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
811-05734
Diamond Hill Financial Trends Fund, Inc.
(Exact name of registrant as specified in charter)
325 John H. McConnell Boulevard, Suite 200, Columbus, Ohio 43215
(Address of principal executive offices) (Zip code)
James F. Laird, Jr., 325 John H. McConnell Boulevard, Suite 200, Columbus, Ohio 43215
(Name and address of agent for service)
Registrants
telephone number, including area code:
(614) 255-3333
Date of fiscal year end:
12/31
Date of reporting period:
12/31/08
Form N-CSR is to be used by management investment companies to file reports with the Commission not
later than 10 days after the transmission to stockholders of any report that is required to be
transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR
270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory,
disclosure review, inspection and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission
will make this information public. A registrant is not required to respond to the collection of
information contained in Form N-CSR unless the Form displays a currently valid Office of Management
and Budget (OMB) control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the burden to Secretary,
Securities and Exchange Commission, Washington, DC 20549-0102. The OMB has reviewed this
collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Reports to Stockholders.
TABLE OF CONTENTS
|
Your fund at a glance
page 1
|
Portfolio Commentary
page 2
|
Funds investments
page 4
|
Financial statements
page 8
|
Notes to financial statements
page 12
|
Directors and officers
page 21
|
Welcome
Dear Fellow Shareholders:
After enduring a difficult first half of 2008, the remainder of the year saw the market decline
accelerate as the negative effects of the credit crisis and the rapidly eroding economic
environment became apparent. Large cap stocks (S&P 500 -36.98%) finished the year sharply lower
while the mid-cap and small-cap portions of the market (Russell 2000 -33.79%) closed out 2008 with
sizeable declines as well. Since the strains were first felt in the summer of 2007, the credit
crises that began in the lower quality domestic mortgage area has touched most asset classes around
the world and has essentially shaken the global financial system to its core. The crisis has also
elicited an unprecedented response from governments around the world. Throughout the year we
witnessed new programs and liquidity facilities being made available to many in the financial
services sector. While these programs seem to have helped stabilize the situation, the longer term
effects will undoubtedly be felt for years to come and debated for decades.
The S&P 1500 Supercomposite Financials Index was down over 52% for the year while the Fund declined
44.3% at net asset value. Once again, these difficult periods of investment performance are never
easy. However after enduring long periods of poor performance equity markets often post strong
returns. While we obviously dont know when the markets will begin to improve, we do believe that
prices reflect much of the current uncertainty and we therefore encourage fellow shareholders to
maintain a long-term horizon as part of the investment process.
Looking forward, we are unequivocally optimistic about financial stocks. Many areas within the
sector are now priced at levels not seen in many years and again seem to discount the severe
cyclical headwinds. Near term fundamentals are likely to remain challenging but we believe the
stock returns generated from these depressed levels will turn out to be quite attractive down the
road.
We therefore begin 2009 optimistic regarding the long-term investment outlook for U.S. equities in
general and financial stocks in particular. And as always, on behalf of your Board of Directors, I
would like to assure you of our collective commitment to meeting our fiduciary duty to our fellow
shareholders.
Sincerely,
Franklin C. Golden
Chairman of Diamond Hill Financial Trends Fund, Inc.
Your fund at a glance
The Fund seeks long-term capital appreciation with current income as a
secondary objective by investing at least 80% of its assets in stocks of
U.S. financial services companies of any size.
Over the last year
Ø
|
|
The year witnessed an extremely difficult domestic equity market,
with October marking a precipitous decline in our capital markets
resulting in the collapse of Lehman Brothers, Fannie Mae, Freddie
Mac and Washington Mutual along with the distressed sales of
Wachovia, Bearn Stearns and Merrill Lynch.
|
Ø
|
|
The current crisis originated in the financial sector driving down
financial stock performance and spreading throughout the economy
despite dramatic policy actions by the Federal Government.
|
Ø
|
|
The fund outperformed its benchmark by 7.9%, however, finished the
year down 44.3% due to heavy exposure to credit sensitive areas
such as banks and thrifts.
|
Diamond Hill Financial Trends Fund, Inc.
Funds average annual total returns for various periods ended December 31, 2008
The total returns for the Fund are at net asset value and include the reinvestment of all
distributions. The performance data contained within this material represents past performance,
which does not guarantee future results.
Top 10 holdings
|
|
|
|
|
Wells Fargo & Co.
|
|
|
7.3
|
%
|
J.P. Morgan Chase & Co.
|
|
|
6.2
|
%
|
U.S. Bancorp
|
|
|
4.5
|
%
|
Huntington Bancshares, Inc.
|
|
|
4.5
|
%
|
Allstate Corp.
|
|
|
4.4
|
%
|
American Express Co.
|
|
|
3.9
|
%
|
Bank of New York Mellon Corp.
|
|
|
3.9
|
%
|
National City Capital IV, 8.00%, 9/15/47
|
|
|
3.6
|
%
|
Assurant, Inc.
|
|
|
3.5
|
%
|
Synovus Financial Corp.
|
|
|
3.4
|
%
|
As a percentage of net assets on December 31, 2008.
1
Portfolio Commentary
Thank you for your interest in the Diamond Hill Financial Trends Fund, Inc.
The past year was a very difficult one for the domestic equity markets, the financial sector as
well and as the fund. During 2008, the fund declined by 44.3% on a net asset value (NAV) basis
while its primary benchmark (the S&P 1500 Supercomposite Financials Index) posted a total return of
-52.2%. Diversified equity indices were sharply lower for the second-half as well as the entire
calendar year. The disparity in performance between the diversified equity markets and the
financial sector narrowed considerably during the second half as the overall macro environment
placed severe pressure on virtually every domestic asset class. As we frequently communicate to
both current and prospective investors, we judge ourselves based on long-term returns (rolling five
year periods) and on that front we are disappointed with the trailing results on an absolute basis.
Through December 31, 2008, the fund has returned 5.09% annually since its inception in 1989, while
the past five years have produced a -6.88% annual return. Given the dismal returns domestic equity
capital has generated over the past decade, one may not be surprised to read that we expect much
better returns prospectively for both the equity markets in general as well as the financial
sector. Consistent with this outlook we are finding many opportunities at large discounts to our
estimates of long-term intrinsic value.
During the past year, our capital markets witnessed remarkable developments the collapse of
Lehman Brothers, Fannie Mae and Freddie Mac, as well as Washington Mutual a host of distressed
sales Wachovia, Bear Stearns and Merrill Lynch and unprecedented actions by our Treasury and
Federal Reserve to combat the severe dislocations in the credit markets. Even with these dramatic
policy actions, markets here and around the globe continued under considerable stress as
uncertainty with the overall economy intensified throughout the year. This now global instability
has led to much broader economic weakness and tremendous downward pressure on most asset classes
around the world. As is often the case with many of the credit sensitive areas (bank, thrifts,
etc.), the stocks appear to be valued at near trough valuation levels on well below normalized
earnings. However, in near term fundamentals, many areas of the sector are still struggling
mightily and given the current state of the economy, this year looks to be another very difficult
one in terms of credit quality. Looking beyond the current recessionary environment reveals many
industries (financial as well as many others) with shrinking capacity and improved efficiencies
which often leads to improved competitive positioning for those companies able to survive. More
specifically, efficiency gains are being sought with tremendous urgency, capacity has been removed
in many areas (most notably in mortgage finance) through failures and forced mergers and credit
spreads have continued at historically wide levels allowing for improved risk-adjusted margins.
Also, as we mentioned last year, the radical changes in the structured finance market are likely to
help many depository institutions over the long-term as they once again become the primary
intermediaries of credit.
