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
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Diamond Hill Funds
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(Exact name of registrant as specified in charter)
375 North Front Street, Suite 300, Columbus, Ohio 43215
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(Address of principal executive offices) (Zip code)
James F. Laird, Jr., 375 North Front Street, Suite 300, Columbus, Ohio 43215
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(Name and address of agent for service)
Registrant's telephone number, including area code: (614) 255-3333
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Date of fiscal year end: 12/31
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Date of reporting period: 06/30/04
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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
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unless the Form displays a currently valid Office of Management and Budget
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burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
Diamond Hill Funds Semi-Annual Report
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TABLE OF CONTENTS
Letter to Shareholders 1
Mission Statement, Pledge, and Fundamental Principles 3
Special Investment Letter - Of Models and Men 5
Financial Statements
Schedules of Investments 9
Statements of Assets & Liabilities 19
Statements of Operations 20
Statements of Changes in Net Assets 21
Schedule of Capital Share Transactions 24
Financial Highlights 25
Notes to Financial Statements 30
Fund Performance 34
Schedule of Shareholder Expenses 35
Management of the Trust 36
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 must be 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).
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LETTER TO SHAREHOLDERS
Dear Fellow Shareholders:
We are pleased to provide this semi-annual update for the Diamond Hill Funds. We
appreciate the confidence that you have placed in us, and assure you that we are
constantly guided by our fiduciary duties to you.
The following table summarizes the performance of the Diamond Hill Class A
shares relative to their benchmarks for the first half of 2004 and longer
periods:
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As of June 30, 2004
Three Six One Three Five Since Inception
Fund Name NAV Months Months Year Years Years Inception Date
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Small Cap Fund (DHSCX) $18.58 3.57% 10.46% 41.62% 14.12% NA 20.29% 12/29/00
Russell 2000 0.47% 6.76% 33.37% 6.24% 7.32%
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Large Cap Fund (DHLAX) $11.19 4.29% 8.22% 27.83% 4.45% NA 4.44% 6/29/01
Russell 1000 1.40% 3.32% 19.48% -0.32% -0.32%
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Focus Long-Short Fund (DIAMX) $12.42 1.97% 5.70% 17.50% 1.06% NA 6.00% 6/30/00
Russell 3000 1.33% 3.59% 20.46% 0.15% -3.57%
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Bank & Financial Fund (BANCX) $18.88 1.51% 5.36% 29.75% 20.64% 15.76% 14.37% 8/1/97
S&P Supercomposite Financials(A) -2.38% 2.61% 20.15% 2.80% 3.46% 6.61%
NASDAQ Bank Index -0.73% 1.56% 21.17% 13.97% 11.93% 10.29%
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Strategic Income Fund (DSIAX) $11.20 -3.86% -0.73% 5.91% NA NA 13.70% 9/30/02
Merril Lynch Domestic Master Index -2.46% 0.13% 0.30% 3.33%
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Short Term Fixed Income Fund (DHFAX) $ 9.92 -0.41% 0.49% 1.39% NA NA 2.57% 6/28/02
Merrill Lynch 1-3 Yr Corp Govt Bond
Index -1.13% -0.02% 0.73% 3.13%
============================================================================================================================
Source: Diamond Hill Funds, Bloomberg LP and Frank Russell Company. Periods
greater than 1 year are annualized.
Returns are shown without sales charges but include all other expenses.
STANDARDIZED PERFORMANCE FOR EACH FUND IS SHOWN ON PAGE 34.
(A) Returns for the S&P Supercomposite Financials are price change only before
November 29, 2001 and total return thereafter.
EQUITY FUNDS AND MARKETS
We continue to be pleased by the investment performance of our Funds. At
mid-year,all four equity funds produced six-month returns that both exceeded
their respective benchmarks by a meaningful margin and achieved respectable
absolute returns.
We have been fairly consistent in our message that investors should be prepared
for a lower return environment over the coming decade than what has occurred
historically. The main reason we have provided a forecast of the general market,
an at-times treacherous endeavor, is due to our belief that it would be
worthwhile to set, or perhaps reset, equity shareholder expectations. Nominal
returns lower than the historic geometric average of about 10.50% for common
stocks should not be seen as disappointing if inflation also is less than the
historic average of around 3.00%. Investors should focus on real returns.
Investors in U.S. common stocks have been amply rewarded in the past with real
returns approximating 7.00%. Given our beliefs about the general valuation of
stocks,we've felt achieving the historic average real return this decade would
be a formidable task. However, by no means does this lessen our commitment to
that goal, and we'd like to do even better. As active managers, we expect to own
stocks whose absolute return expectations would allow us to achieve this. As our
Funds establish meaningful performance records with the passage of time, we are
pleased that all of our Funds have generated positive real returns during a time
period when several market cap weighted indices cannot make the same claim.
Still, our focus remains entirely on future performance.
In the past six months, the fundamental factors of earnings and interest rates
have reversed positions as reasons for investor optimism. Declining interest
rates may have been the sole reason equity prices were not even worse during the
harrowing experience in 2001-2002. Ugly corporate earnings, especially in
certain economic sectors, caused stock prices in general (which began at very
high historic earnings multiples) to appear no more attractive, even at
substantially lower prices. Many commentators noted that bear markets do not
usually come to an end at above historic average P/E multiples. In 2003 and the
first half of 2004, earnings rebounded nicely, with margins in many cases
approaching prior peaks. In the second quarter of 2004, interest rates began
increasing off all-time lows. Taken together with the rise in equity prices
during 2003, our overall views are not much different than in the past. In
addition, it is no longer an easy case to make that small company stocks are
demonstrably more attractive than large cap stocks. We do believe attractive
values exist in certain industry sectors, primarily basic materials and energy.
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Diamond Hill Funds Semi-Annual Report June 30, 2004 Page 1
FIXED INCOME FUNDS AND MARKETS
The fixed income markets experienced a landscape change in early April. Prior to
that, the Federal Reserve continued to indicate it was in no hurry to raise
short-term rates. The Fed's stance seemed at odds with overall inflation figures
that were well above short-term rates resulting in negative real rates. While
the prices for items like gasoline and food are volatile and excluded from the
core personal consumer expenditures index favored by the Fed, the impact felt by
consumers is no less real. Nevertheless, fixed income investors, especially
those plying the carry trade of borrowing on the short end of the yield curve
and investing on the long end, apparently took the Fed at their word. The Fed's
patience was predicated on a muted recovery in labor markets. With a strong jobs
report in early April, market attention shifted to a renewed focus on building
inflationary pressures and the 10-year Treasury yield soared from about 3.84% at
the end of the first quarter to 4.60% at the end of the second quarter.
Against the backdrop of higher rates, mark-to-market losses were experienced in
a variety of fixed income investments. The Diamond Hill Strategic Income Fund
was affected in a similar fashion and fell short of providing a positive real
return for the six-month period. Still, when viewed over longer periods, the
Fund is handily meeting its objectives. The good news is that as rates rise,
opportunities to invest in higher yielding securities increase. Additionally, if
the Fed rate increases have their intended effect of preempting inflation,
higher yielding assets should stabilize. When long-term Treasury rates, such as
the 3.80% 10-year yield seen in March, offer seemingly little absolute value,
but the yield curve also remains so steep, there is a recognizable but still
difficult trade-off. Without perfect foresight as to when rates might start
rising, one gives up considerable current yield, because of the steepness of the
curve, when trying to preserve capital to reinvest at higher rates. Our approach
has been to generate returns by taking carefully researched credit risk, while
minimizing interest rate risk and creating meaningful reinvestment opportunities
over the next several years at what we expect to be higher interest rates.
Hopefully, the second half proves to be an improved environment.
The Diamond Hill Short Term Fixed Income Fund continues to meet its objective of
capital preservation. There are only so many avenues to pursue safe returns in
an environment of such low short-term rates, however, the situation appears to
be improving as the Fed's deflation fears seem to have safely passed and the Fed
moves to get ahead of the apparent inflation curve.
Thank you again for your trust in Diamond Hill Funds. As always, we will work
hard to continue to earn it. Best wishes for the second half of 2004.
/s/ Ric
Ric Dillon, CFA
Chief Investment Officer
/s/ Chuck /s/ Kent
Charles S. Bath, CFA Kent A. Rinker
Managing Director - Equities Managing Director - Fixed Income
/s/ Chris /s/ Rick
Christopher M. Bingaman, CFA Richard Moore, CFA
Portfolio Manager - Equities Portfolio Manager - Fixed Income
/s/ Tom /s/ Bill
Thomas P. Schindler, CFA William Zox, CFA, J.D., LL.M.
Portfolio Manager - Equities Portfolio Manager - Fixed Income
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Page 2 Diamond Hill Funds Semi-Annual Report June 30, 2004
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MISSION STATEMENT, PLEDGE AND FUNDAMENTAL PRINCIPLES
MISSION Our mission is to build and preserve wealth through a
DISCIPLINED INTRINSIC VALUE APPROACH, INDEPENDENT THINKING and
ALIGNING OUR INTERESTS with those of our clients.
o DISCIPLINED INTRINSIC VALUE APPROACH - taking a stake in
a company as an owner or a lender, possessing the proper
long-term investment temperament and seeking investments
selling at a discount to a growing intrinsic value.
o INDEPENDENT THINKING - intellectual curiosity, healthy
skepticism and confidence in decisions that may be
contrary to the norm.
"You are neither right nor wrong because the crowd
disagrees with you. You are right because your data and
reasoning are right" - Benjamin Graham
o ALIGNING OUR INTERESTS - constantly guided by our
fiduciary duty to clients, demonstrated by our policy
that all of our employees' equity investments be made in
the same Diamond Hill portfolios in which our clients
invest.
PLEDGE Consistent with our mission, we make the following pledge to
all of our clients:
OUR INVESTMENT DISCIPLINE is to assess the economics of the
underlying business, its management, and the price that must
be paid to own a piece of it. We seek to concentrate our
investments in businesses that are available at prices below
intrinsic value and are managed or controlled by trustworthy
and capable people. Benjamin Graham pioneered this discipline
during the 1930s and many others have practiced it with great
success ever since, most notably Warren Buffett.
WE WILL COMMUNICATE with our clients about our investment
performance in a manner that will allow them to properly
assess whether we are deserving of their trust.
OUR INVESTMENT TEAM WILL BE COMPRISED OF PEOPLE WITH
INTEGRITY, sound experience and education, in combination with
a strong work ethic and independence of thought. Especially
important is that each possesses the highest level of
character, business ethics and professionalism.
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.
WE WILL INVEST THE CAPITAL THAT YOU ENTRUST TO US WITH THE
SAME CARE THAT WE INVEST OUR OWN CAPITAL. To this end, Diamond
Hill employees commit all of their investments in marketable
equities (other than Diamond Hill Investment Group, Inc.
stock) to the same portfolios in which our clients invest.
FUNDAMENTAL EVERY SHARE OF STOCK HAS AN INTRINSIC VALUE that is
PRINCIPLES - independent of its current stock market price. We believe that
EQUITY we can determine a reasonable approximation of that intrinsic
value in some cases. At any point in time, the stock market
price may be either significantly higher or lower than
intrinsic value.
OVER SHORT PERIODS OF TIME, as evidenced by extreme stock
market volatility, THE STOCK MARKET PRICE IS HEAVILY
INFLUENCED BY THE EMOTIONS OF MARKET PARTICIPANTS, which are
far more difficult to predict than intrinsic value. While
stock market prices may experience extreme fluctuations on a
particular day, we believe intrinsic value is far less
volatile.
OVER SUFFICIENTLY LONG PERIODS OF TIME, five years and longer,
THE STOCK MARKET PRICE TENDS TO REVERT TO INTRINSIC VALUE.
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 pos-
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Diamond Hill Funds Semi-Annual Report June 30, 2004 Page 3
sess a competitive advantage and significant growth prospects
as well as outstanding managers and employees.
WE ONLY INVEST IN A BUSINESS WHEN THE STOCK MARKET PRICE IS
LOWER THAN OUR CONSERVATIVE ASSESSMENT OF PER SHARE INTRINSIC
VALUE. In addition, 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.
IN ESTIMATING INTRINSIC VALUE, WE USE AN INTERDISCIPLINARY
APPROACH. Not only do we perform financial modeling including
discounted cash flow, private market value, and leveraged
buyout analyses, we draw from other areas we believe are
relevant to our investment decision-making. These include
economics, statistics and probability theory, politics,
psychology, and consumer behavior. In short, we do not want to
exclude from our thinking anything that can help us forecast
future cash flows, our most important as well as most
difficult job.
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.
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 we need the capital for other purposes. If you
will need the capital that you entrust to us in less than five
years, then you should not invest that capital in the stock
market.
FUNDAMENTAL We are relatively unique in THAT WE MANAGE OUR FIXED INCOME
PRINCIPLES - PORTFOLIOS WITH A THREE- TO FIVE-YEAR TIME HORIZON. A long
FIXED INCOME time horizon will afford us the opportunity to seek
equity-like returns in the fixed income markets with lower
year-to-year volatility and, more importantly, a much lower
risk of a permanent loss of capital over the five-year
horizon.
OUR PRIMARY OBJECTIVE IS TO GENERATE AN ATTRACTIVE REAL YIELD
OF 3-5 PERCENTAGE POINTS PER YEAR ABOVE THE CURRENT INFLATION
RATE.
WE BALANCE OUR INCOME OBJECTIVE WITH A FOCUS ON TOTAL RETURN.
When the market offers an attractive opportunity for capital
appreciation, we will invest for capital appreciation in
addition to income. When the market is overvalued, we will
invest for a fair income return and preservation of capital.
A FLEXIBLE APPROACH allows us to search for value in
income-generating securities issued by investment grade and
non-investment grade corporations as well as the U.S.
government and its agencies. In particular, we seek to
identify selected corporate issuers that are more creditworthy
than is generally understood in the market.
WE INVEST IN THAT PORTION OF THE CAPITAL STRUCTURE that offers
the most value including secured, senior unsecured, and
subordinated securities as well as preferred and equity
securities.
WE FOCUS ON CREDIT RISK, INTEREST RATE RISK, LIQUIDITY RISK,
CALL AND PREPAYMENT RISK, AND OTHER RISKS WHEN ANALYZING
INCOME-GENERATING SECURITIES. Our objective is to avoid a
permanent loss of the capital that we invest (i.e., return of
capital) and to earn a sufficient return to maintain and grow
our purchasing power (i.e., return on capital).
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Page 4 Diamond Hill Funds Semi-Annual Report June 30, 2004
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SPECIAL INVESTMENT LETTER - OF MODELS AND MEN
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Financial models are often used to quantify return and risk expectations.The
purpose of these models is to capture complex realities in a form useful for
decision-making. At Diamond Hill, the principal model we employ for evaluating
equities was first proposed by Benjamin Graham- independently appraising the
value of a business, and only committing capital at a market price below that
value in order to obtain a margin of safety.The value of a business, in theory,
is the present value of the company's future cash flows.We believe other models,
such as trading rules involving monetary policy, provide interesting historical
information, but do not capture accurately enough the complex reality. We
believe conclusions reached with other models, such as those that believe that
the standard deviation of returns necessarily captures the risk that was
actually taken, can be faulty.
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While the title of this article may sound like an episode of Sex & the City or a
book review of a John Steinbeck novel with a typo, the impetus came while
reflecting upon some recent professional and leisure reading. The 2003 book In
An Uncertain World:Tough Choices from Wall Street to Washington by Robert E.
Rubin and Jacob Weisberg served as both. Rubin left his position as Co-Chairman
at Goldman Sachs to serve in the Clinton administration, first as head of the
newly created National Economic Council and later as the Secretary of the
Treasury, and now is an executive at Citigroup. The book provides an insider's
perspective on decision-making in wide-ranging matters, mostly concerning
financial markets, politics, and management. Much further down on the
best-seller list, I also recently re-read The Role of Monetary Policy in
Investment Management, coauthored by Gerald R. Jensen, Robert R. Johnson, CFA,
and Jeffrey M. Mercer and published in 2000 by The Research Foundation of the
Association for Investment Management & Research (AIMR), which recently became
CFA Institute. Passages in each of these brought additional thoughts about
certain models.
