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:
06/30/10
Form N-CSR is to be used by management investment companies to file reports with the Commission not
later than 10 days after the transmission to stockholders of any report that is required to be
transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR
270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory,
disclosure review, inspection and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission
will make this information public. A registrant is not required to respond to the collection of
information contained in Form N-CSR unless the Form displays a currently valid Office of Management
and Budget (OMB) control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the burden to Secretary,
Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has
reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
TABLE OF CONTENTS
Item 1. Reports to Stockholders.
TABLE OF CONTENTS
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page 1
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page 2
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page 4
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page 8
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page 12
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page 21
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page 23
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Welcome
Dear Fellow Shareholders:
After a strong first quarter, the domestic equity markets declined
sharply during May and June and ended the first half of the year in
negative territory. Domestic indices ended the six month period down
slightly with small cap stocks generally outperforming large caps.
In spite of these market headwinds, The Diamond Hill Financial
Trends Fund was able to post a modest positive return of 2.24% on a
net asset value basis while its primary benchmark, the S&P 1500
Super-composite Financials Index, was down 3.04% for the same
period.
The financial crisis and subsequent recession continued to fade
during the first part of the year as risk spreads narrowed further
and equity markets marched upward. This rosy environment ended in
late April as both the credit and equity markets became quite
skittish over European sovereign debt issues as well as a seemingly
slower pace of economic recovery here in the U.S.
While the financials continue to deal with the aftermath of the
crises, many important areas within the sector are progressing
toward stronger levels of operating profitability and balance sheet
strength. Credit quality has clearly improved from the depths of
last year, expense discipline remains healthy and many companies in
the key industries within the sector have raised necessary capital.
Despite the continued cyclical challenges we are optimistic
regarding the long-term outlook for our capital markets in general
and the financial sector in particular. The Funds managers maintain
their focus on a long-term investment horizon, purchasing securities
priced at a discount to their appraisal of intrinsic value and most
importantly placing shareholders interest first. On behalf of your
Board of Directors, I would like to once again 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.
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Over the last six months
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Ø
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The Fund appreciated 2.24% on a net asset value basis, outperforming
the S&P 1500 Super-composite Financials Index, which was down 3.04%.
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Ø
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After a strong start, U.S. public equity markets sold off in the second
quarter and were in negative territory at the end of the first half.
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Ø
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The financial crisis has mostly abated however fears over European
sovereign debt as well as domestic economic growth and financial regulatory
reform weighed heavily on the markets in May and June.
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Ø
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The Fund has used this opportunity to move back into a number of long
positions which once again look to have relatively favorable prospective
returns.
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Top 10 holdings
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JP Morgan Chase & Co.
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6.6
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%
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Wells Fargo & Co.
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6.2
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%
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Travelers Cos., Inc., The
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5.1
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%
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U.S. Bancorp
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3.9
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%
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Assurant, Inc.
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3.9
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%
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Old Republic International Corp.
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3.6
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%
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Assured Guaranty Ltd.
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3.5
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%
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Prudential Financial, Inc.
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3.5
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%
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Bank of America Corp.
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3.4
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%
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Bank of New York Mellon Corp.
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3.0
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%
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As a percentage of net assets on June 30, 2010 and excludes any cash equivalents.
1
Portfolio Commentary
Thank you for your interest in the Diamond Hill Financial Trends Fund, Inc.
The first half of 2010 was characterized by two sharply contrasting quarters.
After a very strong first quarter, the U.S. equity markets stumbled in the
second quarter and ended the first six months in negative territory. We are
pleased to report, however, that through June 30th, the Fund posted a positive
return of 2.24% on a net asset value basis while its primary benchmark (the
S&P1500 Super-composite Financials Index) posted a total return of -3.04%. The
portfolio remains very weighted toward the long side and we continue to feel
valuations are once again at levels which should allow for improved prospective
returns for our holdings.
In terms of positive contributions to performance,
the long portfolio provided the majority of the return for the period. iStar
Financial Inc.s (a commercial mortgage REIT) Series F 7.8% preferred nearly
doubled during the period and was the top contributor to performance. Other
strong performers in the long portfolio included mortgage insurer Old Republic
International Corp. as well as regional banks Huntington Bancshares, Inc. and
SunTrust Banks, Inc. Old Republic has benefited from fundamental improvement in
its mortgage insurance segment, while the regional banks have seen what appears
to be the peak in cyclical credit problems. Two other notable contributors were
specialty insurance holdings, Horace Mann Educators Corp. and Assurant, Inc.
The short portfolio was also a modest positive contributor to the Funds
performance during the first half as many of our small cap commercial bank
holdings depreciated in value. We eliminated our short positions in Prosperity
Bancshares, Hancock Holding Co. and WesBanco Inc. Westamerica Bancorp was the
only new short position in the portfolio.
Performance was most negatively impacted by long positions in Assured Guaranty
Ltd., JPMorgan Chase & Co., Popular, Inc. and Wilmington Trust Corp. Assured
Guaranty reported weaker than anticipated earnings in May, reflecting the
addition of reserves to cover insured residential mortgage backed securities
(RMBS) underwritten between 2005 and 2008. While disappointed by the lower than
expected first quarter earnings, we do not believe the first quarter results
necessarily imply diminished normalized earnings. JPMorgan Chase & Co. suffered
from concerns over European sovereign risks and pending regulatory reform in
the United States, however, we still view the shares as undervalued even in
light of these new headwinds. Additionally, Popular, Inc. and Wilmington Trust
were both new to the Fund this year and have thus far been weak performers as
they continue to deal with lingering credit issues.