Given our usual long-term outlook, combined with attractive prices (especially based on normalized
earnings levels) we continue to have a heavy long bias in the portfolio. In particular, we have
been adding most aggressively to companies which we believe have been able to substantially improve
their competitive position during the current economic/credit cycle. Examples would be two long
time holdings Wells Fargo (a 7.3% position on December 31, 2008) and U.S. Bancorp (4.5%) as
well as J.P. Morgan (6.2%) which was added during the
2
Christopher M. Bingaman, CFA, Portfolio Manager and
William C. Dierker, CFA, Assistant Portfolio Manager
most recent quarter. These companies all have been beneficiaries of forced mergers and should be
well positioned coming out of the current recession. We are also finding value in a number of
insurance companies and asset managers as the overall equity market decline has severely depressed
valuations in these areas. Regarding Mergers & Acquisitions in general, we do not expect a pick up
in deal activity in the very near term however continued consolidation within many areas of the
sector is likely given the continuing secular growth challenges and opportunities for significant
efficiency gains.
In terms of contributions to performance, the largest positive contributors were three preferred
issues (NCC 3.06%, WB 1.95% and CFC/BAC 1.80%) and a few individual equities that either managed to
avoid the worst of the credit crisis or were added at opportune times during the year. Among these,
UCBH (2.06%) was the standout performer after being initially added to the portfolio during the
summer lows. On the other end of the spectrum, the poorest performers were many of the large cap
credit sensitive companies (AIG, BAC (2.90%), C (1.08%) and WB) which were unable to shed concerns
regarding credit exposures and capital levels. During the year we also began to short securities in
the fund. The short positions were positive contributors during the period but were much smaller in
number and position size.
The eliminations and new holdings in fund were somewhat higher than normal as we continue to make
changes to the portfolio. We sold entire positions in a handful of stocks including AIG, Wachovia,
Cullen Frost, South Street Financial, ProAssurance and Stancorp Financial Group. Recent additions
to the fund include Assurant (3.46%), Old Republic (1.93%) and T. Rowe Price (1.11%). Consistent
with our overall investment philosophy, we believe investors in the fund will benefit from a
relatively concentrated portfolio. Going forward the portfolio will typically hold between 40 and
50 stocks on the long side with an average position size of roughly between 2% and 2.5%. We also
believe adding the shorting capability will provide clear long-term benefits and intend to
typically have between 10 and 25 on the short side with slightly smaller position sizes. Once
again, our objective is to use shorting as a tool to enhance our performance over time.
As always, we would like to thank our shareholders for their continued support of the fund.
|
|
|
|
|
|
Christopher M. Bingaman, CFA
|
|
William C. Dierker, CFA
|
Portfolio Manager
|
|
Assistant Portfolio Manager
|
Diamond Hill Financial Trends Fund, Inc.
3
Diamond Hill Financial Trends Fund, Inc.
Schedule of Investments
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
Shares
|
|
Value
|
|
Preferred Stocks 7.3%
|
|
|
|
|
|
|
|
|
Financial 5.4%
|
|
|
|
|
|
|
|
|
Countrywide Capital V, 7.00%, 11/1/36
à
|
|
|
35,000
|
|
|
$
|
599,900
|
|
National City Capital IV, 8.00%, 9/15/47
|
|
|
57,150
|
|
|
|
1,201,293
|
|
|
|
|
|
|
|
|
|
1,801,193
|
|
|
Real Estate Investment Trust 1.9%
|
|
|
|
|
|
|
|
|
Wachovia Preferred Funding REIT
|
|
|
32,215
|
|
|
|
649,454
|
|
|
Total Preferred Stocks
|
|
|
|
|
|
|
2,450,647
|
|
|
|
|
|
|
|
|
|
|
|
Common Stocks 90.6%
|
|
|
|
|
|
|
|
|
Finance Banks & Thrifts 50.4%
|
|
|
|
|
|
|
|
|
Bank of New York Mellon Corp.
|
|
|
45,741
|
|
|
|
1,295,843
|
|
BB&T Corp.
à
|
|
|
27,382
|
|
|
|
751,910
|
|
City National Corp.
à
|
|
|
12,990
|
|
|
|
632,613
|
|
Colonial BancGroup, Inc.
à
|
|
|
71,128
|
|
|
|
147,235
|
|
First Bancorp., Inc.
à
|
|
|
15,532
|
|
|
|
285,012
|
|
First Financial Holdings, Inc.
à
|
|
|
15,000
|
|
|
|
303,600
|
|
First Horizon National Corp.
à
|
|
|
41,172
|
|
|
|
435,191
|
|
FirstFed Financial Corp.*
à
|
|
|
130,830
|
|
|
|
228,953
|
|
Huntington Bancshares, Inc.
à
|
|
|
194,325
|
|
|
|
1,488,530
|
|
iStar Financial, Inc. REIT
à
|
|
|
80,000
|
|
|
|
178,400
|
|
J.P. Morgan Chase & Co.
|
|
|
65,523
|
|
|
|
2,065,940
|
|
NewBridge Bancorp.
|
|
|
51,512
|
|
|
|
122,599
|
|
Pinnacle Financial Partners, Inc.*
à
|
|
|
17,000
|
|
|
|
506,770
|
|
PNC Financial Services Group, Inc.
|
|
|
17,600
|
|
|
|
862,400
|
|
Seacoast Banking Corp. of Florida
à
|
|
|
23,920
|
|
|
|
157,872
|
|
State Street Corp.
|
|
|
12,000
|
|
|
|
471,960
|
|
SunTrust Banks, Inc.
|
|
|
25,006
|
|
|
|
738,677
|
|
Synovus Financial Corp.
à
|
|
|
135,355
|
|
|
|
1,123,447
|
|
TCF Financial Corp.
à
|
|
|
25,150
|
|
|
|
343,549
|
|
U.S. Bancorp
|
|
|
60,630
|
|
|
|
1,516,356
|
|
UCBH Holdings, Inc.
à
|
|
|
100,000
|
|
|
|
688,000
|
|
Wells Fargo & Co.
|
|
|
82,625
|
|
|
|
2,435,784
|
|
|
|
|
|
|
|
|
|
16,780,641
|
|
|
Finance Broker Dealer 3.5%
|
|
|
|
|
|
|
|
|
Merrill Lynch & Co., Inc.
|
|
|
65,550
|
|
|
|
763,002
|
|
Morgan Stanley
|
|
|
25,000
|
|
|
|
401,000
|
|
|
|
|
|
|
|
|
|
1,164,002
|
|
|
|
|
|
|
|
|
Diamond Hill Financial Trends Fund, Inc.
|
|
See notes to financial statements
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
Shares
|
|
Value
|
|
Finance Services 6.0%
|
|
|
|
|
|
|
|
|
Affiliated Managers Group, Inc.*
à
|
|
|
15,000
|
|
|
$
|
628,800
|
|
Eaton Vance Corp.
à
|
|
|
10,000
|
|
|
|
210,100
|
|
Raymond James Financial, Inc.
à
|
|
|
45,925
|
|
|
|
786,695
|
|
T. Rowe Price Group, Inc.
à
|
|
|
10,420
|
|
|
|
369,285
|
|
|
|
|
|
|
|
|
|
1,994,880
|
|
|
Financial Diversified 4.0%
|
|
|
|
|
|
|
|
|
Bank of America Corp.
|
|
|
68,635
|
|
|
|
966,380
|
|
Citigroup, Inc.
|
|
|
53,850
|
|
|
|
361,334
|
|
|
|
|
|
|
|
|
|
1,327,714
|
|
|
Financial Specialties 5.5%
|
|
|
|
|
|
|
|
|
American Express Co.
|
|
|
70,740
|
|
|
|
1,312,227
|
|
Discover Financial Services
|
|
|
55,831
|
|
|
|
532,069
|
|
|
|
|
|
|
|
|
|
1,844,296
|
|
|
Insurance 21.2%
|
|
|
|
|
|
|
|
|
AFLAC, Inc.
|
|
|
9,000
|
|
|
|
412,560
|
|
Allstate Corp.
|
|
|
45,000
|
|
|
|
1,474,199
|
|
Assurant, Inc.
|
|
|
38,480
|
|
|
|
1,154,400
|
|
Assured Guaranty Ltd.
