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:
06/30/11
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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Your fund at a glance
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page 1
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Portfolio Commentary
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page 2
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Funds Investments
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page 4
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Financial Statements
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page 8
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Notes to Financial Statements
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page 12
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Welcome
Dear Fellow Shareholders:
The domestic equity markets charged out of the gates early in 2011 but pulled back in May and
June as numerous macro issues began to again weigh on risk markets around the globe. Still, most
U.S. indices ended the first half up nicely with mid-cap equities leading the way. The financial
sector clearly lagged the overall market as concerns over slowing economic growth, European debt,
and regulatory changes persisted. The Diamond Hill Financial Trends Fund posted a negative 1.04%
return, on a net asset value basis, while its primary benchmark, the S&P 1500 SuperComposite
Financials Index, declined 2.20% for the same period.
The economic recovery, which strengthened during late 2010 and early 2011, began to soften during
the spring as a mix of higher commodity costs, weakening home prices, and production disruptions
due to the Japanese earthquake combined to take a toll on U.S. economic growth. Additionally,
concerns once again surfaced over the outlook for European sovereign debt issues. Finally,
financial regulatory reform continued with both global and domestic regulatory bodies making
periodic comments on desired capital levels for systemically important financial institutions.
While the financial sector continues to deal with the regulatory aftermath of the crises, most key
companies within the sector are now clearly demonstrating both improving levels of operating
profitability and strengthening capital positions. Credit costs and securities impairments
generally continue to move to more normal levels, while expense discipline has become an important
focus for many companies.
Ongoing cyclical challenges in the wake of the credit crisis took a toll on the financial sector
during the first half of 2011. However, we remain optimistic regarding the secular outlook for the
sector in general and our holdings in particular. As a reminder, 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 interests 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 by investing at least 80%
of its assets in stocks of U.S. financial service companies of any size.
Over the last six months
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The Fund declined 1.04% on a net asset value basis, outperforming the S&P 1500 Super
Composite Financials Index, which was down 2.20%.
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After a strong start, U.S. public equity markets sold off during the second quarter but did
finish the period with reasonably strong annualized returns.
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Renewed fears over economic growth prospects, European sovereign debt issues, and new
capital rules for strategically important financial institutions weighed on the financial
sector.
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The funds net long position increased during the period as opportunities on long side
became abundant during the last two months of the period.
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Top 10 holding
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Wells Fargo & Co.
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7.3
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%
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PNC Financial Services Group, Inc.
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4.1
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%
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JPMorgan Chase & Co.
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6.7
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%
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Old Republic International Corp.
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4.0
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%
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Assured Guaranty Ltd.
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5.2
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%
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Bank of New York Mellon Corp.
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3.2
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%
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U.S. Bancorp
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4.6
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%
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Hartford Financial Services Group, Inc.
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2.8
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%
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Prudential Financial, Inc.
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4.1
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%
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Assurant, Inc.
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2.8
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%
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As a percentage of net assets on June 30, 2011 and excludes any cash equivalents.
1
Portfolio Commentary
Thank you for your interest in the Diamond Hill Financial Trends Fund, Inc.
Much like last year, 2011 started off very strong and then weakened as we approached mid-year.
Relative to the domestic equity markets, financial stocks clearly lagged. Through June 30, 2011,
the Fund posted a negative 1.04% total return, on a net asset value basis, while its primary
benchmark, the S&P 1500 SuperComposite Financials Index, declined 2.20% for the same period. We
once again increased the portfolios net long position as current stock valuations appeared to more
than compensate for difficult near term fundamentals.
Our significant long positions in many of the large cap banks were the primary detractors from
performance during the first half. Wells Fargo & Co., Bank of New York Mellon Corp., and Bank of
America Corp. all struggled with sluggish core revenue trends, while Old Republic International
Corp. and Assured Guaranty Ltd. continued to deal with residential mortgage exposures. Two notable
contributors to the long portfolio return were Discover Financial Services and American Express Co.
Both companies continued to see strong improvement in earnings trends due to very sharp declines in
delinquencies and net credit losses.
The short portfolio was a modest positive contributor to the Funds performance during the first
half as many of our small cap commercial bank holdings continued to struggle with the difficult
environment. We eliminated short positions in First Bancorp and Westamerica Bancorp as they reached
our fair value targets, and we initiated a new position in Home Bancshares, Inc. Home Bancshares is
an Arkansas based bank that has grown significantly through five FDIC-assisted acquisitions in
Florida. We view the company as a reasonably high quality operator but also believe the stocks
valuation more than reflects the companys strengths.