Einstein once said, "All models are wrong, but some are useful." Rubin, who
first worked in Goldman Sachs' risk arbitrage department, had this to say in his
book when commenting on Goldman's initial foray into options trading, "The now
famous Black-Scholes formula was my first experience with the application of
mathematical models to trading, and I formed both an appreciation for and a
skepticism about models that I have to this day. Financial models are useful
tools. But they can also be dangerous because reality is always more complex
than models. Models necessarily make assumptions...but a trader could easily
lose sight of the limitations. Entranced by the model, a trader could easily
forget that assumptions are involved and treat it as definitive." Yet, as
financial analysts, we are continually using models, whose basic purpose is to
quantify, even if in a limited way, forecasts about returns and risks that form
the basis for our investment decisions.
"TRITE IS RIGHT" ONLY SOME OF THE TIME
Wall Street produces an abundance of cliches, many of which can be summarized
by the saying, "Conventional wisdom is often long on convention and short on
wisdom." Consider a particular favorite - "You can't go broke taking a profit."
True enough, but it doesn't speak to the possibility of becoming much poorer by
doing something stupid with the proceeds of said sale or whether the investment,
even at a substantial profit, remains an attractive use of funds. A basic idea
in finance is that sunk costs, in this case the prices paid for investments, are
irrelevant. What matters is the expected value today based on forecasts about
the future. Rubin addresses this idea indirectly when he writes, "Looking back
at that episode [trading losses during the 1973-74 slump], I realized that we
hadn't really been reevaluating our positions as the economic and market outlook
changed. Holding an existing investment is the same as making it again.When
markets turn sour, you have to forget your losses to date and do a fresh
expected-value analysis based on the changed facts." At Diamond Hill, we are
always comparing price (the current market quote) and value (our independent
appraisal of business worth).
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Diamond Hill Funds Semi-Annual Report June 30, 2004 Page 5
SHOULD WE EVER FIGHT THE FED?
A more substantive aphorism on Wall Street is "Don't fight the Fed." The authors
of The Role of Monetary Policy in Investment Management researched and presented
a rigorous statistical analysis of the validity of this adage. The authors
investigated the difference in returns between expansive and restrictive
monetary periods. A monetary period was defined as either expansive or
restrictive according to the most recent Fed discount rate change, and remained
classified as such until the discount rate change in the opposite direction. For
example, in December 1974, the Fed lowered the discount rate from 8.00% to
7.75%, marking the beginning of an expansive monetary policy period. This
initial decrease was followed by six more rate decreases to a 5.25% in November
1976. In August 1977, the discount rate was increased from 5.25% to 5.75%
signaling the end of the expansive and the beginning of a restrictive monetary
policy period. Additional tests verified that these classifications coincided
with growth of the money supply, measured in various ways, that was
significantly higher in expansive periods than in restrictive periods. Months in
which the direction changed contain both expansive and restrictive periods, so
returns in those months were excluded. Real stock returns were found by
subtracting the monthly change in CPI from the monthly mean return for the CRSP
value-weighted NYSE, Amex, and NASDAQ index including dividends. The findings
for monthly mean (presumably the arithmetic mean of the monthly returns in that
period) stock returns for each period are presented as follows:
REAL STOCK RETURNS BY MONETARY ENVIRONMENT, 1960-1998
- ----------------------------------------------------------
Expansive Monetary Periods
- ----------------------------------------------------------
Number of Mean Real Start of
Months Return Series
- ----------------------------------------------------------
36 0.7800% June-60
6 0.3223% Apr-67
3 3.3538% Aug-68
7 2.1357% Nov-70
13 1.6615% Nov-71
31 1.2747% Dec-74
3 3.7471% May-80
28 0.9203% Nov-81
33 2.1098% Nov-84
40 0.9454% Dec-90
35 1.7725% Jan-96
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Restrictive Monetary Periods
- ----------------------------------------------------------
Number of Mean Real Start of
Months Return Series
- ----------------------------------------------------------
44 0.8157% Jul-63
8 0.5929% Nov-67
22 -1.3505% Dec-68
3 -0.2698% Jul-71
22 -2.8478% Jan-73
32 0.1902% Aug-77
13 -0.5009% Sep-80
6 0.7136% Apr-84
38 -0.0762% Sep-87
19 1.5189% May-94
The authors noted, "the evidence presented throughout this analysis is
necessarily derived by examining historical returns. Thus, its relevance for
future security returns should be interpreted with some caution." Still, the
implications are clear. Historically, stocks have provided very attractive real
returns when the Fed has been lowering rates, with every expansive period in the
study providing a positive real return. When the Fed has been raising rates,
real returns have been subdued, providing positive real returns in only half of
the periods under study. When analyzing bonds, they found that the 5, 10, and
30-year Treasury bonds have provided slightly higher returns during expansive
periods than restrictive periods, while 1-year Treasury bonds and 30 and 90-day
Treasury bills have had higher returns during restrictive periods. None of the
differences for bonds were statistically significant, however. The finding that
stocks provide such superior returns (and the authors contend the returns are
even better on a risk-adjusted basis based on a lower standard deviation of
returns during expansive periods), when following a trading rule based on a
readily available variable such as the directional change in the Fed discount
rate is an anomaly so far as the efficient market hypothesis is concerned. An
anomaly is something that is inconsistent with a model or theory that cannot be,
or at least has not yet been, explained.
On June 30, the Fed raised the Fed Funds target and the primary credit rate,
signaling a change in the direction of Fed monetary policy (the discount rate
series was discontinued in January 2003). I went back and updated where the
authors left off at the end of 1998. Instead of the CRSP value-weighted index,
the mean real monthly return is the arithmetic return of the S&P 500, which
should not provide materially different results. Again, the return in the month
in which the directional change occurred was excluded. The following table
summarizes the findings:
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Page 6 Diamond Hill Funds Semi-Annual Report June 30, 2004
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Expansive Monetary Periods
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Number of Mean Real Start of
Months Return Series
- -----------------------------------------------------------------
42 1.8412% Jan-96
40 -0.4152% Jan-01
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Restrictive Monetary Periods
- -----------------------------------------------------------------
Number of Mean Real Start of
Months Return Series
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16 -0.0521% Aug-99
? ? Jun-04
The results seem to show a certain law at work: Murphy's Law. The first
post-study restrictive period followed form in that mean returns were subpar,
but in the first full expansive monetary period since the study ended, stocks
provided a negative real return during Fed easing. Buying stocks when the Fed
began lowering rates in January 2001 would have failed.
What caused the failure? First, in fairness, the main purpose of the monograph
was to present evidence and quantification on the role monetary policy has
played on historic returns, not to present a tool for forecasting future
returns. Additionally, one can argue the overall record is still quite strong
and that no forecasting tool in the social sciences is likely to have a perfect
record. The failure could simply be due to random chance. Second, academicians
seem to reflexively explain outcomes that differ from discovered anomalies by
guessing that the opportunity has now been recognized and competed away. I have
not seen an update of this study by the authors, but my own view is that neither
of these explanations is convincing. Rather, when forecasting something as
multi-factor and complex as future stock market returns, you have to do your
best to identify and consider all the important variables. Interest rates are
certainly an important variable, but not the only one. Thus, research such as
that presented in The Role of Monetary Policy in Investment Management may serve
as interesting tidbits, but are not major investment decision-making tools.
RISK MODELS
Henry Kaufman, formerly vice chairman of Salomon Brothers and in the early 1980s
the most prominent Wall Street economist and market strategist, commented in a
speech that "The trouble with this phrase,'risk management'- which is very
fashionable in modern business parlance - is that it creates the impression that
the risk is actually being managed." Risk, of course, is of great importance in
making investment decisions and evaluating performance. Academic models of risk
focus on forecasts of the standard deviation of returns. The models frequently
review historic standard deviations of returns in the belief that they provide
an indication of the future risk, acknowledging that future volatility might
differ from historic volatility. For instance, in my college textbook Principles
of Corporate Finance, Richard Brealey and Stewart Myers present this table of
standard deviations based on Ibbotson Associates' data for common stocks (as
measured by the S&P Composite which is currently the S&P 500 and prior to March
1957, the S&P 90) for successive 10-year periods starting in 1926:
- --------------------------------------------------
Market Standard
Period Deviation (sigma)m
- --------------------------------------------------
1926-1939 31.9
1940-1949 16.5
1950-1959 19.8
1960-1969 14.4
1970-1979 19.2
1980-1988 12.5
Brealey & Myers write the following: "We should be cautious about reading too
much into standard deviations calculated from 10 or so annual returns. However,
these figures do not support the widespread impression of especially volatile
stock prices during the 1980s. Overall the 1980s were below average on the
volatility front.
However, there were brief episodes of extremely high volatility. On Black
Monday, October 19, 1987, the market index fell by 23% on a single day. The
standard deviation of the index for the week surrounding Black Monday was
equivalent to 89 percent per year. Fortunately, volatility dropped back to
normal levels within a few weeks after the crash."
- --------------------------------------------------------------------------------
Diamond Hill Funds Semi-Annual Report June 30, 2004 Page 7
For clarification, Brealey & Myers base their statements on the annual standard
deviation of common stock returns. Ibbotson also provides monthly return
information for common stocks. What if instead of measuring the annual standard
deviations, the monthly standard deviations for these exact time periods are
examined? The results are summarized in the following table:
ANNUALIZED MONTHLY
MONTHLY Market Standard
Market Standard Deviation _m
Period Deviation (sigma)m Monthly (sigma)m X (SQRT 12)
- --------------------------------------------------------------------------------
1926-1939 9.7 33.7
1940-1949 4.6 15.9
1950-1959 3.4 11.8
1960-1969 3.5 12.1
1970-1979 4.6 15.9
1980-1988 4.9 16.8
Thus, when looking at the standard deviation of monthly returns, Brealey and
Myers statements are no longer valid. Market returns in the 1980s were slightly
more volatile than any period since the 1920-30s. Conclusions drawn from models
that quantify risk based on historic standard deviations can change depending on
the frequency with which the returns, which are the only data manipulated to
find the variance and thus standard deviation of those returns, are measured. I
encountered similar circumstances upon examining the returns for the Diamond
Hill Small Cap Fund. The standard deviation of monthly returns has been higher
compared to the Russell 2000, but lower than the Russell 2000 when each is
calculated on a daily basis. The potential volatility of returns is likely an
important factor to consider when specific near-term liabilities must be met.
However, when analyzing long-term returns, I do not believe that standard
deviation risk models necessarily capture the risk that was actually taken.
DIAMOND HILL MODELS
So what are some models Diamond Hill does frequently use? In his book, Rubin
commented on his early interest in the stock market, spurred on by his father,
who analyzed stocks based on methods laid out by Benjamin Graham in Security
Analysis, who believed in investing only when an independent appraisal of
business value produced a worth significantly above the current price. Rubin
writes, "Today I believe even more strongly that this is the only sensible
approach to investing in stocks. You should analyze the economic value of a
share of stock the same way you would think about the economic value of the
whole business. A stock, whether in a steel plant or in a high-tech firm, is
worth the present value of the company's expected future earnings, adjusted for
risk and for other fundamental factors such as hidden assets on the balance
sheet. Over the long run, the price of a stock will reflect this economic value,
although the price can deviate dramatically from it for an extended period."
This model is both simple in concept and difficult in practice. Obviously, the
model requires estimates of future earnings, and thus will be governed by GIGO
(Garbage In - Garbage Out). Still, Graham's value investing methods have been
practiced quite successfully over the years. Like Rubin, we believe it is the
only sensible approach.
/s/ Tom
Thomas P. Schindler, CFA
- --------------------------------------------------------------------------------
Page 8 Diamond Hill Funds Semi-Annual Report June 30, 2004
DIAMOND HILL SMALL CAP FUND
Schedule of Investments
June 30, 2004 (Unaudited)
Shares Value
- --------------------------------------------------------------------------------
PREFERRED STOCK -- 0.5%
FINANCE -- 0.5%
Lehman Brothers Holdings 5,000 $128,750
- --------------------------------------------------------------------------------
COMMON STOCKS -- 76.2%
CONSUMER DISCRETIONARY -- 23.2%
American Greetings Corp.* 45,500 1,054,689
Belo Corp. 17,000 456,450
CPI Corp. 26,600 391,552
Ennis Business Forms, Inc. 14,500 282,750
Hollywood Entertainment Corp.* 20,000 267,200
Lodgenet Entertainment Corp.* 23,250 383,625
Steiner Leisure Ltd.* 9,786 215,292
The Black & Decker Corp. 9,800 608,874
The Brink's Co. 25,000 856,250
United Auto Group, Inc. 15,800 484,270
ValueVision Media, Inc.* 19,000 247,380
Viad Corp. 23,000 621,230
- --------------------------------------------------------------------------------
5,869,562
- --------------------------------------------------------------------------------
CONSUMER STAPLES -- 1.5%
Del Monte Foods Co.* 25,000 254,000
Lancaster Colony Corp. 3,100 129,084
- --------------------------------------------------------------------------------
383,084
- --------------------------------------------------------------------------------
ENERGY -- 13.4%
Berry Petroleum Company 8,500 249,985
Cimarex Energy Co.* 39,500 1,194,085
Helmerich & Payne 9,500 248,140
Lufkin Industries, Inc. 6,500 207,870
Southwestern Energy Co.* 43,200 1,238,543
Tidewater, Inc. 8,500 253,300
- --------------------------------------------------------------------------------
3,391,923
- --------------------------------------------------------------------------------
FINANCIAL -- 8.5%
1st Source Corp. 21,936 547,961
Hanmi Financial Corp. 32,170 949,015
ITLA Capital Corp.* 9,510 385,821
MAF Bancorp, Inc. 2,545 108,621
Merchants Bancshares, Inc. 6,696 175,770
- --------------------------------------------------------------------------------
2,167,188
- --------------------------------------------------------------------------------
HEALTH CARE -- 7.3%
Manor Care, Inc. 12,000 392,160
PacifiCare Health Systems, Inc.* 38,000 1,469,080
- --------------------------------------------------------------------------------
1,861,240
- --------------------------------------------------------------------------------
INDUSTRIAL -- 10.0%
Kaydon Corp. 10,400 321,672
The Greenbrier Companies, Inc.* 60,000 1,143,000
Trinity Industries, Inc. 27,500 874,225
United Industrial Corp. 9,000 210,150
- --------------------------------------------------------------------------------
2,549,047
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 4.0%
Maxwell Technologies, Inc.* 32,400 417,960
The TriZetto Group, Inc.* 90,500 606,350
- --------------------------------------------------------------------------------
1,024,310
- --------------------------------------------------------------------------------
MATERIALS -- 7.3%
American Pacific Corp.* 19,500 147,030
Bowater, Inc. 7,350 305,687
Buckeye Technologies, Inc.* 78,000 897,000
Century Aluminum Co.* 11,600 287,564
Grief, Inc. - Class B 5,500 233,750
- --------------------------------------------------------------------------------
1,871,031
- --------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST -- 1.0%
First Industrial Realty Trust, Inc. 7,000 258,160
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS $19,375,545
- --------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES -- 7.9%
Diamond Hill Short Term
Fixed Income Fund - Class I^ 203,758 $2,019,241
- --------------------------------------------------------------------------------
CASH EQUIVALENTS -- 10.2%
First American Prime
Obligations Fund - Class Y 1,297,313 $1,297,313
First American Treasury
Obligations Fund - Class Y 1,297,314 1,297,314
- --------------------------------------------------------------------------------
TOTAL CASH EQUIVALENTS $2,594,627
- --------------------------------------------------------------------------------
Par Value Value
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 3.9%
U.S. Treasury Note, 2.13%, 10/31/04 $500,000 $500,957
U.S. Treasury Note, 1.25%, 5/31/05 500,000 496,524
- --------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS $997,481
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Diamond Hill Funds Semi-Annual Report June 30, 2004 Page 9
DIAMOND HILL SMALL CAP FUND
Schedule of Investments (Continued)
June 30, 2004 (Unaudited)
Value
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 98.7% $25,115,644
(Amortized Cost $18,773,675)
OTHER ASSETS IN EXCESS
OF LIABILITIES -- 1.3% 343,163
- --------------------------------------------------------------------------------
NET ASSETS -- 100.0% $25,458,807
================================================================================
* Non-income producing security.
^ Affiliated Fund, managed by Diamond Hill Capital Management, Inc.
See accompanying notes to financial statements.