à
|
|
|
56,460
|
|
|
|
643,644
|
|
Hanover Insurance Group, Inc.
|
|
|
7,000
|
|
|
|
300,790
|
|
Hartford Financial Services Group, Inc., The
à
|
|
|
35,210
|
|
|
|
578,148
|
|
Old Republic International Corp.
|
|
|
54,080
|
|
|
|
644,634
|
|
Prudential Financial, Inc.
|
|
|
23,110
|
|
|
|
699,309
|
|
Travelers Companies, Inc., The
|
|
|
23,310
|
|
|
|
1,053,612
|
|
XL Capital Ltd. Class A
|
|
|
34,245
|
|
|
|
126,707
|
|
|
|
|
|
|
|
|
|
7,088,003
|
|
|
|
|
|
|
|
|
|
|
|
Total Common Stocks
|
|
|
|
|
|
$
|
30,199,536
|
|
|
|
|
|
Par
|
|
Market
|
|
|
Value
|
|
Value
|
|
Certificates Of Deposit 0.0%
|
|
|
|
|
|
|
|
|
First Piedmont, 2.00%, 09/29/09
|
|
$
|
2,158
|
|
|
$
|
2,158
|
|
Oconee Federal Savings Bank, 3.25%, 09/27/09
|
|
|
2,678
|
|
|
|
2,678
|
|
Piedmont Federal Savings Bank, 2.00%, 10/09/09
|
|
|
2,446
|
|
|
|
2,446
|
|
Security Savings Bank, 2.13%, 09/28/09
|
|
|
2,364
|
|
|
|
2,364
|
|
Stephen Federal Bank, 3.00%, 10/11/09
|
|
|
2,075
|
|
|
|
2,075
|
|
|
Total Certificates Of Deposit
|
|
|
|
|
|
$
|
11,721
|
|
|
|
|
|
|
|
|
See notes to financial statements
|
|
Diamond Hill Financial Trends Fund, Inc.
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
Shares
|
|
Value
|
|
Registered Investment Companies 24.2%
|
|
|
|
|
|
|
|
|
J.P. Morgan Prime Money Market Fund
|
|
|
7,084,537
|
|
|
$
|
7,084,537
|
|
J.P. Morgan U.S. Government Money Market Fund
|
|
|
994,335
|
|
|
|
994,335
|
|
|
Total Registered Investment Companies
|
|
|
|
|
|
$
|
8,078,872
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment Securities 122.1%
|
|
|
|
|
|
|
|
|
(Cost $45,043,140) **
|
|
|
|
|
|
$
|
40,740,776
|
|
|
|
|
|
|
|
|
|
|
Segregated Cash With Brokers 6.4%
|
|
|
|
|
|
|
2,157,586
|
|
|
|
|
|
|
|
|
|
|
Securities Sold Short (10.1%)
|
|
|
|
|
|
|
|
|
(Proceeds $3,735,843)
|
|
|
|
|
|
|
(3,381,765
|
)
|
|
|
|
|
|
|
|
|
|
Liabilities In Excess Of Other Assets (18.4%)
|
|
|
|
|
|
|
(6,146,121
|
)
|
|
|
|
|
|
|
|
|
|
|
Net Assets 100.0%
|
|
|
|
|
|
$
|
33,370,476
|
|
|
|
|
|
|
*
|
|
Non-income producing security.
|
|
**
|
|
Represents cost for financial reporting purposes.
|
|
|
|
Security position is either entirely or partially held in a
segregated account as collateral for securities sold short aggregating a
total market value of $4,583,701.
|
|
à
|
|
All or a portion of the security is on loan. The total market
value of the securities on loan, as of December 31, 2008, was $7,158,808.
|
|
|
|
The entire security represents collateral for securities
loaned as of December 31, 2008.
|
|
REIT Real Estate Investment
Trust
|
|
|
|
|
|
|
Diamond Hill Financial Trends Fund, Inc.
|
|
See notes to financial statements
|
6
Diamond Hill Financial Trends Fund, Inc.
Schedule of Securities Sold Short
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
Shares
|
|
Value
|
|
Common Stocks 100.0%
|
|
|
|
|
|
|
|
|
Finance Banks & Thrifts 94.3%
|
|
|
|
|
|
|
|
|
First Financial Bankshares, Inc.
|
|
|
5,915
|
|
|
$
|
326,567
|
|
Home Bancshares, Inc.
|
|
|
18,005
|
|
|
|
485,235
|
|
M&T Bank Corp.
|
|
|
5,370
|
|
|
|
308,292
|
|
Peoples Bancorp, Inc.
|
|
|
23,970
|
|
|
|
458,546
|
|
Valley National Bancorp
|
|
|
24,415
|
|
|
|
494,404
|
|
WesBanco, Inc.
|
|
|
20,090
|
|
|
|
546,649
|
|
Westamerica Bancorp.
|
|
|
3,280
|
|
|
|
167,771
|
|
Westwood Holdings Group, Inc.
|
|
|
14,094
|
|
|
|
400,411
|
|
|
|
|
|
|
|
|
|
3,187,875
|
|
|
Finance Broker Dealer 5.7%
|
|
|
|
|
|
|
|
|
KBW, Inc.*
|
|
|
8,430
|
|
|
|
193,890
|
|
|
|
|
|
|
|
|
|
|
|
Total Common Stocks Sold Short 100.0%
|
|
|
|
|
|
|
|
|
(Proceeds $3,735,843)
|
|
|
|
|
|
$
|
3,381,765
|
|
|
|
|
|
|
*
|
|
Non-dividend expense producing security.
|
|
|
|
|
|
|
See notes to financial statements
|
|
Diamond Hill Financial Trends Fund, Inc.
|
7
Financial Statements
Statements of Assets and Liabilities December 31, 2008
This Statement of Assets and Liabilities is the Funds balance sheet. It
shows the value of what the Fund owns, is due and owes. Youll also find the
net asset value for each common share.
|
|
|
|
|
Assets
|
|
|
|
|
Investments, at value (cost $45,043,140) including $7,158,808 of securities loaned
|
|
$
|
40,740,776
|
|
Deposit with broker for securities sold short
|
|
|
2,157,586
|
|
Receivable for investments sold
|
|
|
956,640
|
|
Tax reclaim receivable
|
|
|
15,975
|
|
Receivable for dividends and interest
|
|
|
109,688
|
|
Receivable from Investment Adviser
|
|
|
33,612
|
|
|
|
|
|
|
Total assets
|
|
|
44,014,277
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Return of collateral for securities on loan
|
|
|
7,084,537
|
|
Securities sold short, at value (proceeds $3,735,843)
|
|
|
3,381,765
|
|
Payable for investments purchased
|
|
|
128,369
|
|
Payable for dividends on securities sold short
|
|
|
17,723
|
|
Payable to Administrator
|
|
|
4,075
|
|
Payable to Directors
|
|
|
1,629
|
|
Other payables and accrued expenses
|
|
|
25,703
|
|
|
|
|
|
|
Total liabilities
|
|
|
10,643,801
|
|
|
|
|
|
|
Net Assets
|
|
|
|
|
Capital paid-in
|
|
|
40,212,716
|
|
Accumulated net investment income
|
|
|
831,875
|
|
Accumulated net realized loss on investments
|
|
|
(3,725,829
|
)
|
Net unrealized depreciation on investments
|
|
|
(3,948,286
|
)
|
|
|
|
|
|
Net assets
|
|
$
|
33,370,476
|
|
|
|
|
|
|
Net asset value per share
|
|
|
|
|
Based on 3,993,124 shares outstanding - 50 million shares authorized
with par value of $0.001 per share.
|
|
$
|
8.36
|
|
|
|
|
|
|
|
Diamond Hill Financial Trends Fund, Inc.
|
|
See notes to financial statements
|
8
Statement of Operations For the year ended December 31, 2008
This Statement of Operations summarizes the Funds investment income
earned and expenses incurred in operating the Fund. It also shows net
gains (losses) for the period stated.