Within the long portfolio, new positions included ACE Ltd., CME Group, Inc., iStar Financial, Inc.,
and White Mountains Insurance Group Ltd. ACE is a global insurer with an excellent track record of
growing earnings and book value per share. The company has achieved superior underwriting results
over time, while building a global distribution platform that would be nearly impossible to
replicate. ACE now receives over 15% of its revenues from the fast growing regions of Asia and
Latin America, and revenue from these regions will increase with recent acquisitions in Hong Kong
and Malaysia. We view the companys absolute valuation as attractive and believe the high quality
returns and superior growth outlook deserve a larger premium relative to peers. CME Group is the
combination of the Chicago Mercantile Exchange, Chicago Board of Trade, and New York Mercantile
Exchange. It is one of the largest financial exchanges in the world facilitating futures and
options trading based on interest rates, equity indexes, foreign exchange, energy, agricultural
commodities, metals, and real estate. CMEs business model is a high margin, volume-based business
with significant barriers to entry. iStar Financial is a commercial mortgage REIT. We have been
invested in various parts of the companys capital structure for several years. Most recently, we
reduced our position in one of its preferred issues and began buying the common stock as the
company was able to complete a necessary financing and extend its debt maturities. Both the credit
profile of their borrowers and the performance of the underlying properties have improved
dramatically in recent quarters. Finally, White Mountains Insurance owns commercial insurance and
reinsurance businesses in the U.S. and Europe. Over the years they have been very astute managers
of capital and as a result, have been able to compound
2
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Christopher M. Bingaman
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Austin Hawley
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John Loesch
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tangible book value at a superior rate. During the quarter, White Mountains
reached an agreement to sell its direct-to-consumer auto insurance business,
Esurance, to Allstate for what we perceived to be a very attractive price. When the
deal closes, it will increase White Mountains tangible book value by nearly 20% and
leave the company with very substantial excess capital.
Notable eliminations included The Allstate Corp and MVC Capital. Allstate once again
reported disappointing fundamentals. Consequently, we reduced our estimates of
earnings power and intrinsic value. As mentioned above, the company also announced the
acquisition of White Mountains Esurance business. We were disappointed with the price
Allstate paid for Esurance, and it forced us to reconsider the competitive environment
in the personal lines insurance industry as well as the companys longer term
positioning therein. MVC Capital was a small but nicely profitable investment which
was sold as it approached our intrinsic value estimate.
As usual, the Fund remains relatively concentrated as we continue to hold between 40
and 50 stocks on the long side. While the portfolio remains very long-biased, we
continue to believe the ability to short within the portfolio will provide important
long-term benefits. 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.
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, 2011 (Unaudited)
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Fair
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Shares
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Value
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Preferred Stocks 1.9%
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Banking Services 1.2%
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Citizens Funding Trust I, 7.50%*
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25,940
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$
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538,255
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Reits & Real Estate Management 0.7%
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iStar Financial, Inc., Series F, 7.80%
◊
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15,875
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313,849
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Total Preferred Stocks
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$
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852,104
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Common Stocks 87.2%
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Banking Services 31.6%
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BB&T Corp.
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12,907
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346,424
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City National Corp.
◊
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6,100
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330,925
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First California Financial Group, Inc.*
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110,350
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392,294
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First Financial Holdings, Inc.
◊
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57,338
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514,322
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First Niagara Financial Group, Inc.
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45,325
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598,290
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First of Long Island Corp.
◊
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27,056
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754,592
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Huntington Bancshares, Inc.
◊
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121,010
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793,826
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National Penn Bancshares, Inc.
◊
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85,930
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681,425
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NewBridge Bancorp*
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47,512
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217,605
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PNC Financial Services Group, Inc.
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30,725
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1,831,517
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Popular, Inc.*
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305,125
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842,145
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Sterling Bancorp
◊
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67,370
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639,341
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SunTrust Banks, Inc.
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36,260
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935,508
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U.S. Bancorp
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82,199
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2,096,897
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Wells Fargo & Co.
§
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118,090
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3,313,605
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14,288,716
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Consumer Financial Services 3.6%
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American Express Co.
