | Represents collateral for securities on loaned. |
REIT - Real Estate Investment Trust
See accompanying Notes to Financial Statements.
Diamond Hill Financial Long-Short Fund
Schedule of Securities Sold Short
December 31, 2007
| | Shares | | Market Value | |
| | | | | |
Common Stocks — 75.3% | | | | | | | |
Finance - Banks & Thrifts — 75.3% | | | | | | | |
Bear Stearns Co., Inc. | | | 3,000 | | $ | 264,750 | |
City Holding Co. | | | 23,000 | | | 778,320 | |
Epoch Holding Corp. | | | 25,000 | | | 375,000 | |
M&T Bank Corp. | | | 2,000 | | | 163,140 | |
Northern Trust Corp. | | | 7,000 | | | 536,060 | |
Virginia Commerce Bancorp, Inc.* | | | 12,636 | | | 148,220 | |
| | | | | | | |
Total Common Stocks Sold Short | | | | | $ | 2,265,490 | |
| | | | | | | |
Exchange Traded Fund — 24.7% | | | | | | | |
KBW Regional Banking ETF | | | 20,000 | | | 741,600 | |
| | | | | | | |
Total Securities Sold Short | | | | | | | |
(Proceeds $3,723,605) | | | | | $ | 3,007,090 | |
* | Non-dividend expense producing security. |
See accompanying Notes to Financial Statements.
|
Diamond Hill Funds Annual Report December 31, 2007 | Page 31 |
Diamond Hill Strategic Income Fund
Schedule of Investments
December 31, 2007
| | Shares | | Market Value | |
| | | | | |
Common Stocks — 6.9% | | | | | | | |
Energy — 0.1% | | | | | | | |
Teekay LNG Partners, L.P. | | | 4,600 | | $ | 136,482 | |
| | | | | | | |
Finance — 4.1% | | | | | | | |
Huntington Bancshares, Inc. | | | 80,000 | | | 1,180,800 | |
U.S. Bancorp | | | 61,500 | | | 1,952,010 | |
Wachovia Corp. | | | 28,500 | | | 1,083,855 | |
Wells Fargo & Co. | | | 63,000 | | | 1,901,970 | |
| | | | | | 6,118,635 | |
| | | | | | | |
Real Estate Investment Trust — 2.7% | | | | | | | |
iStar Financial, Inc. ◊ | | | 94,500 | | | 2,461,725 | |
NorthStar Realty Finance Corp. ◊ | | | 180,000 | | | 1,605,600 | |
| | | | | | 4,067,325 | |
| | | | | | | |
Total Common Stocks | | | | | $ | 10,322,442 | |
| | | | | | | |
Collateralized Debt Obligations — 1.9% | | | | | | | |
Alesco Preferred Funding III † ∆ | | | 820,479 | | $ | 840,411 | |
Alesco Preferred Funding IV † | | | 361 | | | 297,368 | |
Alesco Preferred Funding V † | | | 84 | | | 65,624 | |
Alesco Preferred Funding VI † | | | 621,631 | | | 491,244 | |
Alesco Preferred Funding VI, | | | | | | | |
Series E † | | | 349,537 | | | 286,296 | |
Fort Sheridan, Ltd. † | | | 494,792 | | | 233,101 | |
Taberna Preferred Funding, Ltd. † | | | 1,030,407 | | | 555,094 | |
Total Collateralized | | | | | | | |
Debt Obligations | | | | | $ | 2,769,138 | |
| | | | | | | |
Preferred Stocks — 43.1% | | | | | | | |
Alexandria Real Estate, | | | | | | | |
Series C - REIT ◊ | | | 31,900 | | $ | 837,375 | |
American International | | | | | | | |
Group, 7.70% ◊ | | | 136,000 | | | 3,406,800 | |
Apaimc, 8.25% - REIT | | | 21,007 | | | 252,084 | |
Arch Capital Group Ltd., 8.00% | | | 86,500 | | | 2,161,635 | |
Ashford Hospitality Trust, | | | | | | | |
8.45% - REIT | | | 70,000 | | | 1,330,000 | |
Aspen Insurance, 7.401% | | | 88,000 | | | 1,922,800 | |
Axis Capital, 7.25%, Series A | | | 75,000 | | | 1,570,500 | |
BAC Capital Trust, 7.00% | | | 60,000 | | | 1,362,000 | |
Capital Crossing, 8.50% - REIT | | | 40,000 | | | 998,400 | |
CFB Capital IV, 7.60% | | | 23,383 | | | 568,207 | |
Citigroup Capital VIII | | | 77,000 | | | 1,620,850 | |
Comcast Corp., 7.00%, Series B | | | 129,289 | | | 2,901,245 | |
Countrywide Capital, 7.00% | | | 30,000 | | | 343,500 | |
Countrywide IV, 6.75% ◊ | | | 172,200 | | | 2,030,238 | |
Fifth Third Capital Trust VI, 7.25% ◊ | | | 175,300 | | | 3,646,241 | |
FPL Group Capital, 7.45%, Series E | | | 105,000 | | | 2,730,000 | |
Gramercy Capital, Series A - REIT ◊ | | | 60,000 | | | 1,182,000 | |
Huntington Preferred | | | | | | | |
Capital, Inc. - REIT ◊ | | | 29,073 | | | 691,937 | |
Innkeepers USA Trust | | | 93,250 | | | 1,119,000 | |
iStar Financial, 7.80%, Series F | | | 70,000 | | | 1,347,500 | |
iStar Financial, 7.875%, Series E | | | 68,500 | | | 1,352,190 | |
Kimco Realty Corp., 7.75%, | | | | | | | |
Series G - REIT | | | 134,000 | | | 3,063,240 | |
Laclede Capital Trust I ◊ | | | 76,895 | | | 1,906,996 | |
Merrill Lynch Capital Trust, 7.12% | | | 51,500 | | | 1,127,850 | |
Merrill Lynch Capital Trust, 7.28% ◊ | | | 41,700 | | | 917,400 | |
Merrill Lynch Capital Trust, 7.375% ◊ | | | 30,000 | | | 679,200 | |
National City Capital IV, 8.00% ◊ | | | 146,000 | | | 3,058,700 | |
NorthStar Realty Financial | | | | | | | |
Corp., 8.75%, Series A - REIT | | | 79,400 | | | 1,314,070 | |
PS Business Parks, Inc., 7.95% - REIT | | | 60,000 | | | 1,320,600 | |
Renaissance Holdings | | | | | | | |
Ltd., 7.30%, Series B | | | 62,500 | | | 1,359,375 | |
Royal Bank of Scotland | | | | | | | |
Group PLC, 7.25%, Series T | | | 56,400 | | | 1,302,276 | |
Selective Insurance Group, 7.50% | | | 60,500 | | | 1,285,625 | |
SL Green Realty, 7.875%, Series D | | | 67,200 | | | 1,535,520 | |
Sovereign Capital Trust, 7.75% | | | 54,000 | | | 1,134,000 | |
Taubman Centers, Inc., | | | | | | | |
8.00% - REIT | | | 66,260 | | | 1,567,049 | |
Taylor Capital Trust, 9.75% | | | 76,881 | | | 1,922,025 | |
Telephone & Data Systems, 7.60% | | | 51,000 | | | 1,061,820 | |
US Cellular, 7.50% | | | 52,293 | | | 1,098,153 | |
Virginia Power | | | | | | | |
Capital Trust, 7.375% | | | 93,400 | | | 2,278,026 | |
Wachovia Preferred | | | | | | | |
Funding - REIT | | | 129,700 | | | 2,942,893 | |
Total Preferred Stocks | | | | | $ | 64,249,320 | |
|
Page 32 | Diamond Hill Funds Annual Report December 31, 2007 |
Diamond Hill Strategic Income Fund
Schedule of Investments (Continued)
December 31, 2007
| | Shares | | Market Value | |
| | | | | |
Registered Investment Companies — 35.2% | | | | | | | |
First American Prime | | | | | | | |
Obligations Fund - Class Z | | | 4,593,612 | | $ | 4,593,611 | |
Mount Vernon Securities | | | | | | | |
Lending Prime Portfolio †† | | | 28,088,045 | | | 28,088,045 | |
Reserve Primary | | | | | | | |
Fund - Class12 | | | 19,925,780 | | | 19,925,780 | |
Total Registered | | | | | | | |
Investment Companies | | | | | $ | 52,607,436 | |
| | Par Value | | Market Value | |
| | | | | |
Corporate Bonds — 25.6% | | | | | | | |
Consumer Discretionary — 4.3% | | | | | | | |
Goodyear Tire, | | | | | | | |
9.125%, 12/1/09 ∆ | | $ | 3,000,000 | | $ | 3,022,500 | |
Hansebrands, Inc., | | | | | | | |
8.78%, 12/15/14 ◊ ∆ | | | 3,505,000 | | | 3,469,950 | |
| | | | | | 6,492,450 | |
| | | | | | | |
Energy — 7.6% | | | | | | | |
Atlas Pipeline, 8.125%, 12/15/15 | | | 2,950,000 | | | 2,920,500 | |
Cimarex Energy, 7.125%, 5/1/17 | | | 1,650,000 | | | 1,621,125 | |
Copano Energy, 8.13%, 3/1/16 ◊ | | | 2,700,000 | | | 2,720,250 | |
Markwest Energy Finance | | | | | | | |
Corp., 8.50%, 7/15/16 | | | 4,065,000 | | | 4,085,325 | |
| | | | | | 11,347,200 | |
| | | | | | | |
Finance — 10.7% | | | | | | | |
Countrywide Home | | | | | | | |
Loan, 5.625%, 7/15/09 | | | 855,000 | | | 652,299 | |
Countrywide Home | | | | | | | |
Loan, 4.125%, 9/15/09 | | | 400,000 | | | 293,408 | |
General Motors Acceptance | | | | | | | |
Corp., 6.85%, 10/15/08 | | | 2,000,000 | | | 1,970,000 | |
General Motors Acceptance | | | | | | | |
Corp., 7.20%, 1/15/11 ◊ | | | 3,550,000 | | | 3,266,001 | |
General Motors Acceptance | | | | | | | |
Corp., 6.86%, 7/15/11 ∆ | | | 500,000 | | | 406,531 | |
Montpelier, 6.13%, 8/15/13 | | | 2,900,000 | | | 2,808,499 | |
SLM Corp., 3.93%, 10/8/08 ∆ | | | 1,099,000 | | | 1,059,161 | |
SLM Corp., 4.14%, 12/15/08 ∆ | | | 560,000 | | | 545,703 | |
SLM Corp., 3.98%, 3/2/09 ∆ | | | 1,788,000 | | | 1,695,632 | |
SLM Corp., 3.82%, 4/01/09 ∆ | | | 525,000 | | | 485,625 | |
SLM Corp., 4.06%, 2/1/10 ∆ | | | 885,000 | | | 804,093 | |
SLM Corp., 4.25%, 10/1/10 ∆ | | | 1,245,000 | | | 1,150,243 | |
UBS Ag Structured, | | | | | | | |
5.07%, 6/20/08 † | | | 750,000 | | | 745,950 | |
| | | | | | 15,883,145 | |
| | | | | | | |
Industrial — 2.9% | | | | | | | |
K.B. Home, 8.625%, 12/15/08 ◊ | | | 2,000,000 | | | 1,960,000 | |
K.B. Home, 7.75%, 2/1/10 | | | 2,635,000 | | | 2,437,375 | |
| | | | | | 4,397,375 | |
| | | | | | | |
Utilities — 0.0% | | | | | | | |
International Telephone, | | | | | | | |
7.50%, 7/1/11 | | | 40,000 | | | 40,038 | |
| | | | | | | |
Total Corporate Bonds | | | | | $ | 38,160,208 | |
| | | | | | | |
U.S. Government Agency Obligations — 5.4% | | | | | | | |
FHLB, 5.30%, 10/23/09 ◊ | | $ | 5,000,000 | | $ | 5,000,615 | |
FHLMC, 6.00%, 6/18/14 ◊ | | | 3,000,000 | | | 3,018,069 | |
| | | | | | | |
Total U.S. Government | | | | | | | |
Agency Obligations | | | | | $ | 8,018,684 | |
| | | | | | | |
Municipal Bond — 0.1% | | | | | | | |
Finance — 0.1% | | | | | | | |
Tobacco Settlement | | | | | | | |
Financing Corp., 5.92%, 6/1/12 | | $ | 115,000 | | $ | 114,733 | |
|
Diamond Hill Funds Annual Report December 31, 2007 | Page 33 |
Diamond Hill Strategic Income Fund
Schedule of Investments (Continued)
December 31, 2007
| | Shares | | Market Value | |
Total Investment Securities — 118.1% | | | | | | | |
(Amortized Cost $191,279,683)** | | | | | $ | 176,241,961 | |
| | | | | | | |
Liabilities In Excess | | | | | | | |
Of Other Assets — (18.1%) | | | | | | (26,963,880 | ) |
| | | | | | | |
Net Assets — 100.0% | | | | | $ | 149,278,081 | |
† | Restricted and illiquid securities valued at fair value and not registered under the Securities Act of 1933: |
| | Acquisition Date | | Acquisition Cost | | Value | | Value as a % of Net Assets | |
Alesco Preferred Funding III | | | March-05 | | $ | 820,479 | | $ | 840,411 | | | 0.6 | % |
Alesco Preferred Funding IV | | | May-04 | | | 360,666 | | | 297,368 | | | 0.2 | % |
Alesco Preferred Funding V | | | October-04 | | | 83,617 | | | 65,624 | | | 0.0 | % |
Alesco Preferred Funding VI | | | December-04 | | | 621,631 | | | 491,244 | | | 0.3 | % |
Alesco Preferred | | | | | | | | | | | | | |
Funding VI Series E | | | March-05 | | | 349,537 | | | 286,296 | | | 0.2 | % |
Fort Sheridan, LTD | | | March-05 | | | 494,626 | | | 233,101 | | | 0.2 | % |
Taberna Preferred | | | | | | | | | | | | | |
Funding, LTD | | | March-05 | | | 1,033,336 | | | 555,094 | | | 0.4 | % |
UBS Ag Structured, | | | | | | | | | | | | | |
5.07% 06/20/08 | | | December-03 | | | 751,938 | | | 745,950 | | | 0.5 | % |
| | | | | $ | 4,515,830 | | $ | 3,515,088 | | | 2.3 | % |
∆ | Variable notes earn interest at a coupon rate which fluctuates at specified intervals, usually daily, monthly or semi-annually. The rates shown in the Schedule of Investments are the coupon rates in effect at December 31, 2007. |
◊ | All or portion of the security is on loan. The total value of the securities on loan, as of December 31, 2007, was $27,172,901. |
†† | Represents collateral for securities loaned. |
** | Represents cost for financial reporting purposes. |
FHLB - Federal Home Loan Bank
FHLMC - Federal Home Loan Mortgage Corporation
REIT - Real Estate Investment Trust
PLC - Public Limited Company
See accompanying Notes to Financial Statements.