Within the long portfolio, in addition to the two companies mentioned above,
other new positions include three familiar names Discover Financial Services,
American Express and XL Capital as well as Arch Capital Group, Ltd. and
Sterling Bancorp. Eliminations included preferred stock holdings National City
Capital Trust IV and Regions Financing Trust III as well as City National,
Comerica, Synovus Financial Corp. and Seacoast Banking Corp. of Florida.
As
usual, the Fund remains relatively concentrated as we continue to hold between
40 and 50 stocks on the long side. We also believe the ability to short within
the portfolio will provide clear long-term benefits and as we often like to
point out, our primary objective is not to use the short portfolio to mitigate
volatility but as an opportunistic tactic to enhance performance over time.
2
Christopher M. Bingaman, CFA, Portfolio Manager, Austin Hawley, CFA,
Assistant Portfolio Manager, John Loesch, CFA, Assistant Portfolio Manager
As always, we would like to thank our shareholders for their continued support of the Fund.
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Christopher M. Bingaman, CFA
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Austin Hawley, CFA
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John Loesch, CFA
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Portfolio Manager
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Assistant Portfolio Manager
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Assistant Portfolio Manager
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Diamond Hill Financial Trends Fund, Inc.
3
Diamond Hill Financial Trends Fund, Inc.
Schedule of Investments
June 30, 2010 (Unaudited)
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Fair
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Shares
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Value
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Preferred Stocks 7.3%
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Banking Services 3.6%
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Citizens Funding Trust I, 7.50%
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25,940
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$
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429,307
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Huntington Bancshares, Inc., Series A, 8.50%
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440
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435,600
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Wachovia Preferred Funding Corp., Series A, 7.25%
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25,215
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583,475
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1,448,382
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Financial Services 2.0%
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Countrywide Capital V, 7.00%
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37,460
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808,012
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REITs and Real Estate Management 1.7%
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iStar Financial, Inc., Series F, 7.80%
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36,660
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471,814
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LaSalle Hotel Properties, Series E, 8.00%
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8,506
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196,234
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668,048
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Total Preferred Stocks
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$
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2,924,442
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Common Stocks 85.1%
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Asset Management 0.8%
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Affiliated Managers Group, Inc.*
◊
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5,010
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304,458
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Banking Services 26.7%
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BB&T Corp.
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12,907
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339,583
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First California Financial Group, Inc.*
◊
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71,560
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192,496
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First Financial Holdings, Inc.
◊
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46,888
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536,868
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First Niagara Financial Group, Inc.
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41,325
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517,802
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First of Long Island Corp.
◊
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24,971
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642,004
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Huntington Bancshares, Inc.
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119,055
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659,565
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National Penn Bancshares, Inc.
◊
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105,675
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635,107
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NewBridge Bancorp*
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47,512
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166,767
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PNC Financial Services Group, Inc.
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20,145
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1,138,192
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Popular, Inc.*
◊
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245,125
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656,935
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Sterling Bancorp
◊
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21,465
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193,185
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SunTrust Banks, Inc.
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15,350
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357,655
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U.S. Bancorp
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69,199
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1,546,598
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Wells Fargo & Co.
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95,800
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2,452,480
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Wilmington Trust Corp.
◊
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53,155
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589,489
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10,624,726
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Consumer Financial Services 4.3%
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American Express Co.
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19,770
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784,869
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Discover Financial Services
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66,765
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933,375
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1,718,244
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Diamond Hill Financial Trends Fund, Inc.
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See notes to financial statements
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4
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Shares/
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Fair
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Par Value
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Value
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Financial Services 17.3%
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Bank of America Corp.
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93,660
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$
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1,345,894
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Bank of New York Mellon Corp.
§
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48,008
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1,185,318
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JPMorgan Chase & Co.
§
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71,528
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2,618,640
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Leucadia National Corp.*
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13,645
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266,214
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Morgan Stanley
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21,670
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502,961
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MVC Capital, Inc.
◊
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34,040
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439,797
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State Street Corp.
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15,564
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526,374
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6,885,198
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Insurance 32.8%
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Alleghany Corp.*
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1,616
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473,985
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Allstate Corp.
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36,000
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1,034,280
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Arch Capital Group Ltd.*
◊
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10,710
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797,895
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Assurant, Inc.
|
|
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44,315
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|
|
|
1,537,731
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Assured Guaranty Ltd.
|
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105,216
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1,396,216
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First American Financial Corp.
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9,675
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122,679
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Hanover Insurance Group, Inc., The
§
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4,765
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207,277
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Hartford Financial Services Group, Inc.
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24,297
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537,693
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Horace Mann Educators Corp.
◊
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40,802
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624,271
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Marsh & McLennan Cos., Inc.
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27,225
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613,924
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Old Republic International Corp.
◊
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119,480
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1,449,292
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Prudential Financial, Inc.