DIAMOND HILL LARGE CAP FUND
Schedule of Investments
June 30, 2004 (Unaudited)
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 89.9%
CONSUMER DISCRETIONARY -- 15.3%
American Greetings Corp.* 18,100 $419,558
Belo Corp. 5,000 134,250
Fortune Brands, Inc. 3,200 241,376
The Black & Decker Corp. 6,660 413,786
The Brink's Co. 8,100 277,425
Viad Corp. 4,500 121,545
- --------------------------------------------------------------------------------
1,607,940
- --------------------------------------------------------------------------------
CONSUMER STAPLES -- 5.7%
Archer-Daniels-Midland Co. 19,000 318,820
Kimberly-Clark Corp. 4,300 283,284
- --------------------------------------------------------------------------------
602,104
- --------------------------------------------------------------------------------
ENERGY -- 14.6%
Anadarko Petroleum Corp. 3,300 193,380
Apache Corp. 11,600 505,180
ConocoPhillips 5,600 427,224
Devon Energy Corp. 6,300 415,800
- --------------------------------------------------------------------------------
1,541,584
- --------------------------------------------------------------------------------
FINANCIAL -- 12.0%
Allstate Corp. 9,000 418,950
Comerica, Inc. 4,000 219,520
U.S. Bancorp 8,200 225,992
Wells Fargo & Co. 4,000 228,920
Westpac Banking Corp. - ADR 2,800 172,900
- --------------------------------------------------------------------------------
1,266,282
- --------------------------------------------------------------------------------
HEALTH CARE -- 13.1%
Cardinal Health, Inc. 3,200 224,160
Johnson & Johnson 3,900 217,230
Manor Care, Inc. 5,300 173,204
Merck & Co., Inc. 3,500 166,250
PacifiCare Health Systems, Inc.* 13,400 518,044
Pfizer, Inc. 2,400 82,272
- --------------------------------------------------------------------------------
1,381,160
- --------------------------------------------------------------------------------
INDUSTRIAL -- 13.3%
Eaton Corp. 2,400 155,376
Fluor Corp. 8,000 381,360
Masco Corp. 4,000 124,720
Norfolk Southern Corp. 9,000 238,680
Parker Hannifin Corp. 1,750 104,055
Trinity Industries, Inc. 12,500 397,375
- --------------------------------------------------------------------------------
1,401,566
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Page 10 Diamond Hill Funds Semi-Annual Report June 30, 2004
DIAMOND HILL LARGE CAP FUND
Schedule of Investments (Continued)
June 30, 2004 (Unaudited)
Shares Value
- --------------------------------------------------------------------------------
MATERIALS -- 12.9%
Bowater, Inc. 4,800 $199,632
MeadWestvaco Corp. 10,000 293,900
Phelps Dodge Corp.* 6,800 527,068
Weyerhaeuser Co. 5,400 340,848
- --------------------------------------------------------------------------------
1,361,448
- --------------------------------------------------------------------------------
UTILITIES -- 3.0%
American Electric Power Co., Inc. 4,500 144,000
Dominion Resources, Inc. 2,700 170,316
- --------------------------------------------------------------------------------
314,316
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS $9,476,400
- --------------------------------------------------------------------------------
CASH EQUIVALENTS -- 9.5%
First American Government
Obligations Fund - Class Y 479,834 $479,834
First American Prime
Obligations Fund - Class Y 520,602 520,601
- --------------------------------------------------------------------------------
TOTAL CASH EQUIVALENTS $1,000,435
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 99.4% $10,476,835
(Amortized Cost $8,492,560)
OTHER ASSETS IN EXCESS
OF LIABILITIES -- 0.6% 58,317
- --------------------------------------------------------------------------------
NET ASSETS -- 100.0% $10,535,152
================================================================================
* Non-income producing security.
ADR - American Depository Receipt
See accompanying notes to financial statements.
DIAMOND HILL FOCUS LONG-SHORT FUND
Schedule of Investments
June 30, 2004 (Unaudited)
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 85.7%
CONSUMER DISCRETIONARY -- 20.2%
American Greetings Corp.* + 56,000 $1,298,080
Belo Corp. + 25,000 671,250
CPI Corp. 30,700 451,904
Fortune Brands, Inc. + 10,000 754,300
The Black & Decker Corp. + 17,000 1,056,210
The Brink's Co. 29,825 1,021,506
ValueVision Media, Inc.* 33,000 429,660
Viad Corp. 24,000 648,240
- --------------------------------------------------------------------------------
6,331,150
- --------------------------------------------------------------------------------
CONSUMER STAPLES -- 3.2%
Archer-Daniels-Midland Co. 60,000 1,006,800
- --------------------------------------------------------------------------------
ENERGY -- 19.3%
Apache Corp. + 35,500 1,546,025
Cimarex Energy Co.* + 40,000 1,209,200
ConocoPhillips + 18,000 1,373,220
Devon Energy Corp. 19,100 1,260,600
Southwestern Energy Co.* 23,000 659,410
- --------------------------------------------------------------------------------
6,048,455
- --------------------------------------------------------------------------------
FINANCIAL -- 7.3%
Allstate Corp. + 24,000 1,117,200
U.S. Bancorp + 20,600 567,736
Wells Fargo & Co. 10,500 600,915
- --------------------------------------------------------------------------------
2,285,851
- --------------------------------------------------------------------------------
HEALTH CARE -- 13.4%
Cardinal Health, Inc. + 9,000 630,450
Johnson & Johnson + 11,000 612,700
Merck & Co., Inc. + 12,900 612,750
PacifiCare Health Systems, Inc.* + 60,000 2,319,600
- --------------------------------------------------------------------------------
4,175,500
- --------------------------------------------------------------------------------
INDUSTRIAL -- 10.0%
Fluor Corp. 23,000 1,096,410
Norfolk Southern Corp. 28,000 742,560
Trinity Industries, Inc. + 40,000 1,271,600
- --------------------------------------------------------------------------------
3,110,570
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Diamond Hill Funds Semi-Annual Report June 30, 2004 Page 11
DIAMOND HILL FOCUS LONG-SHORT FUND
Schedule of Investments (Continued)
June 30, 2004 (Unaudited)
Shares Value
- --------------------------------------------------------------------------------
MATERIALS -- 12.3%
MeadWestvaco Corp. 34,500 $1,013,955
Phelps Dodge Corp.* + 22,400 1,736,224
Weyerhaeuser Co. 17,100 1,079,352
- --------------------------------------------------------------------------------
3,829,531
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS $26,787,857
- --------------------------------------------------------------------------------
CASH EQUIVALENTS -- 6.5%
First American Prime
Obligations Fund - Class Y 2,025,524 $2,025,524
- --------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES -- 11.0%
Diamond Hill Short Term
Fixed Income Fund - Class I^ 346,882 $3,437,598
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 103.2% $32,250,979
(Amortized Cost $26,311,027)
SEGREGATED CASH WITH BROKERS -- 33.9% 10,576,150
SECURITIES SOLD SHORT -- (34.8)%
(Proceeds $8,861,142) (10,863,365)
LIABILITIES IN EXCESS
OF OTHER ASSETS -- (2.3%) (724,727)
- --------------------------------------------------------------------------------
NET ASSETS -- 100.0% $31,239,037
================================================================================
* Non-income producing security.
+ Security position is either entirely or partially held in a segregated
account as collateral for securities sold short aggregating a total market
value of $16,092,632.
^ Affiliated Fund, managed by Diamond Hill Capital Management, Inc.
See accompanying notes to financial statements.
DIAMOND HILL FOCUS LONG-SHORT FUND
Schedule of Securities Sold Short
June 30, 2004 (Unaudited)
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 88.9%
CONSUMER DISCRETIONARY -- 40.1%
Amazon.com, Inc.* 21,100 $1,147,840
Appollo Group, Inc.* 2,800 247,212
Centex Corp. 9,000 411,750
Harley-Davidson, Inc. 3,000 185,820
Kohl's Corp.* 20,700 875,196
Panera Bread Co.* 4,000 143,520
Wal-Mart Stores, Inc. 4,700 247,972
Yahoo!, Inc.* 30,000 1,089,900
- --------------------------------------------------------------------------------
4,349,210
- --------------------------------------------------------------------------------
CONSUMER STAPLES -- 8.2%
Colgate-Palmolive Co. 7,000 409,150
Kraft Foods, Inc. 10,900 345,312
Pepsi Bottling Group, Inc. 4,600 140,484
- --------------------------------------------------------------------------------
894,946
- --------------------------------------------------------------------------------
INDUSTRIAL -- 6.3%
General Electric Co. 12,000 388,800
United Parcel Service, Inc. 4,000 300,680
- --------------------------------------------------------------------------------
689,480
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 34.3%
Cisco Systems, Inc.* 25,000 592,500
Dell, Inc.* 10,000 358,200
EMC Corp.* 24,000 273,600
Intel Corp. 10,000 276,000
International Business Machines Corp. 3,000 264,450
Juniper Networks, Inc.* 41,300 1,014,741
Lam Research Corp.* 7,400 198,320
National Semiconductor Corp.* 30,000 659,700
Sun Microsystems, Inc.* 20,000 86,800
- --------------------------------------------------------------------------------
3,724,311
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS SOLD SHORT $9,657,947
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Page 12 Diamond Hill Funds Semi-Annual Report June 30, 2004
DIAMOND HILL FOCUS LONG-SHORT FUND
Schedule of Securities Sold Short (Continued)
June 30, 2004 (Unaudited)
Shares Value
- --------------------------------------------------------------------------------
EXCHANGE TRADED FUNDS -- 11.1%
CONGLOMERATES -- 5.2%
Nasdaq 100 Trust, Series I 15,000 $566,250
- --------------------------------------------------------------------------------
SEMICONDUCTORS -- 5.9%
Internet HOLDRs Trust* 5,000 321,900
Semiconductor HOLDRs Trust 8,400 317,268
- --------------------------------------------------------------------------------
639,168
- --------------------------------------------------------------------------------
TOTAL EXCHANGE TRADED FUNDS
(Proceeds $1,126,446) $1,205,418
- --------------------------------------------------------------------------------
TOTAL SECURITIES SOLD SHORT
(Proceeds $8,861,142) $10,863,365
================================================================================
* Non-income producing security.
See accompanying notes to financial statements.
DIAMOND HILL BANK & FINANCIAL FUND
Schedule of Investments
June 30, 2004 (Unaudited)
Shares Value
- --------------------------------------------------------------------------------
PREFERRED STOCK -- 2.5%
FINANCE -- 2.5%
1st Source Capital Trust* 2,200 $51,480
Lehman Brothers Holdings 14,400 370,800
- --------------------------------------------------------------------------------
TOTAL PREFERRED STOCK $422,280
- --------------------------------------------------------------------------------
COMMON STOCKS -- 80.4%
CONSUMER FINANCE -- 1.2%
Countrywide Financial Corp. 3,000 $210,750
- --------------------------------------------------------------------------------
FINANCE - BANKS & THRIFTS -- 59.9%
1st Source Corp. 22,500 562,050
Bank of America Corp. 6,476 547,999
Capital Corp. of the West 7,693 298,796
Citigroup, Inc. 15,000 697,500
Comerica, Inc. 12,700 696,976
Commercial Capital Bancorp, Inc.* 21,264 369,356
Corus Bankshares, Inc. 10,000 411,100
Fifth Third Bancorp 11,000 591,580
First Republic Bank 4,800 206,784
First State Bancorp 8,100 248,832
Greater Bay Bancorp 7,000 202,300
Hanmi Financial Corp. 24,359 718,591
ITLA Capital Corp.* 11,202 454,465
MAF Bancorp, Inc. 9,589 409,259
Merchants Bancshares, Inc. 5,081 133,376
National City Corp. 15,000 525,150
PNC Financial Services Group 7,500 398,100
SouthTrust Corp. 11,000 426,910
Sovereign Bancorp, Inc. 20,510 453,271
U.S. Bancorp 28,300 779,948
Wells Fargo & Co. 12,800 732,544
Westpac Banking Corp. - ADR 6,500 401,375
- --------------------------------------------------------------------------------
10,266,262
- --------------------------------------------------------------------------------
FINANCIAL - DIVERSIFIED -- 8.0%
Federal Home Loan Mortgage Corp. 8,200 519,060
Mellon Financial Corp. 12,000 351,960
Merrill Lynch & Co., Inc. 9,400 507,412
- --------------------------------------------------------------------------------
1,378,432
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Diamond Hill Funds Semi-Annual Report June 30, 2004 Page 13
DIAMOND HILL BANK & FINANCIAL FUND
Schedule of Investments (Continued)
June 30, 2004 (Unaudited)
Shares Value
- --------------------------------------------------------------------------------
INSURANCE -- 9.9%
Allstate Corp. 17,200 $800,660
Assurant, Inc. 8,950 236,101
Montpelier Re Holdings Ltd. 12,500 436,875
SAFECO Corp. 5,000 220,000
- --------------------------------------------------------------------------------
1,693,636
- --------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST -- 1.4%
First Industrial Realty Trust, Inc. 6,500 239,720
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS $13,788,800
- --------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES -- 3.5%
Diamond Hill Short Term
Fixed Income Fund - Class I^ 61,380 $608,277
- --------------------------------------------------------------------------------
CASH EQUIVALENTS -- 10.0%
First American Government
Obligations Fund - Class Y 854,190 $854,190
First American Prime
Obligations Fund - Class Y 854,190 854,190
- --------------------------------------------------------------------------------
TOTAL CASH EQUIVALENTS $1,708,380
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 96.4% $16,527,737
(Amortized Cost $13,530,650)
OTHER ASSETS IN EXCESS
OF LIABILITIES -- 3.6% 610,566
- --------------------------------------------------------------------------------
NET ASSETS -- 100.0% $17,138,303
================================================================================
* Non-income producing security.
^ Affiliated Fund, managed by Diamond Hill Capital Management, Inc.
ADR - American Depository Receipt
See accompanying notes to financial statements.