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13,550
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700,535
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Discover Financial Services
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34,315
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917,926
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1,618,461
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Financial Services 15.1%
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Bank of America Corp.
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60,215
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659,957
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Bank of New York Mellon Corp.
§
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57,008
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1,460,545
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CME Group, Inc.
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2,870
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836,863
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JPMorgan Chase & Co.
§
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74,528
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3,051,176
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Morgan Stanley
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25,670
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590,667
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State Street Corp.
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4,724
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213,005
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6,812,213
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4 Diamond Hill Financial Trends Fund, Inc.
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See notes to financial statements
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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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Insurance 30.6%
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ACE Ltd.
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13,325
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$
|
877,052
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Alleghany Corp.*
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672
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223,850
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Arch Capital Group Ltd.*
◊
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9,920
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316,646
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Assurant, Inc.
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34,575
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1,254,035
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Assured Guaranty Ltd.
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144,301
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2,353,549
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Chubb Corp., The
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5,570
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|
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348,738
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|
Hartford Financial Services Group, Inc.
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48,542
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1,280,053
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HCC Insurance Holdings, Inc.
◊
|
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15,265
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480,847
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Horace Mann Educators Corp.
◊
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43,927
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685,700
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Marsh & McLennan Cos., Inc.
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10,450
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325,935
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Old Republic International Corp.
◊
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155,440
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1,826,420
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Prudential Financial, Inc.
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29,400
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1,869,546
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Travelers Cos., Inc., The
§
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11,005
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642,472
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White Mountains Insurance Group Ltd.
◊
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780
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327,725
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XL Group plc.
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46,475
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1,021,521
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13,834,089
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IT Services 1.4%
|
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CoreLogic, Inc.*
◊
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38,510
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643,502
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Reits & Real Estate Management 4.9%
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iStar Financial, Inc. REIT*
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110,010
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892,181
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Redwood Trust, Inc. REIT
◊
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62,285
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941,749
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Winthrop Realty Trust REIT
◊
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29,840
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356,290
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2,190,220
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Total Common Stocks
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$
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39,387,201
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Corporate Bond 0.9%
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Banking Services 0.9%
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Synovus Financial Corp., 4.88%, 2/15/13
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$
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415,000
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$
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393,769
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Repurchase Agreement 13.2%
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BNP Paribas Securities Corp.,
0.03%, Agreement dated 06/30/2011 to be repurchased at
$5,966,469
on 07/01/2011. Repurchase agreement is fully collateralized
by various U.S. Government Agency securities with a range
of rates from 0.0% 6.3%, and maturities from
08/02/2011 through 06/12/2037
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$
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5,966,464
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$
|
5,966,464
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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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Registered Investment Company 8.9%
|
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JPMorgan 100% U.S. Treasury Securities Money
Market Fund,
Capital Shares
|
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$
|
4,051,596
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$
|
4,051,596
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|
Total Investment Securities 112.1%
|
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$
|
50,651,134
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(Cost $44,826,786)**
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Segregated Cash With Brokers 4.6%
|
|
|
|
|
|
|
2,067,663
|
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|
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|
Securities Sold Short (5.7)%
|
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|
|
|
(2,569,093
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)
|
(Proceeds $2,541,253)
|
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|
|
|
|
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|
Net Other Assets (Liabilities) (11.0%)
|
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|
|
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|
(4,982,178
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)
|
|
Net Assets 100.0%
|
|
|
|
|
|
$
|
45,167,526
|
|
|
|
|
|
*
|
|
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, 2011, was
$5,819,155.
|
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|
|
This security, which was purchased using cash collateral
received from securities on loan, represents collateral for securities
loaned as of June 30, 2011.
|
|
§
|
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Security position is either entirely or partially held in a
segregated account as collateral for securities sold short aggregating
a total market value of $3,180,242.
|
REIT Real Estate Investment Trust
|
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|
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|
|
6 Diamond Hill Financial Trends Fund, Inc.
|
|
See notes to financial statements
|
Diamond Hill Financial Trends Fund, Inc.