|
|
|
|
|
Investment income
|
|
|
|
|
Dividends
|
|
$
|
1,926,199
|
|
Securities lending
|
|
|
182,088
|
|
|
|
|
|
|
Total investment income
|
|
|
2,108,287
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
Investment management fees
|
|
|
317,225
|
|
Administration fees
|
|
|
73,121
|
|
Directors fees and Expenses
|
|
|
132,567
|
|
Professional fees
|
|
|
93,674
|
|
Custodian fees
|
|
|
9,854
|
|
Regulatory and Exchange fees
|
|
|
19,844
|
|
Transfer agent fees
|
|
|
23,369
|
|
Postage and printing
|
|
|
8,336
|
|
Dividend expense on securities sold short
|
|
|
56,634
|
|
Insurance and registration
|
|
|
5,839
|
|
Total expenses
|
|
|
740,463
|
|
|
|
|
|
|
Fees waived by Investment Adviser
|
|
|
(130,282
|
)
|
|
|
|
|
|
Net expenses
|
|
|
610,181
|
|
|
|
|
|
|
Net investment income
|
|
|
1,498,106
|
|
|
|
|
|
|
Realized and unrealized gain (loss)
|
|
|
|
|
Net realized loss on security transactions
|
|
|
(4,078,412
|
)
|
Net realized gain on closed short positions
|
|
|
369,758
|
|
Change in net unrealized appreciation/depreciation of investments
|
|
|
(25,514,059
|
)
|
|
|
|
|
|
Net realized and unrealized loss
|
|
|
(29,222,713
|
)
|
|
|
|
|
|
Decrease in net assets from operations
|
|
$
|
(27,724,607
|
)
|
|
|
|
|
|
|
See notes to financial statements
|
|
Diamond Hill Financial Trends Fund, Inc.
|
9
Statements of Changes in Net Assets
These Statements of Changes in Net Assets show how the value of the Funds net
assets has changed during the last two periods. The difference reflects earnings
less expenses, any investment gains and losses, distributions paid to
shareholders and the net of Fund share transactions, if any.
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
Year
|
|
|
ended
|
|
ended
|
|
|
December 31,
|
|
December 31,
|
|
|
2008
|
|
2007
|
Increase (decrease) in net assets
|
|
|
|
|
|
|
|
|
From operations
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
1,498,106
|
|
|
$
|
1,108,988
|
|
Net realized gain (loss) from security transactions
|
|
|
(4,078,412
|
)
|
|
|
9,050,783
|
|
Net realized gain from closed short positions
|
|
|
369,758
|
|
|
|
|
|
Change in net unrealized appreciation/depreciation
|
|
|
(25,514,059
|
)
|
|
|
(22,258,921
|
)
|
|
|
|
|
|
|
|
|
|
Decrease in net assets resulting from operations
|
|
|
(27,724,607
|
)
|
|
|
(12,099,150
|
)
|
|
|
|
|
|
|
|
|
|
Distributions to common shareholders
|
|
|
|
|
|
|
|
|
From net investment income
|
|
|
(413,288
|
)
|
|
|
(1,118,000
|
)
|
From net realized gain
|
|
|
(1,285,067
|
)
|
|
|
(8,831,068
|
)
|
|
|
|
|
|
|
|
|
|
Decrease in net assets from distributions
to common shareholders
|
|
|
(1,698,355
|
)
|
|
|
(9,949,068
|
)
|
|
|
|
|
|
|
|
|
|
Net assets
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
62,793,438
|
|
|
|
84,841,656
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
33,370,476
|
|
|
$
|
62,793,438
|
|
|
|
|
|
|
|
|
|
|
Accumulated net investment income
|
|
$
|
831,875
|
|
|
$
|
13,243
|
|
|
|
|
|
|
|
Diamond Hill Financial Trends Fund, Inc.
|
|
See notes to financial statements
|
10
Financial Highlights
The Financial Highlights shows how the Funds net asset value for a share has
changed since the end of the previous period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
Per share operating performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of year
|
|
$
|
15.73
|
|
|
$
|
21.25
|
|
|
$
|
19.46
|
|
|
$
|
19.09
|
|
|
$
|
17.63
|
|
Net investment income
1
|
|
|
0.38
|
|
|
|
0.28
|
|
|
|
0.25
|
|
|
|
0.23
|
|
|
|
0.19
|
|
Net realized and unrealized
gain (loss) on investments
|
|
|
(7.33
|
)
|
|
|
(3.31
|
)
|
|
|
2.69
|
|
|
|
0.96
|
|
|
|
2.44
|
|
Total from investment operations
|
|
|
(6.95
|
)
|
|
|
(3.03
|
)
|
|
|
2.94
|
|
|
|
1.19
|
|
|
|
2.63
|
|
Less distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From net investment income
|
|
|
(0.10
|
)
|
|
|
(0.28
|
)
|
|
|
(0.26
|
)
|
|
|
(0.22
|
)
|
|
|
(0.20
|
)
|
From net realized gain
|
|
|
(0.32
|
)
|
|
|
(2.21
|
)
|
|
|
(0.89
|
)
|
|
|
(0.60
|
)
|
|
|
(0.97
|
)
|
Total distributions
|
|
|
(0.42
|
)
|
|
|
(2.49
|
)
|
|
|
(1.15
|
)
|
|
|
(0.82
|
)
|
|
|
(1.17
|
)
|
Net asset value, end of year
|
|
$
|
8.36
|
|
|
$
|
15.73
|
|
|
$
|
21.25
|
|
|
$
|
19.46
|
|
|
$
|
19.09
|
|
Per share market value, end of year
|
|
$
|
6.35
|
|
|
$
|
13.75
|
|
|
$
|
19.01
|
|
|
$
|
16.68
|
|
|
$
|
17.47
|
|
Total return at net asset value
2
(%)
|
|
|
(44.30
|
)
|
|
|
(12.50
|
)
|
|
|
15.92
|
3
|
|
|
6.99
|
3
|
|
|
15.81
|
3
|
Total return at market value
2
(%)
|
|
|
(51.60
|
)
|
|
|
(14.50
|
)
|
|
|
20.99
|
|
|
|
0.21
|
|
|
|
1.54
|
|
Ratios and supplemental data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (in millions)
|
|
$
|
33
|
|
|
$
|
63
|
|
|
$
|
85
|
|
|
$
|
78
|
|
|
$
|
76
|
|
Ratio of gross expenses to average net assets (%)
|
|
|
1.53
|
|
|
|
1.30
|
|
|
|
1.21
|
|
|
|
1.18
|
|
|
|
1.22
|
|
Ratio of net expenses to average net assets,
excluding dividends on securities sold short (%)
|
|
|
1.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net expenses to average net assets (%)
|
|
|
1.26
|
|
|
|
1.28
|
|
|
|
1.21
|
|
|
|
1.18
|
|
|
|
1.22
|
|
Ratio of net investment income
to average net assets (%)
|
|
|
3.09
|
|
|
|
1.36
|
|
|
|
1.21
|
|
|
|
1.21
|
|
|
|
1.04
|
|
Portfolio Turnover (%)
|
|
|
65
|
|
|
|
42
|
|
|
|
10
|
|
|
|
4
|
|
|
|
10
|
|
|
|
|
1
|
|
Based on the average of the shares outstanding.
|
|
2
|
|
Total return based on net asset value reflects changes in the Funds net asset value during each year.
The total return based on market value reflects changes in market value. Each figure assumes that dividend and capital gain distributions, if any, were reinvested. These figures will differ upon the level of any
discount from or premium to net asset value at which the Funds shares traded during the year.
|
|
3
|
|
Unaudited.
|
|
|
|
|
|
|
See notes to financial statements
|
|
Diamond Hill Financial Trends Fund, Inc.
|
11
Notes to Financial Statements
Note 1
Accounting policies
The Diamond Hill Financial Trends
Fund, Inc. (the Fund) is a
diversified closed-end management
investment company registered under
the Investment Company Act of 1940
(the 1940 Act), as amended.
Significant accounting policies of the Fund are as follows:
Valuation of investments Security valuation
The net asset value of the common
shares of the Fund is determined daily
as of the close of the NYSE, normally
at 4:00 P.M. Eastern Time. Short-term
debt investments that have a remaining
maturity of 60 days or less are valued
at amortized cost, and thereafter
assume a constant amortization to
maturity of any discount or premium,
which approximates market value. All
other securities held by the Fund are
valued at the last sale price or
official closing price (closing bid
price or last evaluated quote if no
sale has occurred) as of the close of
business on the principal securities
exchange (domestic or foreign) on
which they trade or, lacking any
sales, at the closing bid price.