DIAMOND HILL STRATEGIC INCOME FUND
Schedule of Investments
June 30, 2004 (Unaudited)
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS -- 8.9%
FINANCIAL SERVICES -- 1.0%
American Capital Strategies, Ltd. 11,860 $332,317
- --------------------------------------------------------------------------------
PIPELINES -- 3.0%
Energy Transfer Partners, L.P. 6,800 265,472
Kaneb Pipe Line Partners, L.P. 5,980 274,422
Pacific Energy Partners, L.P. 5,800 151,032
Plains All American Pipeline, L.P. 5,650 188,597
TEPPCO Partners, L.P. 4,190 159,555
- --------------------------------------------------------------------------------
1,039,078
- --------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST -- 4.9%
Agree Realty Corp. 4,800 121,440
Capital Automotive - REIT 7,800 228,774
Crescent Real Estate Equities Co. 14,000 225,680
First Industrial Realty Trust, Inc. 8,000 295,040
Heritage Property Investment Trust 9,600 259,776
Lexington Corporate Properties Trust 13,200 262,812
RAIT Investment Trust 10,350 255,128
- --------------------------------------------------------------------------------
1,648,650
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS $3,020,045
- --------------------------------------------------------------------------------
PREFERRED STOCK -- 49.1%
Ace Capital Trust I 14,000 357,840
Alesco Preferred Funding III 12,600 1,222,200
Alesco Preferred Funding IV 4,000 400,000
Alexandria Real Estate Series B - REIT 3,000 80,160
Alexandria Real Estate Series C - REIT 14,500 363,860
Blackrock Preferred Opportunity Trust 20,000 443,000
BSCH Finance Ltd. 7,800 204,360
Capital Automotive Series A - REIT 2,000 47,700
Capital Automotive Series B - REIT 12,000 302,280
CBL & Associates Series B - REIT 6,000 316,800
CBL & Associates Series C - REIT 19,000 480,510
Corporate Backed Trust
Certificates, 7.75% 5,000 128,000
Corporate Backed Trust
Certificates, 8.20% 5,000 129,750
Corporate Backed Trust
Certificates, 8.25% 4,000 104,600
Corporate Office Series B - REIT 9,000 224,550
Corporate Office Trust - REIT 4,000 100,000
Corts-TR IV Safeco Capital I 4,000 107,560
CPL Capital 27,000 677,430
- --------------------------------------------------------------------------------
Page 14 Diamond Hill Funds Semi-Annual Report June 30, 2004
DIAMOND HILL STRATEGIC INCOME FUND
Schedule of Investments (Continued)
June 30, 2004 (Unaudited)
Shares Value
- --------------------------------------------------------------------------------
PREFERRED STOCK -- 49.1% CONTINUED
Delphi Financial 4,000 $101,800
Developers Divers Realty, 8.00% - REIT 2,000 50,800
Developers Divers Realty, 8.60% - REIT 3,000 77,550
DQE Capital Corp. 26,000 657,800
Duke Capital Finance Trust III 20,000 507,600
EIX Trust I 9,350 234,498
EIX Trust II 16,000 403,520
EnCana Corp. 6,000 153,120
Equity Inns, Inc. 7,000 175,700
Everest Re Capital Trust 3,000 77,310
Grand Metro Delaware, L.P. 10,000 259,200
Health Care REIT, Inc. 10,000 250,500
Household Capital Trust V 12,000 316,200
Huntington Preferred
Capital, Inc. - REIT 10,400 273,936
IBC Capital Finance II 5,000 131,500
Innkeepers USA Trust 16,000 385,600
J.P. Morgan Chase & Co. 14,100 707,204
Lexington Corporate
Property Trust - REIT 14,500 364,385
MBNA Capital 8,000 208,000
OGE Energy Capital 4,000 103,120
Parkway Properties, Inc. - REIT 8,000 205,920
Preferredplus Trust 14,000 347,760
Provident Capital Trust III 14,000 376,600
Provident Capital Trust IV 12,500 335,500
PS Business Parks, Inc., 7.00% - REIT 16,000 360,800
PS Business Parks, Inc., 8.75% - REIT 4,000 105,200
PS Business Parks, Inc., 8.75% - REIT 8,000 201,440
PSEG Funding Trust II 20,000 540,800
Saturns - AWE 5,800 159,906
Saturns - CZN 5,000 127,750
Saturns - FON 19,500 498,420
Telephone & Data Systems 4,000 100,280
The Mills Corp. - REIT 28,100 736,501
Tommy Hilfiger USA, Inc. 4,000 103,280
TXU Capital II 27,500 701,525
Westpac Capital Trust I 4,000 100,560
XL Capital Ltd. 14,000 368,900
Zions Capital Trust B 9,500 247,475
- --------------------------------------------------------------------------------
TOTAL PREFERRED STOCK $16,748,560
- --------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES -- 2.6%
Eaton Vance Tax-Advantaged
Dividend Income Fund 8,000 $147,520
Pimco High Income Fund 24,900 341,877
Western Asset/Claymore U.S. Treasury
Inflation Protected Securities Fund 29,800 385,016
- --------------------------------------------------------------------------------
TOTAL REGISTERED
INVESTMENT COMPANIES $874,413
- --------------------------------------------------------------------------------
Par Value Value
- --------------------------------------------------------------------------------
CORPORATE BONDS -- 31.2%
CONSUMER, CYCLICAL -- 1.2%
Cox Communications, Inc.,
7.50%, 8/15/04 $25,000 $25,148
Dana Corp., 10.13%, 3/15/10 75,000 84,938
Echostar DBS Corp., 9.13%, 1/15/09 68,000 74,545
Ford Motor Co., 8.88%, 4/1/06 212,000 225,920
- --------------------------------------------------------------------------------
410,551
- --------------------------------------------------------------------------------
CONSUMER, NON-CYCLICAL -- 2.6%
RJ Reynolds Tobacco Holdings,
7.75%, 5/15/06 250,000 260,000
Royal Caribbean Cruises,
8.00%, 5/15/10 155,000 167,013
Royal Caribbean Cruises,
8.75%, 2/2/11 400,000 443,000
- --------------------------------------------------------------------------------
870,013
- --------------------------------------------------------------------------------
FINANCE -- 13.5%
Ford Motor Credit Co.,
5.35%, 11/20/06 100,000 99,762
Ford Motor Credit Co.,
9.50%, 6/1/10 250,000 288,065
GATX Financial Corp.,
6.88%, 11/1/04 50,000 50,834
GATX Financial Corp.,
7.75%, 12/1/06 111,000 119,499
GATX Financial Corp.,
8.88%, 6/1/09 100,000 112,196
International Bank Recon.
& Dev., 7.00%, 11/24/15 265,000 253,738
International Bank Recon.
& Dev., 7.25%, 11/20/17 200,000 179,020
- --------------------------------------------------------------------------------
Diamond Hill Funds Semi-Annual Report June 30, 2004 Page 15
DIAMOND HILL STRATEGIC INCOME FUND
Schedule of Investments (Continued)
June 30, 2004 (Unaudited)
Par Value Value
- --------------------------------------------------------------------------------
FINANCE -- 13.5% CONTINUED
Lehman Brothers Holdings,
6.00%, 3/26/14 $315,000 $288,698
Morgan Stanley, 4.50%, 11/1/13 275,000 273,721
Morgan Stanley, 3.69%, 5/1/14 440,000 425,206
Royal Bank of Canada,
5.75%, 4/23/09 400,000 345,999
SLM Corp., 4.25%, 10/1/10 250,000 249,028
Tobacco Settlement Financing
Corp., 5.92%, 6/1/12 270,000 257,845
UBS Ag Structured, 5.07%, 6/20/08 750,000 733,124
UBS Ag Structured, 6.60%, 3/20/09 1,000,000 951,449
- --------------------------------------------------------------------------------
4,628,184
- --------------------------------------------------------------------------------
INDUSTRIAL -- 5.8%
D.R. Horton, Inc., 9.75%, 9/15/10 100,000 115,875
Ft. James Corp., 6.88%, 9/15/07 50,000 52,500
Georgia-Pacific Corp.,
4.88%, 10/1/07 100,000 98,802
K.B. Home, 8.63%, 12/15/08 90,000 96,750
K.B. Home, 7.75%, 2/1/10 225,000 231,750
K.B. Home, 9.50%, 2/15/11 300,000 330,750
Standard Pacific Corp.,
6.88%, 5/15/11 350,000 342,125
Standard Pacific Corp.,
7.75%, 3/15/13 300,000 302,250
Toll Corp., 8.25%, 2/1/11 200,000 216,000
Toll Corp., 8.25%, 12/1/11 175,000 189,875
- --------------------------------------------------------------------------------
1,976,677
- --------------------------------------------------------------------------------
RETAIL -- 4.1%
American Greetings, 6.10%, 8/1/28 480,000 490,800
Penney (J.C.) Co., Inc., 6.00%, 5/1/06 513,000 518,771
Penney (J.C.) Co., Inc., 9.75%, 6/15/21 186,000 191,580
Tommy Hilfiger USA, Inc., 6.85%, 6/1/08 200,000 200,250
- --------------------------------------------------------------------------------
1,401,401
- --------------------------------------------------------------------------------
TECHNOLOGY -- 0.9%
Unisys Corp., 7.88%, 4/1/08 285,000 291,413
- --------------------------------------------------------------------------------
TRANSPORTATION -- 0.1%
Northwest Air, Inc., 7.63%, 3/15/05 25,000 24,500
- --------------------------------------------------------------------------------
UTILITIES -- 3.0%
International Telephone,
7.50%, 7/1/11 40,000 40,031
PSEG Energy Holdings,
7.75%, 4/16/07 635,000 665,163
PSEG Energy Holdings,
8.63%, 2/15/08 300,000 322,500
- --------------------------------------------------------------------------------
1,027,694
- --------------------------------------------------------------------------------
TOTAL CORPORATE BONDS $10,630,433
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 4.1%
FHLB, 7.00%, 10/21/11 500,000 $464,950
FHLB, 8.25%, 2/27/19 500,000 440,100
FHLB, 6.04%, 5/13/19 500,000 494,000
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS $1,399,050
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
CASH EQUIVALENTS -- 3.8%
First American Prime
Obligations Fund - Class Y 1,289,226 $1,289,226
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 99.7%
(Amortized Cost $34,640,811) $33,961,727
SEGREGATED CASH WITH BROKERS -- 0.0% 3,999
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.3% 118,031
================================================================================
NET ASSETS -- 100.0% $34,083,757
================================================================================
REIT - Real Estate Investment Trust
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
Page 16 Diamond Hill Funds Semi-Annual Report June 30, 2004
DIAMOND HILL SHORT TERM FIXED INCOME FUND
Schedule of Investments
June 30, 2004 (Unaudited)
Par Value Value
- --------------------------------------------------------------------------------
CORPORATE BONDS -- 51.1%
CONSUMER CYCLICALS -- 9.2%
Echostar DBS Corp., 10.38%, 10/1/07 $100,000 $106,875
Ford Motor Co., 8.88%, 4/1/06 200,000 213,133
General American Transportation,
8.63%, 12/1/04 311,000 318,988
- --------------------------------------------------------------------------------
638,996
- --------------------------------------------------------------------------------
CONSUMER, NON-CYCLICAL -- 6.0%
Carnival Corp., 7.05%, 5/15/05 50,000 51,710
RJ Reynolds Tobacco Holdings,
7.75%, 5/15/06 75,000 78,000
Royal Caribbean Cruises,
8.13%, 7/28/04 100,000 100,344
Royal Caribbean Cruises,
8.25%, 4/1/05 105,000 108,676
Royal Caribbean Cruises,
7.25%, 8/15/06 75,000 79,031
- --------------------------------------------------------------------------------
417,761
- --------------------------------------------------------------------------------
FINANCE -- 1.4%
Ford Motor Credit Co.,
5.35%, 11/20/06 50,000 49,881
General Motors Acceptance
Corp., 7.50%, 7/15/05 48,000 50,141
- --------------------------------------------------------------------------------
100,022
- --------------------------------------------------------------------------------
INDUSTRIAL -- 10.7%
American Standard, Inc.,
7.38%, 4/15/05 45,000 46,463
Fort James Corp., 6.63%, 9/15/04 75,000 75,563
Fort James Corp., 6.88%, 9/15/07 120,000 126,000
Georgia-Pacific Corp., 7.50%, 5/15/06 80,000 84,800
Kaufman & Broad Home Corp.,
7.75%, 10/15/04 350,000 354,374
Waste Management, Inc.,
7.00%, 5/15/05 52,000 53,430
- --------------------------------------------------------------------------------
740,630
- --------------------------------------------------------------------------------
MANUFACTURING -- 1.5%
Tyco International Group SA,
6.38%, 6/15/05 100,000 103,094
- --------------------------------------------------------------------------------
MEDICAL PRODUCTS -- 1.1%
Mallinckrodt, Inc., 6.75%, 9/15/05 75,000 77,904
- --------------------------------------------------------------------------------
OFFICE EQUIPMENT AND SERVICES -- 1.6%
Xerox Corp., 7.15%, 8/1/04 111,000 111,351
- --------------------------------------------------------------------------------
RETAIL -- 1.6%
Penney (J.C.) Co., Inc., 6.00%, 5/1/06 111,000 112,249
- --------------------------------------------------------------------------------
TECHNOLOGY -- 12.4%
Electronic Data Systems Corp.,
6.85%, 10/15/04 150,000 151,497
Electronic Data Systems Corp.,
7.13%, 5/15/05 25,000 25,793
Sun Microsystems, Inc.,
7.35%, 8/15/04 275,000 276,622
Unisys Corp., 7.25%, 1/15/05 225,000 229,500
Unisys Corp., 7.88%, 4/1/08 175,000 178,938
- --------------------------------------------------------------------------------
862,350
- --------------------------------------------------------------------------------
UTILITIES -- 5.6%
Duke Capital Corp., 7.25%, 10/1/04 54,000 54,640
GTE Hawaiian Telephone,
6.75%, 2/15/05 40,000 40,660
Indiana Michigan Power,
6.13%, 12/15/06 100,000 105,801
Oneok, Inc., 7.75%, 8/15/06 50,000 54,211
PSEG Energy Holdings,
8.63%, 2/15/08 125,000 134,376
- --------------------------------------------------------------------------------
389,688
- --------------------------------------------------------------------------------
TOTAL CORPORATE BONDS $3,554,045
- --------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES -- 36.5%
FHLMC PC Gold Balloon RST,
6.00%, 11/1/06 $37,080 $38,052
FHLMC PC Gold Balloon RST,
5.00%, 3/1/08 138,217 140,932
FHLMC PC Gold Balloon RST,
6.00%, 7/1/08 53,606 54,977
FHLMC PC Gold Balloon RST,
5.50%, 8/1/08 93,603 95,631
FHLMC PC Gold Balloon RST,
5.00%, 11/1/08 53,868 54,711
FHLMC PC Gold Balloon RST,
5.00%, 11/1/09 242,647 246,331
FHLMC PC Gold Balloon RST,
4.50%, 4/1/10 281,277 280,725
FHLMC PC Gold Balloon RST,
4.00%, 7/1/10 244,622 239,510
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Diamond Hill Funds Semi-Annual Report June 30, 2004 Page 17
DIAMOND HILL SHORT TERM FIXED INCOME FUND
Schedule of Investments (Continued)
June 30, 2004 (Unaudited)
Par Value Value
- --------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES -- 36.5% CONTINUED
FHLMC Pool M90735, 5.00%, 6/1/07 $160,770 $163,747
FHLMC Pool N90748, 5.00%, 8/1/07 118,197 120,385
FHLMC Pool N97967, 6.00%, 5/1/05 79,189 81,078
FHLMC Pool N98137, 5.00%, 11/1/05 115,050 116,724
FNMA, 6.00%, 1/1/05 226,755 228,658
FNMA, 6.00%, 4/1/05 75,105 76,715
FNMA, 6.00%, 9/1/05 242,173 247,364
FNMA, 5.50%, 1/1/06 36,287 36,725
FNMA, 5.50%, 4/1/06 67,755 68,827
FNMA, 5.00%, 2/1/09 224,842 228,211
GMAC Mortgage Corp. Loan
Trust, 5.75%, 11/25/32 19,302 19,316
- --------------------------------------------------------------------------------
TOTAL MORTGAGE-BACKED SECURITIES $2,538,619
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 10.5%
FHLB, 3.63%, 12/29/06 200,000 200,683
FHLB, 3.88%, 11/28/07 100,000 100,006
FHLB, 3.50%, 4/1/08 25,000 24,720
FHLB, 3.63%, 11/28/08 25,000 24,554
FHLB, 3.25%, 12/30/08 100,000 96,568
FHLMC, 3.38%, 4/23/08 200,000 196,807
FNMA, 5.50%, 4/1/06 40,275 40,912
FNMA, 4.00%, 8/13/10 50,000 48,292
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS $732,542
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
CASH EQUIVALENTS -- 5.2%
First American Government
Obligations Fund - Class Y 35,588 35,588
First American Prime
Obligations Fund - Class Y 322,483 322,483
- --------------------------------------------------------------------------------
TOTAL CASH EQUIVALENTS $358,071
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 103.3%
(Amortized Cost $7,202,028) $7,183,277
LIABILITIES IN EXCESS
OTHER ASSETS -- (3.3%) (232,535)
- --------------------------------------------------------------------------------
NET ASSETS -- 100.0% $6,950,742
================================================================================
FHLB - Federal Home Loan Bank
FHLMC - Federal Home Loan Mortgage Corp.