|
Page 34 | Diamond Hill Funds Annual Report December 31, 2007 |
Diamond Hill Funds
Statements of Assets & Liabilities
December 31, 2007
| | Small Cap Fund | | Small-Mid Cap Fund | | Large Cap Fund | | Select Fund | |
Assets | | | | | | | | | |
Investment securities, at cost | | $ | 540,693,405 | | $ | 43,983,924 | | $ | 418,337,025 | | $ | 20,513,703 | |
Investment securities, at market value - including $164,626,402, | | | | | | | | | | | | | |
$11,591,944, $38,977,200 and $3,192,040 of securities loaned for | | | | | | | | | | | | | |
the Small Cap Fund, the Small-Mid Cap Fund, the Large Cap Fund | | | | | | | | | | | | | |
and the Select Fund, respectively. | | $ | 548,558,283 | | $ | 43,572,570 | | $ | 456,625,521 | | $ | 21,755,668 | |
Receivable for securities sold | | | - | | | - | | | 4,611,516 | | | - | |
Receivable for fund shares issued | | | 664,948 | | | 37,813 | | | 965,152 | | | 45,204 | |
Receivable for dividends and interest | | | 535,791 | | | 54,028 | | | 795,017 | | | 37,441 | |
Total Assets | | | 549,759,022 | | | 43,664,411 | | | 462,997,206 | | | 21,838,313 | |
| | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | |
Return of collateral for securities on loan | | | 173,001,157 | | | 12,188,594 | | | 40,262,091 | | | 3,316,038 | |
Distributions Payable | | | - | | | - | | | 2,138 | | | - | |
Payable for securities purchased | | | 1,541,043 | | | - | | | 894,392 | | | - | |
Payable for fund shares redeemed | | | 1,985,147 | | | 20,225 | | | 422,719 | | | 62,000 | |
Payable to Investment Adviser | | | 259,437 | | | 20,218 | | | 215,459 | | | 11,406 | |
Payable to Administrator | | | 99,617 | | | 6,427 | | | 104,828 | | | 4,659 | |
Accrued distribution and service fees | | | 278,887 | | | 13,730 | | | 265,210 | | | 23,410 | |
Total Liabilities | | | 177,165,288 | | | 12,249,194 | | | 42,166,837 | | | 3,417,513 | |
| | | | | | | | | | | | | |
Net Assets | | $ | 372,593,734 | | $ | 31,415,217 | | $ | 420,830,369 | | $ | 18,420,800 | |
| | | | | | | | | | | | | |
Components of Net Assets | | | | | | | | | | | | | |
Paid-in capital | | $ | 369,550,179 | | $ | 31,867,530 | | $ | 378,907,959 | | $ | 16,617,436 | |
Accumulated net investment income | | | - | | | 942 | | | 13,484 | | | 54 | |
Accumulated net realized gains (losses) | | | | | | | | | | | | | |
from investment transactions | | | (4,821,323 | ) | | (41,901 | ) | | 3,620,430 | | | 561,345 | |
Net unrealized appreciation (depreciation) | | | | | | | | | | | | | |
on investments | | | 7,864,878 | | | (411,354 | ) | | 38,288,496 | | | 1,241,965 | |
Net Assets | | $ | 372,593,734 | | $ | 31,415,217 | | $ | 420,830,369 | | $ | 18,420,800 | |
| | | | | | | | | | | | | |
Pricing of Class A Shares | | | | | | | | | | | | | |
Net assets attributable to Class A shares | | $ | 315,378,306 | | $ | 10,548,526 | | $ | 309,616,859 | | $ | 6,841,236 | |
Shares of beneficial interest outstanding | | | | | | | | | | | | | |
(unlimited number of shares authorized, no par value) | | | 13,996,769 | | | 1,004,421 | | | 19,052,959 | | | 644,843 | |
Net asset value and redemption price per share | | $ | 22.53 | | $ | 10.50 | | $ | 16.25 | | $ | 10.61 | |
Maximum offering price per share | | $ | 23.72 | | $ | 11.05 | | $ | 17.11 | | $ | 11.17 | |
| | | | | | | | | | | | | |
Pricing of Class C Shares | | | | | | | | | | | | | |
Net assets attributable to Class C shares | | $ | 25,158,207 | | $ | 2,388,194 | | $ | 27,084,174 | | $ | 6,912,483 | |
Shares of beneficial interest outstanding | | | | | | | | | | | | | |
(unlimited number of shares authorized, no par value) | | | 1,173,530 | | | 229,552 | | | 1,710,290 | | | 654,497 | |
Net asset value, offering price and | | | | | | | | | | | | | |
redemption price per share (A) | | $ | 21.44 | | $ | 10.40 | | $ | 15.84 | | $ | 10.56 | |
| | | | | | | | | | | | | |
Pricing of Class I Shares | | | | | | | | | | | | | |
Net assets attributable to Class I shares | | $ | 32,057,221 | | $ | 18,478,497 | | $ | 84,129,336 | | $ | 4,667,081 | |
Shares of beneficial interest outstanding | | | | | | | | | | | | | |
(unlimited number of shares authorized, no par value) | | | 1,420,448 | | | 1,759,855 | | | 5,165,646 | | | 440,864 | |
Net asset value, offering price and | | | | | | | | | | | | | |
redemption price per share | | $ | 22.57 | | $ | 10.50 | | $ | 16.29 | | $ | 10.59 | |
(A) Redemption price per share varies based upon holding period.
See accompanying Notes to Financial Statements.
|
Diamond Hill Funds Annual Report December 31, 2007 | Page 35 |
Diamond Hill Funds
Statements of Assets & Liabilities
December 31, 2007
| | Long-Short Fund | | Financial Long-Short Fund | | Strategic Income Fund | |
Assets | | | | | | | | | | |
Investment securities, at cost | | $ | 1,875,156,740 | | $ | 42,571,906 | | $ | 191,279,683 | |
Investment securities, at market value - including $209,873,464, | | | | | | | | | | |
$7,512,678 and $27,172,901 of securities loaned for | | | | | | | | | | |
the Long-Short Fund, the Financial Long-Short Fund | | | | | | | | | | |
and the Strategic Income Fund, respectively | | $ | 1,983,250,410 | | $ | 38,740,779 | | $ | 176,241,961 | |
Deposits with brokers for securities sold short | | | 534,479,835 | | | 5,002,051 | | | - | |
Receivable for securities sold | | | - | | | 436,129 | | | 757,790 | |
Receivable for fund shares issued | | | 7,645,948 | | | 293,829 | | | 158,743 | |
Receivable for dividends and interest | | | 5,259,754 | | | 120,126 | | | 1,273,262 | |
Total Assets | | | 2,530,635,947 | | | 44,592,914 | | | 178,431,756 | |
| | | | | | | | | | |
Liabilities | | | | | | | | | | |
Return of collateral for securities on loan | | | 218,967,609 | | | 7,786,594 | | | 28,088,045 | |
Securities sold short, at value (proceeds $509,311,696 for the | | | 527,362,613 | | | 3,007,090 | | | - | |
Long-Short Fund and $3,723,605 for the Financial Long-Short Fund) | | | | | | | | | | |
Dividends payable | | | 754 | | | - | | | 288,175 | |
Payable for securities purchased | | | 7,744,298 | | | 260,883 | | | - | |
Payable for dividends on securities sold short | | | 247,605 | | | 1,120 | | | - | |
Payable for fund shares redeemed | | | 4,106,064 | | | 120,860 | | | 571,779 | |
Payable to Investment Adviser | | | 1,349,560 | | | 29,875 | | | 65,510 | |
Payable to Administrator | | | 421,205 | | | 9,255 | | | 33,398 | |
Accrued distribution and service fees | | | 1,359,329 | | | 29,402 | | | 106,768 | |
Total Liabilities | | | 761,559,037 | | | 11,245,079 | | | 29,153,675 | |
| | | | | | | | | | |
Net Assets | | $ | 1,769,076,910 | | $ | 33,347,835 | | $ | 149,278,081 | |
| | | | | | | | | | |
Components of Net Assets | | | | | | | | | | |
Paid-in capital | | $ | 1,675,416,799 | | $ | 36,833,508 | | $ | 165,292,401 | |
Accumulated net investment income | | | - | | | - | | | 1,675,336 | |
Accumulated net realized gains (losses) | | | | | | | | | | |
from investment transactions | | | 3,617,358 | | | (371,061 | ) | | (2,651,934 | ) |
Net unrealized appreciation (depreciation) | | | | | | | | | | |
on investments | | | 90,042,753 | | | (3,114,612 | ) | | (15,037,722 | ) |
Net Assets | | $ | 1,769,076,910 | | $ | 33,347,835 | | $ | 149,278,081 | |
| | | | | | | | | | |
Pricing of Class A Shares | | | | | | | | | | |
Net assets attributable to Class A shares | | $ | 965,259,195 | | $ | 27,597,114 | | $ | 54,435,242 | |
Shares of beneficial interest outstanding | | | | | | | | | | |
(unlimited number of shares authorized, no par value) | | | 52,474,062 | | | 1,703,458 | | | 5,227,716 | |
Net asset value and redemption price per share | | $ | 18.40 | | $ | 16.20 | | $ | 10.41 | |
Maximum offering price per share | | $ | 19.36 | | $ | 17.05 | | $ | 10.79 | |
| | | | | | | | | | |
Pricing of Class C Shares | | | | | | | | | | |
Net assets attributable to Class C shares | | $ | 303,392,268 | | $ | 3,286,906 | | $ | 24,637,601 | |
Shares of beneficial interest outstanding | | | | | | | | | | |
(unlimited number of shares authorized, no par value) | | | 17,188,076 | | | 210,648 | | | 2,367,536 | |
Net asset value, offering price and | | | | | | | | | | |
redemption price per share (A) | | $ | 17.65 | | $ | 15.60 | | $ | 10.41 | |
| | | | | | | | | | |
Pricing of Class I Shares | | | | | | | | | | |
Net assets attributable to Class I shares | | $ | 500,425,447 | | $ | 2,463,815 | | $ | 70,205,238 | |
Shares of beneficial interest outstanding | | | | | | | | | | |
(unlimited number of shares authorized, no par value) | | | 27,102,770 | | | 152,288 | | | 6,753,339 | |
Net asset value, offering price and | | | | | | | | | | |
redemption price per share | | $ | 18.46 | | $ | 16.18 | | $ | 10.40 | |
(A) Redemption price per share varies based upon holding period.
See accompanying Notes to Financial Statements.
|
Page 36 | Diamond Hill Funds Annual Report December 31, 2007 |
Diamond Hill Funds
Statements of Operations
For the year ended December 31, 2007
| | Small Cap Fund | | Small-Mid Cap Fund | | Large Cap Fund | | Select Fund | |
Investment Income | | | | | | | | | | | | | |
Dividends | | $ | 7,292,573 | | $ | 539,671 | | $ | 10,137,432 | | $ | 428,566 | |
Securities lending income | | | 234,312 | | | 4,250 | | | 31,478 | | | 637 | |
Total Investment Income | | | 7,526,885 | | | 543,921 | | | 10,168,910 | | | 429,203 | |
| | | | | | | | | | | | | |
Expenses | | | | | | | | | | | | | |
Investment advisory fees | | | 3,599,763 | | | 216,210 | | | 2,602,640 | | | 135,054 | |
Administration fees | | | 1,437,753 | | | 73,519 | | | 1,334,964 | | | 57,950 | |
Distribution fees - Class A | | | 938,131 | | | 28,849 | | | 838,381 | | | 21,580 | |
Distribution and service fees - Class C | | | 314,482 | | | 26,858 | | | 258,129 | | | 65,648 | |
Custody fees | | | 14,629 | | | 3,040 | | | 13,594 | | | 1,420 | |
Total Expenses Before Securities Lending Credit | | | 6,304,758 | | | 348,476 | | | 5,047,708 | | | 281,652 | |
Less: Custody fee credits | | | (14,629 | ) | | (3,040 | ) | | (13,594 | ) | | (1,420 | ) |
Net Expenses | | | 6,290,129 | | | 345,436 | | | 5,034,114 | | | 280,232 | |
| | | | | | | | | | | | | |
Net Investment Income | | | 1,236,756 | | | 198,485 | | | 5,134,796 | | | 148,971 | |
| | | | | | | | | | | | | |
Realized and Unrealized Gains (Losses) on Investments | | | | | | | | | | | | | |
Net realized gains from security transactions | | | 19,933,007 | | | 600,735 | | | 17,877,206 | | | 264,058 | |
Net change in unrealized appreciation/depreciation | | | | | | | | | | | | | |
on investments | | | (35,970,248 | ) | | (1,323,826 | ) | | 2,605,067 | | | 478,695 | |
Net Realized and Unrealized | | | | | | | | | | | | | |
Gains (Losses) on Investments | | | (16,037,241 | ) | | (723,091 | ) | | 20,482,273 | | | 742,753 | |
| | | | | | | | | | | | | |
Net Change in Net Assets from Operations | | $ | (14,800,485 | ) | $ | (524,606 | ) | $ | 25,617,069 | | $ | 891,724 | |
| | Long-Short Fund | | Financial Long-Short Fund | | Strategic Income Fund | |
Investment Income | | | | | | | | | | |
Dividends | | $ | 67,400,078 | | $ | 1,761,551 | | $ | 7,694,768 | |
Interest | | | - | | | - | | | 3,976,836 | |
Securities lending income | | | 122,074 | | | 5,662 | | | 50,660 | |
Total Investment Income | | | 67,522,152 | | | 1,767,213 | | | 11,722,264 | |
| | | | | | | | | | |
Expenses | | | | | | | | | | |
Investment advisory fees | | | 14,625,097 | | | 442,720 | | | 808,031 | |
Administration fees | | | 4,737,233 | | | 145,769 | | | 430,339 | |
Distribution fees - Class A | | | 2,322,871 | | | 93,960 | | | 155,381 | |
Distribution and service fees - Class C | | | 2,648,883 | | | 51,086 | | | 295,520 | |
Dividend expense on securities sold short | | | 3,358,667 | | | 100,432 | | | - | |
Custody fees | | | 54,585 | | | 3,867 | | | 8,446 | |
Total Expenses Before Securities Lending Credit | | | 27,747,336 | | | 837,834 | | | 1,697,717 | |
Less: Custody fee credits | | | (54,585 | ) | | (3,867 | ) | | (8,446 | ) |
Net Expenses | | | 27,692,751 | | | 833,967 | | | 1,689,271 | |
| | | | | | | | | | |
Net Investment Income | | | 39,829,401 | | | 933,246 | | | 10,032,993 | |
| | | | | | | | | | |
Realized and Unrealized Gains (Losses) on Investments | | | | | | | | | | |
Net realized gains (losses) from security transactions | | | 30,449,797 | | | (123,016 | ) | | 157,053 | |
Net realized gains (losses) on closed short positions | | | (19,309,212 | ) | | 1,168,368 | | | - | |
Net change in unrealized appreciation/depreciation on investments | | | 6,810,313 | | | (9,415,287 | ) | | (19,116,365 | ) |
Net Realized and Unrealized | | | | | | | | | | |
Gains (Losses) on Investments | | | 17,950,898 | | | (8,369,935 | ) | | (18,959,312 | ) |
| | | | | | | | | | |
Net Change in Net Assets from Operations | | $ | 57,780,299 | | $ | (7,436,689 | ) | $ | (8,926,319 | ) |
See accompanying Notes to Financial Statements.