Securities traded only in the
over-the-counter market are valued at
the last bid price quoted by brokers
making markets in the securities at
the close of trading. Securities for
which there are no such quotations,
principally debt securities, are
valued based on the valuation provided
by an independent pricing service,
which utilizes both dealer-supplied
and electronic data processing
techniques, which take into account
factors such as institutional-size
trading in similar groups of
securities, yield, quality, coupon
rate, maturity, type of issue, trading
characteristics and other market data.
Certificates of deposit are FDIC
insured and valued at cost, which
approximates fair value.
Other assets and securities for which
no such quotations are readily
available are
valued at fair value as determined in
good faith under consistently applied
procedures established by and under
the general supervision of the Board
of Directors.
Effective January 1, 2008, the Fund
adopted Statement of Financial
Accounting Standards (SFAS) No. 157
Fair Value Mearsurements (SFAS
157). SFAS 157 establishes a single
authoritative definition of fair
value, sets out a framework for
measuring fair value, and requires
additional disclosures about fair
value measurements. One key component
of the implementation of SFAS 157
included the development of a three
tier fair value hierarchy. All
investments held by the Fund are
valued based upon the definition of
Level 1 inputs. In general, SFAS 157
defines Level 1 inputs, as fair values
which use quoted prices in active
markets for identical assets or
liabilities that the Fund has the
ability to access.
Investment transactions
Investment transactions are accounted
for on a trade date plus one basis for
daily net asset value calculations.
However, for financial reporting
purposes, investment transactions are
reported on trade date. Net realized
gains and losses on sales of
investments are determined on the
identified cost basis.
Short sales
The Fund is permitted to make short
sales of securities. Short sales are
effected when it is believed that the
price of a particular security will
decline, and involves the sale of a
security which the Fund does not own
in hope of purchasing the same
security at a later date at a lower
price. To make delivery to the buyer,
the Fund must borrow the security,
and the Fund is
Diamond Hill Financial Trends Fund, Inc.
12
obligated to return the security to
the lender, which is accomplished by a
later purchase of the security by the
Fund.
The Fund will incur a loss as a result
of a short sale if the price of the
security increases between the date of
the short sale and the date on which
the Fund purchases
the security to replace the borrowed
security. The use of short sales may
cause the Fund to have higher expenses
(especially dividend expenses) than
those of other equity mutual funds.
Short sales are speculative
transactions and involve special
risks, including greater reliance on
the Advisers ability to accurately
anticipate the future value of a
security.
Securities lending
The Fund has a securities lending
agreement with JPMorgan Chase Bank,
N.A.
(JPMorgan). Under the terms of the
agreement, JPMorgan is authorized to
loan securities on behalf of the Fund
to approved borrowers. In exchange,
the Fund receives cash collateral in
the amount of at least 100% of the
value of the securities loaned. The
cash collateral is invested in short
term instruments as noted in the
Schedule of Investments. Although risk
is mitigated by the collateral, the
Fund could experience a delay in
recovering their securities and
possible loss of income or value if
the borrower fails to return them. The
agreement indemnifies the Fund from
losses incurred in the event of a
borrowers material default of the
terms and conditions of the borrower
agreement. The agreement provides that
after predetermined rebates to
brokers, net securities lending income
shall first be solely paid as credits
and offset against costs and other
charges incurred by the Fund with
JPMorgan. Any remaining securities
lending revenue is then paid to the
Fund as securities lending income. The
securities lending income and the
custody fee credit are presented in
the Statement of Operations.
As of December 31, 2008, the value of
securities loaned and the collateral
held were as follows:
|
|
|
|
|
Market Value
|
|
Value of
|
of Securities
|
|
Collateral
|
Loaned
|
|
Received
|
$7,158,808
|
|
$
|
7,084,537
|
|
Pursuant to the Funds securities
lending agreement, and according to
normal operating procedures, the
custodian segregated an additional
$347,299 in collateral the following
business day for securities on loan
in the Fund.
Federal income taxes
The Fund qualifies as a regulated
investment company by complying with
the applicable provisions of the
Internal Revenue Code and will not be
subject to federal income tax on
taxable income that is distributed to
shareholders. Therefore, no federal
income tax provision is required. The
Fund has analyzed its tax positions
taken on Federal income tax returns
for all open tax years (tax years
ended December 31, 2005 through 2008)
for purposes of implementing FIN 48
and has concluded that no provision
for income tax is required in the
financial statements.
Dividends, interest and distributions
Dividend income on investment
securities is recorded on the
ex-dividend date or, in the case of
some foreign securities, on the date
thereafter when the Fund identifies
the dividend. Interest income on
investment securities is recorded on
the accrual basis. Foreign dividend
income may be subject to foreign
withholding taxes, which are accrued
as applicable.
The Fund records distributions to
shareholders from net investment
income and net realized gains, if
any, on the ex-dividend date. During
the year ended December 31, 2008, the
tax character of distributions paid
was as follows: ordinary income
$945,639 and long-term capital gains
$752,716. During the year ended
December 31, 2007, the tax character
of distributions paid was as follows:
ordinary
Diamond Hill Financial Trends Fund, Inc.
13
income $2,119,354 and long-term
capital gains $7,829,714.
As of December 31, 2008, the
components of distributable earnings
on a tax basis included $831,875 of
undistributed ordinary income and
$2,177,195 of capital
loss carryforwards and $1,449,507 of
post-October losses. These capital
loss carryforwards will expire
December 31, 2016.
Such distributions on a tax
basis, are determined in conformity
with income tax regulations, which may
differ from U.S. generally accepted
accounting principles (GAAP).
Distributions in excess of tax basis
earnings and profits, if any, are
reported in the Funds financial
statements as a return of capital.
Certain reclassifications have been
made to the components of net assets,
the result of dividend character
reclassifications. The following
reclassifications have no impact on
the net assets or net asset value per
share of the Fund and are designed to
present the Funds capital accounts on
a tax basis:
|
|
|
|
|
Accumulated
|
|
Accumulated
|
Net Investment
|
|
Net Realized
|
Income
|
|
Losses
|
$(266,186)
|
|
$
|
266,186
|
|
Use of estimates
The preparation of financial
statements, in accordance with GAAP,
requires management to make estimates
and assumptions that affect the
reported amounts of assets and
liabilities and disclosure of
contingent assets and liabilities at
the date of the financial statements
and the reported amounts of income and
expenses during the reporting period.
Actual results could differ from these
estimates.
Note 2
Management fees and transactions with affiliates and others Investment Advisory
Effective January 3, 2008, the Fund
entered into an Investment Advisory
Agreement with Diamond Hill Capital
Management, Inc. (Adviser). This
agreement was approved by the Board of
Directors on September 5, 2007,
subject to shareholder approval which
was subsequently obtained on January
3, 2008. Under the agreement, the
Adviser provides management of the
investment and reinvestment of the
Funds assets; continuous review,
supervision, and
administration of the investment
program of the Fund; provides office
space, furnishings and equipment used
to carry out the investment management
of the Fund. For these services, the
Adviser receives a fee at an annual
rate of 0.65% of the Funds average
weekly net asset value, or a flat
annual fee of $50,000, whichever is
higher. If total Fund expenses exceed
2% of the Funds average weekly net
asset value in any one year, the Fund
may require the Adviser to reimburse
the Fund for such excess, subject to a
minimum fee of $50,000. However,
pursuant to the Expense Limitation
Agreement (Limitation Agreement),
the Adviser has agreed to limit the
operating expenses of the Fund to an
annual rate of 1.15% of the average
weekly net assets of the Fund. This
Limitation Agreement is effective
through January 2, 2010.
Administration
The Fund has entered into an
Administration Agreement with Diamond
Hill Capital Management, Inc.
(Administrator), whereby the
Administrator agrees to oversee the
determination and publication of the
Funds net assets value, the
maintenance of the books and records
of the Fund; prepare the Funds
federal, state and local income tax
returns; prepare the financial
information for the Funds proxy
statements, if required, and
semi-annual and annual reports to
shareholders; prepare the Funds
periodic financial reports to the
Securities and Exchange Commission;
respond to shareholder inquiries; and
supply the Board of Directors and
officers of the Fund with all
statistical information and reports
reasonably required by them. For these
services, the Administrator receives a
fee at an annual rate of
Diamond Hill Financial Trends Fund, Inc.