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25,740
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1,381,208
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Travelers Cos., Inc., The
§
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41,250
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2,031,563
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XL Capital Ltd., Class A
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55,145
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882,871
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13,090,885
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REITs and Real Estate Management 2.8%
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Mid-America Apartment Communities, Inc. REIT
◊
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3,940
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202,792
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Redwood Trust, Inc. REIT
◊
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62,285
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911,852
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1,114,644
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Technology Services 0.4%
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CoreLogic, Inc.
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9,675
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170,860
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Total Common Stocks
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$
|
33,909,015
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Corporate Bonds 2.1%
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Banking Services 2.1%
|
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AmSouth Bank, 5.20%, 4/01/15
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$
|
440,000
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420,163
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Zions Bancorp., 7.75%, 9/23/14
◊
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415,000
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422,876
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843,039
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Total Corporate Bonds
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$
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843,039
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See notes to financial statements
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Diamond Hill Financial Trends Fund, Inc.
|
5
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Shares/
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Fair
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Par Value
|
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Value
|
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Repurchase Agreement 9.3%
|
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BNP Paribas Securities Corp., 0.03%,
Agreement dated 6/30/10 to be repurchased at $3,703,483
on 7/1/10. Repurchase agreement is fully collateralized
by various U.S. Government Agency securities
with a range of rates from 2%6%, and maturities
from 8/24/2012 through 4/16/2037
|
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$
|
3,703,480
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|
|
$
|
3,703,480
|
|
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Registered Investment Company 5.1%
|
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|
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|
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|
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JPMorgan U.S. Government Money Market Fund-Capital Shares
|
|
|
2,021,636
|
|
|
|
2,021,636
|
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|
|
|
|
|
|
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Total Investment Securities 108.9%
(Cost $40,297,662)**
|
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|
|
$
|
43,401,612
|
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|
|
|
|
|
|
|
|
|
Segregated Cash With Brokers 5.6%
|
|
|
|
|
|
|
2,236,331
|
|
|
|
|
|
|
|
|
|
|
Securities Sold Short (5.2%)
(Proceeds $2,097,687)
|
|
|
|
|
|
|
(2,095,216
|
)
|
|
|
|
|
|
|
|
|
|
Net Other Assets (Liabilities) (9.3%)
|
|
|
|
|
|
|
(3,696,577
|
)
|
|
|
|
|
|
|
|
|
|
|
Net Assets 100.0%
|
|
|
|
|
|
$
|
39,846,150
|
|
|
|
|
|
*
|
|
Non-income producing security.
|
|
**
|
|
Represents cost for financial reporting purposes.
|
|
◊
|
|
All or a portion of the security is on loan. The total
market value of the securities on loan, as of June 30, 2010, was
$3,672,439.
|
|
|
|
This security, which was purchased using cash collateral received
from securities on loan, represents collateral for securities loaned as of
June 30, 2010.
|
|
§
|
|
Security position is either entirely or partially held in a segregated
account as collateral for securities sold short aggregating a total market
value of $2,871,621.
|
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
June 30, 2010 (Unaudited)
|
|
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|
|
|
|
|
|
|
|
Fair
|
|
|
Shares
|
|
Value
|
|
Common Stocks 5.2%
|
|
|
|
|
|
|
|
|
Banking Services 4.8%
|
|
|
|
|
|
|
|
|
First Financial Bankshares, Inc.
|
|
|
11,280
|
|
|
$
|
542,455
|
|
Home Bancshares, Inc.
|
|
|
20,416
|
|
|
|
465,677
|
|
M&T Bank Corp.
|
|
|
8,405
|
|
|
|
714,005
|
|
Westamerica Bancorp.
|
|
|
3,850
|
|
|
|
202,202
|
|
|
|
|
|
|
|
|
|
1,924,339
|
|
|
Capital Markets 0.4%
|
|
|
|
|
|
|
|
|
KBW, Inc.*
|
|
|
7,970
|
|
|
|
170,877
|
|
|
|
|
|
|
|
|
|
|
|
Total Common Stocks Sold Short
(Proceeds $2,097,687)
|
|
|
|
|
|
$
|
2,095,216
|
|
|
|
|
|
*
|
|
Non-dividend expense producing security.
|
Percentages disclosed are based on total net assets of the Fund at June 30, 2010.
|
|
|
|
|
|
See notes to financial statements
|
|
Diamond Hill Financial Trends Fund, Inc.