|
Diamond Hill Funds Annual Report December 31, 2007 | Page 37 |
Diamond Hill Funds
Statements of Changes in Net Assets
| | Small Cap Fund | | Small-Mid Cap Fund | | Large Cap Fund | | Select Fund | |
| | For the Year Ended December 31, 2007 | | For the Year Ended December 31, 2006 | | For the Year Ended December 31, 2007 | | For the Year Ended December 31, 2006 (A) | | For the Year Ended December 31, 2007 | | For the Year Ended December 31, 2006 | | For the Year Ended December 31, 2007 | | For the Year Ended December 31, 2006 (A) | |
| | | | | | | | | | | | | | | | | |
From Operations | | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | $ | 1,236,756 | | $ | 1,840,865 | | $ | 198,485 | | $ | 66,803 | | $ | 5,134,796 | | $ | 3,627,295 | | $ | 148,971 | | $ | 128,160 | |
Net realized gains from | | | | | | | | | | | | | | | | | | | | | | | | | |
security transactions | | | 19,933,007 | | | 13,279,686 | | | 600,735 | | | 290,830 | | | 17,877,206 | | | 13,150,211 | | | 264,058 | | | 353,784 | |
Net change in unrealized | | | | | | | | | | | | | | | | | | | | | | | | | |
appreciation/depreciation | | | | | | | | | | | | | | | | | | | | | | | | | |
on investments | | | (35,970,248 | ) | | 14,570,777 | | | (1,323,826 | ) | | 912,472 | | | 2,605,067 | | | 25,863,722 | | | 478,695 | | | 763,270 | |
Net Change in Net Assets | | | | | | | | | | | | | | | | | | | | | | | | | |
from Operations | | | (14,800,485 | ) | | 29,691,328 | | | (524,606 | ) | | 1,270,105 | | | 25,617,069 | | | 42,641,228 | | | 891,724 | | | 1,245,214 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Distributions to Shareholders | | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income: | | | | | | | | | | | | | | | | | | | | | | | | | |
Class A | | | (1,056,536 | ) | | (1,461,271 | ) | | (39,380 | ) | | (11,426 | ) | | (3,603,836 | ) | | (2,849,167 | ) | | (58,851 | ) | | (72,460 | ) |
Class C | | | - | | | - | | | - | | | - | | | (157,384 | ) | | (71,342 | ) | | (23,687 | ) | | (18,228 | ) |
Class I | | | (251,292 | ) | | (377,249 | ) | | (158,867 | ) | | (54,675 | ) | | (1,371,991 | ) | | (697,950 | ) | | (66,379 | ) | | (36,839 | ) |
From net realized gains | | | | | | | | | | | | | | | | | | | | | | | | | |
on investments: | | | | | | | | | | | | | | | | | | | | | | | | | |
Class A | | | (19,955,753 | ) | | (8,863,709 | ) | | (272,115 | ) | | (49,613 | ) | | (14,708,735 | ) | | (2,314,419 | ) | | (744,125 | ) | | (101,349 | ) |
Class C | | | (1,691,144 | ) | | (754,982 | ) | | (62,709 | ) | | (12,636 | ) | | (1,323,945 | ) | | (158,661 | ) | | (671,947 | ) | | (57,943 | ) |
Class I | | | (2,137,888 | ) | | (1,100,628 | ) | | (465,333 | ) | | (63,254 | ) | | (3,978,795 | ) | | (395,892 | ) | | (441,157 | ) | | (34,363 | ) |
Decrease in Net Assets | | | | | | | | | | | | | | | | | | | | | | | | | |
from Distributions | | | | | | | | | | | | | | | | | | | | | | | | | |
to Shareholders | | | (25,092,613 | ) | | (12,557,839 | ) | | (998,404 | ) | | (191,604 | ) | | (25,144,686 | ) | | (6,487,431 | ) | | (2,006,146 | ) | | (321,182 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
From Capital Transactions | | | | | | | | | | | | | | | | | | | | | | | | | |
Class A | | | | | | | | | | | | | | | | | | | | | | | | | |
Proceeds from shares sold | | | 119,352,219 | | | 241,663,449 | | | 3,433,228 | | | 9,566,845 | | | 114,758,877 | | | 268,607,885 | | | 884,360 | | | 18,883,568 | |
Reinvested distributions | | | 20,373,877 | | | 9,911,385 | | | 297,850 | | | 59,115 | | | 17,658,977 | | | 4,850,082 | | | 483,596 | | | 94,612 | |
Payments for shares redeemed | | | (222,404,372 | ) | | (143,145,225 | ) | | (2,351,675 | ) | | (426,881 | ) | | (163,308,272 | ) | | (62,457,935 | ) | | (4,236,862 | ) | | (9,380,029 | ) |
Net Increase (Decrease) | | | | | | | | | | | | | | | | | | | | | | | | | |
in Net Assets from Class A | | | | | | | | | | | | | | | | | | | | | | | | | |
Share Transactions | | | (82,678,276 | ) | | 108,429,609 | | | 1,379,403 | | | 9,199,079 | | | (30,890,418 | ) | | 211,000,032 | | | (2,868,906 | ) | | 9,598,151 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Class C | | | | | | | | | | | | | | | | | | | | | | | | | |
Proceeds from shares sold | | | 1,664,661 | | | 1,486,361 | | | 835,503 | | | 2,414,652 | | | 10,328,176 | | | 12,780,229 | | | 3,844,134 | | | 6,235,183 | |
Reinvested distributions | | | 1,483,083 | | | 681,608 | | | 53,434 | | | 10,875 | | | 1,244,764 | | | 195,346 | | | 584,331 | | | 47,945 | |
Payments for shares redeemed | | | (10,123,632 | ) | | (9,741,761 | ) | | (742,446 | ) | | (144,768 | ) | | (6,574,570 | ) | | (2,147,915 | ) | | (2,690,869 | ) | | (901,037 | ) |
Net Increase (Decrease) | | | | | | | | | | | | | | | | | | | | | | | | | |
in Net Assets from Class C | | | | | | | | | | | | | | | | | | | | | | | | | |
Share Transactions | | | (6,975,888 | ) | | (7,573,792 | ) | | 146,491 | | | 2,280,759 | | | 4,998,370 | | | 10,827,660 | | | 1,737,596 | | | 5,382,091 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Class I | | | | | | | | | | | | | | | | | | | | | | | | | |
Proceeds from shares sold | | | 8,739,099 | | | 30,854,005 | | | 7,436,307 | | | 11,789,608 | | | 32,853,371 | | | 46,111,291 | | | 2,635,980 | | | 3,190,001 | |
Reinvested distributions | | | 2,036,900 | | | 1,300,894 | | | 617,066 | | | 114,768 | | | 5,060,574 | | | 1,042,006 | | | 446,200 | | | 57,377 | |
Payments for shares redeemed | | | (26,575,061 | ) | | (17,678,427 | ) | | (603,389 | ) | | (500,366 | ) | | (11,570,264 | ) | | (1,825,245 | ) | | (1,332,910 | ) | | (234,390 | ) |
Net Increase (Decrease) | | | | | | | | | | | | | | | | | | | | | | | | | |
in Net Assets from Class I | | | | | | | | | | | | | | | | | | | | | | | | | |
Share Transactions | | | (15,799,062 | ) | | 14,476,472 | | | 7,449,984 | | | 11,404,010 | | | 26,343,681 | | | 45,328,052 | | | 1,749,270 | | | 3,012,988 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total Increase (Decrease) | | | | | | | | | | | | | | | | | | | | | | | | | |
in Net Assets | | | (145,346,324 | ) | | 132,465,778 | | | 7,452,868 | | | 23,962,349 | | | 924,016 | | | 303,309,541 | | | (496,462 | ) | | 18,917,262 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net Assets | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning of year | | | 517,940,058 | | | 385,474,280 | | | 23,962,349 | | | - | | | 419,906,353 | | | 116,596,812 | | | 18,917,262 | | | - | |
End of year | | $ | 372,593,734 | | $ | 517,940,058 | | $ | 31,415,217 | | $ | 23,962,349 | | $ | 420,830,369 | | $ | 419,906,353 | | $ | 18,420,800 | | $ | 18,917,262 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Accumulated Net | | | | | | | | | | | | | | | | | | | | | | | | | |
Investment Income | | $ | - | | $ | 199,279 | | $ | 942 | | $ | 702 | | $ | 13,484 | | $ | 11,899 | | $ | 54 | | $ | - | |
(A) | Represents the period from commencement of operations from December 31, 2005 through December 31, 2006, and commencement of public offering and investment operations on January 3, 2006. |
See accompanying Notes to Financial Statements.
|
Page 38 | Diamond Hill Funds Annual Report December 31, 2007 |
Diamond Hill Funds
Statements of Changes in Net Assets
| | Long-Short Fund | | Financial Long-Short Fund | | Strategic Income Fund | |
| | For the Year Ended December 31, 2007 | | For the Year Ended December 31, 2006 | | For the Year Ended December 31, 2007 (A) | | For the Year Ended December 31, 2006 | | For the Year Ended December 31, 2007 | | For the Year Ended December 31, 2006 | |
From Operations | | | | | | | | | | | | | | | | | | | |
Net investment income | | $ | 39,829,401 | | $ | 16,637,375 | | $ | 933,246 | | $ | 483,643 | | $ | 10,032,993 | | $ | 6,322,138 | |
Net realized gains (losses) from security transactions | | | 30,449,797 | | | 48,765,541 | | | (123,016 | ) | | 1,001,438 | | | 157,053 | | | (1,176,522 | ) |
Net realized gains (losses) on closed short positions | | | (19,309,212 | ) | | 7,580,802 | | | 1,168,368 | | | 6,179 | | | - | | | - | |
Net change in unrealized appreciation/ | | | | | | | | | | | | | | | | | | | |
depreciation on investments | | | 6,810,313 | | | 46,892,489 | | | (9,415,287 | ) | | 3,012,090 | | | (19,116,365 | ) | | 4,867,608 | |
Net Change in Net Assets from Operations | | | 57,780,299 | | | 119,876,207 | | | (7,436,689 | ) | | 4,503,350 | | | (8,926,319 | ) | | 10,013,224 | |
| | | | | | | | | | | | | | | | | | | |
Distributions to Shareholders | | | | | | | | | | | | | | | | | | | |
From net investment income: | | | | | | | | | | | | | | | | | | | |
Class A | | | (21,519,028 | ) | | (10,232,380 | ) | | (792,875 | ) | | (450,305 | ) | | (3,670,256 | ) | | (2,386,238 | ) |
Class C | | | (5,312,054 | ) | | (1,714,365 | ) | | (60,297 | ) | | (32,134 | ) | | (1,479,611 | ) | | (1,162,593 | ) |
Class I | | | (13,062,198 | ) | | (4,666,367 | ) | | (80,100 | ) | | - | | | (4,478,858 | ) | | (2,292,771 | ) |
From net realized gains on investments: | | | | | | | | | | | | | | | | | | | |
Class A | | | (17,762,664 | ) | | (15,916,405 | ) | | (1,122,892 | ) | | (646,082 | ) | | (566,106 | ) | | - | |
Class C | | | (5,812,567 | ) | | (4,076,127 | ) | | (147,317 | ) | | (77,458 | ) | | (255,532 | ) | | - | |
Class I | | | (8,888,393 | ) | | (5,994,042 | ) | | (106,177 | ) | | - | | | (714,341 | ) | | - | |
Decrease in Net Assets from | | | | | | | | | | | | | | | | | | | |
Distributions to Shareholders | | | (72,356,904 | ) | | (42,599,686 | ) | | (2,309,658 | ) | | (1,205,979 | ) | | (11,164,704 | ) | | (5,841,602 | ) |
| | | | | | | | | | | | | | | | | | | |
From Capital Transactions | | | | | | | | | | | | | | | | | | | |
Class A | | | | | | | | | | | | | | | | | | | |
Proceeds from shares sold | | | 587,027,148 | | | 748,080,923 | | | 26,049,220 | | | 28,386,555 | | | 39,197,097 | | | 22,508,919 | |
Reinvested distributions | | | 34,843,615 | | | 23,482,616 | | | 1,456,165 | | | 887,198 | | | 3,660,599 | | | 2,218,191 | |
Payments for shares redeemed | | | (422,279,060 | ) | | (227,866,464 | ) | | (30,897,726 | ) | | (10,597,849 | ) | | (30,041,865 | ) | | (8,471,730 | ) |
Net Increase (Decrease) in Net Assets | | | | | | | | | | | | | | | | | | | |
from Class A Share Transactions | | | 199,591,703 | | | 543,697,075 | | | (3,392,341 | ) | | 18,675,904 | | | 12,815,831 | | | 16,255,380 | |
| | | | | | | | | | | | | | | | | | | |
Class C | | | | | | | | | | | | | | | | | | | |
Proceeds from shares sold | | | 160,652,765 | | | 116,274,212 | | | 2,613,317 | | | 2,362,985 | | | 10,695,953 | | | 10,823,237 | |
Reinvested distributions | | | 7,710,946 | | | 4,678,090 | | | 135,522 | | | 85,778 | | | 1,295,674 | | | 977,800 | |
Payments for shares redeemed | | | (50,301,042 | ) | | (16,096,040 | ) | | (3,015,863 | ) | | (734,210 | ) | | (10,868,804 | ) | | (6,161,653 | ) |
Net Increase (Decrease) in Net Assets | | | | | | | | | | | | | | | | | | | |
from Class C Share Transactions | | | 118,062,669 | | | 104,856,262 | | | (267,024 | ) | | 1,714,553 | | | 1,122,823 | | | 5,639,384 | |
| | | | | | | | | | | | | | | | | | | |
Class I | | | | | | | | | | | | | | | | | | | |
Proceeds from shares sold | | | 334,731,735 | | | 261,137,582 | | | 6,024,037 | | | - | | | 37,678,558 | | | 28,201,031 | |
Reinvested distributions | | | 16,659,660 | | | 8,126,804 | | | 129,116 | | | - | | | 4,016,764 | | | 1,985,620 | |
Payments for shares redeemed | | | (137,837,684 | ) | | (50,447,972 | ) | | (2,997,969 | ) | | - | | | (16,846,722 | ) | | (2,683,189 | ) |
Net Increase in Net Assets | | | | | | | | | | | | | | | | | | | |
from Class I Share Transactions | | | 213,553,711 | | | 218,816,414 | | | 3,155,184 | | | - | | | 24,848,600 | | | 27,503,462 | |
| | | | | | | | | | | | | | | | | | | |
Total Increase (Decrease) in Net Assets | | | 516,631,478 | | | 944,646,272 | | | (10,250,528 | ) | | 23,687,828 | | | 18,696,231 | | | 53,569,848 | |
| | | | | | | | | | | | | | | | | | | |
Net Assets | | | | | | | | | | | | | | | | | | | |
Beginning of year | | | 1,252,445,432 | | | 307,799,160 | | | 43,598,363 | | | 19,910,535 | | | 130,581,850 | | | 77,012,002 | |
End of year | | $ | 1,769,076,910 | | $ | 1,252,445,432 | | $ | 33,347,835 | | $ | 43,598,363 | | $ | 149,278,081 | | $ | 130,581,850 | |
| | | | | | | | | | | | | | | | | | | |
Accumulated Net Investment Income | | $ | - | | $ | 31,430 | | $ | - | | $ | 18,935 | | $ | 1,675,336 | | $ | 1,137,687 | |
(A) | For Class I shares represents the period from commencement of operations from December 31, 2006 through December 31, 2007, and commencement of public offering and investment operations on January 3, 2007. |
See accompanying Notes to Financial Statements.