14
$22,000 or 0.15% of the Funds
average weekly assets, whichever is
higher.
The Administrator has entered into a
Sub-Administration Agreement with
JPMorgan, whereby JPMorgan will
provide sub-administration services
for the Fund. The services provided
under the
agreement includes day-to-day
administration of matters related to
the corporate existence of the Fund
(other than rendering investment
advice), maintenance of books and
records, preparation of reports, and
supervision of the Funds arrangement
with the custodian.
The Fund does not pay remuneration
to its Officers. Certain Officers
of the Fund are employees of the
Adviser.
Note 3
Guarantees and indemnifications
Under the Funds organizational
documents, its Officers and Directors
are indemnified against certain
liability arising out of the
performance of their duties to the
Fund. Additionally, in the normal
course of business, the Fund enters
into contracts with service providers
that contain general indemnification
clauses. The Funds maximum exposure
under these arrangements is unknown,
as this would involve future claims
that may be made against the Fund that
have not yet occurred. However, based
on experience, the Fund believes the
risk of loss to be remote.
Note 4
Fund share transactions
The Fund had no share transactions
during the last two years.
The Fund from time-to-time may, but is
not required to, make open market
repurchases of its shares in order to
attempt to reduce or eliminate the
amount of any market value discount or
to increase the net asset value of its
shares, or both. In addition, the
Board currently intends, each quarter
during periods when the Funds shares
are trading at a discount from the net
asset value, to consider the making of
tender offers. The Board may at any
time, however, decide that the Fund
should not make share repurchases or
tender offers.
Note 5
Investment transactions
Purchases and proceeds from sales or
maturities of securities, other than
short term securities and obligations
of the U.S. government, during the
year ended December 31, 2008,
aggregated $31,739,453 and
$35,319,914, respectively.
The tax cost of investments owned on
December 31, 2008, including
short-term investments, for federal
income tax purposes, was $45,489,567.
Gross unrealized appreciation and
depreciation of investments aggregated
$5,856,767 and $9,904,180,
respectively, resulting in net
unrealized depreciation of $4,047,413.
The difference between book basis and
tax basis net unrealized depreciation
of investments is attributable
primarily to the tax deferral of
losses on certain sales of securities.
Diamond Hill Financial Trends Fund, Inc.
15
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
The Diamond Hill Financial Trends Fund, Inc.
We have audited the accompanying statements of assets and liabilities, including
the schedule of investments, of the Diamond Hill Financial Trends Fund, Inc.
(the Fund), as of December 31, 2008, and the related statement of operations
for the year then ended, the statements of changes in net assets and the
financial highlights for each of the two years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Funds management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The financial
highlights for the two years ended December 31, 2006 were audited by other
auditors whose report dated February 16, 2007, expressed an unqualified opinion
on those financial statements. The financial highlights for the year ended
December 31, 2004 were audited by other auditors whose report dated February 18,
2005, expressed an unqualified opinion on those financial highlights.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Funds internal control over financial
reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Funds internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2008, by correspondence with the custodian
and brokers. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Diamond Hill Financial Trends Fund, Inc. at December 31, 2008, the results of
its operations for the year then ended, the changes in its net assets and
financial highlights for each of the two years in the period then ended, in
conformity with U.S. generally accepted accounting principles.
Cincinnati, Ohio
February 20, 2009
16
Supplemental Information (unaudited)
Tax information
For federal income tax purposes, the following information was furnished
with respect to the distributions of the Fund, if any, paid during its
taxable year ended December 31, 2008.
This Fund designated distributions of $752,716 to shareholders as a
long-term capital gain dividend.
With respect to the ordinary dividends paid by the Fund for the fiscal year
ended December 31, 2008, 100% of the dividends qualified for the corporate
dividends-received deduction.
The Fund designated the maximum amount allowable of its net taxable income as
qualified dividend income as provided in the Jobs and Growth Tax Relief
Reconciliation Act of 2003. This amount was reflected on Form 1099-DIV for the
calendar year 2008.
Shareholders were mailed a 2008 U.S. Treasury Department Form 1099-DIV in
January 2009. This will reflect the total of all distributions that are
taxable for calendar year 2008.
Proxy Voting
The investment adviser is responsible for exercising the voting rights
associated with the securities purchased and held by the Funds. A description
of the policies and procedures that the Adviser uses in fulfilling this
responsibility and information regarding how those proxies were voted during
the twelve month period ended June 30 are available without charge upon request
by calling 1-614-255-4080 or on the Securities and Exchange Commissions
website at http://www.sec.gov.
17
Investment objective and policy
The Funds primary investment
objective is long-term capital
appreciation. Its secondary investment
objective is current income. The Fund
will seek to achieve its primary
investment objective of long-term
capital appreciation by investing
between 80% and 115% of its assets
long and sell short between 0% and 30%
of its assets in stocks of U.S.
financial services companies of any
size. These companies include banks,
thrifts, finance companies, brokerage
and advisory firms, real
estate-related firms, insurance
companies and financial holding
companies. These companies are usually
regulated by governmental or
quasi-governmental entities and, as a
result, are subject to the risk that
regulatory developments will adversely
affect them. With respect to the
Funds investment policy of investing
at least 80% of assets in equity
securities, assets is defined as net
assets plus the amount of any
borrowings for investment purposes.
The Fund will notify shareholders at
least 60 days prior to any change in
this policy. In abnormal market
conditions, the Fund may take
temporary defensive positions.
As such, the Fund may temporarily
invest all of its assets in
investment-grade, short-term
securities. In such circumstances, the
Fund may not achieve its objective.
The Funds current investment
restriction, relating to industry
concentration, has been modified to
remove the reference to the banking
and savings industry so that it reads
as follows: Except for temporary
defensive purposes, the Fund may not
invest more than 25% of its total
assets in any one industry or group of
related industries, except that the
Fund will invest more than 25% of its
assets in the financial services
sector.
Portfolio management
Mr. Christopher Bingaman assumed
responsibility as the portfolio
manager of the Fund on December 1,
2007. Mr. Bingaman has a Bachelor of
Arts degree in Finance (cum laude)
from Hillsdale College, a Masters
degree in Business Administration from
the University of Notre Dame and holds
the CFA designation. He
has been an investment professional
with Diamond Hill Capital Management,
Inc. since March 2001. From 1998 to
March 2001, Mr. Bingaman was a Senior
Equity Analyst for Villanova
Capital/Nationwide Insurance. In
1997, Mr. Bingaman was an Equity
Analyst for Dillon Capital
Management, an investment advisory
firm.
Mr. William Dierker assumed
responsibility as the assistant
portfolio manager of the Fund on
December 1, 2007. Mr. Dierker has a
B.S.B.A. in accounting from Xavier
University and holds the CFA
designation. He has been an investment
professional with Diamond Hill Capital
Management, Inc. since September 2006.
From September 2004 to August 2006,
Mr. Dierker was a Senior Portfolio
Manager/Senior Vice President at
Federated Investors. He was a Senior
Portfolio Manager and Managing
Director of the value equity team at
Banc One Investment Advisers from
April 2003 to September 2004. He
served as an Investment Officer with
Nationwide Insurance Enterprise from
March 1998 through September 1999; as
Vice President, Equity Securities with
Nationwide from September 1999 to
January 2002; and as Vice
President/Portfolio Manager with
Gartmore Global Investments, a
subsidiary of Nationwide, from January
2002 to April 2003.
Bylaws
In January 2003, the Board of
Directors adopted several amendments
to the Funds bylaws, including
provisions relating to the calling of
a special meeting and requiring
advance notice of shareholder
proposals or nominees for director.
The advance notice provisions in the
bylaws require shareholders to notify
the Fund in writing of any proposal
that they intend to present at an
annual meeting of shareholders,
including any nominations for
Director, between 90 and 120 days
prior to the first anniversary of the
mailing date of the notice from the
prior years annual meeting of
shareholders. The notification must be
in the form prescribed by the bylaws.