FNMA - Federal National Mortgage Assoc.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
Page 18 Diamond Hill Funds Semi-Annual Report June 30, 2004
DIAMOND HILL FUNDS
Statements of Assets & Liabilities
June 30, 2004 (Unaudited)
FOCUS
SMALL CAP LARGE CAP LONG-SHORT
FUND FUND FUND
- ------------------------------------------------------------------------------------------------------
ASSETS
Investment Securities:
At amortized cost $ 18,773,675 $ 8,492,560 $ 26,311,027
---------------------------------------------
Non-affiliated securities, at market value $ 23,096,403 $ 10,476,835 $ 28,813,381
Affiliated securities, at market value 2,019,241 -- 3,437,598
Deposits with brokers for securities sold short -- -- 10,576,150
Cash 1,508,151 -- --
Receivable for securities sold -- -- 561,729
Receivable for fund shares issued 165,401 387,354 170,003
Receivable for dividends and interest 22,073 17,030 40,237
---------------------------------------------
TOTAL ASSETS 26,811,269 10,881,219 43,599,098
---------------------------------------------
LIABILITIES
Securities sold short, at value (proceeds $8,861,142) -- -- 10,863,365
Dividends payable -- -- --
Payable for securities purchased 1,222,676 320,373 1,399,471
Payable for dividends on securities sold short -- -- 4,722
Payable for fund shares redeemed 75,000 8,882 24,592
Payable to Investment Adviser 15,636 5,574 22,204
Accrued distribution and service fees 30,303 7,655 34,605
Other accrued expenses and liabilities 8,847 3,583 11,102
---------------------------------------------
TOTAL LIABILITIES 1,352,462 346,067 12,360,061
---------------------------------------------
NET ASSETS $ 25,458,807 $ 10,535,152 $ 31,239,037
=============================================
COMPONENTS OF NET ASSETS
Paid-in capital $ 18,407,550 $ 8,786,413 $ 27,313,621
Accumulated net investment income (loss) (104,598) 5,139 (49,118)
Accumulated net realized gains (losses) from
investment transactions 813,886 (240,675) 36,805
Unrealized appreciation (depreciation) on investments 6,341,969 1,984,275 3,937,729
---------------------------------------------
Net Assets $ 25,458,807 $ 10,535,152 $ 31,239,037
=============================================
PRICING OF CLASS A SHARES
Net assets attributable to Class A shares $ 16,401,283 $ 9,038,841 $ 21,288,908
=============================================
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value) 882,647 807,570 1,714,150
=============================================
Net asset value and redemption price per share $ 18.58 $ 11.19 $ 12.42
=============================================
Maximum offering price per share $ 19.71 $ 11.87 $ 13.18
=============================================
PRICING OF CLASS C SHARES
Net assets attributable to Class C shares $ 9,057,524 $ 1,496,311 $ 9,950,129
=============================================
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value) 500,279 135,570 822,814
=============================================
Net asset value, offering price and
redemption price per share (A) $ 18.10 $ 11.04 $ 12.09
=============================================
PRICING OF CLASS I SHARES
Net assets attributable to Class I shares $ -- $ -- $ --
=============================================
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value) -- -- --
=============================================
Net asset value, offering price and
redemption price per share $ -- $ -- $ --
=============================================
SHORT TERM
BANK & STRATEGIC FIXED
FINANCIAL INCOME INCOME
FUND FUND FUND
- ----------------------------------------------------------------------------------------------------
ASSETS
Investment Securities:
At amortized cost $ 13,530,650 $ 34,640,811 $ 7,202,028
-------------------------------------------
Non-affiliated securities, at market value $ 15,919,460 $ 33,961,727 $ 7,183,277
Affiliated securities, at market value 608,277 -- --
Deposits with brokers for securities sold short -- 3,999 --
Cash 420,674 -- --
Receivable for securities sold 141,967 -- --
Receivable for fund shares issued 60,422 28,572 --
Receivable for dividends and interest 55,601 216,662 75,605
-------------------------------------------
TOTAL ASSETS 17,206,401 34,210,960 7,258,882
-------------------------------------------
LIABILITIES
Securities sold short, at value (proceeds $8,861,142) -- -- --
Dividends payable -- 30,599 --
Payable for securities purchased 1,482 -- 304,008
Payable for dividends on securities sold short -- -- --
Payable for fund shares redeemed 31,978 28,942 --
Payable to Investment Adviser 13,748 13,669 1,542
Accrued distribution and service fees 14,703 41,691 277
Other accrued expenses and liabilities 6,187 12,302 2,313
-------------------------------------------
TOTAL LIABILITIES 68,098 127,203 308,140
-------------------------------------------
NET ASSETS $ 17,138,303 $ 34,083,757 $ 6,950,742
===========================================
COMPONENTS OF NET ASSETS
Paid-in capital $ 12,441,127 $ 34,013,176 $ 7,012,713
Accumulated net investment income (loss) 44,124 -- --
Accumulated net realized gains (losses) from
investment transactions 1,655,965 749,665 (43,220)
Unrealized appreciation (depreciation) on investments 2,997,087 (679,084) (18,751)
-------------------------------------------
Net Assets $ 17,138,303 $ 34,083,757 $ 6,950,742
===========================================
PRICING OF CLASS A SHARES
Net assets attributable to Class A shares $ 14,618,219 $ 22,523,034 $ 473,566
===========================================
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value) 774,142 2,010,658 47,744
===========================================
Net asset value and redemption price per share $ 18.88 $ 11.20 $ 9.92
===========================================
Maximum offering price per share $ 20.03 $ 11.76 $ 9.94
===========================================
PRICING OF CLASS C SHARES
Net assets attributable to Class C shares $ 2,520,084 $ 11,560,723 $ --
===========================================
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value) 138,051 1,032,311 --
===========================================
Net asset value, offering price and
redemption price per share (A) $ 18.25 $ 11.20 $ --
===========================================
PRICING OF CLASS I SHARES
Net assets attributable to Class I shares $ -- $ -- $ 6,477,176
===========================================
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value) -- -- 653,644
===========================================
Net asset value, offering price and
redemption price per share $ -- $ -- $ 9.91
===========================================
(A) Redemption price per share varies based upon holding period.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
Diamond Hill Funds Semi-Annual Report June 30, 2004 Page 19
DIAMOND HILL FUNDS
Statements of Operations
For the six months ended June 30, 2004 (Unaudited)
SHORT TERM
FOCUS BANK & STRATEGIC FIXED
SMALL CAP LARGE CAP LONG-SHORT FINANCIAL INCOME INCOME
FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends from non-affiliated securities $ 68,347 $ 69,427 $ 143,525 $ 171,850 $ 634,251 $ 592
Dividends from affiliated securities 15,515 -- 48,217 8,729 -- --
Interest 4,390 1,169 21,965 3,067 381,456 95,597
---------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 88,252 70,596 213,707 183,646 1,015,707 96,189
---------------------------------------------------------------------------------------
EXPENSES:
Investment Advisory fees 86,669 30,967 121,431 80,365 77,984 8,958
Administration fees 48,751 19,907 60,715 36,164 70,185 13,438
Distribution fees - Class A 16,968 9,885 23,886 17,300 25,930 542
Distribution and service fees - Class C 40,462 4,698 39,379 11,167 52,249 --
Trustees fees 1,000 1,000 1,000 1,000 1,000 1,000
Dividend expense on securities sold short -- -- 17,414 -- -- --
---------------------------------------------------------------------------------------
TOTAL EXPENSES 193,850 66,457 263,825 145,996 227,348 23,938
Trustee fees reimbursed by the
Investment Advisers (1,000) (1,000) (1,000) (1,000) (1,000) (1,000)
---------------------------------------------------------------------------------------
NET EXPENSES 192,850 65,457 262,825 144,996 226,348 22,938
---------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (104,598) 5,139 (49,118) 38,650 789,359 73,251
---------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains (losses) from security
transactions 1,019,263 196,042 256,496 1,256,859 395,578 (4,583)
Net change in unrealized
appreciation/depreciation
on Investments 1,221,354 520,349 1,365,028 (479,187) (1,583,956) (31,918)
---------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS 2,240,617 716,391 1,621,524 777,672 (1,188,378) (36,501)
---------------------------------------------------------------------------------------
NET CHANGES IN NET ASSETS FROM OPERATIONS $ 2,136,019 $ 721,530 $ 1,572,406 $ 816,322 $ (399,019) $ 36,750
=======================================================================================
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
Page 20 Diamond Hill Funds Semi-Annual Report June 30, 2004
DIAMOND HILL FUNDS
Statements of Changes in Net Assets
SMALL CAP FUND LARGE CAP FUND
------------------------------- -------------------------------
SIX MONTHS SIX MONTHS
ENDED FOR THE YEAR ENDED FOR THE YEAR
JUNE 30, ENDED JUNE 30, ENDED
2004 DECEMBER 31, 2004 DECEMBER 31,
(UNAUDITED) 2003 (UNAUDITED) 2003
------------------------------- -------------------------------
FROM OPERATIONS
Net investment income (loss) $ (104,598) $ (122,735) $ 5,139 $ 26,411
Net realized gains (losses) from investment transactions 1,019,263 (180,776) 196,042 19,475
Net change in unrealized appreciation/depreciation on investments 1,221,354 6,077,295 520,349 1,459,861
------------------------------- -------------------------------
NET CHANGE IN NET ASSETS FROM OPERATIONS 2,136,019 5,773,784 721,530 1,505,747
------------------------------- -------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income - Class A -- -- -- (26,310)
From net investment income - Class C -- -- -- (332)
From net realized gains on investments - Class A -- (60,726) -- --
From net realized gains on investments - Class C -- (38,074) -- --
------------------------------- -------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS -- (98,800) -- (26,642)
------------------------------- -------------------------------
FROM CAPITAL TRANSACTIONS
CLASS A
Proceeds from shares sold 5,080,695 4,717,961 2,771,409 2,745,439
Reinvested distributions -- 55,393 -- 25,390
Payments for shares redeemed (1,966,118) (2,793,897) (811,522) (952,674)
------------------------------- -------------------------------
NET INCREASE IN NET ASSETS FROM CLASS A
SHARE TRANSACTIONS 3,114,577 1,979,457 1,959,887 1,818,155
------------------------------- -------------------------------
CLASS C
Proceeds from shares sold 2,126,198 2,637,880 592,821 784,890
Reinvested distributions -- 31,461 -- 308
Payments for shares redeemed (1,049,015) (2,697,694) (47,250) (334,046)
------------------------------- -------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM CLASS C
SHARE TRANSACTIONS 1,077,183 (28,353) 545,571 451,152
------------------------------- -------------------------------
TOTAL INCREASE IN NET ASSETS 6,327,779 7,626,088 3,226,988 3,748,412
NET ASSETS
Beginning of period 19,131,028 11,504,940 7,308,164 3,559,752
------------------------------- -------------------------------
End of period $ 25,458,807 $ 19,131,028 $ 10,535,152 $ 7,308,164
=============================== ===============================
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
Diamond Hill Funds Semi-Annual Report June 30, 2004 Page 21
DIAMOND HILL FUNDS
Statements of Changes in Net Assets
FOCUS LONG-SHORT FUND BANK & FINANCIAL FUND
------------------------------- -------------------------------
SIX MONTHS SIX MONTHS
ENDED FOR THE YEAR ENDED FOR THE YEAR
JUNE 30, ENDED JUNE 30, ENDED
2004 DECEMBER 31, 2004 DECEMBER 31,
(UNAUDITED) 2003 (UNAUDITED) 2003
------------------------------- -------------------------------
FROM OPERATIONS
Net investment income (loss) $ (49,118) $ (31,638) $ 38,650 $ 39,852
Net realized gains from investment transactions 256,496 232,884 1,256,859 1,345,518
Net change in unrealized appreciation/depreciation on investments 1,365,028 3,103,206 (479,187) 2,390,948
------------------------------- -------------------------------
NET CHANGE IN NET ASSETS FROM OPERATIONS 1,572,406 3,304,452 816,322 3,776,318
------------------------------- -------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income - Class A -- -- -- (39,852)
From net realized gains on investments - Class A -- -- -- (843,497)
From net realized gains on investments - Class C -- -- -- (141,927)
------------------------------- -------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS -- -- -- (1,025,276)
------------------------------- -------------------------------
FROM CAPITAL TRANSACTIONS
CLASS A
Proceeds from shares sold 6,023,771 6,620,918 3,402,356 3,489,934
Reinvested distributions -- -- -- 807,819
Payments for shares redeemed (2,084,659) (4,504,896) (1,954,725) (4,251,333)
------------------------------- -------------------------------
NET INCREASE IN NET ASSETS FROM CLASS A
SHARE TRANSACTIONS 3,939,112 2,116,022 1,447,631 46,420
------------------------------- -------------------------------
CLASS C
Proceeds from shares sold 3,154,227 4,166,785 611,776 842,497
Reinvested distributions -- -- -- 105,945
Payments for shares redeemed (33,181) (666,385) (174,151) (78,803)
------------------------------- -------------------------------
NET INCREASE IN NET ASSETS FROM CLASS C
SHARE TRANSACTIONS 3,121,046 3,500,400 437,625 869,639
------------------------------- -------------------------------
TOTAL INCREASE IN NET ASSETS 8,632,564 8,920,874 2,701,578 3,667,101
NET ASSETS
Beginning of period 22,606,473 13,685,599 14,436,725 10,769,624
------------------------------- -------------------------------
End of period $ 31,239,037 $ 22,606,473 $ 17,138,303 $ 14,436,725
=============================== ===============================
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
Page 22 Diamond Hill Funds Semi-Annual Report June 30, 2004
DIAMOND HILL FUNDS
Statements of Changes in Net Assets
STRATEGIC SHORT TERM
INCOME FIXED INCOME
FUND FUND
------------------------------- -------------------------------
SIX MONTHS SIX MONTHS
ENDED FOR THE YEAR ENDED FOR THE YEAR
JUNE 30, ENDED JUNE 30, ENDED
2004 DECEMBER 31, 2004 DECEMBER 31,
(UNAUDITED) 2003 (UNAUDITED) 2003
------------------------------- -------------------------------
FROM OPERATIONS
Net investment income $ 789,359 $ 709,531 $ 73,251 $ 98,341
Net realized gains (losses) from investment transactions 395,578 549,468 (4,583) 3,046
Net change in unrealized appreciation/depreciation on investments (1,583,956) 858,518 (31,918) (9,909)
------------------------------- -------------------------------
NET CHANGE IN NET ASSETS FROM OPERATIONS (399,019) 2,117,517 36,750 91,478
------------------------------- -------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income - Class A (551,322) (549,681) (6,145) (15,150)
From net investment income - Class C (238,037) (159,850) -- --
From net investment income - Class I -- -- (85,512) (100,825)
From net realized gains on investments - Class A -- (136,498) -- --
From net realized gains on investments - Class C -- (61,355) -- --
------------------------------- -------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS (789,359) (907,384) (91,657) (115,975)
------------------------------- -------------------------------
FROM CAPITAL TRANSACTIONS
CLASS A
Proceeds from shares sold 5,883,491 14,442,711 77,776 328,829
Reinvested distributions 521,907 640,414 6,080 15,004
Payments for shares redeemed (1,041,477) (196,825) (79,552) (585,943)
------------------------------- -------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM CLASS A
SHARE TRANSACTIONS 5,363,921 14,886,300 4,304 (242,110)
------------------------------- -------------------------------
CLASS C
Proceeds from shares sold 4,293,350 8,291,544 -- --
Reinvested distributions 158,677 147,547 -- --
Payments for shares redeemed (895,050) (370,103) -- --
------------------------------- -------------------------------
NET INCREASE IN NET ASSETS FROM CLASS C
SHARE TRANSACTIONS 3,556,977 8,068,988 -- --
------------------------------- -------------------------------
CLASS I
Proceeds from shares sold -- -- 1,200,000 5,400,000
Reinvested distributions -- -- 84,713 99,941
Payments for shares redeemed -- -- (314,315) (2,328,483)
------------------------------- -------------------------------
NET INCREASE IN NET ASSETS FROM CLASS I
SHARE TRANSACTIONS -- -- 970,398 3,171,458
------------------------------- -------------------------------
TOTAL INCREASE IN NET ASSETS 7,732,520 24,165,421 919,795 2,904,851
NET ASSETS
Beginning of period 26,351,237 2,185,816 6,030,947 3,126,096
------------------------------- -------------------------------
End of period $ 34,083,757 $ 26,351,237 $ 6,950,742 $ 6,030,947
=============================== ===============================
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
Diamond Hill Funds Semi-Annual Report June 30, 2004 Page 23
DIAMOND HILL FUNDS
Schedule of Capital Share Transactions
SMALL CAP FUND LARGE CAP FUND FOCUS LONG-SHORT FUND
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS FOR THE SIX MONTHS FOR THE SIX MONTHS FOR THE
ENDED YEAR ENDED YEAR ENDED YEAR
JUNE 30, ENDED JUNE 30, ENDED JUNE 30, ENDED
2004 DECEMBER 31, 2004 DECEMBER 31, 2004 DECEMBER 31,
(UNAUDITED) 2003 (UNAUDITED) 2003 (UNAUDITED) 2003
- ------------------------------------------------------------------------------------------------------------------------------------
SHARES
CLASS A SHARES:
Issued 287,785 333,349 262,703 312,773 507,643 632,778
Reinvested -- 3,386 -- 2,457 -- --
Redeemed (113,700) (214,787) (77,691) (112,141) (174,220) (456,822)
-------------------------------------------------------------------------------------------
Net increase in shares outstanding 174,085 121,948 185,012 203,089 333,423 175,956
Shares outstanding, beginning of period 708,562 586,614 622,558 419,469 1,380,727 1,204,771
-------------------------------------------------------------------------------------------
Shares outstanding, end of period 882,647 708,562 807,570 622,558 1,714,150 1,380,727
-------------------------------------------------------------------------------------------
CLASS C SHARES:
Issued 122,733 189,406 55,135 90,686 268,971 392,608
Reinvested -- 1,966 -- 30 -- --
Redeemed (60,903) (194,823) (4,645) (38,871) (2,815) (66,137)
-------------------------------------------------------------------------------------------
Net increase (decrease) in shares
outstanding 61,830 (3,451) 50,490 51,845 266,156 326,471
Shares outstanding, beginning of period 438,449 441,900 85,080 33,235 556,658 230,187
-------------------------------------------------------------------------------------------
Shares outstanding, end of period 500,279 438,449 135,570 85,080 822,814 556,658
-------------------------------------------------------------------------------------------
SHORT TERM FIXED
BANK & FINANCIAL FUND STRATEGIC INCOME FUND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS FOR THE SIX MONTHS FOR THE SIX MONTHS FOR THE
ENDED YEAR ENDED YEAR ENDED YEAR
JUNE 30, ENDED JUNE 30, ENDED JUNE 30, ENDED
2004 DECEMBER 31, 2004 DECEMBER 31, 2004 DECEMBER 31,
(UNAUDITED) 2003 (UNAUDITED) 2003 (UNAUDITED) 2003
- ------------------------------------------------------------------------------------------------------------------------------------
SHARES
CLASS A SHARES:
Issued 185,535 217,138 508,050 1,304,876 7,845 32,706
Reinvested -- 46,038 45,481 56,609 609 1,493
Redeemed (106,809) (300,166) (90,529) (17,303) (7,939) (58,298)
-------------------------------------------------------------------------------------------
Net increase (decrease) in shares
outstanding 78,726 (36,990) 463,002 1,344,182 515 (24,099)
Shares outstanding, beginning of period 695,416 732,406 1,547,656 203,474 47,229 71,328
-------------------------------------------------------------------------------------------
Shares outstanding, end of period 774,142 695,416 2,010,658 1,547,656 47,744 47,229
-------------------------------------------------------------------------------------------
CLASS C / I SHARES(A):
Issued 34,314 53,252 369,355 738,922 120,990 538,662
Reinvested -- 6,250 13,837 12,951 8,499 9,962
Redeemed (9,794) (5,047) (78,836) (33,010) (31,411) (231,916)
-------------------------------------------------------------------------------------------
Net increase in shares outstanding 24,520 54,455 304,356 718,863 98,078 316,708
Shares outstanding, beginning of period 113,531 59,076 727,955 9,092 555,566 238,858
-------------------------------------------------------------------------------------------
Shares outstanding, end of period 138,051 113,531 1,032,311 727,955 653,644 555,566
-------------------------------------------------------------------------------------------
(A) Represents Class C shares for the Bank & Financial Fund and the Strategic
Income Fund, and Class I shares for the Short Term Fixed Income Fund.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
Page 24 Diamond Hill Funds Semi-Annual Report June 30, 2004
DIAMOND HILL FUNDS
Financial Highlights
For a share outstanding throughout each period.