Schedule of Securities Sold Short
June 30, 2011 (Unaudited)
|
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|
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|
|
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Fair
|
|
|
Shares
|
|
Value
|
|
Common Stocks 5.7%
|
|
|
|
|
|
|
|
|
Banking Services 5.0%
|
|
|
|
|
|
|
|
|
Eagle Bancorp, Inc.*
|
|
|
30,610
|
|
|
$
|
407,113
|
|
First Financial Bankshares, Inc.
|
|
|
16,042
|
|
|
|
552,647
|
|
Home Bancshares, Inc.
|
|
|
21,325
|
|
|
|
504,123
|
|
United Bankshares, Inc.
|
|
|
9,820
|
|
|
|
240,394
|
|
WesBanco, Inc.
|
|
|
28,120
|
|
|
|
552,839
|
|
|
|
|
|
|
|
|
|
2,257,116
|
|
|
Financial Services 0.7%
|
|
|
|
|
|
|
|
|
Moodys Corp.
|
|
|
8,135
|
|
|
|
311,977
|
|
|
|
|
|
|
|
|
|
|
|
Total Common Stocks Sold Short
|
|
|
|
|
|
|
|
|
(Proceeds $2,541,253)
|
|
|
|
|
|
$
|
2,569,093
|
|
|
|
|
|
*
|
|
Non-dividend expense producing security.
|
Percentages disclosed are based on total net assets of the Fund at June 30, 2011.
|
|
|
|
|
|
See notes to financial statements
|
|
Diamond Hill Financial Trends Fund, Inc. 7
|
Financial Statements
Statement of Assets and Liabilities June 30, 2011 (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.
|
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|
|
|
Assets
|
|
|
|
|
Investments, at fair value (cost $38,860,322) including $5,819,155 of
securities loaned
|
|
$
|
44,684,670
|
|
Repurchase agreement, at value (cost $5,966,464)
|
|
|
5,966,464
|
|
Deposit with broker for securities sold short
|
|
|
2,067,663
|
|
Cash
|
|
|
2,153
|
|
Receivable for investments sold
|
|
|
1,007,710
|
|
Receivable for dividends and interest
|
|
|
55,072
|
|
Prepaid Assets
|
|
|
12,643
|
|
|
|
|
|
|
Total assets
|
|
|
53,796,375
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Securities sold short, at value (proceeds $2,541,253)
|
|
|
2,569,093
|
|
Return of collateral for securities on loan
|
|
|
5,966,464
|
|
Payable to Investment Adviser
|
|
|
24,185
|
|
Payable for dividends on securities sold short
|
|
|
11,014
|
|
Payable to Administrator
|
|
|
5,458
|
|
Other payables and accrued expenses
|
|
|
52,635
|
|
|
|
|
|
|
Total liabilities
|
|
|
8,628,849
|
|
|
|
|
|
|
Net Assets
|
|
|
|
|
Capital paid-in
|
|
|
39,977,745
|
|
Accumulated net investment income
|
|
|
63,561
|
|
Accumulated net realized loss on investments
|
|
|
(670,288
|
)
|
Net unrealized appreciation on investments
|
|
|
5,796,508
|
|
|
|
|
|
|
Net assets
|
|
$
|
45,167,526
|
|
|
|
|
|
|
Net asset value per share
|
|
|
|
|
Based on 3,968,124 shares outstanding - 50 million shares authorized
with par value of $0.001 per share.