|
Diamond Hill Funds Annual Report December 31, 2007 | Page 39 |
Diamond Hill Funds
Schedule of Capital Share Transactions
| | Small Cap Fund | | Small-Mid Cap Fund | | Large Cap Fund | | Select Fund | |
| | For the Year Ended December 31, 2007 | | For the Year Ended December 31, 2006 | | For the Year Ended December 31, 2007 | | For the Year Ended December 31, 2006 (A) | | For the Year Ended December 31, 2007 | | For the Year Ended December 31, 2006 | | For the Year Ended December 31, 2007 | | For the Year Ended December 31, 2006 (A) | |
Shares | | | | | | | | | | | | | | | | | | | | | | | | | |
Class A Shares: | | | | | | | | | | | | | | | | | | | | | | | | | |
Issued | | | 4,724,481 | | | 9,777,692 | | | 305,833 | | | 916,260 | | | 6,807,708 | | | 17,711,819 | | | 73,770 | | | 1,789,739 | |
Reinvested | | | 890,223 | | | 391,952 | | | 27,867 | | | 5,370 | | | 1,059,206 | | | 295,973 | | | 44,429 | | | 8,440 | |
Redeemed | | | (8,858,418 | ) | | (5,825,945 | ) | | (210,231 | ) | | (40,678 | ) | | (9,492,784 | ) | | (4,021,684 | ) | | (371,473 | ) | | (900,062 | ) |
Net increase (decrease) in shares outstanding | | | (3,243,714 | ) | | 4,343,699 | | | 123,469 | | | 880,952 | | | (1,625,870 | ) | | 13,986,108 | | | (253,274 | ) | | 898,117 | |
Shares outstanding, beginning of period | | | 17,240,483 | | | 12,896,784 | | | 880,952 | | | - | | | 20,678,829 | | | 6,692,721 | | | 898,117 | | | - | |
Shares outstanding, end of period | | | 13,996,769 | | | 17,240,483 | | | 1,004,421 | | | 880,952 | | | 19,052,959 | | | 20,678,829 | | | 644,843 | | | 898,117 | |
Class C Shares: | | | | | | | | | | | | | | | | | | | | | | | | | |
Issued | | | 69,286 | | | 62,322 | | | 73,696 | | | 231,713 | | | 627,561 | | | 861,725 | | | 323,350 | | | 589,923 | |
Reinvested | | | 68,251 | | | 28,154 | | | 5,055 | | | 992 | | | 76,843 | | | 12,222 | | | 54,132 | | | 4,291 | |
Redeemed | | | (424,112 | ) | | (411,819 | ) | | (67,491 | ) | | (14,413 | ) | | (397,122 | ) | | (143,533 | ) | | (230,312 | ) | | (86,887 | ) |
Net increase (decrease) in shares outstanding | | | (286,575 | ) | | (321,343 | ) | | 11,260 | | | 218,292 | | | 307,282 | | | 730,414 | | | 147,170 | | | 507,327 | |
Shares outstanding, beginning of period | | | 1,460,105 | | | 1,781,448 | | | 218,292 | | | - | | | 1,403,008 | | | 672,594 | | | 507,327 | | | - | |
Shares outstanding, end of period | | | 1,173,530 | | | 1,460,105 | | | 229,552 | | | 218,292 | | | 1,710,290 | | | 1,403,008 | | | 654,497 | | | 507,327 | |
Class I Shares: | | | | | | | | | | | | | | | | | | | | | | | | | |
Issued | | | 347,853 | | | 1,236,764 | | | 656,463 | | | 1,133,512 | | | 1,933,936 | | | 2,936,838 | | | 223,977 | | | 304,517 | |
Reinvested | | | 88,558 | | | 51,275 | | | 57,693 | | | 10,437 | | | 302,344 | | | 63,368 | | | 40,927 | | | 5,116 | |
Redeemed | | | (1,064,731 | ) | | (716,344 | ) | | (52,687 | ) | | (45,563 | ) | | (678,909 | ) | | (113,791 | ) | | (112,498 | ) | | (21,175 | ) |
Net increase (decrease) in shares outstanding | | | (628,320 | ) | | 571,695 | | | 661,469 | | | 1,098,386 | | | 1,557,371 | | | 2,886,415 | | | 152,406 | | | 288,458 | |
Shares outstanding, beginning of period | | | 2,048,768 | | | 1,477,073 | | | 1,098,386 | | | - | | | 3,608,275 | | | 721,860 | | | 288,458 | | | - | |
Shares outstanding, end of period | | | 1,420,448 | | | 2,048,768 | | | 1,759,855 | | | 1,098,386 | | | 5,165,646 | | | 3,608,275 | | | 440,864 | | | 288,458 | |
(A) | Represents the period from commencement of operations from December 31, 2005 through December 31, 2006, and commencement of public offering and investment operations on January 3, 2006. |
See accompanying Notes to Financial Statements.
|
Page 40 | Diamond Hill Funds Annual Report December 31, 2007 |
Diamond Hill Funds
Schedule of Capital Share Transactions
| | Long-Short Fund | | Financial Long-Short Fund | | Strategic Income Fund | |
| | For the Year Ended December 31, 2007 | | For the Year Ended December 31, 2006 | | For the Year Ended December 31, 2007(A) | | For the Year Ended December 31, 2006 | | For the Year Ended December 31, 2007 | | For the Year Ended December 31, 2006 | |
Shares | | | | | | | | | | | | | | | | | | | |
Class A Shares: | | | | | | | | | | | | | | | | | | | |
Issued | | | 31,616,314 | | | 42,263,327 | | | 1,284,397 | | | 1,417,131 | | | 3,348,624 | | | 1,967,217 | |
Reinvested | | | 1,861,265 | | | 1,257,154 | | | 86,843 | | | 42,390 | | | 324,420 | | | 193,757 | |
Redeemed | | | (22,646,226 | ) | | (12,814,047 | ) | | (1,532,625 | ) | | (534,193 | ) | | (2,662,913 | ) | | (740,245 | ) |
Net increase (decrease) in shares outstanding | | | 10,831,353 | | | 30,706,434 | | | (161,385 | ) | | 925,328 | | | 1,010,131 | | | 1,420,729 | |
Shares outstanding, beginning of period | | | 41,642,709 | | | 10,936,275 | | | 1,864,843 | | | 939,515 | | | 4,217,585 | | | 2,796,856 | |
Shares outstanding, end of period | | | 52,474,062 | | | 41,642,709 | | | 1,703,458 | | | 1,864,843 | | | 5,227,716 | | | 4,217,585 | |
Class C Shares: | | | | | | | | | | | | | | | | | | | |
Issued | | | 9,018,256 | | | 6,779,536 | | | 133,621 | | | 122,299 | | | 913,237 | | | 952,633 | |
Reinvested | | | 429,372 | | | 260,608 | | | 8,371 | | | 4,273 | | | 114,757 | | | 85,466 | |
Redeemed | | | (2,806,115 | ) | | (946,960 | ) | | (161,204 | ) | | (39,359 | ) | | (960,991 | ) | | (540,262 | ) |
Net increase (decrease) in shares outstanding | | | 6,641,513 | | | 6,093,184 | | | (19,212 | ) | | 87,213 | | | 67,003 | | | 497,837 | |
Shares outstanding, beginning of period | | | 10,546,563 | | | 4,453,379 | | | 229,860 | | | 142,647 | | | 2,300,533 | | | 1,802,696 | |
Shares outstanding, end of period | | | 17,188,076 | | | 10,546,563 | | | 210,648 | | | 229,860 | | | 2,367,536 | | | 2,300,533 | |
Class I Shares: | | | | | | | | | | | | | | | | | | | |
Issued | | | 17,937,547 | | | 14,523,326 | | | 297,038 | | | - | | | 3,263,906 | | | 2,455,009 | |
Reinvested | | | 886,331 | | | 433,229 | | | 7,713 | | | - | | | 357,639 | | | 173,496 | |
Redeemed | | | (7,325,935 | ) | | (2,799,639 | ) | | (152,463 | ) | | - | | | (1,513,887 | ) | | (235,712 | ) |
Net increase in shares outstanding | | | 11,497,943 | | | 12,156,916 | | | 152,288 | | | - | | | 2,107,658 | | | 2,392,793 | |
Shares outstanding, beginning of period | | | 15,604,827 | | | 3,447,911 | | | - | | | - | | | 4,645,681 | | | 2,252,888 | |
Shares outstanding, end of period | | | 27,102,770 | | | 15,604,827 | | | 152,288 | | | - | | | 6,753,339 | | | 4,645,681 | |
(A) For Class I shares represents the period from commencement of operations from December 31, 2006 through December 31, 2007, and commencement of public offering and investment operations on January 3, 2007.
See accompanying Notes to Financial Statements.
|
Diamond Hill Funds Annual Report December 31, 2007 | Page 41 |
Diamond Hill Funds
Financial Highlights
For a share outstanding throughout each period.
Diamond Hill Small Cap Fund - Class A | | Year Ended December 31, 2007 | | Year Ended December 31, 2006 | | Year Ended December 31, 2005 | | Year Ended December 31, 2004 | | Year Ended December 31, 2003 | |
Net asset value at beginning of year | | $ | 25.03 | | $ | 23.95 | | $ | 21.41 | | $ | 16.82 | | $ | 11.26 | |
Income (loss) from investment operations: | | | | | | | | | | | | | | | | |
Net investment income (loss) | | | 0.08 | | | 0.09 | | | 0.02 | | | (0.03 | ) | | (0.06 | ) |
Net realized and unrealized gains (losses) on investments | | | (1.00 | ) | | 1.60 | | | 2.74 | | | 4.94 | | | 5.71 | |
Total from investment operations | | | (0.92 | ) | | 1.69 | | | 2.76 | | | 4.91 | | | 5.65 | |
Less Distributions: | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | (0.08 | ) | | (0.09 | ) | | (0.01 | ) | | - | | | - | |
Distributions from net realized gains | | | (1.50 | ) | | (0.52 | ) | | (0.21 | ) | | (0.32 | ) | | (0.09 | ) |
Total distributions | | | (1.58 | ) | | (0.61 | ) | | (0.22 | ) | | (0.32 | ) | | (0.09 | ) |
Net asset value at end of year | | $ | 22.53 | | $ | 25.03 | | $ | 23.95 | | $ | 21.41 | | $ | 16.82 | |
Total return(A) | | | (3.79 | %) | | 7.03 | % | | 12.90 | % | | 29.26 | % | | 50.18 | % |
Net assets at end of year (000s) | | $ | 315,378 | | $ | 431,524 | | $ | 308,925 | | $ | 55,411 | | $ | 11,919 | |
Ratio of net expenses to average net assets | | | 1.39 | % | | 1.42 | % | | 1.45 | % | | 1.50 | % | | 1.50 | % |
Ratio of net investment income (loss) to average net assets | | | 0.29 | % | | 0.38 | % | | 0.19 | % | | (0.35 | %) | | (0.57 | %) |
Ratio of gross expenses to average net assets | | | 1.39 | % | | 1.42 | % | | 1.45 | % | | 1.51 | % | | 1.51 | % |
Portfolio turnover rate | | | 21 | % | | 30 | % | | 15 | % | | 30 | % | | 53 | % |
Diamond Hill Small Cap Fund - Class C | | Year Ended December 31, 2007 | | Year Ended December 31, 2006 | | Year Ended December 31, 2005 | | Year Ended December 31, 2004 | | Year Ended December 31, 2003 | |
Net asset value at beginning of year | | $ | 24.00 | | $ | 23.08 | | $ | 20.79 | | $ | 16.45 | | $ | 11.09 | |
Income (loss) from investment operations: | | | | | | | | | | | | | | | | |
Net investment loss | | | (0.15 | ) | | (0.10 | ) | | (0.08 | ) | | (0.15 | ) | | (0.18 | ) |
Net realized and unrealized gains (losses) on investments | | | (0.91 | ) | | 1.54 | | | 2.58 | | | 4.81 | | | 5.63 | |
Total from investment operations | | | (1.06 | ) | | 1.44 | | | 2.50 | | | 4.66 | | | 5.45 | |
Distributions from net realized gains | | | (1.50 | ) | | (0.52 | ) | | (0.21 | ) | | (0.32 | ) | | (0.09 | ) |
Net asset value at end of year | | $ | 21.44 | | $ | 24.00 | | $ | 23.08 | | $ | 20.79 | | $ | 16.45 | |
Total return(A) | | | (4.51 | %) | | 6.23 | % | | 12.05 | % | | 28.40 | % | | 49.15 | % |
Net assets at end of year (000s) | | $ | 25,158 | | $ | 35,035 | | $ | 41,115 | | $ | 15,259 | | $ | 7,213 | |
Ratio of net expenses to average net assets | | | 2.14 | % | | 2.17 | % | | 2.20 | % | | 2.25 | % | | 2.25 | % |
Ratio of net investment loss to average net assets | | | (0.46 | %) | | (0.37 | %) | | (0.61 | %) | | (1.20 | %) | | (1.35 | %) |
Ratio of gross expenses to average net assets | | | 2.14 | % | | 2.17 | % | | 2.20 | % | | 2.26 | % | | 2.26 | % |
Portfolio turnover rate | | | 21 | % | | 30 | % | | 15 | % | | 30 | % | | 53 | % |
Diamond Hill Small Cap Fund - Class I | | Year Ended December 31, 2007 | | Year Ended December 31, 2006 | | Period Ended December 31, 2005 (B) | | | |
Net asset value at beginning of period | | $ | 25.08 | | $ | 23.99 | | $ | 19.93 | | | | |
Income (loss) from investment operations: | | | | | | | | | | | | | |
Net investment income | | | 0.22 | | | 0.21 | | | 0.04 | | | | |
Net realized and unrealized gains (losses) on investments | | | (1.05 | ) | | 1.59 | | | 4.27 | | | | |
Total from investment operations | | | (0.83 | ) | | 1.80 | | | 4.31 | | | | |
Less Distributions: | | | | | | | | | | | | | |
Dividends from net investment income | | | (0.18 | ) | | (0.19 | ) | | (0.04 | ) | | | |
Distributions from net realized gains | | | (1.50 | ) | | (0.52 | ) | | (0.21 | ) | | | |
Total distributions | | | (1.68 | ) | | (0.71 | ) | | (0.25 | ) | | | |
Net asset value at end of period | | $ | 22.57 | | $ | 25.08 | | $ | 23.99 | | | | |
Total return | | | (3.41 | )% | | 7.49 | % | | 21.63 | % | | (C) | |
Net assets at end of period (000s) | | $ | 32,057 | | $ | 51,381 | | $ | 35,434 | | | | |
Ratio of net expenses to average net assets | | | 0.98 | % | | 0.99 | % | | 0.99 | % | | (D) | |
Ratio of net investment income to average net assets | | | 0.69 | % | | 0.82 | % | | 0.74 | % | | (D) | |
Ratio of gross expenses to average net assets | | | 0.98 | % | | 0.99 | % | | 0.99 | % | | (D) | |
Portfolio turnover rate | | | 21 | % | | 30 | % | | 15 | % | | | |
(A) | Total returns shown exclude the effect of applicable sales charges. |
(B) | Class I commenced operations on April 29, 2005. |
See accompanying Notes to Financial Statements.
|
Page 42 | Diamond Hill Funds Annual Report December 31, 2007 |
Diamond Hill Funds
Financial Highlights
For a share outstanding throughout each period.