|
7
Financial Statements
Statement of Assets and Liabilities June 30, 2010
(Unaudited)
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 fair value (cost $40,297,662) including $3,672,439 of securities loaned
|
|
$
|
43,401,612
|
|
Deposit with broker for securities sold short
|
|
|
2,236,331
|
|
Cash
|
|
|
36,986
|
|
Tax reclaim receivable
|
|
|
15,975
|
|
Receivable for dividends and interest
|
|
|
65,219
|
|
Prepaid Assets
|
|
|
21,800
|
|
|
|
|
|
|
Total assets
|
|
|
45,777,923
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Return of collateral for securities on loan
|
|
|
3,703,480
|
|
Securities sold short, at value (proceeds $2,097,687)
|
|
|
2,095,216
|
|
Payable for securities purchased
|
|
|
35,096
|
|
Payable for dividends on securities sold short
|
|
|
3,835
|
|
Payable to Administrator
|
|
|
5,139
|
|
Payable to Investment Adviser
|
|
|
22,271
|
|
Other payables and accrued expenses
|
|
|
66,736
|
|
|
|
|
|
|
Total liabilities
|
|
|
5,931,773
|
|
|
|
|
|
|
Net Assets
|
|
|
|
|
Capital paid-in
|
|
|
39,975,336
|
|
Accumulated net investment income
|
|
|
344,406
|
|
Accumulated net realized loss on investments
|
|
|
(3,580,013
|
)
|
Net unrealized appreciation on investments
|
|
|
3,106,421
|
|
|
|
|
|
|
Net assets
|
|
$
|
39,846,150
|
|
|
|
|
|
|
Net asset value per share
|
|
|
|
|
Based on 3,968,124 shares outstanding 50 million shares authorized
with par value of $0.001 per share
|
|
$
|
10.04
|
|
|
|
|
|
|
|
Diamond Hill Financial Trends Fund, Inc.
|
|
See notes to financial statements
|
8
Statement of Operations For the six months ended June 30, 2010
(Unaudited)
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
|
|
$
|
355,875
|
|
Interest
|
|
|
56,027
|
|
|
|
|
|
|
Total investment income
|
|
|
411,902
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
Investment management fees
|
|
|
137,160
|
|
Administration fees
|
|
|
31,652
|
|
Custodian fees
|
|
|
6,782
|
|
Directors fees
|
|
|
40,282
|
|
Professional fees
|
|
|
26,097
|
|
Regulatory fees
|
|
|
8,898
|
|
Transfer agent fees
|
|
|
7,582
|
|
Postage and printing fees
|
|
|
5,040
|
|
Dividend expense on securities sold short
|
|
|
30,533
|
|
Insurance
|
|
|
6,613
|
|
Total expenses
|
|
|
300,639
|
|
|
|
|
|
|
Fees waived by Adviser
|
|
|
(535
|
)
|
|
|
|
|
|
Net expenses
|
|
|
300,104
|
|
|
|
|
|
|
Net investment income
|
|
|
111,798
|
|
|
Realized and unrealized gain (loss)
|
|
|
|
|
Net realized gain (loss) on
|
|
|
|
|
Security sales
|
|
|
2,754,247
|
|
Closed short positions
|
|
|
188,423
|
|
Change in net unrealized appreciation (depreciation) of investments
|
|
|
(2,183,007
|
)
|
|
|
|
|
|
Net realized and unrealized gain
|
|
|
759,663
|
|
|
|
|
|
|
Increase in net assets from operations
|
|
$
|
871,461
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
For the Six
|
|
Year
|
|
|
Months Ended
|
|
Ended
|
|
|
June 30, 2010
|
|
December 31,
|
|
|
(Unaudited)
|
|
2009
|
Increase (decrease) in net assets
|
|
|
|
|
|
|
|
|
From operations
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
111,798
|
|
|
$
|
720,498
|
|
Net realized gain (loss) from security sales
|
|
|
2,754,247
|
|
|
|
(4,238,919
|
)
|
Net realized gain from closed short positions
|
|
|
188,423
|
|
|
|
1,440,059
|
|
Change in net unrealized appreciation (depreciation)
|
|
|
(2,183,007
|
)
|
|
|
9,237,714
|
|
|
|
|
|
|
|
|
|
|
Increase in net assets resulting from operations
|
|
|
871,461
|
|
|
|
7,159,352
|
|
|
|
|
|
|
|
|
|
|
Distributions to common shareholders
|
|
|
|
|
|
|
|
|
From net investment income
|
|
|
|
|
|
|
(1,317,759
|
)
|
From net realized gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in net assets from distributions
to common shareholders
|
|
|
|
|
|
|
(1,317,759
|
)
|
|
|
|
|
|
|
|
|
|
From Capital Share Transactions
|
|
|
|
|
|
|
|
|
Repurchase of Shares (25,000 shares)
|
|
|
(237,380
|
)
|
|
|
|
|
Net Decrease in Net Assets from Capital Share Transactions
|
|
|
(237,380
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
39,212,069
|
|
|
|
33,370,476
|
|
End of period
|
|
$
|
39,846,150
|
|
|
$
|
39,212,069
|
|
|
|
|
|
|
|
|
|
|
Accumulated net investment income
|
|
$
|
344,406
|
|
|
$
|
232,608
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six
|
|
|
|
|
|
|
Months Ended
|
|
|
|
|
|
|
June 30, 2010
|
|
|
Year Ended December 31,
|
|
|
|
(Unaudited)
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Per share operating performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of period
|
|
$
|
9.82
|
|
|
$
|
8.36
|
|
|
$
|
15.73
|
|
|
$
|
21.25
|
|
|
$
|
19.46
|
|
|
$