The advance notice provisions provide
the Fund and its
18
Directors with the opportunity to
thoughtfully consider and address the
matters proposed before the Fund
prepares and mails its proxy statement
to shareholders. Other amendments set
forth the procedures that must be
followed in order for a shareholder to
call a special meeting of
shareholders. The Fund is presently
listed on NASDAQ and, per a
grandfathering provision, is not
required to hold annual shareholder
meetings. The Board approved the above
amendment to the Funds bylaws to
provide a defined structure for the
submission of shareholder proposals
should the circumstances change and an
annual meeting be required. Please
contact the Secretary of the Fund for
additional information about the
advance notice requirements or the
other amendments to the bylaws.
In November 2005, the Funds Board of
Directors adopted several amendments
to the Funds bylaws regarding the
Chairman of the Board position: The
Chairman of the Board shall at all
times be a director who is not an
interested person of the Fund as that
term is defined by the Investment
Company Act of 1940. The scope of the
Chairmans responsibilities and
fiduciary obligations were further
defined. Lastly, disclosure regarding
the election, resignation and removal
of the Chairman as well as the
filling of a vacancy was added.
At a quarterly meeting of the Funds
Board of Directors held February 13,
2006, the Board amended Article II
Section 2 of the Funds bylaws to
state that a special meeting of the
shareholders, unless otherwise
provided by law or by the Articles of
Incorporation, may be called for any
purpose or purposes by a majority of
the Board of Directors, the President,
or, subject to Section 2(c), by the
Secretary of the Corporation upon the
written request of shareholders
entitled to cast at least 35% of all
votes entitles to be cast at the
meeting.
Dividends and distributions
During the year ended December 31,
2008 dividends from net investment
income totaling
$0.17 per share and capital gain
distributions totaling $0.255 were
paid to shareholders. The dates of
payments and the amounts per share are
as follows:
|
|
|
|
|
|
|
INCOME
|
PAYMENT DATE
|
|
DIVIDEND
|
|
August 27, 2008
|
|
$
|
0.070
|
|
December 16, 2008
|
|
|
0.100
|
|
|
|
|
CAPITAL GAIN
|
PAYMENT DATE
|
|
DISTRIBUTION
|
|
August 27, 2008
|
|
$
|
0.255
|
|
Dividend reinvestment plan
The Fund offers its registered
shareholders an automatic Dividend
Reinvestment Plan (the Plan), which
enables each participating shareholder
to have all dividends (including
income dividends and/or capital gains
distributions) payable in cash,
reinvested by Mellon Investor Services
(the Plan Agent) in shares of the
Funds common stock. However,
shareholders may elect not to enter
into, or may terminate at any time
without penalty, their participation
in the Plan by notifying the Plan
Agent in writing. Shareholders who do
not participate in the Plan will
receive all dividends in cash.
In the case of shareholders such as
banks, brokers or nominees who hold
shares for others who are the
beneficial owners, the Plan Agent will
administer the Plan on the basis of
record ownership of shares. These
record shareholders will receive
dividends under the Plan on behalf of
participating beneficial owners and
cash on behalf of non-participating
beneficial owners. These record
holders will then credit the
beneficial owners accounts with the
appropriate stock or cash
distribution.
Whenever the market price of the
Funds stock equals or exceeds net
asset value per share, participating
shareholders will be issued stock
valued at the greater of (i) net asset
value per share or (ii) 95% of the
market price. If the net asset value
per share of the Funds stock exceeds
the market price per share, the Plan
Agent shall make open market purchases
of the Funds stock
19
for each participating shareholders
account. These purchases may begin no
sooner than five business days prior
to the payment date for the dividend
and will end up to thirty days after
the payment date. If shares cannot be
purchased within thirty days after the
payment date, the balance of shares
will be purchased from the Fund at the
average price of shares purchased on
the open market. Each participating
shareholder will be charged a pro rata
share of brokerage commissions on all
open market purchases. The shares
issued to participating shareholders,
including fractional shares, will be
held by the Plan Agent in the name of
the shareholder. The Plan Agent will
confirm each acquisition made for the
account of the participating
shareholders as soon as practicable
after the payment date of the
distribution.
The reinvestment of dividends does not
relieve participating shareholders of
any federal, state or local income tax
that may be due with respect to each
dividend. Dividends reinvested in
shares will be treated on your federal
income tax return as though you had
received a dividend in cash in an
amount equal to the fair market value
of the shares received, as determined
by the prices for shares of the Fund
on the Nasdaq National Market System
as of the dividend payment date.
Distributions from the Funds
long-term capital gains will be
taxable to you as long-term capital
gains. The confirmation referred to
above will contain all the information
you will require for determining the
cost basis of shares acquired and
should be retained for that purpose.
At year end, each account will be
supplied with detailed information
necessary to determine total tax
liability for the calendar year.
All correspondence or additional
information concerning the Plan
should be directed to the Plan
Agent, Mellon Bank, N.A., c/o Mellon
Investor Services at P.O. Box 3338,
South Hackensack, New Jersey
07606-1938 (Telephone:
1-877-254-8583).
Shareholder communication
and assistance
If you have any questions concerning
the Fund, we will be pleased to
assist you. If you hold shares in
your own name and not with a
brokerage firm, please address all
notices, correspondence, questions or
other communications regarding the
Fund to the transfer agent at:
Mellon Investor
Services
Newport Office
Center VII
480
Washington Boulevard
Jersey City, NJ 0731 0
Telephone:
1-877-254-8583
If your shares are held with a
brokerage firm, you should contact
that firm, bank or other nominee
for assistance.
20
Directors and Officers
This chart provides information about the Directors and Officers who oversee
your Diamond Hill Financial Trends Fund. Officers elected by the Directors
manage the day-to-day operations of the Fund and execute policies formulated by
the Directors.
|
|
|
|
|
Independent Directors
1
|
|
|
|
Name, age
|
|
|
Position(s) held with Fund
|
|
Director
|
|
Principal occupation(s) and other
|
|
of Fund
|
|
directorships during past 5 years
|
|
since
|
2
|
Franklin C. Golden, Born: 1950
Chairman and Director
Managing Director, Wachovia Securities, Inc. (since 2001) (broker dealer);
President, James Myers and Company (full-service broker dealer) (until 2001);
President, Financial Trends Fund, Inc. (until 2001); Executive Vice President, IJL/Wachovia
(until 1991); Past Director and Chairman of the National Association
of Securities Dealers (NASD) District 7 Business Conduct Committee.
|
|
|
1989
|
|
|
|
|
|
|
Robert G. Freedman, Born: 1938
Director
Executive Vice President and Chief Investment Officer, Sovereign Asset Management and NM Capital Management, Inc. (until 2000); Vice Chairman
and Chief Investment Officer, John Hancock Advisers, LLC (until 1998).
|
|
|
1996
|
|
|
|
|
|
|
Russell J. Page, Born: 1942
Director
Principal, Rusty Page & Co. (equity markets consulting) (since 1996); Regional Board, BB&T Corp. (since 2004); Trustee, Appalachian Regional Healthcare Systems (since 2004);
Director, Cannon Memorial Hospital (since 2003); NationsBank Equity Marketing Executive
(until 1996), Nasdaq Stock Market Managing Director (until 2001).
|
|
|
2003
|
|
|
|
|
|
|
Fred G. Steingraber, Born: 1938
Director
Chairman and Chief Executive Officer, A.T. Kearney, Inc. (management consulting)
(retired 2002); Director, Maytag Corporation; Director, Supervisory Board
of Continental AG; Director 3i PLC; Director, Elkay Manufacturing.
|
|
|
1989
|
|
|
|
|
|
|
Donald R. Tomlin, Born: 1933
Director
Vice President of Livingston Group Asset Management Company (operating as
Southport Capital Management) (since 2001); Managing Director, Southport Capital, Inc.