Diamond Hill Small-Mid Cap Fund - Class A | | Year Ended December 31, 2007 | | Year Ended December 31, 2006 (A) | |
Net asset value at beginning of period | | $ | 10.91 | | $ | 10.00 | |
Income (loss) from investment operations: | | | | | | | |
Net investment income | | | 0.06 | | | 0.04 | |
Net realized and unrealized gains (losses) on investments | | | (0.15 | ) | | 0.94 | |
Total from investment operations | | | (0.09 | ) | | 0.98 | |
Less Distributions: | | | | | | | |
Dividends from net investment income | | | (0.04 | ) | | (0.01 | ) |
Distributions from net realized gains | | | (0.28 | ) | | (0.06 | ) |
Total distributions | | | (0.32 | ) | | (0.07 | ) |
Net asset value at end of period | | $ | 10.50 | | $ | 10.91 | |
Total return(B) | | | (0.91 | %) | | 9.81 | % |
Net assets at end of period (000s) | | $ | 10,549 | | $ | 9,608 | |
Ratio of net expenses to average net assets | | | 1.33 | % | | 1.21 | % |
Ratio of net investment income to average net assets | | | 0.54 | % | | 0.49 | % |
Ratio of gross expenses to average net assets | | | 1.34 | % | | 1.34 | % |
Portfolio turnover rate | | | 39 | % | | 33 | % |
Diamond Hill Small-Mid Cap Fund - Class C | | Year Ended December 31, 2007 | | Year Ended December 31, 2006 (A) | |
Net asset value at beginning of period | | $ | 10.85 | | $ | 10.00 | |
Income (loss) from investment operations: | | | | | | | |
Net investment loss | | | (0.02 | ) | | (0.02 | ) |
Net realized and unrealized gains (losses) on investments | | | (0.15 | ) | | 0.93 | |
Total from investment operations | | | (0.17 | ) | | 0.91 | |
Distributions from net realized gains | | | (0.28 | ) | | 0.06 | |
Net asset value at end of period | | $ | 10.40 | | $ | 10.85 | |
Total return(B) | | | (1.65 | %) | | 9.08 | % |
Net assets at end of period (000s) | | $ | 2,388 | | $ | 2,368 | |
Ratio of net expenses to average net assets | | | 2.08 | % | | 2.00 | % |
Ratio of net investment loss to average net assets | | | (0.21 | %) | | (0.27 | %) |
Ratio of gross expenses to average net assets | | | 2.09 | % | | 2.11 | % |
Portfolio turnover rate | | | 39 | % | | 33 | % |
Diamond Hill Small-Mid Cap Fund - Class I | | Year Ended December 31, 2007 | | Year Ended December 31, 2006 (A) | |
Net asset value at beginning of period | | $ | 10.91 | | $ | 10.00 | |
Income (loss) from investment operations: | | | | | | | |
Net investment income | | | 0.09 | | | 0.04 | |
Net realized and unrealized gains (losses) on investments | | | (0.13 | ) | | 0.98 | |
Total from investment operations | | | (0.04 | ) | | 1.02 | |
Less Distributions: | | | | | | | |
Dividends from net investment income | | | (0.09 | ) | | (0.05 | ) |
Distributions from net realized gains | | | (0.28 | ) | | (0.06 | ) |
Total distributions | | | (0.37 | ) | | (0.11 | ) |
Net asset value at end of period | | $ | 10.50 | | $ | 10.91 | |
Total return | | | (0.44 | %) | | 10.18 | % |
Net assets at end of period (000s) | | $ | 18,478 | | $ | 11,986 | |
Ratio of net expenses to average net assets | | | 0.93 | % | | 0.90 | % |
Ratio of net investment income to average net assets | | | 0.97 | % | | 1.01 | % |
Ratio of gross expenses to average net assets | | | 0.94 | % | | 0.98 | % |
Portfolio turnover rate | | | 39 | % | | 33 | % |
(A) | Class A, Class C, and Class I commenced operations on December 31, 2005, and commenced public offering and investment operations on January 3, 2006. |
(B) | Total returns shown exclude the effect of applicable sales charges. |
See accompanying Notes to Financial Statements.
|
Diamond Hill Funds Annual Report December 31, 2007 | Page 43 |
Diamond Hill Funds
Financial Highlights
For a share outstanding throughout each period.
Diamond Hill Large Cap Fund - Class A | | Year Ended December 31, 2007 | | Year Ended December 31, 2006 | | Year Ended December 31, 2005 | | Year Ended December 31, 2004 | | Year Ended December 31, 2003 | |
Net asset value at beginning of year | | $ | 16.36 | | $ | 14.44 | | $ | 12.51 | | $ | 10.34 | | $ | 7.87 | |
Income from investment operations: | | | | | | | | | | | | | | | | |
Net investment income | | | 0.21 | | | 0.15 | | | 0.05 | | | 0.02 | | | 0.04 | |
Net realized and unrealized gains on investments | | | 0.69 | | | 2.03 | | | 1.98 | | | 2.16 | | | 2.47 | |
Total from investment operations | | | 0.90 | | | 2.18 | | | 2.03 | | | 2.18 | | | 2.51 | |
Less Distributions: | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | (0.19 | ) | | (0.14 | ) | | (0.06 | ) | | (0.01 | ) | | (0.04 | ) |
Distributions from net realized gains | | | (0.82 | ) | | (0.12 | ) | | (0.04 | ) | | - | | | - | |
Total distributions | | | (1.01 | ) | | (0.26 | ) | | (0.10 | ) | | (0.01 | ) | | (0.04 | ) |
Net asset value at end of year | | $ | 16.25 | | $ | 16.36 | | $ | 14.44 | | $ | 12.51 | | $ | 10.34 | |
Total return(A) | | | 5.42 | % | | 15.06 | % | | 16.19 | % | | 21.12 | % | | 31.92 | % |
Net assets at end of year (000s) | | $ | 309,617 | | $ | 338,286 | | $ | 96,637 | | $ | 17,369 | | $ | 6,437 | |
Ratio of net expenses to average net assets | | | 1.18 | % | | 1.21 | % | | 1.27 | % | | 1.40 | % | | 1.39 | % |
Ratio of net investment income to average net assets | | | 1.15 | % | | 1.32 | % | | 1.08 | % | | 0.26 | % | | 0.62 | % |
Ratio of gross expenses to average net assets | | | 1.19 | % | | 1.21 | % | | 1.27 | % | | 1.42 | % | | 1.43 | % |
Portfolio turnover rate | | | 44 | % | | 32 | % | | 15 | % | | 13 | % | | 32 | % |
Diamond Hill Large Cap Fund - Class C | | Year Ended December 31, 2007 | | Year Ended December 31, 2006 | | Year Ended December 31, 2005 | | Year Ended December 31, 2004 | | Year Ended December 31, 2003 | |
Net asset value at beginning of year | | $ | 15.99 | | $ | 14.15 | | $ | 12.31 | | $ | 10.23 | | $ | 7.81 | |
Income (loss) from investment operations: | | | | | | | | | | | | | | | | |
Net investment income (loss) | | | 0.06 | | | 0.06 | | | 0.05 | | | (0.04 | ) | | - | |
Net realized and unrealized gains on investments | | | 0.70 | | | 1.95 | | | 1.83 | | | 2.12 | | | 2.42 | |
Total from investment operations | | | 0.76 | | | 2.01 | | | 1.88 | | | 2.08 | | | 2.42 | |
Less Distributions: | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | (0.09 | ) | | (0.05 | ) | | - | | | - | | | - | |
Distributions from net realized gains | | | (0.82 | ) | | (0.12 | ) | | (0.04 | ) | | - | | | - | |
Total distributions | | | (0.91 | ) | | (0.17 | ) | | (0.04 | ) | | - | | | - | |
Net asset value at end of year | | $ | 15.84 | | $ | 15.99 | | $ | 14.15 | | $ | 12.31 | | $ | 10.23 | |
Total return(A) | | | 4.68 | % | | 14.18 | % | | 15.25 | % | | 20.33 | % | | 31.04 | % |
Net assets at end of year (000s) | | $ | 27,084 | | $ | 22,438 | | $ | 9,518 | | $ | 1,700 | | $ | 871 | |
Ratio of net expenses to average net assets | | | 1.93 | % | | 1.96 | % | | 2.02 | % | | 2.15 | % | | 2.14 | % |
Ratio of net investment income (loss) to average net assets | | | 0.43 | % | | 0.57 | % | | 0.26 | % | | (0.54 | %) | | (0.14 | %) |
Ratio of gross expenses to average net assets | | | 1.93 | % | | 1.96 | % | | 2.02 | % | | 2.17 | % | | 2.18 | % |
Portfolio turnover rate | | | 44 | % | | 32 | % | | 15 | % | | 13 | % | | 32 | % |
Diamond Hill Large Cap Fund - Class I | | Year Ended December 31, 2007 | | Year Ended December 31, 2006 | | Period Ended December 31, 2005 (D) | | | |
Net asset value at beginning of period | | $ | 16.40 | | $ | 14.47 | | $ | 12.38 | | | | |
Income from investment operations: | | | | | | | | | | | | | |
Net investment income | | | 0.25 | | | 0.13 | | | 0.08 | | | | |
Net realized and unrealized gains on investments | | | 0.73 | | | 2.12 | | | 2.13 | | | | |
Total from investment operations | | | 0.98 | | | 2.25 | | | 2.21 | | | | |
Less Distributions: | | | | | | | | | | | | | |
Dividends from net investment income | | | (0.27 | ) | | (0.20 | ) | | (0.08 | ) | | | |
Distributions from net realized gains | | | (0.82 | ) | | (0.12 | ) | | (0.04 | ) | | | |
Total distributions | | | (1.09 | ) | | (0.32 | ) | | (0.12 | ) | | | |
Net asset value at end of period | | $ | 16.29 | | $ | 16.40 | | $ | 14.47 | | | | |
Total return | | | 5.88 | % | | 15.49 | % | | 17.84 | % | | (B) | |
Net assets at end of period (000s) | | $ | 84,129 | | $ | 59,182 | | $ | 10,442 | | | | |
Ratio of net expenses to average net assets | | | 0.78 | % | | 0.78 | % | | 0.80 | % | | (C) | |
Ratio of net investment income to average net assets | | | 1.60 | % | | 1.82 | % | | 1.60 | % | | (C) | |
Ratio of gross expenses to average net assets | | | 0.78 | % | | 0.78 | % | | 0.80 | % | | (C) | |
Portfolio turnover rate | | | 44 | % | | 32 | % | | 15 | % | | | |
(A) | Total returns shown exclude the effect of applicable sales charges. |
(D) | Class I commenced operations on January 31, 2005. |
See accompanying Notes to Financial Statements.
|
Page 44 | Diamond Hill Funds Annual Report December 31, 2007 |
Diamond Hill Funds
Financial Highlights
For a share outstanding throughout each period.
Diamond Hill Select Fund - Class A | | Year Ended December 31, 2007 | | Year Ended December 31, 2006 (A) | |
Net asset value at beginning of period | | $ | 11.17 | | $ | 10.00 | |
Income from investment operations: | | | | | | | |
Net investment income | | | 0.12 | | | 0.10 | |
Net realized and unrealized gains on investments | | | 0.53 | | | 1.27 | |
Total from investment operations | | | 0.65 | | | 1.37 | |
Less Distributions: | | | | | | | |
Dividends from net investment income | | | (0.09 | ) | | (0.08 | ) |
Distributions from net realized gains | | | (1.12 | ) | | (0.12 | ) |
Total distributions | | | (1.21 | ) | | (0.20 | ) |
Net asset value at end of period | | $ | 10.61 | | $ | 11.17 | |
Total return(B) | | | 5.63 | % | | 13.66 | % |
Net assets at end of period (000s) | | $ | 6,841 | | $ | 10,036 | |
Ratio of net expenses to average net assets | | | 1.29 | % | | 1.31 | % |
Ratio of net investment income to average net assets | | | 0.90 | % | | 1.04 | % |
Ratio of gross expenses to average net assets | | | 1.29 | % | | 1.31 | % |
Portfolio turnover rate | | | 55 | % | | 80 | % |
Diamond Hill Select Fund - Class C | | Year Ended December 31, 2007 | | Year Ended December 31, 2006 (A) | |
Net asset value at beginning of period | | $ | 11.16 | | $ | 10.00 | |
Income from investment operations: | | | | | | | |
Net investment income | | | 0.02 | | | 0.02 | |
Net realized and unrealized gains on investments | | | 0.54 | | | 1.30 | |
Total from investment operations | | | 0.56 | | | 1.32 | |
Less Distributions: | | | | | | | |
Dividends from net investment income | | | (0.04 | ) | | (0.04 | ) |
Distributions from net realized gains | | | (1.12 | ) | | (0.12 | ) |
Total distributions | | | (1.16 | ) | | (0.16 | ) |
Net asset value at end of period | | $ | 10.56 | | $ | 11.16 | |
Total return(B) | | | 4.78 | % | | 13.11 | % |
Net assets at end of period (000s) | | $ | 6,912 | | $ | 5,661 | |
Ratio of net expenses to average net assets | | | 2.03 | % | | 2.05 | % |
Ratio of net investment income to average net assets | | | 0.23 | % | | 0.32 | % |
Ratio of gross expenses to average net assets | | | 2.04 | % | | 2.05 | % |
Portfolio turnover rate | | | 55 | % | | 80 | % |
Diamond Hill Select Fund - Class I | | Year Ended December 31, 2007 | | Year Ended December 31, 2006 (A) | |
Net asset value at beginning of period | | $ | 11.16 | | $ | 10.00 | |
Income from investment operations: | | | | | | | |
Net investment income | | | 0.13 | | | 0.09 | |
Net realized and unrealized gains on investments | | | 0.57 | | | 1.32 | |
Total from investment operations | | | 0.70 | | | 1.41 | |
Less Distributions: | | | | | | | |
Dividends from net investment income | | | (0.15 | ) | | (0.13 | ) |
Distributions from net realized gains | | | (1.12 | ) | | (0.12 | ) |
Total distributions | | | (1.27 | ) | | (0.25 | ) |
Net asset value at end of period | | $ | 10.59 | | $ | 11.16 | |
Total return | | | 6.10 | % | | 14.04 | % |
Net assets at end of period (000s) | | $ | 4,667 | | $ | 3,220 | |
Ratio of net expenses to average net assets | | | 0.88 | % | | 0.84 | % |
Ratio of net investment income to average net assets | | | 1.37 | % | | 1.47 | % |
Ratio of gross expenses to average net assets | | | 0.89 | % | | 0.84 | % |
Portfolio turnover rate | | | 55 | % | | 80 | % |
(A) | Class A, Class C, and Class I commenced operations on December 31, 2005, and commenced public offering and investment operations on January 3, 2006. |
(B) | Total returns shown exclude the effect of applicable sales charges. |
See accompanying Notes to Financial Statements.
|
Diamond Hill Funds Annual Report December 31, 2007 | Page 45 |
Diamond Hill Funds
Financial Highlights
For a share outstanding throughout each period.