|
19.09
|
|
Net investment income
1
|
|
|
0.03
|
|
|
|
0.18
|
|
|
|
0.38
|
|
|
|
0.28
|
|
|
|
0.25
|
|
|
|
0.23
|
|
Net realized and unrealized
gain (loss) on investments
|
|
|
0.19
|
|
|
|
1.61
|
|
|
|
(7.33
|
)
|
|
|
(3.31
|
)
|
|
|
2.69
|
|
|
|
0.96
|
|
Total from investment operations
|
|
|
0.22
|
|
|
|
1.79
|
|
|
|
(6.95
|
)
|
|
|
(3.03
|
)
|
|
|
2.94
|
|
|
|
1.19
|
|
Less distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From net investment income
|
|
|
|
|
|
|
(0.33
|
)
|
|
|
(0.10
|
)
|
|
|
(0.28
|
)
|
|
|
(0.26
|
)
|
|
|
(0.22
|
)
|
From net realized gain
|
|
|
|
|
|
|
|
|
|
|
(0.32
|
)
|
|
|
(2.21
|
)
|
|
|
(0.89
|
)
|
|
|
(0.60
|
)
|
Total distributions
|
|
|
|
|
|
|
(0.33
|
)
|
|
|
(0.42
|
)
|
|
|
(2.49
|
)
|
|
|
(1.15
|
)
|
|
|
(0.82
|
)
|
Net asset value, end of period
|
|
$
|
10.04
|
|
|
$
|
9.82
|
|
|
$
|
8.36
|
|
|
$
|
15.73
|
|
|
$
|
21.25
|
|
|
$
|
19.46
|
|
Per share market value, end of period
|
|
$
|
8.35
|
|
|
$
|
7.88
|
|
|
$
|
6.35
|
|
|
$
|
13.75
|
|
|
$
|
19.01
|
|
|
$
|
16.68
|
|
Total return at net asset value
2
(%)
|
|
|
2.24
|
4
|
|
|
22.67
|
|
|
|
(44.30
|
)
|
|
|
(12.50
|
)
|
|
|
15.92
|
3
|
|
|
6.99
|
3
|
Total return at market value
2
(%)
|
|
|
5.96
|
4
|
|
|
29.60
|
|
|
|
(51.60
|
)
|
|
|
(14.50
|
)
|
|
|
20.99
|
|
|
|
0.21
|
|
Ratios and supplemental data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (in millions)
|
|
$
|
40
|
|
|
$
|
39
|
|
|
$
|
33
|
|
|
$
|
63
|
|
|
$
|
85
|
|
|
$
|
78
|
|
Ratio of gross expenses to average
net assets (%)
|
|
|
1.45
|
5
|
|
|
1.64
|
|
|
|
1.53
|
|
|
|
1.30
|
|
|
|
1.21
|
|
|
|
1.18
|
|
Ratio of net expenses to average
net assets (%)
|
|
|
1.45
|
5
|
|
|
1.32
|
|
|
|
1.26
|
|
|
|
1.28
|
|
|
|
1.21
|
|
|
|
1.18
|
|
Ratio of net expenses to average net
assets, excluding dividends on
securities sold short (%)
|
|
|
1.31
|
5
|
|
|
1.15
|
|
|
|
1.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net investment income
to average net assets (%)
|
|
|
0.53
|
5
|
|
|
2.21
|
|
|
|
3.09
|
|
|
|
1.36
|
|
|
|
1.21
|
|
|
|
1.21
|
|
Portfolio Turnover (%)
|
|
|
31
|
4
|
|
|
81
|
|
|
|
65
|
|
|
|
42
|
|
|
|
10
|
|
|
|
4
|
|
|
|
|
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.
|
|
4
|
|
Not Annualized.
|
|
5
|
|
Annualized.
|
|
|
|
|
|
|
See notes to financial statements
|
|
Diamond Hill Financial Trends Fund, Inc.
|
11
Notes to Financial Statements (Unaudited)
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 Fund records its investments at
fair value. Fair Value is defined as
the price that would be received to
sell an asset or paid to transfer a
liability in an orderly transaction
between market participants at the
measurement date. The valuation
techniques used to determine fair
value are further described below.
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 of sufficient credit
quality maturing in less than 61 days
are valued at amortized cost, and
thereafter assume a constant
amortization to maturity of any
discount or premium, which
approximates fair value. Investments
in other investment companies are
valued at their reported net asset
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.
Other assets and securities for which
no such quotations are readily
available (e.g., an approved pricing
service does not provide a price,
certain stale prices, or an event that
materially affects the furnished
price) 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.
The valuation techniques described
maximize the use of observable inputs
and minimize the use of unobservable
inputs in determining fair value.
These inputs are summarized in the
three broad levels listed below:
|
|
Level 1 quoted prices in
active markets for identical
securities
|
|
|
Level 2 other significant
observable inputs (including
quoted prices for similar
securities, interest rates,
prepayment speeds, credit risk,
etc.)
|
|
|
Level 3 significant
unobservable inputs (including
the Funds own assumptions in
determining the fair value of
investments)
|
The inputs or methodology used for
valuing securities are not necessarily
an indication of the risk associated
with investing in those securities.
For example, short-term debt
securities of sufficient credit
quality maturing in less than 61 days
are valued using amortized cost, in
accordance with rules under the 1940
Act. Generally, amortized cost
approximates the
Diamond Hill Financial Trends Fund, Inc.
12
current fair value of a security, but
since the value is not obtained from
a quoted price in an active market,
such securities would be reflected as
Level 2.