|
|
$
|
11.38
|
|
|
|
|
|
|
|
8 Diamond Hill Financial Trends Fund, Inc.
|
|
See notes to financial statements
|
Statement of Operations For the six months ended June 30, 2011 (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
|
|
$
|
341,073
|
|
Interest
|
|
|
15,595
|
|
|
|
|
|
|
Total investment income
|
|
|
356,668
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
Investment management fees
|
|
|
149,076
|
|
Administration fees
|
|
|
34,402
|
|
Custodian fees
|
|
|
4,940
|
|
Directors fees
|
|
|
38,794
|
|
Professional fees
|
|
|
18,851
|
|
Regulatory fees
|
|
|
8,462
|
|
Transfer agent fees
|
|
|
28,166
|
|
Postage and printing fees
|
|
|
10,994
|
|
Dividend expense on securities sold short
|
|
|
36,837
|
|
Insurance
|
|
|
7,859
|
|
Total expenses
|
|
|
338,381
|
|
|
|
|
|
|
Net investment income
|
|
|
18,287
|
|
|
|
|
|
|
Realized and unrealized gain (loss)
|
|
|
|
|
Net realized gain (loss) on
Security sales
|
|
|
1,256,924
|
|
Closed short positions
|
|
|
197,983
|
|
Change in net unrealized appreciation (depreciation) of
Investments
|
|
|
(2,073,872
|
)
|
Securities sold short
|
|
|
147,038
|
|
|
Net realized and unrealized loss
|
|
|
(471,927
|
)
|
|
|
|
|
|
Decrease in net assets from operations
|
|
$
|
(453,640
|
)
|
|
|
|
|
|
|
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, 2011
|
|
December 31,
|
|
|
(Unaudited)
|
|
2010
|
Increase (decrease) in net assets
|
|
|
|
|
|
|
|
|
From operations
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
18,287
|
|
|
$
|
163,476
|
|
Net realized gain from security sales
|
|
|
1,256,924
|
|
|
|
4,157,639
|
|
Net realized gain from closed short positions
|
|
|
197,983
|
|
|
|
239,849
|
|
Change in net unrealized appreciation (depreciation)
|
|
|
(1,926,834
|
)
|
|
|
2,433,914
|
|
|
|
|
|
|
|
|
|
|
Decrease in net assets resulting from operations
|
|
|
(453,640
|
)
|
|
|
6,994,878
|
|
|
|
|
|
|
|
|
|
|
Distributions to common shareholders
|
|
|
|
|
|
|
|
|
From net investment income
|
|
|
|
|
|
|
(348,401
|
)
|
From net realized gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in net assets from distributions
to common shareholders
|
|
|
|
|
|
|
(348,401
|
)
|
|
|
|
|
|
|
|
|
|
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
|
|
|
45,621,166
|
|
|
|
39,212,069
|
|
End of period
|
|
$
|
45,167,526
|
|
|
$
|
45,621,166
|
|
|
|
|
|
|
|
|
|
|
Accumulated net investment income
|
|
$
|
63,561
|
|
|
$
|
45,274
|
|
|
|
|
|
|
|
10 Diamond Hill Financial Trends Fund, Inc.
|
|
See notes to financial statements
|
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, 2011
|
|
Year ended December 31,
|
|
|
(Unaudited)
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
Per share operating performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of period
|
|
$
|
11.50
|
|
|
$
|
9.82
|
|
|
$
|
8.36
|
|
|
$
|
15.73
|
|
|
$
|
21.25
|
|
|
$
|
19.46
|
|
Net investment income
1
|
|
|
|
|
|
|
0.04
|
|
|
|
0.18
|
|
|
|
0.38
|
|
|
|
0.28
|
|
|
|
0.25
|
|
Net realized and unrealized
gain (loss) on investments
|
|
|
(0.12
|
)
|
|
|
1.73
|
|
|
|
1.61
|
|
|
|
(7.33
|
)
|
|
|
(3.31
|
)
|
|
|
2.69
|
|
Total from investment operations
|
|
|
(0.12
|
)
|
|
|
1.77
|
|
|
|
1.79
|
|
|
|
(6.95
|
)
|
|
|
(3.03
|
)
|
|
|
2.94
|
|
Less distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From net investment income
|
|
|
|
|
|
|
(0.09
|
)
|
|
|
(0.33
|
)
|
|
|
(0.10
|
)
|
|
|
(0.28
|
)
|
|
|
(0.26
|
)
|
From net realized gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.32
|
)
|
|
|
(2.21
|
)
|
|
|
(0.89
|
)
|
Total distributions
|
|
|
|
|
|
|
(0.09
|
)
|
|
|
(0.33
|
)
|
|
|
(0.42
|
)
|
|
|
(2.49
|
)
|
|
|
(1.15
|
)
|
Net asset value, end of period
|
|
$
|
11.38
|
|
|
$
|
11.50
|
|
|
$
|
9.82
|
|
|
$
|
8.36
|
|
|
$
|
15.73
|
|
|
$
|
21.25
|
|
Per share market value, end of period
|
|
$
|
9.85
|
|
|
$
|
9.81
|
|
|
$
|
7.88
|
|
|
$
|
6.35
|
|
|
$
|
13.75
|
|
|
$
|
19.01
|
|
Total return at net asset value
2
(%)
|