Diamond Hill Long-Short Fund - Class A | | Year Ended December 31, 2007 | | Year Ended December 31, 2006 | | Year Ended December 31, 2005 | | Year Ended December 31, 2004 | | Year Ended December 31, 2003 | |
Net asset value at beginning of year | | $ | 18.57 | | $ | 16.46 | | $ | 13.67 | | $ | 11.75 | | $ | 9.56 | |
Income (loss) from investment operations: | | | | | | | | | | | | | | | | |
Net investment income (loss) | | | 0.44 | | | 0.26 | | | 0.10 | | | 0.00 | (A) | | (0.01 | ) |
Net realized and unrealized gains on investments | | | 0.16 | | | 2.52 | | | 2.83 | | | 1.98 | | | 2.20 | |
Total from investment operations | | | 0.60 | | | 2.78 | | | 2.93 | | | 1.98 | | | 2.19 | |
Less Distributions: | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | (0.42 | ) | | (0.25 | ) | | (0.10 | ) | | - | | | - | |
Distributions from net realized gains | | | (0.35 | ) | | (0.42 | ) | | (0.04 | ) | | (0.06 | ) | | - | |
Total distributions | | | (0.77 | ) | | (0.67 | ) | | (0.14 | ) | | (0.06 | ) | | - | |
Net asset value at end of year | | $ | 18.40 | | $ | 18.57 | | $ | 16.46 | | $ | 13.67 | | $ | 11.75 | |
Total return(B) | | | 3.14 | % | | 16.89 | % | | 21.46 | % | | 16.86 | % | | 22.91 | % |
Net assets at end of year (000s) | | $ | 965,259 | | $ | 773,161 | | $ | 180,035 | | $ | 47,008 | | $ | 16,216 | |
Ratio of net expenses to average net assets | | | 1.69 | % | | 1.77 | % | | 1.82 | % | | 1.78 | % | | 1.70 | % |
Ratio of net investment income (loss) to average net assets | | | 2.46 | % | | 2.15 | % | | 1.12 | % | | 0.01 | % | | (0.07 | %) |
Ratio of gross expenses to average net assets | | | 1.69 | % | | 1.77 | % | | 1.82 | % | | 1.79 | % | | 1.71 | % |
Ratio of net expenses to average net assets, excluding dividends on securities sold short | | | 1.48 | % | | 1.51 | % | | 1.55 | % | | 1.60 | % | | 1.59 | % |
Portfolio turnover rate | | | 59 | % | | 83 | % | | 58 | %(C) | | 53 | %(C) | | 41 | % |
Diamond Hill Long-Short Fund - Class C | | Year Ended December 31, 2007 | | Year Ended December 31, 2006 | | Year Ended December 31, 2005 | | Year Ended December 31, 2004 | | Year Ended December 31, 2003 | |
Net asset value at beginning of year | | $ | 17.88 | | $ | 15.92 | | $ | 13.26 | | $ | 11.48 | | $ | 9.42 | |
Income (loss) from investment operations: | | | | | | | | | | | | | | | | |
Net investment income (loss) | | | 0.27 | | | 0.16 | | | 0.03 | | | (0.05 | ) | | (0.04 | ) |
Net realized and unrealized gains on investments | | | 0.16 | | | 2.38 | | | 2.70 | | | 1.89 | | | 2.10 | |
Total from investment operations | | | 0.43 | | | 2.54 | | | 2.73 | | | 1.84 | | | 2.06 | |
Less Distributions: | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | (0.31 | ) | | (0.16 | ) | | (0.03 | ) | | - | | | - | |
Distributions from net realized gains | | | (0.35 | ) | | (0.42 | ) | | (0.04 | ) | | (0.06 | ) | | - | |
Total distributions | | | (0.66 | ) | | (0.58 | ) | | (0.07 | ) | | (0.06 | ) | | - | |
Net asset value at end of year | | $ | 17.65 | | $ | 17.88 | | $ | 15.92 | | $ | 13.26 | | $ | 11.48 | |
Total return(B) | | | 2.41 | % | | 15.98 | % | | 20.58 | % | | 16.04 | % | | 21.87 | % |
Net assets at end of year (000s) | | $ | 303,392 | | $ | 188,550 | | $ | 70,891 | | $ | 20,810 | | $ | 6,390 | |
Ratio of net expenses to average net assets | | | 2.44 | % | | 2.52 | % | | 2.57 | % | | 2.53 | % | | 2.45 | % |
Ratio of net investment income (loss) to average net assets | | | 1.72 | % | | 1.40 | % | | 0.37 | % | | (0.73 | %) | | (0.75 | %) |
Ratio of gross expenses to average net assets | | | 2.44 | % | | 2.52 | % | | 2.57 | % | | 2.54 | % | | 2.46 | % |
Ratio of net expenses to average net assets, excluding dividends on securities sold short | | | 2.23 | % | | 2.26 | % | | 2.30 | % | | 2.35 | % | | 2.34 | % |
Portfolio turnover rate | | | 59 | % | | 83 | % | | 58 | %(C) | | 53 | %(C) | | 41 | % |
(A) | Amount rounds to less than $ 0.005. |
(B) | Total returns shown exclude the effect of applicable sales charges. |
(C) | The portfolio turnover rate for December 31, 2005 and December 31, 2004 has been revised to include long-term short selling transactions. |
See accompanying Notes to Financial Statements.
|
Page 46 | Diamond Hill Funds Annual Report December 31, 2007 |
Diamond Hill Funds
Financial Highlights
For a share outstanding throughout each period.
Diamond Hill Long-Short Fund - Class I | | Year Ended December 31, 2007 | | Year Ended December 31, 2006 | | Period Ended December 31, 2005 (D) | |
Net asset value at beginning of period | | $ | 18.63 | | $ | 16.49 | | $ | 13.80 | |
Income from investment operations: | | | | | | | | | | |
Net investment income | | | 0.48 | | | 0.28 | | | 0.14 | |
Net realized and unrealized gains on investments | | | 0.19 | | | 2.59 | | | 2.73 | |
Total from investment operations | | | 0.67 | | | 2.87 | | | 2.87 | |
Less Distributions: | | | | | | | | | | |
Dividends from net investment income | | | (0.49 | ) | | (0.31 | ) | | (0.14 | ) |
Distributions from net realized gains | | | (0.35 | ) | | (0.42 | ) | | (0.04 | ) |
Total distributions | | | (0.84 | ) | | (0.73 | ) | | (0.18 | ) |
Net asset value at end of period | | $ | 18.46 | | $ | 18.63 | | $ | 16.49 | |
Total return | | | 3.59 | % | | 17.37 | % | | 20.81 | %(A) |
Net assets at end of period (000s) | | $ | 500,425 | | $ | 290,734 | | $ | 56,873 | |
Ratio of net expenses to average net assets | | | 1.29 | % | | 1.34 | % | | 1.39 | %(B) |
Ratio of net investment income to average net assets | | | 2.87 | % | | 2.60 | % | | 1.71 | %(B) |
Ratio of gross expenses to average net assets | | | 1.29 | % | | 1.34 | % | | 1.39 | %(B) |
Ratio of net expenses to average net assets, excluding dividends on securities sold short | | | 1.08 | % | | 1.08 | % | | 1.10 | %(B) |
Portfolio turnover rate | | | 59 | % | | 83 | % | | 58 | %(C) |
(C) | The portfolio turnover rate for December 31, 2005 and December 31, 2004 has been revised to include long-term short selling transactions. |
(D) | Class I commenced operations on January 31, 2005. |
See accompanying Notes to Financial Statements.
|
Diamond Hill Funds Annual Report December 31, 2007 | Page 47 |
Diamond Hill Funds
Financial Highlights
For a share outstanding throughout each period.
Diamond Hill Financial Long-Short Fund - Class A | | Year Ended December 31, 2007 | | Year Ended December 31, 2006 | | Year Ended December 31, 2005 | | Year Ended December 31, 2004 | | Year Ended December 31, 2003 | |
Net asset value at beginning of year | | $ | 20.90 | | $ | 18.48 | | $ | 19.10 | | $ | 17.92 | | $ | 13.63 | |
Income (loss) from investment operations: | | | | | | | | | | | | | | | | |
Net investment income | | | 0.49 | | | 0.23 | | | 0.29 | | | 0.13 | | | 0.07 | |
Net realized and unrealized gains (losses) | | | | | | | | | | | | | | | | |
on investments | | | (4.04 | ) | | 2.79 | | | (0.24 | ) | | 2.84 | | | 5.60 | |
Total from investment operations | | | (3.55 | ) | | 3.02 | | | 0.05 | | | 2.97 | | | 5.67 | |
Less Distributions: | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | (0.47 | ) | | (0.24 | ) | | (0.30 | ) | | (0.13 | ) | | (0.06 | ) |
Distributions from net realized gains | | | (0.68 | ) | | (0.36 | ) | | (0.37 | ) | | (1.66 | ) | | (1.32 | ) |
Total distributions | | | (1.15 | ) | | (0.60 | ) | | (0.67 | ) | | (1.79 | ) | | (1.38 | ) |
Net asset value at end of year | | $ | 16.20 | | $ | 20.90 | | $ | 18.48 | | $ | 19.10 | | $ | 17.92 | |
Total return(A) | | | (17.05 | %) | | 16.35 | % | | 0.25 | % | | 16.67 | % | | 41.85 | % |
Net assets at end of year (000s) | | $ | 27,597 | | $ | 38,978 | | $ | 17,366 | | $ | 20,682 | | $ | 12,463 | |
Ratio of net expenses to average net assets | | | 1.81 | % | | 1.70 | % | | 1.67 | % | | 1.70 | % | | 1.68 | % |
Ratio of net investment income | | | | | | | | | | | | | | | | |
to average net assets | | | 2.17 | % | | 1.80 | % | | 1.41 | % | | 0.90 | % | | 0.45 | % |
Ratio of gross expenses to average net assets | | | 1.82 | % | | 1.70 | % | | 1.67 | % | | 1.71 | % | | 1.70 | % |
Ratio of net expenses to average net assets, excluding dividends on securities sold short | | | 1.59 | % | | 1.62 | % | | - | | | - | | | - | |
Portfolio turnover rate | | | 55 | % | | 45 | % | | 28 | % | | 36 | % | | 53 | % |
Diamond Hill Financial Long-Short Fund - Class C | | Year Ended December 31, 2007 | | Year Ended December 31, 2006 | | Year Ended December 31, 2005 | | Year Ended December 31, 2004 | | Year Ended December 31, 2003 | |
Net asset value at beginning of year | | $ | 20.10 | | $ | 17.84 | | $ | 18.42 | | $ | 17.39 | | $ | 13.31 | |
Income (loss) from investment operations: | | | | | | | | | | | | | | | | |
Net investment income (loss) | | | 0.34 | | | 0.13 | | | 0.15 | | | 0.03 | | | (0.06 | ) |
Net realized and unrealized gains (losses) | | | | | | | | | | | | | | | | |
on investments | | | (3.88 | ) | | 2.63 | | | (0.24 | ) | | 2.70 | | | 5.46 | |
Total from investment operations | | | (3.54 | ) | | 2.76 | | | (0.09 | ) | | 2.73 | | | 5.40 | |
Less Distributions: | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | (0.28 | ) | | (0.14 | ) | | (0.12 | ) | | (0.04 | ) | | - | |
Distributions from net realized gains | | | (0.68 | ) | | (0.36 | ) | | (0.37 | ) | | (1.66 | ) | | (1.32 | ) |
Total distributions | | | (0.96 | ) | | (0.50 | ) | | (0.49 | ) | | (1.70 | ) | | (1.32 | ) |
Net asset value at end of year | | $ | 15.60 | | $ | 20.10 | | $ | 17.84 | | $ | 18.42 | | $ | 17.39 | |
Total return(A) | | | (17.68 | %) | | 15.47 | % | | (0.49 | %) | | 15.79 | % | | 40.85 | % |
Net assets at end of year (000s) | | $ | 3,287 | | $ | 4,620 | | $ | 2,544 | | $ | 3,941 | | $ | 1,974 | |
Ratio of net expenses to average net assets | | | 2.56 | % | | 2.45 | % | | 2.42 | % | | 2.45 | % | | 2.45 | % |
Ratio of net investment income (loss) | | | | | | | | | | | | | | | | |
to average net assets | | | 1.42 | % | | 1.03 | % | | 0.67 | % | | 0.20 | % | | (0.30 | %) |
Ratio of gross expenses to average net assets | | | 2.57 | % | | 2.45 | % | | 2.42 | % | | 2.46 | % | | 2.47 | % |
Ratio of net expenses to average net assets, excluding dividends on securities sold short | | | 2.34 | % | | 2.37 | % | | - | | | - | | | - | |
Portfolio turnover rate | | | 55 | % | | 45 | % | | 28 | % | | 36 | % | | 53 | % |
(A) | Total returns shown exclude the effect of applicable sales charges. |
See accompanying Notes to Financial Statements.
|
Page 48 | Diamond Hill Funds Annual Report December 31, 2007 |
Diamond Hill Funds
Financial Highlights
For a share outstanding throughout each period.
Diamond Hill Financial Long-Short Fund - Class I | | Year Ended December 31, 2007 (A) | |
Net asset value at beginning of period | | $ | 20.90 | |
Income (loss) from investment operations: | | | | |
Net investment income | | | 0.37 | |
Net realized and unrealized losses | | | | |
on investments | | | (3.83 | ) |
Total from investment operations | | | (3.46 | ) |
Less Distributions: | | | | |
Dividends from net investment income | | | (0.58 | ) |
Distributions from net realized gains | | | (0.68 | ) |
Total distributions | | | (1.26 | ) |
Net asset value at end of period | | $ | 16.18 | |
Total return | | | (16.61 | %) |
Net assets at end of period (000s) | | $ | 2,464 | |
Ratio of net expenses to average net assets | | | 1.41 | % |
Ratio of net investment income to average net assets | | | 2.96 | % |
Ratio of gross expenses to average net assets | | | 1.42 | % |
Ratio of net expenses to average net assets, excluding dividends on securities sold short | | | 1.18 | % |
Portfolio turnover rate | | | 55 | % |
(A) | Represents the period from commencement of operations from December 31, 2006 through December 31, 2007, and commencement of public offering and investment operations on January 3, 2007. |
See accompanying Notes to Financial Statements.
|
Diamond Hill Funds Annual Report December 31, 2007 | Page 49 |
Diamond Hill Funds
Financial Highlights
For a share outstanding throughout each period.
Diamond Hill Strategic Income Fund - Class A | | Year Ended December 31, 2007 | | Year Ended December 31, 2006 | | Year Ended December 31, 2005 | | Year Ended December 31, 2004 | | Year Ended December 31, 2003 | |
Net asset value at beginning of year | | $ | 11.71 | | $ | 11.25 | | $ | 11.63 | | $ | 11.58 | | $ | 10.28 | |
Income (loss) from investment operations: | | | | | | | | | | | | | | | | |
Net investment income | | | 0.68 | | | 0.70 | | | 0.66 | | | 0.64 | | | 0.67 | |
Net realized and unrealized gains (losses) on investments | | | (1.20 | ) | | 0.42 | | | (0.38 | ) | | 0.19 | | | 1.39 | |
Total from investment operations | | | (0.52 | ) | | 1.12 | | | 0.28 | | | 0.83 | | | 2.06 | |
Less distributions: | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | (0.67 | ) | | (0.66 | ) | | (0.66 | ) | | (0.64 | ) | | (0.67 | ) |
Distributions from net realized gains | | | (0.11 | ) | | - | | | - | | | (0.14 | ) | | (0.09 | ) |
Total distributions | | | (0.78 | ) | | (0.66 | ) | | (0.66 | ) | | (0.78 | ) | | (0.76 | ) |
Net asset value at end of year | | $ | 10.41 | | $ | 11.71 | | $ | 11.25 | | $ | 11.63 | | $ | 11.58 | |
Total return(A) | | | (4.78 | %) | | 10.26 | % | | 2.41 | % | | 7.46 | % | | 20.67 | % |
Net assets at end of year (000s) | | $ | 54,435 | | $ | 49,372 | | $ | 31,456 | | $ | 31,274 | | $ | 17,923 | |
Ratio of net expenses to average net assets | | | 1.08 | % | | 1.12 | % | | 1.17 | % | | 1.20 | % | | 1.19 | % |
Ratio of net investment income to average net assets | | | 6.15 | % | | 6.38 | % | | 5.74 | % | | 5.75 | % | | 6.01 | % |
Ratio of gross expenses to average net assets | | | 1.09 | % | | 1.12 | % | | 1.17 | % | | 1.21 | % | | 1.21 | % |
Portfolio turnover rate | | | 142 | % | | 43 | % | | 66 | % | | 84 | % | | 83 | % |
Diamond Hill Strategic Income Fund - Class C | | Year Ended December 31, 2007 | | Year Ended December 31, 2006 | | Year Ended December 31, 2005 | | Year Ended December 31, 2004 | | Year Ended December 31, 2003 | |
Net asset value at beginning of year | | $ | 11.70 | | $ | 11.24 | | $ | 11.63 | | $ | 11.58 | | $ | 10.28 | |
Income (loss) from investment operations: | | | | | | | | | | | | | | | | |
Net investment income | | | 0.62 | | | 0.62 | | | 0.58 | | | 0.56 | | | 0.60 | |
Net realized and unrealized gains (losses) on investments | | | (1.22 | ) | | 0.41 | | | (0.40 | ) | | 0.19 | | | 1.39 | |
Total from investment operations | | | (0.60 | ) | | 1.03 | | | 0.18 | | | 0.75 | | | 1.99 | |
Less distributions: | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | (0.58 | ) | | (0.57 | ) | | (0.57 | ) | | (0.56 | ) | | (0.60 | ) |
Distributions from net realized gains | | | (0.11 | ) | | - | | | - | | | (0.14 | ) | | (0.09 | ) |
Total distributions | | | (0.69 | ) | | (0.57 | ) | | (0.57 | ) | | (0.70 | ) | | (0.69 | ) |
Net asset value at end of year | | $ | 10.41 | | $ | 11.70 | | $ | 11.24 | | $ | 11.63 | | $ | 11.58 | |
Total return(A) | | | (5.43 | %) | | 9.43 | % | | 1.57 | % | | 6.70 | % | | 19.86 | % |
Net assets at end of year (000s) | | $ | 24,638 | | $ | 26,908 | | $ | 20,257 | | $ | 15,560 | | $ | 8,428 | |
Ratio of net expenses to average net assets | | | 1.83 | % | | 1.87 | % | | 1.91 | % | | 1.95 | % | | 1.93 | % |
Ratio of net investment income to average net assets | | | 5.35 | % | | 5.63 | % | | 5.06 | % | | 5.02 | % | | 5.39 | % |
Ratio of gross expenses to average net assets | | | 1.84 | % | | 1.87 | % | | 1.91 | % | | 1.96 | % | | 1.95 | % |
Portfolio turnover rate | | | 142 | % | | 43 | % | | 66 | % | | 84 | % | | 83 | % |
(A) | Total returns shown exclude the effect of applicable sales charges. |
See accompanying Notes to Financial Statements.