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
2004 DECEMBER 31, DECEMBER 31, DECEMBER 31, FEBRUARY 28,
DIAMOND HILL SMALL CAP FUND - CLASS A (UNAUDITED) 2003 2002 2001(A) 2001(B)
-------------------------------------------------------------------------------------
Net asset value at beginning of period $ 16.82 $ 11.26 $12.29 $11.26 $10.00
-------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (0.05) (0.06) (0.17) (0.03) 0.02
Net realized and unrealized gains (losses)
on investments 1.81 5.71 (0.84) 1.31 1.24
-------------------------------------------------------------------------------------
Total from investment operations 1.76 5.65 (1.01) 1.28 1.26
-------------------------------------------------------------------------------------
Less Distributions:
Dividends from net investment income -- -- -- (0.01) --
Distributions from net realized gains -- (0.09) (0.02) (0.24) --
-------------------------------------------------------------------------------------
Total distributions -- (0.09) (0.02) (0.25) --
-------------------------------------------------------------------------------------
Net asset value at end of period $ 18.58 $ 16.82 $11.26 $12.29 $11.26
=====================================================================================
Total return(C) 10.46% (D) 50.18% (8.23%) 11.42% (D) 12.60%(D)
=====================================================================================
Net assets at end of period (000s) $16,401 $11,919 $6,603 $5,315 $1,657
=====================================================================================
Ratio of net expenses to average net assets 1.50% (E) 1.50% 1.50% 1.58% (E) 1.75%(E)
Ratio of net investment income (loss) to
average net assets (0.68%)(E) (0.57%) (0.70%) (0.35%)(E) 2.71%(E)
Ratio of gross expenses to average net assets 1.51% (E) 1.51% 1.53% 1.67% (E) 2.94%(E)
Portfolio turnover rate 48% (E) 53% 49% 43% (E) 3%(E)
(A) Effective after the close of business on February 28, 2001, the Fund
changed its fiscal year-end to December 31.
(B) Class A commenced operations on December 29, 2000. The Fund did not open
to shareholders until February 7, 2001. Financial Highlights for the
period from December 29, 2000 to February 6, 2001, relate only to the
initial shareholder.
(C) Total returns shown exclude the effect of applicable sales charges.
(D) Not annualized.
(E) Annualized.
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
2004 DECEMBER 31, DECEMBER 31, DECEMBER 31, FEBRUARY 28,
DIAMOND HILL SMALL CAP FUND - CLASS C (UNAUDITED) 2003 2002 2001(A) 2001(B)
---------------------------------------------------------------------------------------
Net asset value at beginning of period $16.45 $11.09 $12.21 $11.26 $11.39
---------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.12) (0.18) (0.23) (0.05) --
Net realized and unrealized gains
(losses) on investments 1.77 5.63 (0.87) 1.24 (0.13)
---------------------------------------------------------------------------------------
Total from investment operations 1.65 5.45 (1.10) 1.19 (0.13)
---------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.09) (0.02) (0.24) --
---------------------------------------------------------------------------------------
Net asset value at end of period $18.10 $16.45 $11.09 $12.21 $11.26
=======================================================================================
Total return(C) 10.03% (D) 49.15% (9.02%) 10.66% (D) (1.14%)(D)
=======================================================================================
Net assets at end of period (000s) $9,058 $7,213 $4,902 $1,284 $ 20
=======================================================================================
Ratio of net expenses to average net assets 2.25% (E) 2.25% 2.25% 2.26% (E) 2.50% (E)
Ratio of net investment income (loss) to
average net assets (1.44%)(E) (1.35%) (1.40%) (1.15%)(E) 0.80% (E)
Ratio of gross expenses to average net assets 2.26% (E) 2.26% 2.28% 2.35% (E) 3.97% (E)
Portfolio turnover rate 48% (E) 53% 49% 43% (E) 3% (E)
(A) Effective after the close of business on February 28, 2001, the Fund
changed its fiscal year-end to December 31.
(B) Class C commenced operations on February 20, 2001.
(C) Total returns shown exclude the effect of applicable sales charges.
(D) Not annualized.
(E) Annualized.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
Diamond Hill Funds Semi-Annual Report June 30, 2004 Page 25
DIAMOND HILL FUNDS
Financial Highlights
For a share outstanding throughout each period.
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED YEAR ENDED PERIOD ENDED
2004 DECEMBER 31, DECEMBER 31, DECEMBER 31,
DIAMOND HILL LARGE CAP FUND - CLASS A (UNAUDITED) 2003 2002 2001(A)
------------------------------------------------------------------------
Net asset value at beginning of period $10.34 $7.87 $10.06 $10.00
------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.01 0.04 0.04 0.01
Net realized and unrealized gains (losses) on investments 0.84 2.47 (2.13) 0.06
------------------------------------------------------------------------
Total from investment operations 0.85 2.51 (2.09) 0.07
------------------------------------------------------------------------
Less Distributions:
Dividends from net investment income -- (0.04) (0.04) (0.01)
Distributions from net realized gains -- -- (0.06) --
------------------------------------------------------------------------
Total distributions -- (0.04) (0.10) (0.01)
------------------------------------------------------------------------
Net asset value at end of period $11.19 $10.34 $7.87 $10.06
========================================================================
Total return(B) 8.22%(C) 31.92% (20.74%) 0.69%(C)
========================================================================
Net assets at end of period (000s) $9,039 $6,437 $3,300 $2,782
========================================================================
Ratio of net expenses to average net assets 1.40%(D) 1.39% 1.40% 1.40%(D)
Ratio of net investment income to average net assets 0.20%(D) 0.62% 0.62% 0.38%(D)
Ratio of gross expenses to average net assets 1.42%(D) 1.43% 1.46% 1.57%(D)
Portfolio turnover rate 23%(D) 32% 71% 19%(D)
(A) Class A commenced operations on June 29, 2001.
(B) Total returns shown exclude the effect of applicable sales charges.
(C) Not annualized.
(D) Annualized.
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED YEAR ENDED PERIOD ENDED
2004 DECEMBER 31, DECEMBER 31, DECEMBER 31,
DIAMOND HILL LARGE CAP FUND - CLASS C (UNAUDITED) 2003 2002 2001(A)
------------------------------------------------------------------------
Net asset value at beginning of period $10.23 $7.81 $10.06 $ 8.87
------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.02) -- -- (0.01)
Net realized and unrealized gains (losses) on investments 0.83 2.42 (2.19) 1.20
------------------------------------------------------------------------
Total from investment operations 0.81 2.42 (2.19) 1.19
------------------------------------------------------------------------
Distributions from net realized gains -- -- (0.06) --
------------------------------------------------------------------------
Net asset value at end of period $11.04 $10.23 $ 7.81 $10.06
========================================================================
Total return(B) 7.92% (C) 31.04% (21.73%) 13.42% (C)
========================================================================
Net assets at end of period (000s) $1,496 $ 871 $ 260 $ 262
========================================================================
Ratio of net expenses to average net assets 2.14% (D) 2.14% 2.15% 2.15% (D)
Ratio of net investment loss to average net assets (0.57%)(D) (0.14%) (0.10%) (0.41%)(D)
Ratio of gross expenses to average net assets 2.16% (D) 2.18% 2.81% 2.32% (D)
Portfolio turnover rate 23% (D) 32% 71% 19% (D)
(A) Class C commenced operations on September 25, 2001.
(B) Total returns shown exclude the effect of applicable sales charges.
(C) Not annualized.
(D) Annualized.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
Page 26 Diamond Hill Funds Semi-Annual Report June 30, 2004
DIAMOND HILL FUNDS
Financial Highlights
For a share outstanding throughout each period.
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
2004 DECEMBER 31, DECEMBER 31, DECEMBER 31, FEBRUARY 28,
DIAMOND HILL FOCUS LONG-SHORT FUND - CLASS A (UNAUDITED) 2003 2002 2001(A) 2001(B)
------------------------------------------------------------------------------------
Net asset value at beginning of period $ 11.75 $ 9.56 $ 10.67 $11.44 $10.00
------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.01) (0.01) (0.06) (0.04) --
Net realized and unrealized gains (losses)
on investments 0.68 2.20 (1.05) (0.56) 1.44
------------------------------------------------------------------------------------
Total from investment operations 0.67 2.19 (1.11) (0.60) 1.44
------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.17) --
------------------------------------------------------------------------------------
Net asset value at end of period $ 12.42 $ 11.75 $ 9.56 $10.67 $11.44
====================================================================================
Total return(C) 5.70% (D) 22.91% (10.40%) (5.20%)(D) 14.43% (D)
====================================================================================
Net assets at end of period (000s) $21,289 $16,216 $11,518 $10,988 $10,352
====================================================================================
Ratio of net expenses to average net assets,
excluding dividends on securities sold short 1.47% (E) 1.59% 1.48% 1.67% (E) 1.75% (E)
Ratio of dividend expense on securities sold
short to average net assets 0.13% 0.11% 0.12% -- --
------------------------------------------------------------------------------------
Ratio of net expenses to average net assets 1.60% (E) 1.70% 1.60% 1.67% (E) 1.75% (E)
------------------------------------------------------------------------------------
Ratio of net investment loss to average net assets (0.15%)(E) (0.07%) (0.39%) (0.46%)(E) (0.05%)(E)
Ratio of gross expenses to average net assets 1.61% (E) 1.71% 1.63% 1.69% (E) 1.85% (E)
Portfolio turnover rate 24% (E) 41% 46% 66% (E) 49% (E)
(A) Effective after the close of business on February 28, 2001, the Fund
changed its fiscal year-end to December 31.
(B) Class A commenced operations on June 30, 2000. The Fund did not open to
shareholders until August 3, 2000. Financial Highlights for the period
from June 30 to August 2, 2000, relate only to the initial shareholder.
(C) Total returns shown exclude the effect of applicable sales charges.
(D) Not annualized.
(E) Annualized.
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
2004 DECEMBER 31, DECEMBER 31, DECEMBER 31, FEBRUARY 28,
DIAMOND HILL FOCUS LONG-SHORT FUND - CLASS C (UNAUDITED) 2003 2002 2001(A) 2001(B)
------------------------------------------------------------------------------------
Net asset value at beginning of period $11.48 $ 9.42 $ 10.60 $11.44 $11.80
------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.04) (0.04) (0.29) (0.07) --
Net realized and unrealized gains (losses)
on investments 0.65 2.10 (0.89) (0.60) (0.36)
------------------------------------------------------------------------------------
Total from investment operations 0.61 2.06 (1.18) (0.67) (0.36)
------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.17) --
------------------------------------------------------------------------------------
Net asset value at end of period $12.09 $11.48 $ 9.42 $10.60 $11.44
====================================================================================
Total return(C) 5.31% (D) 21.87% (11.13%) (5.81%)(D) (3.05%)(D)
====================================================================================
Net assets at end of period (000s) $9,950 $6,390 $ 2,168 $2,198 $ 349
====================================================================================
Ratio of net expenses to average net assets,
excluding dividends on securities sold short 2.22% (E) 2.34% 2.23% 2.38% (E) 2.50% (E)
Ratio of dividend expense on securities sold
short to average net assets 0.13% 0.11% 0.12% -- --
------------------------------------------------------------------------------------
Ratio of net expenses to average net assets 2.35% (E) 2.45% 2.35% 2.38% (E) 2.50% (E)
------------------------------------------------------------------------------------
Ratio of net investment income (loss) to
average net assets (0.89%)(E) (0.75%) (1.15%) (1.15%)(E) 1.57% (E)
Ratio of gross expenses to average net assets 2.36% (E) 2.46% 2.38% 2.41% (E) 4.10% (E)
Portfolio turnover rate 24% (E) 41% 46% 66% (E) 49% (E)
(A) Effective after the close of business on February 28, 2001, the Fund
changed its fiscal year-end to December 31.
(B) Class C commenced operations on February 13, 2001.
(C) Total returns shown exclude the effect of applicable sales charges.
(D) Not annualized.
(E) Annualized.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
Diamond Hill Funds Semi-Annual Report June 30, 2004 Page 27
DIAMOND HILL FUNDS
Financial Highlights
For a share outstanding throughout each period.
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
DIAMOND HILL BANK & 2004 DECEMBER 31, DECEMBER 31, DECEMBER 31, FEBRUARY 28,
FINANCIAL FUND - CLASS A (UNAUDITED) 2003 2002 2001(A) 2001
- -----------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 17.92 $ 13.63 $14.25 $ 11.85 $ 9.40
-----------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) 0.05 0.07 0.03 -- (0.02)
Net realized and unrealized gains
(losses) on investments 0.91 5.60 1.58 2.40 2.47
-----------------------------------------------------------------------
Total from investment operations 0.96 5.67 1.61 2.40 2.45
-----------------------------------------------------------------------
Less Distributions:
Dividends from net investment
income -- (0.06) (0.03) -- --
Distributions from net realized
gains -- (1.32) (2.20) -- --
-----------------------------------------------------------------------
Total distributions -- (1.38) (2.23) -- --
-----------------------------------------------------------------------
Net asset value at end of period $ 18.88 $ 17.92 $13.63 $ 14.25 $ 11.85
=======================================================================
Total return(B) 5.36%(C) 41.85% 11.22% 20.25% (C) 26.06%
=======================================================================
Net assets at end of period (000s) $14,618 $12,463 $9,983 $13,214 $11,772
=======================================================================
Ratio of net expenses to average
net assets 1.70%(D) 1.68% 1.70% 1.72% (D) 1.81%
Ratio of net investment income
(loss) to average net assets 0.58%(D) 0.45% 0.20% (0.03%)(D) (0.25%)
Ratio of gross expenses to
average net assets 1.71%(D) 1.70% 1.72% 1.74% (D) 1.88%
Portfolio turnover rate 54%(D) 53% 104% 52% (D) 142%
YEAR ENDED YEAR ENDED
DIAMOND HILL BANK & FEBRUARY 29, FEBRUARY 28,
FINANCIAL FUND - CLASS A 2000 1999
- -------------------------------------------------------------------------
Net asset value at beginning of period $10.72 $ 12.75
-------------------------------
Income (loss) from investment operations:
Net investment income (loss) (0.06) (0.15)
Net realized and unrealized gains
(losses) on investments (1.19) (1.22)
-------------------------------
Total from investment operations (1.25) (1.37)
-------------------------------
Less Distributions:
Dividends from net investment
income -- --
Distributions from net realized
gains (0.07) (0.66)
-------------------------------
Total distributions (0.07) (0.66)
-------------------------------
Net asset value at end of period $ 9.40 $ 10.72
===============================
Total return(B) (11.75%) (10.79%)
===============================
Net assets at end of period (000s) $9,411 $15,716
===============================
Ratio of net expenses to average
net assets 2.17% 2.50%
Ratio of net investment income
(loss) to average net assets (0.40%) (1.27%)
Ratio of gross expenses to
average net assets 2.26% 2.50%
Portfolio turnover rate 119% 54%
(A) Effective after the close of business on February 28, 2001, the Fund
changed its fiscal year end to December 31.