The following is a summary of the
inputs used to value the Funds net
assets as of June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 -
|
|
|
|
|
|
|
|
Other
|
|
|
|
Level 1 -
|
|
|
Significant
|
|
|
|
Quoted
|
|
|
Observable
|
|
|
|
Prices
|
|
|
Inputs
|
|
|
Investments in Securities:
|
|
|
|
|
(Assets)
|
|
|
|
|
|
|
|
|
Common Stocks*
|
|
$
|
33,909,015
|
|
|
$
|
|
|
Preferred Stocks*
|
|
|
2,924,442
|
|
|
|
|
|
Corporate Bonds*
|
|
|
|
|
|
|
843,039
|
|
Registered Investment Companies
|
|
|
2,021,636
|
|
|
|
|
|
Repurchase Agreements
|
|
|
|
|
|
|
3,703,480
|
|
|
|
|
|
|
|
|
Total
|
|
|
38,855,093
|
|
|
|
4,746,519
|
|
Investments in Securities Sold Short:
|
|
|
|
|
(Liabilities)
|
|
|
|
|
|
|
|
|
Common Stocks*
|
|
$
|
(2,095,216
|
)
|
|
$
|
|
|
|
|
|
*
|
|
See Schedule of Investments
and Schedule of Securities
Sold Short for industry
classification.
|
There were no significant transfers in
and out of Levels 1, 2, or 3 during
the six months ended June 30, 2010 and
the Fund held no Level 3 securities at
June 30, 2010.
Investment transactions
Investment transactions are accounted
for no later than the first business
day after trade date for daily net
asset value calculations throughout
the period. However, for financial
reporting purposes, investment
transactions are reported on trade
date at the end of the period. 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
effective 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
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 net securities
lending income is presented in the
Statement of Operations.
Diamond Hill Financial Trends Fund, Inc.
13
As of June 30, 2010, the value of
securities loaned and the collateral
held were as follows:
|
|
|
Fair Value
|
|
Fair Value of
|
of Securities
|
|
Collateral
|
Loaned
|
|
Received
|
|
$ 3,672,439
|
|
$ 3,703,480
|
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, 2006 through 2009)
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.
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.
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
The Fund has entered into an
Investment Advisory Agreement with
Diamond Hill Capital Management, Inc.
(Adviser), whereby 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 and provides
office space, furnishings and
equipment used to carryout 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 requires 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, excluding dividend expense
on securities sold short, of the Fund
to an annual rate of 1.15% of the
average weekly net assets of the Fund.
This Limitation Agreement was
effective through January 2, 2010.
Beginning January 3, 2010, the Adviser
has agreed to waive its investment
advisory fees to maintain a total
operating expense ratio no greater
than 1.59%, excluding dividend expense
on securities sold short, subject to a
maximum waiver of 0.15%. This new
Limitation Agreement will continue
until December 31, 2010.
Diamond Hill Financial Trends Fund, Inc.
14
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 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 $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 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.
During the period ended June 30, 2010,
the Fund repurchased 25,000 (0.63% of
shares outstanding) of its shares
under the share repurchase program
authorized by the Board of Trustees.
The corresponding dollar amount of the
share repurchase amounted to $237,380
with a weighted average price per
share of $9.50 and a weighted average
discount per share at 16.5%.
Note 5
Share Repurchase Plan
On December 15, 2009, the Board of
Trustees authorized a share repurchase
plan. Under the share repurchase plan,
the Fund may purchase in the open
market up to 200,000 of its
outstanding shares and is effective
until the earlier of its termination
by vote of the Directors or the
repurchase of 200,000 shares The share
repurchase program is intended to
increase the Funds NAV per share of
the Funds remaining shares.
Note 6
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 six
months ended June 30, 2010, aggregated
$13,834,686 and $12,088,292,
respectively.
Diamond Hill Financial Trends Fund, Inc.
15
Note 7
Federal Tax Information
The amount and character of income and
capital gain distributions paid by the
Fund are determined in accordance with
Federal income tax regulations which
may differ from GAAP. The tax
character of distributions paid bay
differ 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 dividends paid to
shareholders during the latest tax
years ended 2009 and 2008 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary
|
|
Long-Term
|
|
|
|
|
Income
|
|
Gains
|
|
Total
|
|
2009
|
|
$
|
1,317,759
|
|
|
$
|
|
|
|
$
|
1,317,759
|
|
2008
|
|
|
945,639
|
|
|
|
752,716
|
|
|
|
1,698,355
|
|
The following components of
accumulated earnings (deficit) are
computed on a tax basis for each item
of the Fund as of the latest tax year
ended December 31, 2009:
|
|
|
|
|
Tax cost of portfolio investments
|
|
$
|
43,044,466
|
|
|
|
|
|
Gross unrealized appreciation
|
|
|
7,726,512
|
|
Gross unrealized depreciation
|
|
|
(2,745,471
|
)
|
|
|
|
|
Net unrealized appreciation
|
|
|
4,981,041
|
|
Undistributed ordinary income
|
|
|
189,676
|
|
Capital loss carryforwards
|
|
|
(6,171,364
|
)
|
|
|
|
|
Accumulated deficit
|
|
$
|
(1,000,647
|
)
|
|
|
|
|
As of June 30, 2010, the Funds
federal tax cost of investment
securities and net unrealized
appreciation (depreciation) was as
follows:
|
|
|
|
|
Tax cost of portfolio investments
|
|
$
|
40,640,332
|
|
|
|
|
|
Gross unrealized appreciation
|
|
|
4,837,975
|
|
Gross unrealized depreciation
|
|
|
(2,076,695
|
)
|
|
|
|
|
Net unrealized appreciation
|
|
|
2,761,280
|
|
As of the latest tax year ended
December 31, 2009, the Fund had net
capital loss carryforwards expiring as
follows:
|
|
|
|
|
Expires
|
Amount
|
|
December 31,
|
|
$ 2,177,195
|
|
2016
|
3,994,169
|
|
2017
|
The tax character of current year
distributions paid and the tax basis
of the current components of
accumulated earnings (deficit) and any
net capital loss carryforwards will be
determined at the end of the current
tax year.