(registered investment adviser) (until 2001); Managing Director and portfolio manager of
Haven Capital Management, Inc. (until 1991); Principal and portfolio manager of
Kleinwort Benson McCowan Inc. and its successor McCowan Associates, Inc. (until 1983).
|
|
|
1989
|
|
|
|
|
|
|
H. Hall Ware, III, Born: 1935
Director
Attorney, private practice (since 2001); President, Odin Systems International,
Inc. (1999-2001); Gilbert, Harrell, Gilbert, Sumerford & Martin, Attorneys (until 1999).
|
|
|
1989
|
|
21
|
|
|
Principal Officers
1
|
|
|
|
Name, age
|
|
Officer
|
Position(s) held with Fund
|
|
of Fund
|
Principal occupation(s) at least the last 5 years
|
|
since
2
|
James F. Laird, Jr., Born: 1957
President
Chief Financial Officer of Diamond Hill Investment Group, Inc., since December 2001.
Vice President Corporate Strategy with Nationwide Insurance from January 2001 to
July 2001. Senior Vice President Product Development with Villanova Capital from
February 1999 through December 2000.
|
|
December 1, 2007
|
|
|
|
Gary R. Young, Born: 1969
Treasurer, Secretary, and Chief Compliance Officer
Controller of Diamond Hill Investment Group, Inc., since April 2004.
Director of Mutual Fund Administration with Banc One Investment Advisors
October 1998 through April 2004. Vice President and Manager of Mutual Fund
Accounting and Financial Reporting with First Chicago NBD January 1996 through
October 1998.
|
|
December 1, 2007
|
|
|
|
Brian D. Risinger, Born: 1968
Assistant Treasurer
Director of Compliance and Administration of Diamond Hill Investment Group, Inc.,
since May 2006; Director of Compliance and Director of Fund Administration with
BISYS Fund Services April 1994 through April 2006.
|
|
December 1, 2007
|
|
|
|
1
|
|
The business address for all Directors and Officers is 325 John H McConnell Blvd.,
Columbus, OH, 43215.
|
|
2
|
|
Each Director and Officer serves until resignation, retirement age or until his or her
successor is elected.
|
22
[This page has been left blank intentionally.]
[This page has been left blank intentionally.]
For more information
The Funds proxy voting policies, procedures and records are available without charge,
upon request:
|
|
|
|
|
By phone
|
|
On the Funds Web site
|
|
On the SECs Web site
|
1-614-255-4080
|
|
www.diamond-hill.com/closedendfund.asp
|
|
www.sec.gov
|
|
|
|
|
|
Directors
Franklin C. Golden
Robert G. Freedman
Russell J. Page
Fred G. Steingraber
Donald R. Tomlin
H. Hall Ware III
Officers
Franklin C. Golden
Chairman
James Laird
President
Gary Young
Treasurer, CCO, Secretary
Brian Risinger
Assistant Treasurer
|
|
Investment adviser
Diamond Hill Capital Management, Inc.
325 John H. McConnell Boulevard, Suite 200
Columbus, Ohio 43215
Custodian
JPMorgan Chase Bank, N.A.
14201 North Dallas Parkway
Dallas, TX 75254-2916
Transfer agent and registrar
Mellon Investor Services
Newport Office Center VII
480 Washington Boulevard
Jersey City, NJ 07310
|
|
Independent directors
Counsel
Paul, Hastings, Janofsky
& Walker, LLP
600 Peachtree St., N.E.
Twenty Fourth Floor
Atlanta, GA 30308
Stock symbol
Listed Nasdaq Symbol:
DHFT
For shareholder
assistance,
refer to page 20
|
|
|
|
|
|
How to
contact us
|
|
|
|
|
|
Internet
|
|
www.diamond-hill.com
|
|
|
|
Mail
|
|
Mellon Investor Center
Newport Office Center VII
480 Washington Boulevard
Jersey City, NJ 07310
|
|
|
|
Phone
|
|
Customer service representatives
Information Line
|
|
1-877-254-8583
1-614-255-4080
|
A listing of month-end portfolio holdings is available on our Web site,
www.diamond-hill.com. Additionally portfolio holdings are available on a quarterly basis
60 days after the fiscal quarter on our Web site or upon request by calling
1-614-255-4080, or on the SECs Web site, www.sec.gov.
Item 2. Code of Ethics.
As of the end of the period covered by this report, the registrant has adopted a code of ethics
that applies to the registrants principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar functions, regardless of
whether these individuals are employed by the registrant or a third party.
During the period covered by the report,
with respect to the registrants code of ethics that applies to its principal executive
officer, principal financial officer, principal accounting officer or controller, or persons
performing similar functions; there have been no amendments to, nor any waivers granted from, a
provision that relates to any element of the code of ethics definition enumerated in paragraph (b) of this Item 2.
Item 3. Audit Committee Financial Expert.
The registrants Board of Trustees has determined that the registrant has at least one audit
committee financial expert serving on its audit committee. Mr. Russell J. Page is the registrants
audit committee financial expert and is independent (as each term is defined in Item 3 of Form
N-CSR.
Item 4. Principal Accountant Fees and Services.
(a)
Audit Fees
. Audit fees totaled $17,100 and $22,000 in fiscal 2008 and 2007
respectively, including fees associated with the annual audit and filings of the registrants Form
N-1A and Form N-SAR.
(b)
Audit-Related Fees
. There were no audit-related fees in fiscal 2008 and 2007.
(c )
Tax Fees
. Fees for tax compliance and consultative services totaled $4,700 and $5,000
in fiscal 2008 and 2007, respectively.
(d)
All Other Fees
. There were no other fees in fiscal 2008 and 2007.
(e)(1)
Audit Committee Pre-Approval Policies
. See attachment Audit Committee Charter,
with the audit committee pre-approval policies and procedures.
(e)(2) None of services described in paragraphs (b) through (d) of Item 4 were not pre-approved by the Audit
Committee.
(f) Not applicable
(g) The aggregate non-audit fees for services to the registrant, its investment adviser and any
entity controlling, controlled by, or under common control with the adviser that provides ongoing
services to the registrant were $4,700 and $5,000 in 2008 and 2007, respectively.
(h) Not applicable
Item 5. Audit Committee of Listed Companies.
The registrant has a separately-designated standing audit committee comprised of independent
trustees. The members of the audit committee are as follows:
Franklin C. Golden
Russell J. Page
Fred G. Steingraber
Donald R. Tomlin
H. Hall Ware
Item 6. Schedule of Investments.
The Schedule of Investments in securities of unaffiliated issuers is included in the Annual Report.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment
Companies.
See attached Exhibit Proxy Voting Policies and Procedures.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
See attached Exhibit Portfolio Managers Information.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated
Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
See attached Exhibit Governance Committee Charter.
Item 11. Controls and Procedures.
(a) Based on an evaluation of the registrants disclosure controls and procedures (as defined in
Rule 30a-3(c) under the Investment Company Act of 1940), as of a date within 90 days of the filing
date of this report, the registrants principal executive officer and principal financial officer
have concluded that the registrants disclosure controls and procedures are effective.
(b) There were no changes in the registrants internal control over financial reporting (as defined
in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the registrants
last fiscal half-year that have materially affected, or are reasonably likely to materially affect,
the registrants internal control over financial reporting.
Item 12. Exhibits.
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(a)(1)
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Code of Ethics for Senior Financial Officers is filed herewith
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(a)(2)
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Certifications required by Item 12(a) of Form N-CSR are filed herewith.
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(a)(3)
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Not applicable.
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(b)
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Certification required by Item 12(b) of Form N-CSR is filed herewith
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(c)
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Audit Committee Charter
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(d)
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Proxy Voting Policies and Procedures
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(e)
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Portfolio Managers Information
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(f)
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Governance Committee Charter
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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.
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(Registrant) Diamond Hill Financial Trends Fund
By (Signature and Title)
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/s/ James F. Laird, Jr.
James F. Laird, Jr.
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President
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Date:
March 5, 2009
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.
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By (Signature and Title)
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/s/ James F. Laird, Jr.
James F. Laird, Jr.
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President
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Date:
March 5, 2009
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By (Signature and Title)
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/s/ Gary R. Young
Gary R. Young.
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Treasurer and Chief Financial Officer
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Date:
March 5, 2009
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