(B) Total returns shown exclude the effect of applicable sales charges.
(C) Not annualized.
(D) Annualized.
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DIAMOND HILL BANK & 2004 DECEMBER 31, DECEMBER 31, DECEMBER 31, FEBRUARY 28, FEBRUARY 28,
FINANCIAL FUND - CLASS C (UNAUDITED) 2003 2002 2001(A) 2001 2000(B)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $17.39 $13.31 $14.05 $11.72 $ 9.34 $ 11.23
------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (0.01) (0.06) 0.04 (0.11) (0.07) (0.05)
Net realized and unrealized gains
(losses) on investments 0.87 5.46 1.46 2.44 2.45 (1.77)
------------------------------------------------------------------------------------
Total from investment operations 0.86 5.40 1.50 2.33 2.38 (1.82)
------------------------------------------------------------------------------------
Less Distributions:
Dividends from net investment income -- -- (0.04) -- -- --
Distributions from net realized gains -- (1.32) (2.20) -- -- (0.07)
------------------------------------------------------------------------------------
Total distributions -- (1.32) (2.24) -- -- (0.07)
------------------------------------------------------------------------------------
Net asset value at end of period $18.25 $17.39 $13.31 $14.05 $11.72 $ 9.34
====================================================================================
Total return(C) 4.95% (D) 40.85% 10.55% 19.88% (D) 25.48% (16.29%)(D)
====================================================================================
Net assets at end of period (000s) $2,520 $1,974 $ 787 $ 127 $ 129 $ 71
====================================================================================
Ratio of net expenses to average net assets 2.45% (E) 2.45% 2.45% 2.47% (E) 2.56% 2.74% (E)
Ratio of net investment loss to average
net assets (0.15%)(E) (0.30%) (0.49%) (0.77%)(E) (0.97%) (0.82%)(E)
Ratio of gross expenses to average net assets 2.46% (E) 2.47% 2.47% 2.49% (E) 2.63% 2.84% (E)
Portfolio turnover rate 54% (E) 53% 104% 52% (E) 142% 119% (E)
(A) Effective after the close of business on February 28, 2001, the Fund
changed its fiscal year end to December 31.
(B) Class C commenced operations on June 3, 1999.
(C) Total returns shown exclude the effect of applicable sales charges.
(D) Not annualized.
(E) Annualized.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
Page 28 Diamond Hill Funds Semi-Annual Report June 30, 2004
DIAMOND HILL FUNDS
Financial Highlights
For a share outstanding throughout each period.
CLASS A
------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED PERIOD ENDED
2004 DECEMBER 31, DECEMBER 31,
DIAMOND HILL STRATEGIC INCOME FUND (UNAUDITED) 2003 2002 (A)
- --------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 11.58 $ 10.28 $10.00
------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.30 0.67 0.15
Net realized and unrealized gains (losses)
on investments (0.38) 1.39 0.30
------------------------------------------------------
Total from investment operations (0.08) 2.06 0.45
------------------------------------------------------
Less distributions
Dividends from net investment income (0.30) (0.67) (0.15)
Distributions from net realized gains -- (0.09) (0.02)
------------------------------------------------------
Total distributions (0.30) (0.76) (0.17)
------------------------------------------------------
Net asset value at end of period $ 11.20 $ 11.58 $10.28
======================================================
Total return(B) (0.73%) (C) 20.67% 4.49%(C)
======================================================
Net assets at end of period (000s) $22,523 $17,923 $2,092
======================================================
Ratio of net expenses to average net assets 1.20% (D) 1.19% 1.20%(D)
Ratio of net investment income to average
net assets 5.31% (D) 6.01% 1.76%(D)
Ratio of gross expenses to average net assets 1.21% (D) 1.21% 1.23%(D)
Portfolio turnover rate 96% (D) 83% 77%(D)
CLASS C
--------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED PERIOD ENDED
2004 DECEMBER 31, DECEMBER 31,
DIAMOND HILL STRATEGIC INCOME FUND (UNAUDITED) 2003 2002 (A)
- ----------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 11.58 $10.28 $10.00
--------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.26 0.60 0.19
Net realized and unrealized gains (losses)
on investments (0.38) 1.39 0.30
--------------------------------------------------------
Total from investment operations (0.12) 1.99 0.49
--------------------------------------------------------
Less distributions
Dividends from net investment income (0.26) (0.60) (0.19)
Distributions from net realized gains -- (0.09) (0.02)
--------------------------------------------------------
Total distributions (0.26) (0.69) (0.21)
--------------------------------------------------------
Net asset value at end of period $ 11.20 $11.58 $10.28
========================================================
Total return(B) (1.10%)(C) 19.86% 4.85% (C)
========================================================
Net assets at end of period (000s) $11,561 $8,428 $94
========================================================
Ratio of net expenses to average net assets 1.95% (D) 1.93% 1.95% (D)
Ratio of net investment income to average
net assets 4.55% (D) 5.39% 2.64% (D)
Ratio of gross expenses to average net assets 1.96% (D) 1.95% 1.98% (D)
Portfolio turnover rate 96% (D) 83% 77% (D)
(A) Represents the period from commencement of operations (September 30, 2002)
through December 31, 2002.
(B) Total returns shown exclude the effect of applicable sales charges.
(C) Not annualized.
(D) Annualized.
CLASS A
------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED PERIOD ENDED
2004 DECEMBER 31, DECEMBER 31,
DIAMOND HILL SHORT TERM FIXED INCOME FUND (UNAUDITED) 2003 2002 (A)
- --------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $10.01 $10.08 $10.00
------------------------------------------------------
Income from investment operations:
Net investment income 0.14 0.27 0.18
Net realized and unrealized gains (losses)
on investments (0.09) (0.07) 0.08
------------------------------------------------------
Total from investment operations 0.05 0.20 0.26
------------------------------------------------------
Dividends from net investment income (0.14) (0.27) (0.18)
------------------------------------------------------
Net asset value at end of period $ 9.92 $10.01 $10.08
======================================================
Total return(B) 0.49%(C) 2.04% 2.60%(C)
======================================================
Net assets at end of period (000s) $ 474 $ 473 $ 719
======================================================
Ratio of net expenses to average net assets 1.00%(D) 1.00% 1.00%(D)
Ratio of net investment income to average
net assets 2.27%(D) 2.79% 3.61%(D)
Ratio of gross expenses to average net
assets 1.03%(D) 1.06% 1.04%(D)
Portfolio turnover rate 90%(D) 118% 71%(D)
CLASS I
------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED PERIOD ENDED
2004 DECEMBER 31, DECEMBER 31,
DIAMOND HILL SHORT TERM FIXED INCOME FUND (UNAUDITED) 2003 2002 (A)
- --------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $10.00 $10.08 $10.00
------------------------------------------------------
Income from investment operations:
Net investment income 0.15 0.31 0.19
Net realized and unrealized gains (losses)
on investments (0.09) (0.08) 0.08
------------------------------------------------------
Total from investment operations 0.06 0.23 0.27
------------------------------------------------------
Dividends from net investment income (0.15) (0.31) (0.19)
------------------------------------------------------
Net asset value at end of period $ 9.91 $10.00 $10.08
======================================================
Total return(B) 0.62%(C) 2.29% 2.70%(C)
======================================================
Net assets at end of period (000s) $6,477 $5,558 $2,407
======================================================
Ratio of net expenses to average net assets 0.75%(D) 0.75% 0.75%(D)
Ratio of net investment income to average
net assets 2.47%(D) 3.29% 3.74%(D)
Ratio of gross expenses to average net
assets 0.78%(D) 0.81% 0.79%(D)
Portfolio turnover rate 90%(D) 118% 71%(D)
See accompanying notes to financial statements.
(A) Represents the period from commencement of operations (June 28, 2002)
through December 31, 2002.
(B) Total returns shown exclude the effect of applicable sales charges.
(C) Not annualized.
(D) Annualized.
- --------------------------------------------------------------------------------
Diamond Hill Funds Semi-Annual Report June 30, 2004 Page 29
DIAMOND HILL FUNDS
Notes to Financial Statements
June 30, 2004 (Unaudited)
ORGANIZATION
The Diamond Hill Small Cap Fund ("Small Cap Fund"), Diamond Hill Large Cap Fund
("Large Cap Fund"), Diamond Hill Focus Long-Short Fund ("Focus Fund")(formerly
Diamond Hill Focus Fund), Diamond Hill Bank & Financial Fund ("Bank & Financial
Fund"), Diamond Hill Strategic Income Fund ("Strategic Income Fund")and Diamond
Hill Short Term Fixed Income Fund ("Short Term Fixed Income Fund"), are each a
series of the Diamond Hill Funds (the "Trust") (each a "Fund" and collectively
the "Funds").The Trust is an Ohio business trust, which is registered under the
Investment Company Act of 1940, as amended, (the "1940 Act") as an open-end,
management investment company. Each Fund is a diversified series of the Trust.
The Small Cap Fund, Large Cap Fund, Focus Fund, Bank & Financial Fund, and
Strategic Income Fund are each authorized to offer Class I shares but have not
commenced operations as of the date of this report.
The Funds offer two classes of shares (Class A and Class C, except for the Short
Term Fixed Income Fund which offers Class A and Class I shares). 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 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 pries 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 or other assets for which the above
valuation procedures are inappropriate or deemed not to reflect fair value are
valued at fair value as determined in good faith in accordance with procedures
approved by the Board of Trustees.
Short sales -- The Focus Fund, Bank & Financial 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 Statement of Assets & Liabilities.
Repurchase agreements -- In connection with transactions in repurchase
agreements, it is each Fund's policy that its custodian take possession of the
underlying collateral securities, the fair value of which exceeds the principal
amount of the repurchase transaction, including accrued interest, at all times.
If the seller defaults, and the fair value of the collateral declines,
realization of the collateral by the Funds may be delayed or limited.
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. Discount and premium 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.
- --------------------------------------------------------------------------------
Page 30 Diamond Hill Funds Semi-Annual Report June 30, 2004
DIAMOND HILL FUNDS
Notes to Financial Statements (Continued)
June 30, 2004 (Unaudited)
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 daily and paid monthly for the Strategic Income Fund and Short Term
Fixed Income Fund. Dividends from net investment income are declared and paid on
an annual basis for the Small Cap Fund, Large Cap Fund, Focus Fund, and Bank &
Financial Fund. Dividends are declared separately for each class. No class has
preferential dividend rights; differences in per share rates are due to
differences in separate class expenses. Net realized capital gains, if any, are
distributed at least annually. Distributions from net investment income and from
net capital gains are determined in accordance with U.S. income tax regulations,
which may differ from accounting principles generally accepted in the United
States.These differences are primarily due to differing treatments for
mortgage-backed securities, expiring capital loss carryforwards, and deferrals
of certain losses. Permanent book and tax basis differences have been
reclassified among the components of net assets. Certain funds may utilize
earnings and profits distributed to shareholders on redemption of shares as part
of the dividends paid deduction for income tax purposes.
Allocations -- Investment income earned, realized capital gains and losses, and
unrealized appreciation and depreciation for the Funds are allocated daily to
each class of shares based upon its proportionate share of total net assets of
the Fund. Class specific expenses are charged directly to the class incurring
the expense. Common expenses, which are not attributable to a specific class,
are allocated daily to each class of shares based upon its proportionate share
of total net assets of the Fund. Expenses not directly billed to a Fund are
allocated proportionally among all Funds daily in relation to net assets of each
Fund or another reasonable measure.
INVESTMENT TRANSACTIONS
For the six months ended June 30, 2004, 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 $ 4,794,631 $ 4,170,604
Large Cap Fund $ 2,684,984 $ 921,759
Focus Fund $ 8,313,936 $ 2,595,657
Bank & Fianancial Fund $ 5,493,692 $ 3,544,097
Strategic Income Fund $19,418,298 $12,997,963
Short Term Fixed Income Fund $ 2,313,431 $ 2,356,777
INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Small Cap Fund, Large Cap Fund, Focus Fund, Strategic Income Fund, and Short
Term Fixed 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%, 0.70%, 0.90%, 0.50%
and 0.30% of the Funds' average daily net assets, respectively. Prior to April
30, 2004, the Bank & Financial Fund received investment management and advisory
services from Diamond Hill Securities, Inc. ("DHS") under a management agreement
that provided for fees to be paid at an annual rate of 1.00% of the Fund's
average daily net assets. Effective April 30, 2004, the Bank & Financial Fund
receives investment management and advisory services from DHCM under a
management agreement that provides for fees to be paid at an annual rate of
1.00% of the Fund's average daily net assets.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 is paid a fee at an
annual rate of 0.45% of each Funds' average daily net assets. These
administrative fees are used to pay most of the Funds' operating expenses except
distribution, shareholder servicing, brokerage, taxes, interest, dividend
expense on securities sold short, fees and expenses of non-interested person
Trustees and extraordinary expenses. For the six months ended June 30, 2004, the
investment advisers reimbursed each Fund's trustee fees of $1,000.
DHS is a wholly-owned subsidiary of DHCM (a Registered Investment Adviser),
which is a wholly-owned subsidiary of Diamond Hill Investment Group, Inc. DHS is
a full service NASD Broker-Dealer and Registered Investment Adviser. For
- --------------------------------------------------------------------------------
Diamond Hill Funds Semi-Annual Report June 30, 2004 Page 31
DIAMOND HILL FUNDS
Notes to Financial Statements (Continued)
June 30, 2004 (Unaudited)
the six months ended June 30, 2004, DHS did not receive any commissions from
brokerage fees on executions of purchases and sales of the Funds' portfolio
investments.
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. Prior
to April 30, 2004, these fees compensated DHS (the prior "Distributor") for the
services it provided and for expenses borne under the Plans. Effective April 30,
2004, these fees, which totaled $242,466 for the six months ended June 30, 2004,
compensate IFS Fund Distributors, Inc. (the new "Distributor") for the services
it provides and for expenses borne under the Plans.
For the six months ended June 30, 2004, the prior Distributor and new
Distributor received $3,733, $1,013, $8,754, $2,940, and $1,032, in sales
commissions from the sales of Class A shares of the Small Cap Fund, Large Cap
Fund, Focus Fund, Bank & Financial Fund, and Strategic Income Fund,
respectively. The distributor also received $553, $396, $129, $670, and $7,272
of contingent deferred sales charges relating to redemptions of Class C shares
of the Small Cap Fund, Large Cap Fund, Focus Fund, Bank & Financial Fund, and
Strategic Income Fund, respectively.
DHCM has an agreement with Integrated Fund Services, Inc. ("IFS") 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
statements under federal and state laws. IFS is paid directly by DHCM under
terms of these services agreements.
The Small Cap Fund, Large Cap Fund, Focus Fund, Bank & Financial Fund and
Strategic Income Fund each may invest up to 25% of their respective assets in
the Short Term Fixed Income Fund, subject to compliance with the several
conditions set forth in an order received by the Trust from the Securities and
Exchange Commission. To the extent that the other Diamond Hill Funds are
invested in the Short Term Fixed Income Fund, the Adviser and Administrator will
be paid additional fees from the Short Term Fixed Income Fund that will not be
waived or reimbursed.
Certain officers of the Trust are affiliated with the Adviser, the Administrator
and the Distributor. Such officers receive no compensation from the Funds for
serving in their respective roles.
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
be different from accounting principles generally accepted in the United States.
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.