Note 8
Subsequent Events
The Fund evaluated subsequent events
from June 30, 2010 through the date of
these financial statements were issued
and available. There were no
subsequent events to report that would
have a material impact on the
financial statements.
Diamond Hill Financial Trends Fund, Inc.
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
latest taxable year ended December 31, 2009.
With respect to the ordinary dividends paid by the Fund for the fiscal year
ended December 31, 2009, 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 2009.
Shareholders were mailed a 2009 U.S. Treasury Department Form 1099-DIV in
January 2010. This will reflect the total of all distributions that are
taxable for calendar year 2009.
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 5% and 25%
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
quasigovernmental 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. Austin Hawley assumed
responsibility as assistant portfolio
manager of the Fund on December 31,
2009. Mr. Hawley has a B.A. degree in
history with an economics minor from
Dartmouth College (cum laude), a
Masters degree in Business
Administration from the Tuck School of
Business at Dartmouth College, and
holds the CFA designation. He has been
an investment professional with
Diamond Hill Capital Management, Inc.
since August 2008. From 2004 to 2008,
Mr. Hawley was an Equity Analyst at
Putnam Investments. He served as an
Investment Associate at Putnam
Investments from 1999 to 2002.
Mr. John Loesch assumed responsibility
as assistant portfolio manager of the
Fund on December 31, 2009. Mr. Loesch
has a B.S. degree in public affairs
with an emphasis in public financial
management from Indiana University, a
Masters degree in Business
Administration from University of
Notre Dame-Mendoza College of Business
(cum laude), and holds the CFA
designation. He has been with Diamond
Hill Capital Management, Inc. since
May 2007. From 2003 to 2006, Mr.
Loesch was an Analyst with Nationwide
Financial. He served as a Financial
Advisor with UBS Financial Services
from 2001 to 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,
18
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 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 1940 Act. 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,
2009 dividends from net investment
income totaling $0.33 per share were
paid to shareholders. The dates of
payments and the amounts per share are
as follows:
|
|
|
|
|
|
|
INCOME
|
|
PAYMENT DATE
|
|
DIVIDEND
|
|
|
August 20, 2009
|
|
$
|
0.21
|
|
December 17, 2009
|
|
|
0.12
|
|
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 for each
participating shareholders account.
These purchases may begin no sooner
than five
19
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 07310
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
|
|
|
1989
|
|
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.
|
|
|
|
|
|
|
|
|
|
Russell J. Page, Born: 1942
|
|
|
2003
|
|
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).
|
|
|
|
|
|
|
|
|
|
Fred G. Steingraber, Born: 1938
|
|
|
1989
|
|
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.
|
|
|
|
|
|
|
|
|
|
Donald R. Tomlin, Born: 1933
|
|
|
1989
|
|
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).
|
|
|
|
|
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
|
|
December 1, 2007
|
|
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.
|
|
|
|
|
|
|
|
|
|
Gary R. Young, Born: 1969
|
|
December 1, 2007
|
|
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.
|
|
|
|
|
|
|
|
|
|
Brian D. Risinger, Born: 1968
|
|
December 1, 2007
|
|
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.
|
|
|
|
|
|
|
|
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
NOTICE OF PRIVACY POLICY
In order to enhance our ability to provide you with the best service possible,
the Diamond Hill Financial Trends Fund (referred to as we or us) collects,
uses and shares certain information about you. This policy explains what
information we collect and with whom we share it. The practices described in
this policy are applicable to all customers, including prospective, current and
former customers. The policy also explains how we protect the security and
confidentiality of certain customer information. We make reference to our
affiliates in this policy. Affiliates are companies related to us by common
control, including Diamond Hill Capital Management, Inc., Diamond Hill
Investment Group, Inc., Beacon Hill Fund Services, Inc. and BHIL Distributors,
Inc.
SAFEGUARDING PRIVACY
We maintain physical, electronic and procedural safeguards that comply with
federal standards to ensure the safety of non-public personal customer
information.
INFORMATION WE COLLECT AND SOURCES OF INFORMATION
We may collect information about our customers to help identify you, evaluate
your application, service and manage your account and offer services and
products you may find valuable. We collect this information from a variety of
sources including:
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Information we receive from you on applications or other forms (e.g.
your name, address, date of birth, social security number and investment
information).