|
|
(1.04)
|
5
|
|
|
18.27
|
|
|
|
22.67
|
|
|
|
(44.30
|
)
|
|
|
(12.50
|
)
|
|
|
15.92
|
3
|
Total return at market value
2
(%)
|
|
|
0.41
|
5
|
|
|
25.72
|
|
|
|
29.60
|
|
|
|
(51.60
|
)
|
|
|
(14.50
|
)
|
|
|
20.99
|
|
Ratios and supplemental data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (in millions)
|
|
$
|
45
|
|
|
$
|
46
|
|
|
$
|
39
|
|
|
$
|
33
|
|
|
$
|
63
|
|
|
$
|
85
|
|
Ratio of gross expenses to average
net assets (%)
|
|
|
1.48
|
4
|
|
|
1.42
|
|
|
|
1.64
|
|
|
|
1.53
|
|
|
|
1.30
|
|
|
|
1.21
|
|
Ratio of net expenses to average
net assets (%)
|
|
|
1.48
|
4
|
|
|
1.42
|
|
|
|
1.32
|
|
|
|
1.26
|
|
|
|
1.28
|
|
|
|
1.21
|
|
Ratio of net expenses to average net
assets, excluding dividends on
securities sold short (%)
|
|
|
1.31
|
4
|
|
|
1.26
|
|
|
|
1.15
|
|
|
|
1.15
|
|
|
|
|
|
|
|
|
|
Ratio of net investment income
to average net assets (%)
|
|
|
0.08
|
4
|
|
|
0.38
|
|
|
|
2.21
|
|
|
|
3.09
|
|
|
|
1.36
|
|
|
|
1.21
|
|
Portfolio turnover (%)
|
|
|
24
|
5
|
|
|
51
|
|
|
|
81
|
|
|
|
65
|
|
|
|
42
|
|
|
|
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.
|
|
4
|
|
Annualized.
|
|
5
|
|
Not 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
|
|
|
|
|
|
12 Diamond Hill Financial Trends Fund, Inc.
|
|
See notes to financial statements
|
sufficient credit quality maturing in less than 61 days are valued using amortized cost, in
accordance with rules under the 1940 Act.
Generally, amortized cost approximates the current fair value of a security, but since the value is
not obtained from a quoted price in an active market, such securities 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, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 -
|
|
|
|
|
|
|
Other
|
|
|
Level 1 -
|
|
Significant
|
|
|
Quoted
|
|
Observable
|
|
|
Prices
|
|
Inputs
|
|
Investments in Securities:
|
|
|
|
|
|
|
|
|
(Assets)
|
|
|
|
|
|
|
|
|
Common Stocks*
|
|
$
|
39,387,201
|
|
|
$
|
|
|
Preferred Stocks*
|
|
|
852,104
|
|
|
|
|
|
Corporate Bonds*
|
|
|
|
|
|
|
393,769
|
|
Registered Investment
Companies
|
|
|
4,051,596
|
|
|
|
|
|
Repurchase
Agreements
|
|
|
|
|
|
|
5,966,464
|
|
|
Total
|
|
$
|
44,290,901
|
|
|
$
|
6,360,233
|
|
Investment in Securities Sold Short:
|
|
|
|
|
|
|
|
|
(Liabilities)
|
|
|
|
|
|
|
|
|
Common Stocks*
|
|
$
|
(2,569,093
|
)
|
|
$
|
|
|
|
|
|
*
|
|
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, 2011 and the Fund held no Level 3 securities at June 30, 2011.
New accounting pronouncement
In May 2011, the Financial Accounting Standards Board issued Accounting Standard Update No.
2011-04,
Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement
and Disclosure Requirements in U.S. GAAP and IFRSs
. The update changes the wording used
to describe the requirements in GAAP for measuring fair value and for disclosing information about
fair value measurements. The update is effective during interim and annual periods beginning after
December 15, 2011. Management is currently evaluating the impact of the updates adoption on the
Funds financial statement disclosures.
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 ability of Diamond Hill
Capital Management, Inc. (Adviser) to accurately anticipate the future value of a security.
|
|
|
|
|
|
See notes to financial statements
|
|
Diamond Hill Financial Trends Fund, Inc. 13
|
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 its 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.
As of June 30, 2011, the value of securities loaned and the collateral held were as follows:
|
|
|
Fair Value
|
|
Fair Value of
|
of Securities
|
|
Collateral
|
Loaned
|
|
Received
|
|
$5,819,155
|
|
$5,966,464
|
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, 2007 through 2010) 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 the 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
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14 Diamond Hill Financial Trends Fund, Inc.