The tax character of distributions paid during 2003 and 2002 was as follows:
SMALL CAP FUND LARGE CAP FUND
-------------------------- --------------------------
2003 2002 2003 2002
-------------------------- --------------------------
Distributions paid from:
Ordinary income $ 98,800 $ 18,475 $ 26,642 $ 44,299
Long-term capital gains -- -- -- --
-------------------------- --------------------------
Total distributions $ 98,800 $ 18,475 $ 26,642 $ 44,299
========================== ==========================
FOCUS FUND BANK & FINANCIAL FUND
-------------------------- --------------------------
2003 2002 2003 2002
-------------------------- --------------------------
Distributions paid from:
Ordinary income $ -- $ -- $ 152,130 $ 23,321
Long-term capital gains -- -- 873,146 1,518,162
-------------------------- --------------------------
Total distributions $ -- $ -- $1,025,276 $1,541,483
========================== ==========================
- --------------------------------------------------------------------------------
Page 32 Diamond Hill Funds Semi-Annual Report June 30, 2004
DIAMOND HILL FUNDS
Notes to Financial Statements (Continued)
June 30, 2004 (Unaudited)
SHORT TERM
STRATEGIC INCOME FUND FIXED INCOME FUND
---------------------- ----------------------
2003 2002 2003 2002
---------------------- ----------------------
Distributions paid from:
Ordinary income $907,384 $ 28,379 $115,975 $ 51,622
Long-term gains -- -- -- --
---------------------- ----------------------
Total distributions $907,384 $ 28,379 $115,975 $ 51,622
====================== ======================
The following information is computed on a tax basis for each item as of
December 31, 2003:
SHORT
TERM
BANK & STRATEGIC FIXED
SMALL LARGE FOCUS FINANCIAL INCOME INCOME
CAP FUND CAP FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
Federal tax cost $13,777,550 $ 5,837,599 $19,939,429 $10,094,384 $24,912,685 $5,959,641
=======================================================================================
Gross unrealized appreciation $ 5,194,201 $ 1,478,980 $ 4,724,007 $ 3,445,617 $ 969,921 $ 31,970
Gross unrealized depreciation (108,558) (25,815) (514,062) (14,054) (65,049) (18,803)
---------------------------------------------------------------------------------------
Net unrealized appreciation 5,085,643 1,453,165 4,209,945 3,431,563 904,872 13,167
Undistributed ordinary income -- -- -- 135,524 296,324 --
Undistributed long-term gains -- -- -- 313,767 77,912 --
Unrealized depreciation on short securities -- -- (1,641,155) -- -- --
Post-October losses -- -- (1,083) -- -- (12,861)
Capital loss carryforwards (170,405) (425,956) (214,697) -- -- (7,370)
Other temporary differences -- -- -- -- (20,149) --
---------------------------------------------------------------------------------------
Total accumulated earnings (deficit) $ 4,915,238 $ 1,027,209 $ 2,353,010 $ 3,880,854 $ 1,258,959 $ (7,064)
=======================================================================================
The difference between book basis and tax basis net unrealized appreciation is
attributable primarily to the tax deferral of losses on wash sales.
As of December 31, 2003, the Funds had the following capital loss carryforwards
for Federal income tax purposes:
FUND AMOUNT EXPIRES DECEMBER 31,
- --------------------------------------------------------------------------------
Small Cap Fund $170,405 2011
========
Large Cap Fund $418,960 2010
6,996 2011
--------
$425,956
========
Focus Fund $154,656 2009
60,041 2011
--------
$214,697
========
Short Term Fixed Income Fund $ 2,710 2010
4,660 2011
--------
$ 7,370
========
COMMITMENTS AND CONTINGENCIES
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.
PROXY VOTING
A description of the policies and procedures that each Fund uses to determine
how to vote proxies relating to its portfolio securities is available without
charge upon request by calling toll free 1-888-226-5595 or on the Securities and
Exchange Commission's website @ http:\www.sec.gov.
- --------------------------------------------------------------------------------
Diamond Hill Funds Semi-Annual Report June 30, 2004 Page 33
DIAMOND HILL FUNDS
Performance Update
As of June 30, 2004
Six One Three Five Since Inception
Fund Name Months Year Years Years Inception Date
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Fund (DHSCX) Class A - Without Sales Charge 10.46% 41.62% 14.12% NA 20.29% 12/29/00
Class A - With Sales Charge 4.09% 33.52% 11.90% NA 18.28%
Class C - Without Sales Charge 10.03% 40.54% 13.21% NA 19.36%
Class C - With Sales Charge 9.03% 39.54% 13.21% NA 19.36%
Russell 2000 6.76% 33.37% 6.24% 7.32%
- ------------------------------------------------------------------------------------------------------------------------------------
Large Cap Fund (DHLAX) Class A - Without Sales Charge 8.22% 27.83% 4.45% NA 4.44% 6/29/01
Class A - With Sales Charge 2.01% 20.43% 2.41% NA 2.40%
Class C - Without Sales Charge 7.92% 26.95% 3.58% NA 3.58%
Class C - With Sales Charge 6.92% 25.95% 3.58% NA 3.58%
Russell 1000 3.32% 19.48% -0.32% -0.32%
- ------------------------------------------------------------------------------------------------------------------------------------
Focus Fund (DIAMX) Class A - Without Sales Charge 5.70% 17.50% 1.06% NA 6.00% 6/30/00
Class A - With Sales Charge -0.40% 10.79% -0.92% NA 4.45%
Class C - Without Sales Charge 5.31% 16.59% 0.24% NA 5.18%
Class C - With Sales Charge 4.31% 15.59% 0.24% NA 5.18%
Russell 3000 3.59% 20.46% 0.15% -3.57%
- ------------------------------------------------------------------------------------------------------------------------------------
Bank & Financial Fund
(BANCX) Class A - Without Sales Charge 5.36% 29.75% 20.64% 15.76% 14.37% 8/1/97
Class A - With Sales Charge -0.68% 22.27% 18.29% 14.39% 13.39%
Class C - Without Sales Charge 4.95% 28.76% 19.87% 15.04% 13.62%
Class C - With Sales Charge 3.95% 27.76% 19.87% 15.04% 13.62%
S&P Supercomposite
Financials(A) 2.61% 20.15% 2.80% 3.46% 6.61%
NASDAQ Bank Index 1.56% 21.17% 13.97% 11.93% 10.29%
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Income Fund
(DSIAX) Class A - Without Sales Charge -0.73% 5.91% NA NA 13.70% 9/30/02
Class A - With Sales Charge -5.47% 0.90% NA NA 10.57%
Class C - Without Sales Charge -1.10% 5.22% NA NA 13.25%
Class C - With Sales Charge -2.06% 4.22% NA NA 13.25%
Merril Lynch Domestic
Master Index 0.13% 0.30% 3.33%
- ------------------------------------------------------------------------------------------------------------------------------------
Short Term Fixed Income
Fund (DHFAX) Class A - Without Sales Charge 0.49% 1.39% NA NA 2.57% 6/28/02
Class A - With Sales Charge 0.19% 1.09% NA NA 2.42%
Class I - Without Sales Charge 0.62% 1.64% NA NA 2.81%
Merrill Lynch 1-3 Yr
Corp Govt Bond Index -0.02% 0.73% 3.13%
- ------------------------------------------------------------------------------------------------------------------------------------
Source: Diamond Hill Funds, Bloomberg LP and Frank Russell Company. Periods
greater than 1 year are annualized.
The performance data quoted represents past performance; past performance does
not guarantee future results.The investment return and principal value of an
investment will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than the performance data quoted.
Performance is not guaranteed. Performance returns assume reinvestment of all
distributions.The total return figures for the Fund reflect the maximum sales
charge applicable to each class. Class C Shares include performance based on
Class A shares, which was achieved prior to the creation of Class C Shares.
These returns have been restated for sales charges and for fees applicable to
Class C Shares, which includes a 1.00% 12b-1 fee. These total return figures may
reflect the waiver of a portion of a Fund's advisory or administrative fees for
certain periods. In such instances, and without such waiver of fees, the total
returns would have been lower. Investors should consider the investment
objectives, risks, and charges and expenses of the Diamond Hill Funds carefully
before investing; this and other information about the Funds is in the
prospectus, which can be obtained by calling 888-226-5595 or at
www.diamond-hill.com. Read the prospectus carefully before you invest.
(A) Returns for the S&P Supercomposite Financials are price change only before
November 29, 2001 and total return thereafter.
- --------------------------------------------------------------------------------
Page 34 Diamond Hill Funds Semi-Annual Report June 30, 2004
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 June 30, 2004. 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 June 30, 2004, and one using a hypothetical 5%
annual return (2.5% for the reporting period). Both return numbers are net of
expenses.
Net Expense Total Return Beginning Ending
Ratio Six Months Account Account Investment Admini- Distribution/
Annualized Ended Value Value Advisory stration Service Total Net
June 30,2004 June 30,2004 June 30,2004 June 30, 2004 Fees Fees Fees Expenses
- ------------------------------------------------------------------------------------------------------------------------------------
SMALL CAP FUND
Class A Actual return 1.50% 10.46% $1,000 $1,105 $4 $2 $ 2 $ 8
Hypothetical
return 1.50% 2.50% $1,000 $1,025 $4 $2 $ 2 $ 8
Class C Actual return 2.25% 10.03% $1,000 $1,100 $4 $2 $ 6 $12
Hypothetical
return 2.25% 2.50% $1,000 $1,025 $4 $2 $ 5 $11
LARGE CAP FUND
Class A Actual return 1.40% 8.22% $1,000 $1,082 $4 $2 $ 1 $ 7
Hypothetical
return 1.40% 2.50% $1,000 $1,025 $4 $2 $ 1 $ 7
Class C Actual return 2.14% 7.92% $1,000 $1,079 $4 $2 $ 5 $11
Hypothetical
return 2.14% 2.50% $1,000 $1,025 $4 $2 $ 5 $11
FOCUS LONG-SHORT FUND
Class A Actual return 1.60% 5.70% $1,000 $1,057 $5 $2 $ 1 $ 8
Hypothetical
return 1.60% 2.50% $1,000 $1,025 $5 $2 $ 1 $ 8
Class C Actual return 2.35% 5.31% $1,000 $1,053 $5 $2 $ 5 $12
Hypothetical
return 2.35% 2.50% $1,000 $1,025 $5 $2 $ 5 $12
BANK & FINANCIAL FUND
Class A Actual return 1.70% 5.36% $1,000 $1,054 $5 $2 $ 2 $ 9
Hypothetical
return 1.70% 2.50% $1,000 $1,025 $5 $2 $ 2 $ 9
Class C Actual return 2.45% 4.95% $1,000 $1,050 $5 $2 $ 5 $12
Hypothetical
return 2.45% 2.50% $1,000 $1,025 $5 $2 $ 5 $12
STRATEGIC INCOME FUND
Class A Actual return 1.20% (0.73%) $1,000 $ 993 $3 $2 $ 1 $ 6
Hypothetical
return 1.20% 2.50% $1,000 $1,025 $3 $2 $ 1 $ 6
Class C Actual return 1.95% (1.10%) $1,000 $ 989 $3 $2 $ 5 $10
Hypothetical
return 1.95% 2.50% $1,000 $1,025 $3 $2 $ 5 $10
SHORT TERM FIXED INCOME FUND
Class A Actual return 1.00% 0.49% $1,000 $1,005 $2 $2 $ 1 $ 5
Hypothetical
return 1.00% 2.50% $1,000 $1,025 $2 $2 $ 1 $ 5
Class I Actual return 0.75% 0.62% $1,000 $1,006 $2 $2 $-- $ 4
Hypothetical
return 0.75% 2.50% $1,000 $1,025 $2 $2 $-- $ 4
- ----------
You can find more information about the Fund's expenses, including annual
expense ratios for historical periods in the Financial Statements section of
this report. For additional information on operating expenses and other
shareholder costs, please refer to the Fund's prospectus. The prospectus
presents hypothetical shareholder costs over various time periods based upon a
$10,000 investment and a return of 5% a year. This standardized example, which
appears in all mutual fund prospectuses, may be useful to you in comparing the
costs of investing in different funds.
- --------------------------------------------------------------------------------
Diamond Hill Funds Semi-Annual Report June 30, 2004 Page 35
DIAMOND HILL FUNDS
MANAGEMENT OF THE TRUST
Listed in the charts below is basic information regarding the Trustees and
officers of the Trust.
INTERESTED/DISINTERESTED TRUSTEES:
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS IN OTHER TRUSTEESHIPS
NAME/ POSITION(S) TERM OF OFFICE(1) FUND COMPLEX HELD BY TRUSTEE
ADDRESS/(4) HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY OUTSIDE THE FUND
AGE TRUST TIME SERVED DURING LAST 5 YEARS TRUSTEE COMPLEX
- ------------------------------------------------------------------------------------------------------------------------------------
William P. Zox, CFA(2) Trustee Since August 2000 Investment Analyst with 6 N/A
Year of Birth: 1967 Diamond Hill Capital
Management, Inc., since
January 2001. Partner with
Schottenstein, Zox and
Dunn Co., LPA, a law firm,
January 2000 to December 2000.
Associate with Schottenstein,
Zox and Dunn Co., LPA, 1993
to Janaury 2000.
John M. Bobb Trustee Since October 1997 Director of Headwaters Group, 6 N/A
Year of Birth: 1941 a fine arts consulting agency,
1994 to the present.
George A. Skestos Trustee Since August 2000 President of Homewood Corp., 6 Director of the
Year of Birth: 1968 a real estate development firm, Midland Life
1999 to the present. Insurance Co.
Archie M. Griffin Trustee Since June 2001 President and CEO of The Ohio 6 Director of
Year of Birth: 1954 State Alumni Association, Inc., 2004. Abercrombie & Fitch.
Associate Director of Athletics at Director of
The Ohio State University, Motorists Insurance.
1994 to 2003. Director of the Ohio
Auto Club.
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OFFICERS:
- ------------------------------------------------------------------------------------------------------------------------------------
NAME/ POSITION(S) TERM OF OFFICE
ADDRESS/(4) HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION(S)
AGE TRUST TIME SERVED DURING LAST 5 YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
James F. Laird, Jr.(3) President President Since Chief Financial Officer of Diamond Hill Investment Group, Inc.,
Year of Birth: 1957 December 2001; since December 2001. President of Diamond Hill Securities
Treasurer and since July 2001. Vice President Corporate Strategy with Nationwide
Secretary Since Insurance from January 2001 to July 2001. Senior Vice President
May 2003 Product Development with Villanova Capital from February 1999
through December 2000.
Gary R.Young(3) Treasurer Since May 2004 Director of Mutual Fund Administration with Banc One Investment
Year of Birth: 1969 and Advisors October 1998 through November 2003. Vice President and
Secretary Manager of Mutual Fund Accounting and Financial Reporting with First
Chicago NBD January 1996 through October 1998.
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(1) 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.
(2) Mr. Zox is an "interested person" of the Trust as defined in the
Investment Company Act of 1940, as amended, because of his relationship
with Diamond Hill Capital Management, Inc.
(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 Investment Group, Inc. and with
Diamond Hill Securities.
(4) The address of each Trustee and Officer is 375 North Front Street, Suite
300, Columbus, Ohio 43215.
The Statement of Additional Information contains additional information about
the Trustees and is available without charge upon request by calling
1-888-226-5595.
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Page 36 Diamond Hill Funds Semi-Annual Report June 30, 2004
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ITEM 2. CODE OF ETHICS.
Not required in semi-annual report filing.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not required in semi-annual report filing.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not required in semi-annual report filing.
ITEM 5. AUDIT COMMITTEE OF LISTED COMPANIES.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
The schedule is included as part of the report to shareholders filed under Item
1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END FUNDS.
Not applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END FUNDS.
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 10. 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), the registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and procedures
are effective based on our evaluation of these controls and procedures as of a
date within 90 days of the filing date of this report.
(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 11. EXHIBITS.
(a)(1) Not required in semi-annual report filing.
(a)(2) Certifications required by Item 10(a) of Form N-CSR are filed herewith.
(b) Certifications required by Item 10(b) of Form N-CSR are 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, Jr.
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James F. Laird, Jr.
President
Date: September 7, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)
/s/ James F. Laird, Jr.
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James F. Laird, Jr.
President
Date: September 7, 2004
By (Signature and Title)
/s/ Gary R. Young
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Gary R. Young.
Treasurer and Chief Financial Officer
Date: September 7, 2004