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Information about your transactions and experiences with us and our
affiliates (e.g. your account balance, transaction history and
investment selections); and
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Information we obtain from third parties regarding their brokerage,
investment advisory, custodial or other relationship with you (e.g. your
account number, account balance and transaction history).
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INFORMATION WE SHARE WITH SERVICE PROVIDERS
We may disclose all non-public personal information we collect, as described
above, to companies (including affiliates) that perform services on our
behalf, including those that assist us in responding to inquiries, processing
transactions, preparing and mailing account statements and other forms of
shareholder services provided they use the information solely for these
purposes and they enter into a confidentiality agreement regarding the
information.
INFORMATION WE SHARE WITH AFFILIATES
Our affiliates are financial service providers that offer investment advisory
and other financial services. In addition to the information we share with
affiliates that provide services to us, we may share information among our
affiliates to better assist you in achieving your financial goals.
PRIVACY PROMISE FOR CUSTOMERS
We will safeguard, according to federal standards of security and
confidentiality, any non-public personal information our customers share
with us.
We will limit the collection and use of non-public customer information to the
minimum necessary to deliver superior service to our customers which includes
advising our customers about our products and services and to administer our
business.
We will permit only authorized employees who are trained in the proper
handling of non-public customer information to have access to that
information.
We will not reveal non-public customer information to any external organization
unless we have previously informed the customer in disclosures or agreements,
have been authorized by the customer or are required by law or our regulators.
We value you as a customer and take your personal privacy seriously. We will
inform you of our policies for collecting, using, securing and sharing
non-public personal information the first time we do business and every year
that you are a customer of the Diamond Hill Financial Trends Fund or anytime we
make a material change to our privacy policy.
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For more information
The Funds proxy voting policies, procedures and records are available without charge,
upon request:
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By phone
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On the Funds Web site
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On the SECs Web site
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1-614-255-4080
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www.diamond-hill.com/closedendfund.asp
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www.sec.gov
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Directors
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Investment adviser
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Independent directors
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Franklin C. Golden
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Diamond Hill Capital Management, Inc.
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Counsel
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Russell J. Page
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325 John H. McConnell Boulevard, Suite 200
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Paul, Hastings, Janofsky
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Fred G. Steingraber
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Columbus, Ohio 43215
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& Walker, LLP
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Donald R. Tomlin
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600 Peachtree St., N.E.
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Custodian
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Twenty Fourth Floor
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Officers
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JPMorgan Chase Bank, N.A.
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Atlanta, GA 30308
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Franklin C. Golden
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14201 North Dallas Parkway
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Chairman
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Dallas, TX 75254-2916
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Stock symbol
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James Laird
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Listed Nasdaq Symbol:
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President
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Transfer agent and registrar
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DHFT
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Gary Young
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Mellon Investor Services
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Treasurer, CCO, Secretary
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Newport Office Center VII
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For shareholder
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Brian Risinger
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480 Washington Boulevard
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assistance,
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Assistant Treasurer
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Jersey City, NJ 07310
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refer to page 20
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How to contact us
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Internet
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www.diamond-hill.com
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Mail
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Mellon Investor Center
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Newport Office Center VII
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480 Washington Boulevard
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Jersey City, NJ 07310
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Phone
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Customer service representatives
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1-877-254-8583
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Information Line
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1-614-255-4080
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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.
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 required in Semi-Annual report filing.
Item 6. Schedule of Investments.
a)
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The Schedule of Investments is included in the report to
shareholders filed under Item 1 of this Form.
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b)
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Not applicable.
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Item 7.
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Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
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Not required in Semi-Annual report filing.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not required in Semi-Annual report filing.
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Item 9.
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Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers.
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Registrant Purchases of Equity Securities
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c) Total Number of
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a) Total
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Shares Purchased as
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d) Maximum Number of
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Number of
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b) Average
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Part of Publicly
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Shares that May Yet Be
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Shares
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Price Paid per
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Announced Plans or
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Purchased Under the
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Period
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Purchased
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Share
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Programs
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Repurchase Plan*
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January 1 to January 31
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200,000
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February 1 to February 28
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200,000
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March 1 to March 31
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10,000
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$
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9.14
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10,000
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190,000
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April 1 to April 30
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9,000
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$
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9.74
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9,000
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181,000
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May 1 to May 31
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6,000
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$
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9.72
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6,000
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175,000
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June 1 to June 30
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175,000
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Total
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25,000
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25,000
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On December 15, 2009, the Board of Directors authorized a share repurchase plan. Under the
terms of the plan, the Fund may purchase in the open market up to 200,000 of its outstanding shares
and is effective until the earlier terminiation by vote of the Directors or the repurchase of
200,000 shares.
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Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. Controls and Procedures.
(a) Based on an evaluation of the 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 second fiscal quarter, of the period covered by this
report 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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Not applicable in Semi-Annual filing.
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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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Certifications required by Item 12(b) of Form N-CSR are furnished herewith.
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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.
(Registrant) Diamond Hill Financial Trends Fund, Inc.
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: September 2, 2010
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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)
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/s/ James F. Laird, Jr.
James F. Laird, Jr.
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President
and Chief Executive Officer
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Date: September 2, 2010
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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: September 2, 2010
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