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See notes to financial statements
|
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.
Administration
The Fund has entered into an Administration Agreement with the Adviser, whereby the Advisor 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 Advisor receives a fee at an annual rate of
0.15% of the Funds average weekly assets or $22,000, whichever is higher.
The Advisor 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.
Directors fees
The Chairman of the Board of Directors receives an annual retainer of $16,000. Each additional
Independent Board member receives an annual retainer of $10,000. The meeting attendance fee is
$1,250 per Director for each quarterly in-person meeting. The Fund paid $33,000 in aggregate
directors fees during the six months ended June 30, 2011.
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 fiscal year ended December 31, 2010, the Fund repurchased 25,000 (0.63% of shares
outstanding) of its shares under the share repurchase program authorized by the
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|
|
|
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See notes to financial statements
|
|
Diamond Hill Financial Trends Fund, Inc. 15
|
Board of Directors. 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 Directors 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 net asset value 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, 2011, aggregated
$10,033,827 and $9,887,198, respectively.
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 may 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 2010 and 2009 was as follows:
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Ordinary
|
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Long-Term
|
|
|
|
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Income
|
|
Gains
|
|
Total
|
|
2010
|
|
$
|
348,401
|
|
|
$
|
|
|
|
$
|
348,401
|
|
2009
|
|
|
1,317,759
|
|
|
|
|
|
|
|
1,317,759
|
|
The following information is computed on a tax basis for each item of the Fund as of December
31, 2010:
|
|
|
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|
Tax cost of portfolio investments
|
|
$
|
39,774,464
|
|
|
|
|
|
Gross unrealized appreciation
|
|
|
8,795,400
|
|
Gross unrealized depreciation
|
|
|
(1,374,204
|
)
|
|
|
|
|
Net unrealized appreciation
|
|
|
7,421,196
|
|
Undistributed ordinary Income
|
|
|
4,751
|
|
Capital loss carryforwards
|
|
|
(1,782,526
|
)
|
|
|
|
|
Accumulated earnings
|
|
|
5,643,421
|
|
|
|
|
|
As of June 30, 2011, the Funds federal tax cost of investment securities and net unrealized
appreciation (depreciation) was as follows:
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|
|
|
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Tax cost of portfolio investments
|
|
$
|
45,289,389
|
|
|
|
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Gross unrealized appreciation
|
|
|
6,660,806
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|
Gross unrealized depreciation
|
|
|
(1,299,061
|
)
|
|
|
|
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Net unrealized appreciation
|
|
|
5,361,745
|
|
As of December 31, 2010, the Fund had net capital loss carryforwards expiring as follows:
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|
|
|
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Expires
|
Amount
|
|
December 31,
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$1,782,526
|
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|
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.
The Regulated Investment Company Modernization Act of 2010 (the ''Act) was enacted on December
22, 2010. The Act makes changes to several tax rules impacting the Fund. In general, the provisions
of the Act will be effective for the Funds fiscal year ending December 31, 2011. Although the Act
provides several benefits, including the unlimited carryover of future capital losses, there may be
a greater likelihood that all or a portion of the funds pre-enactment capital loss carryovers may
expire without being utilized due to the fact that post-enactment capital losses get utilized
before pre-enactment capital loss carryovers. Relevant information regarding the
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16 Diamond Hill Financial Trends Fund, Inc.
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See notes to financial statements
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impact of the Act on the Fund, if any, will be contained within the Federal tax information
section of the notes to financial statements beginning in 2011 reporting periods.
Note 8
Subsequent events
The Fund evaluated subsequent events from June 30, 2011 through the date of these financial
statements were issued. There were no subsequent events to report that would have a material
impact on the financial statements.
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See notes to financial statements
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|
Diamond Hill Financial Trends Fund, Inc. 17
|
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, 2010.
With respect to the ordinary dividends paid by the Fund for the fiscal year ended December 31,
2010, 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 2010.
Shareholders were mailed a 2010 U.S. Treasury Department Form 1099-DIV in January 2011. This will
reflect the total of all distributions that are taxable for calendar year 2010.
Proxy voting
The Adviser is responsible for exercising the voting rights associated with the securities
purchased and held by the Fund. 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 www.sec.gov.