|
Page 50 | Diamond Hill Funds Annual Report December 31, 2007 |
Diamond Hill Funds
Financial Highlights
For a share outstanding throughout each period.
Diamond Hill Strategic Income Fund - Class I | | Year Ended December 31, 2007 | | Year Ended December 31, 2006 | | Period Ended December 31, 2005 (C) | |
Net asset value at beginning of period | | $ | 11.69 | | $ | 11.23 | | $ | 11.65 | |
Income (loss) from investment operations: | | | | | | | | | | |
Net investment income | | | 0.71 | | | 0.73 | | | 0.65 | |
Net realized and unrealized gains (losses) on investments | | | (1.17 | ) | | 0.44 | | | (0.42 | ) |
Total from investment operations | | | (0.46 | ) | | 1.17 | | | 0.23 | |
Less distributions: | | | | | | | | | | |
Dividends from net investment income | | | (0.72 | ) | | (0.71 | ) | | (0.65 | ) |
Distributions from net realized gains | | | (0.11 | ) | | - | | | - | |
Total distributions | | | (0.83 | ) | | (0.71 | ) | | (0.65 | ) |
Net asset value at end of period | | $ | 10.40 | | $ | 11.69 | | $ | 11.23 | |
Total return | | | (4.31 | %) | | 10.74 | % | | 2.03 | %(A) |
Net assets at end of period (000s) | | $ | 70,205 | | $ | 54,302 | | $ | 25,299 | |
Ratio of net expenses to average net assets | | | 0.68 | % | | 0.68 | % | | 0.70 | %(B) |
Ratio of net investment income to average net assets | | | 6.62 | % | | 6.89 | % | | 6.57 | %(B) |
Ratio of gross expenses to average net assets | | | 0.68 | % | | 0.68 | % | | 0.70 | %(B) |
Portfolio turnover rate | | | 142 | % | | 43 | % | | 66 | % |
(C) | Represents the period from commencement of operations from January 31, 2005 through December 31, 2005. |
See accompanying Notes to Financial Statements.
|
Diamond Hill Funds Annual Report December 31, 2007 | Page 51 |
Diamond Hill Funds
Notes to Financial Statements
December 31, 2007
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. Effective September 1, 2007, the Small Cap Fund re-opened to new shareholders.
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, and the exchange privileges of each class of shares.
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 — 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 investments maturing in less than 61 days are valued at amortized cost, which approximates market. Securities for which market quotations are not readily available are valued at their "fair value". In these cases, a Valuation 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.
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement on Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements.” This standard establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and requires additional disclosures about fair value measurements. SFAS No. 157 applies to fair value measurements already required or permitted by existing standards. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The changes to current generally accepted accounting principles from the application of this Statement relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. As of December 31, 2007, the Funds do not believe the adoption of SFAS No. 157 will impact the amounts reported in the financial statements, however, additional disclosures may be required about the inputs used to develop the measurements and the effect of certain of the measurements reported on the statement of changes in net assets for a fiscal period.
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.
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Page 52 | Diamond Hill Funds Annual Report December 31, 2007 |
Diamond Hill Funds
Notes to Financial Statements (Continued)
December 31, 2007
Securities Lending — Effective May 1, 2007, the Board of Trustees approved a securities lending agreement with U.S. Bank, N.A. (the “Custodian”). Under the terms of the agreement, the Custodian 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 the Custodian. Any remaining securities lending revenue is then paid to the Funds as securities lending income. The securities lending income and the custody fee credits are presented in the Statements of Operations.
As of December 31, 2007, the value of securities loaned and the collateral held were as follows:
| | Market Value of Securities Loaned | | Value of Collateral Received | |
Small Cap Fund | | $ | 164,626,402 | | $ | 173,001,157 | |
Small-Mid Cap Fund | | $ | 11,591,944 | | $ | 12,188,594 | |
Large Cap Fund | | $ | 38,977,200 | | $ | 40,262,091 | |
Select Fund | | $ | 3,192,040 | | $ | 3,316,038 | |
Long-Short Fund | | $ | 209,873,464 | | $ | 218,967,609 | |
Financial Long-Short Fund | | $ | 7,512,678 | | $ | 7,786,594 | |
Strategic Income Fund | | $ | 27,172,901 | | $ | 28,088,045 | |
| | | | | | | |
Security transactions — Changes in holdings of portfolio securities shall be reflected no later than in the first calculation on the first business day following trade date. However, for financial reporting purposes, portfolio security transactions are reported on trade date. 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.
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. Therefore, no federal income tax provision is required.
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. 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 of the components of distributions (and consequently net investment income) as an increase to unrealized appreciation (depreciation) and realized gain (loss) on investments as necessary once the issuers provide information about the actual composition of the distributions. 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 in the United States. These differences are primarily due to differing treatments for paydown gains and losses on mortgage-backed securities, expiring capital loss carryforwards, 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.
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Diamond Hill Funds Annual Report December 31, 2007 | Page 53 |
Diamond Hill Funds
Notes to Financial Statements (Continued)
December 31, 2007
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, 2007, 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 | | $ | 81,435,052 | | $ | 191,181,972 | |
Small-Mid Cap Fund | | $ | 17,290,350 | | $ | 9,278,457 | |
Large Cap Fund | | $ | 191,151,738 | | $ | 171,749,312 | |
Select Fund | | $ | 9,655,560 | | $ | 9,497,061 | |
Long-Short Fund | | $ | 1,592,459,757 | | $ | 1,111,550,457 | |
Financial Long-Short Fund | | $ | 29,342,854 | | $ | 22,078,243 | |
Strategic Income Fund | | $ | 187,217,514 | | $ | 187,319,016 | |
| | | | | | | |
The Funds pay commissions on the purchase and sale of investment securities. The commissions paid 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. The Funds paid the following commissions during the year ended December 31, 2007:
| | Total Commissions | | Commissions as a % of Average Net Assets | |
Small Cap Fund | | $ | 184,066 | | | 0.04 | % |
Small-Mid Cap Fund | | $ | 15,086 | | | 0.05 | % |
Large Cap Fund | | $ | 191,884 | | | 0.04 | % |
Select Fund | | $ | 8,422 | | | 0.04 | % |
Long-Short Fund | | $ | 1,496,057 | | | 0.09 | % |
Financial Long-Short Fund | | $ | 25,384 | | | 0.06 | % |
Strategic Income Fund | | $ | 38,485 | | | 0.02 | % |
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Page 54 | Diamond Hill Funds Annual Report December 31, 2007 |
Diamond Hill Funds
Notes to Financial Statements (Continued)
December 31, 2007
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 0.32% for Class A and Class C Shares and 0.18% for Class I shares of each Class’ average daily net assets. Prior to April 30, 2007, the fees paid by Class A and Class C Shares were paid at an annual rate of 0.36% of each Class’ average daily net assets. These administrative fees are used to pay most of the Funds’ operating expenses except advisory, distribution, 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 IFS Fund Distributors, Inc. (“Distributor”). Pursuant to the Distribution Agreement, the Distributor acts as principal underwriter of each Fund’s shares.
For the year ended December 31, 2007, the Distributor received $5,188, $1,986, $14,396, $639, $158,030, $10,879, and $18,992, in sales commissions from the sales of Class A shares of the Small Cap Fund, Small-Mid Cap Fund, Large Cap Fund, Select Fund, Long-Short Fund, Financial Long-Short Fund, and Strategic Income Fund, respectively. The Distributor also received $758, $254, $9,259, $347, $92,650, $6,216, and $5,932 of contingent deferred sales charges relating to redemptions of Class C shares of the Small Cap Fund, Small-Mid Cap Fund, Large Cap Fund, Select Fund, Long-Short Fund, Financial Long-Short Fund, and Strategic Income Fund, respectively.
DHCM has an agreement with JPMorgan Chase Bank, N.A. (“JPMorgan”) to provide sub-transfer agent, sub-fund accounting, and sub-administrative services for the Funds. The services to be provided under the agreements include day-to-day administration of matters related to the corporate existence of the Trust and its Funds (other than rendering investment advice), maintenance of books and records, preparation of reports, supervision of the Trust’s arrangement with the custodian and assistance in the preparation of the Trust’s registration statement under federal and state laws. JPMorgan is paid directly by DHCM under terms of these service agreements.
Certain officers of the Trust are affiliated with DHCM, JPMorgan or the Distributor. Such officers receive no compensation from the Funds for serving in their respective roles.
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 differs from the character of distributions shown on the Statements of Changes in Net Assets due primarily to short-term capital gains being treated as ordinary income for tax purposes and the use of equalization.
|
Diamond Hill Funds Annual Report December 31, 2007 | Page 55 |
Diamond Hill Funds
Notes to Financial Statements (Continued)
December 31, 2007
The tax character of distributions paid during 2007 and 2006 was as follows:
| | Small Cap Fund | | Small-Mid Cap Fund | | Large Cap Fund | | Select Fund | |
| | 2007 | | 2006 | | 2007 | | 2006 | | 2007 | | 2006 | | 2007 | | 2006 | |
Distributions paid from: | | | | | | | | | | | | | | | | | | | | | | | | | |
Ordinary income | | $ | 1,804,841 | | $ | 8,775,689 | | $ | 383,749 | | $ | 191,604 | | $ | 10,040,327 | | $ | 4,892,161 | | $ | 1,494,756 | | $ | 357,710 | |
Long-term capital gains | | | 23,287,772 | | | 4,882,826 | | | 614,655 | | | - | | | 15,104,359 | | | 1,739,721 | | | 678,617 | | | - | |
Total distributions | | $ | 25,092,613 | | $ | 13,658,515 | | $ | 998,404 | | $ | 191,604 | | $ | 25,144,686 | | $ | 6,631,882 | | $ | 2,173,373 | | $ | 357,710 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Long-Short Fund | | Financial Long-Short Fund | | Strategic Income Fund | |
| | 2007 | | 2006 | | 2007 | | 2006 | | 2007 | | 2006 | |
Distributions paid from: | | | | | | | | | | | | | | | | | | | |
Ordinary income | | $ | 56,499,180 | | $ | 37,941,138 | | $ | 1,693,193 | | $ | 522,904 | | $ | 9,428,087 | | $ | 5,841,602 | |
Long-term capital gains | | | 22,195,381 | | | 5,437,134 | | | 616,465 | | | 825,774 | | | 1,736,617 | | | - | |
Total distributions | | $ | 78,695,561 | | $ | 43,378,272 | | $ | 2,309,658 | | $ | 1,348,678 | | $ | 11,164,704 | | $ | 5,841,602 | |
The following information is computed on a tax basis for each item as of December 31, 2007:
| | Small Cap Fund | | Small-Mid Cap Fund | | Large Cap Fund | | Select Fund | |
Federal tax cost of investments | | $ | 540,693,405 | | $ | 44,017,358 | | $ | 418,495,903 | | $ | 18,674,628 | |
Gross unrealized appreciation | | | 55,291,969 | | | 3,098,335 | | | 56,799,801 | | | 4,075,656 | |
Gross unrealized depreciation | | | (47,427,091 | ) | | (3,543,123 | ) | | (18,670,183 | ) | | (994,616 | ) |
Net unrealized appreciation (depreciation) | | | 7,864,878 | | | (444,788 | ) | | 38,129,618 | | | 3,081,040 | |
Undistributed ordinary income | | | 490,888 | | | 942 | | | 13,484 | | | 54 | |
Undistributed long-term capital gains | | | - | | | - | | | 3,779,308 | | | 568,314 | |
Post-October losses | | | (5,312,211 | ) | | (8,467 | ) | | - | | | - | |
Other temporary differences | | | - | | | - | | | - | | | (1,846,044 | ) |
Accumulated earnings (deficit) | | $ | 3,043,555 | | $ | (452,313 | ) | $ | 41,922,410 | | $ | 1,803,364 | |
| | Long-Short Fund | | Financial Long-Short Fund | | Strategic Income Fund | |
Tax cost of portfolio investments | | $ | 1,880,906,277 | | $ | 42,646,857 | | $ | 190,685,964 | |
Gross unrealized appreciation | | | 233,523,707 | | | 3,156,763 | | | 1,020,441 | |
Gross unrealized depreciation | | | (149,230,491 | ) | | (6,346,326 | ) | | (15,464,444 | ) |
Net unrealized appreciation (depreciation) | | | 84,293,216 | | | (3,189,563 | ) | | (14,444,003 | ) |
Undistributed ordinary income | | | - | | | 7,470 | | | - | |
Undistributed long-term capital gains | | | 9,366,895 | | | - | | | - | |
Post-October losses | | | - | | | (303,580 | ) | | (1,503,980 | ) |
Other temporary differences | | | - | | | - | | | (66,337 | ) |
Accumulated earnings (deficit) | | $ | 93,660,111 | | $ | (3,485,673 | ) | $ | (16,014,320 | ) |
The difference between book basis and tax basis net unrealized appreciation is attributable primarily to the tax deferral of losses on wash sales, investments in Real Estate Investment Trusts and Limited Partnerships.
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Page 56 | Diamond Hill Funds Annual Report December 31, 2007 |
Diamond Hill Funds
Notes to Financial Statements (Continued)
December 31, 2007
Reclassification of capital accounts - Reclassifications result primarily from the difference in the tax treatment of paydown gains and losses, equalization and investments in Real Estate Investment Trusts and Limited Partnerships. The Funds may designate a portion of the earnings and profits distributed to shareholders on redemption of shares as part of the dividends paid deduction for income taxes. 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:
| | ` Paid-In Capital | | Undistributed Net Investment Income (Loss) | | Accumulated Net Realized Gains (Losses) | |
Small Cap Fund | | $ | 5,505,865 | | $ | (128,207 | ) | $ | (5,377,658 | ) |
Small-Mid Cap Fund | | | 7,804 | | | 2 | | | (7,806 | ) |
Large Cap Fund | | | 4,647,019 | | | - | | | (4,647,019 | ) |
Select Fund | | | (823,704 | ) | | - | | | 823,704 | |
Long Short Fund | | | 6,338,657 | | | 32,449 | | | (6,371,106 | ) |
Financial Long-Short Fund | | | 219,019 | | | (18,909 | ) | | (200,110 | ) |
Strategic Income Fund | | | (33,832 | ) | | 133,381 | | | (99,549 | ) |
On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Funds' tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not" threshold would be recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. The Funds have analyzed their tax positions taken on Federal income tax returns for all open tax years (tax years ended December 31, 2004 through 2007) for purposes of implementing FIN 48 and have concluded that no provision for income tax is required in their financial statements.
|
Diamond Hill Funds Annual Report December 31, 2007 | Page 57 |
Report of Independent Registered Public
Accounting Firm
To the Board of Trustees and Shareholders of
the Diamond Hill Funds
We have audited the accompanying statements of assets and liabilities, including the schedules of investments, 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”) as of December 31, 2007, 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 or periods 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 audits 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, 2007, by correspondence with the custodian and brokers. 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 each of the respective portfolios constituting the Diamond Hill Funds at December 31, 2007, 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 or periods in the period then ended, in conformity with U.S. generally accepted accounting principles.
Cincinnati, Ohio
February 28, 2008
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Page 58 | Diamond Hill Funds Annual Report December 31, 2007 |
Diamond Hill Funds
Other Items
December 31, 2007 (Unaudited)
Dividends Received Deduction
For corporate shareholders, the following ordinary dividends paid during the year ended December 31, 2007 qualify for the corporate dividends received deduction:
Small Cap Fund | 100% |
Small-Mid Cap Fund | 66% |
Large Cap Fund | 76% |
Select Fund | 24% |
Long-Short Fund | 43% |
Financial Long-Short Fund | 68% |
Strategic Income Fund | 69% |
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 Adviser 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 forth 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.
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Diamond Hill Funds Annual Report December 31, 2007 | Page 59 |
Diamond Hill Funds
Schedule of Shareholder Expenses
Hypothetical Example of a $1,000 Investment at Beginning of Period
(Unaudited)
All mutual funds have operating expenses. These expenses include costs for portfolio management, administrative services, and distribution fees. Operating expenses, which are deducted from a fund's gross income, directly reduce the investment return of the fund. A fund's expenses are expressed as a percentage of its net assets. This figure is known as the expense ratio.
We believe it is important for you to understand the impact of costs on your investment. The following example illustrates the costs that you would incur over the six-month period covered by this report if you invested $1,000 in the Fund, using the Funds' actual return and operating expenses for the six months ended December 31, 2007. The examples use actual net operating expenses applicable to that class. The calculation does not reflect sales charges (loads). If this cost was included, your costs would have been higher. The examples contain two sets of numbers, one using the actual return earned by each class of each Fund during the six months ended December 31, 2007, and one using a hypothetical 5% annual return (2.5% for the reporting period).
| | Net Expense Ratio Annualized December 31, 2007 | Beginning Account Value July 1, 2007 | Ending Account Value December 31, 2007 | Investment Advisory Fees | Administration Fees | Distribution/ Service Fees | Total Net Expenses |
Small Cap Fund | | | | | | | |
Class A | Actual return | 1.37% | $ 1,000.00 | $ 907.70 | $ 3.85 | $ 1.54 | $ 1.20 | $ 6.59 |
| Hypothetical return | 1.37% | $ 1,000.00 | $ 1,018.29 | $ 4.07 | $ 1.63 | $ 1.28 | $ 6.98 |
Class C | Actual return | 2.12% | $ 1,000.00 | $ 904.40 | $ 3.84 | $ 1.54 | $ 4.81 | $ 10.19 |
| Hypothetical return | 2.12% | $ 1,000.00 | $ 1,014.50 | $ 4.07 | $ 1.63 | $ 5.08 | $ 10.78 |
Class I | Actual return | 0.98% | $ 1,000.00 | $ 909.60 | $ 3.85 | $ 0.87 | $ 0.00 | $ 4.72 |
| Hypothetical return | 0.98% | $ 1,000.00 | $ 1,020.26 | $ 4.08 | $ 0.92 | $ 0.00 | $ 5.00 |
| | | | | | | | |
Small-Mid Cap Fund | | | | | | | |
Class A | Actual return | 1.32% | $ 1,000.00 | $ 930.30 | $ 3.65 | $ 1.56 | $ 1.21 | $ 6.42 |
| Hypothetical return | 1.32% | $ 1,000.00 | $ 1,018.55 | $ 3.81 | $ 1.63 | $ 1.28 | $ 6.72 |
Class C | Actual return | 2.07% | $ 1,000.00 | $ 926.30 | $ 3.64 | $ 1.56 | $ 4.86 | $ 10.06 |
| Hypothetical return | 2.07% | $ 1,000.00 | $ 1,014.76 | $ 3.81 | $ 1.63 | $ 5.08 | $ 10.52 |
Class I | Actual return | 0.93% | $ 1,000.00 | $ 932.40 | $ 3.65 | $ 0.88 | $ 0.00 | $ 4.53 |
| Hypothetical return | 0.93% | $ 1,000.00 | $ 1,020.52 | $ 3.82 | $ 0.91 | $ 0.00 | $ 4.73 |
| | | | | | | | |
Large Cap Fund | | | | | | | |
Class A | Actual return | 1.17% | $ 1,000.00 | $ 998.60 | $ 3.02 | $ 1.61 | $ 1.27 | $ 5.90 |
| Hypothetical return | 1.17% | $ 1,000.00 | $ 1,019.30 | $ 3.06 | $ 1.63 | $ 1.27 | $ 5.96 |
Class C | Actual return | 1.92% | $ 1,000.00 | $ 995.10 | $ 3.02 | $ 1.61 | $ 5.03 | $ 9.66 |
| Hypothetical return | 1.92% | $ 1,000.00 | $ 1,015.53 | $ 3.05 | $ 1.63 | $ 5.08 | $ 9.76 |
Class I | Actual return | 0.78% | $ 1,000.00 | $ 1,000.80 | $ 3.03 | $ 0.91 | $ 0.00 | $ 3.94 |
| Hypothetical return | 0.78% | $ 1,000.00 | $ 1,021.27 | $ 3.06 | $ 0.92 | $ 0.00 | $ 3.98 |
| | | | | | | | |
Select Fund | | | | | | | |
Class A | Actual return | 1.27% | $ 1,000.00 | $ 992.30 | $ 3.52 | $ 1.61 | $ 1.25 | $ 6.38 |
| Hypothetical return | 1.27% | $ 1,000.00 | $ 1,018.80 | $ 3.57 | $ 1.63 | $ 1.27 | $ 6.47 |
Class C | Actual return | 2.02% | $ 1,000.00 | $ 988.40 | $ 3.50 | $ 1.60 | $ 5.01 | $ 10.11 |
| Hypothetical return | 2.02% | $ 1,000.00 | $ 1,015.03 | $ 3.55 | $ 1.62 | $ 5.08 | $ 10.25 |
Class I | Actual return | 0.88% | $ 1,000.00 | $ 995.00 | $ 3.52 | $ 0.90 | $ 0.00 | $ 4.42 |
| Hypothetical return | 0.88% | $ 1,000.00 | $ 1,020.77 | $ 3.56 | $ 0.92 | $ 0.00 | $ 4.48 |
|
Page 60 | Diamond Hill Funds Annual Report December 31, 2007 |
Diamond Hill Funds
Schedule of Shareholder Expenses
Hypothetical Example of a $1,000 Investment at Beginning of Period (Continued)
(Unaudited)
| | Net Expense Ratio Annualized December 31, 2007 | Beginning Account Value July 1, 2007 | Ending Account Value December 31, 2007 | Investment Advisory Fees | Administration Fees | Distribution/ Service Fees | Total Net Expenses |
Long-Short Fund | | | | | | | |
Class A | Actual return | 1.47% | $ 1,000.00 | $ 1,033.70 | $ 4.61 | $ 1.64 | $ 1.28 | $ 7.53 |
| Hypothetical return | 1.47% | $ 1,000.00 | $ 1,017.80 | $ 4.58 | $ 1.63 | $ 1.27 | $ 7.48 |
Class C | Actual return | 2.23% | $ 1,000.00 | $ 1,029.80 | $ 4.61 | $ 1.64 | $ 5.12 | $ 11.37 |
| Hypothetical return | 2.23% | $ 1,000.00 | $ 1,014.01 | $ 4.57 | $ 1.63 | $ 5.08 | $ 11.28 |
Class I | Actual return | 1.08% | $ 1,000.00 | $ 1,035.90 | $ 4.61 | $ 0.93 | $ 0.00 | $ 5.54 |
| Hypothetical return | 1.08% | $ 1,000.00 | $ 1,019.77 | $ 4.58 | $ 0.91 | $ 0.00 | $ 5.49 |
| | | | | | | | |
Financial Long-Short Fund | | | | | | | |
Class A | Actual return | 1.58% | $ 1,000.00 | $ 821.70 | $ 4.60 | $ 1.47 | $ 1.15 | $ 7.22 |
| Hypothetical return | 1.58% | $ 1,000.00 | $ 1,017.28 | $ 5.09 | $ 1.63 | $ 1.28 | $ 8.00 |
Class C | Actual return | 2.33% | $ 1,000.00 | $ 818.30 | $ 4.59 | $ 1.47 | $ 4.60 | $ 10.66 |
| Hypothetical return | 2.33% | $ 1,000.00 | $ 1,013.48 | $ 5.08 | $ 1.63 | $ 5.09 | $ 11.80 |
Class I | Actual return | 1.19% | $ 1,000.00 | $ 823.70 | $ 4.61 | $ 0.82 | $ 0.00 | $ 5.43 |
| Hypothetical return | 1.19% | $ 1,000.00 | $ 1,019.25 | $ 5.10 | $ 0.91 | $ 0.00 | $ 6.01 |
| | | | | | | | |
Strategic Income Fund | | | | | | | |
Class A | Actual return | 1.07% | $ 1,000.00 | $ 925.40 | $ 2.43 | $ 1.55 | $ 1.22 | $ 5.20 |
| Hypothetical return | 1.07% | $ 1,000.00 | $ 1,019.81 | $ 2.55 | $ 1.63 | $ 1.27 | $ 5.45 |
Class C | Actual return | 1.82% | $ 1,000.00 | $ 922.40 | $ 2.42 | $ 1.55 | $ 4.86 | $ 8.83 |
| Hypothetical return | 1.82% | $ 1,000.00 | $ 1,016.02 | $ 2.54 | $ 1.63 | $ 5.09 | $ 9.26 |
Class I | Actual return | 0.68% | $ 1,000.00 | $ 928.00 | $ 2.43 | $ 0.88 | $ 0.00 | $ 3.31 |
| Hypothetical return | 0.68% | $ 1,000.00 | $ 1,021.78 | $ 2.55 | $ 0.92 | $ 0.00 | $ 3.47 |
_____________________
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.
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Diamond Hill Funds Annual Report December 31, 2007 | Page 61 |
Diamond Hill Funds
Management of the Trust (unaudited)
Listed in the charts below is basic information regarding the Trustees and officers of the Trust.
TRUSTEES: | | | | |
Name/ Address/1 Age | | Position(s) Held with Trust | | Term of Office2 and Length of Time Served | | Principal Occupation(s) At Least The Last 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee |
| | | | | | | | |
Thomas E. Line Year of Birth: 1967 | | Chairman Trustee | | Since November 2005 | | Managing Director and Chief Financial Officer, Red Capital Group (mortgage and investment banking subsidiary of National City Bank), October 2005 to the present; Vice President and Treasurer, Red Capital Group, September 2004 to October 2005; President, Focused Financial Consulting, Inc. (financial consulting), March 2002 to September 2004; Chief Operating Officer, Meeder Financial, Inc. (parent of investment adviser and mutual fund servicing companies), June 1998 to March 2002. | | 7 |
| | | | | | | | |
Elizabeth P. Kessler Year of Birth: 1968 | | Trustee | | Since November 2005 | | Attorney - Jones Day | | 7 |
| | | | | | | | |
D’Ray Moore 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 |
| | | | | | | | |
Name/ Address/1 Age | | Position(s) Held with Trust | | Term of Office and Length of Time Served | | Principal Occupation(s) At Least the Last 5 Years |
| | | | | | |
James F. Laird, Jr.3 Year of Birth: 1957 | | President | | Since December 2001 | | Chief Financial Officer of Diamond Hill Investment Group, Inc., since December 2001. President of Diamond Hill Securities since July 2001. Vice President Corporate Strategy with Nationwide Insurance from January 2001 to July 2001. Senior Vice President Product Development with Villanova Capital from February 1999 through December 2000. |
| | | | | | |
Gary R.Young3 Year of Birth: 1969 | | Treasurer, Secretary and Chief Compliance Officer | | Since May 2004 Since September 2004 | | Controller of Diamond Hill Investment Group, Inc. since April 2004. Director of Mutual Fund Administration with Banc One Investment Advisors October 1998 through April 2004. Vice President and Manager of Mutual Fund Accounting and Financial Reporting with First Chicago NBD January 1996 through October 1998. |
| | | | | | |
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 | Mr. Laird and Mr.Young are each an “interested person” of the Trust as defined in the Investment Company Act of 1940, as amended, because of their relationship with Diamond Hill Capital Management, Inc. |
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.
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Page 62 | Diamond Hill Funds Annual Report December 31, 2007 |
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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
IFS Fund 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, regardless of whether these individuals are employed by the registrant or a third party.
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 $102,300 and $89,700 in fiscal 2007 and 2006 respectively, including 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 2007 and 2006.
(c ) Tax Fees. Fees for tax compliance and consultative services totaled $35,050 and $19,600 in fiscal 2007 and 2006, respectively.
(d) All Other Fees. There were no other fees in fiscal 2007 and 2006.
(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) All services described in paragraphs (b) through (d) of Item 4 were approved by the Audit Committee.
(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 $35,050 and $19,600 in 2007 and 2006, respectively.
(h) Not applicable
Item 5. Audit Committee of Listed Companies.
Not applicable.
Item 6. Schedule of Investments.
The Schedule of Investments in securities of unaffiliated issuers is included in the Annual Report.
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 Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
On August 18, 2005, the Board of Trustees of the Diamond Hill Funds adopted a “Policy Regarding General Shareholder Communications to the Board of Trustees of the Trust”.
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 registrant’s last fiscal half-year 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) Certification required by Item 12(b) of Form N-CSR is filed 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 | | | |
James F. Laird President | | | |
| | | |
Date: March 6, 2008 | | | |
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 | | | |
James F. Laird President | | | |
| | | |
Date: March 6, 2008 | | | |
By (Signature and Title)
| | | |
/s/ Gary R. Young. | | | |
Gary R. Young. Treasurer and Chief Financial Officer | | | |
| | | |
Date: March 6, 2008 | | | |