18
Investment objective and policy
The Funds investment objective is to provide long-term capital appreciation. The Fund will seek to
achieve its 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
19
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
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 amendments to the Funds bylaws regarding
the Chairman of the Board position: The scope of the Chairmans responsibilities and fiduciary
obligations were further defined. Also 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 entitled to be cast at the meeting.
In November 2007, the Funds Board of Directors adopted several amendments to the Funds bylaws.
First, the Board further clarified the treatment of street name shares held by brokers without
authority to vote them as to a particular proposal. Those shares are treated as shares present and
entitled to vote with respect to the proposal, but will not be counted as a vote in favor of the
proposal. Also, the Board amended the bylaws to provide that a plurality of votes cast at a
meeting of stockholders at which quorum is present shall be sufficient to elect a director.
In February 2011, the Funds Board of Directors adopted an amendment to the Funds bylaws to the
effect the Chairman no longer needed to be a person who is not an interested person of the Fund,
but could not be an affiliate of the Funds investment adviser or administrator.
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
20
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 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.
21
For more information
The Funds proxy voting policies, procedures and records are available without
charge, upon request:
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|
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|
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
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|
Directors
|
|
Investment adviser
|
|
Independent directors
|
Franklin C. Golden
|
|
Diamond Hill Capital Management, Inc.
|
|
Counsel
|
Russell J. Page
|
|
325 John H. McConnell Boulevard,
Suite 200
|
|
Paul, Hastings
|
Fred G. Steingraber
|
|
Columbus, Ohio 43215
|
|
600 Peachtree St., N.E.
|
Donald R. Tomlin
|
|
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|
Twenty Fourth Floor
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Custodian
|
|
Atlanta, GA 30308
|
Officers
|
|
JPMorgan Chase Bank, N.A.
|
|
|
Franklin C. Golden
|
|
14201 North Dallas Parkway
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Chairman
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|
Dallas, TX 75254-2916
|
|
Stock symbol
|
James Laird
|
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|
Listed Nasdaq Symbol:
|
President
|
|
Transfer agent and registrar
|
|
DHFT
|
Gary Young
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|
Mellon Investor Services
|
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Treasurer, CCO, Secretary
|
|
Newport Office Center VII
|
|
For shareholder
|
Brian Risinger
|
|
480 Washington Boulevard
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|
assistance,
|
Assistant Treasurer
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|
Jersey City, NJ 07310
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refer to page 21
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How to contact us
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|
Internet
|
|
www.diamond-hill.com
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Mail
|
|
Mellon Investor Center
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Newport Office Center VII
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|
480 Washington Boulevard
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|
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Jersey City, NJ 07310
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|
|
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Phone
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|
Customer service representatives
|
|
1-877-254-8583
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Information Line
|
|
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.
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:
|
|
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).
|
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.
Item 2. Code of Ethics.
Not required for Semi-Annual report filing.
Item 3. Audit Committee Financial Expert.
Not required for Semi-Annual report filing.
Item 4. Principal Accountant Fees and Services.
Not required for Semi-Annual report filing.
Item 5. Audit Committee of Listed Companies.
Not required for Semi-Annual report filing.
Item 6. Schedule of Investments.
(a) The Schedule of Investments is included in the Report to Shareholders filed under Item 1 of
this Form.
(b) Not Applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not required for Semi-Annual report filing.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not required for Semi-Annual report filing.
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.
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 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)
|
Not applicable for Semi-Annual report filing.
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(a)(2)
|
Certifications required by Item 12(a) of Form N-CSR are filed herewith.
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(a)(3)
|
Not applicable.
|
|
|
|
(b)
|
Certification required by Item 12(b) of Form N-CSR is furnished herewith.
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act
of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
(Registrant) Diamond Hill Financial Trends Fund, Inc.
By (Signature and Title)
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|
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/s/ James F. Laird, Jr.
James F. Laird, Jr.
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|
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President
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|
|
Date: September 7, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act
of 1940, this report has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By (Signature and Title)
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|
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/s/ James F. Laird, Jr.
James F. Laird, Jr.
|
|
|
President
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|
|
Date: September 7, 2011
By (Signature and Title)
|
|
|
/s/ Gary R. Young
Gary R. Young.
|
|
|
Treasurer and Chief Financial Officer
|
|
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Date: September 7, 2011
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