DHFT Diamond Hill Finl (MM)

 

 

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)

Registrant’s telephone number, including area code: 614-255-3333

Date of fiscal year end: December 31

Date of reporting period: June 30, 2012

 

 

 

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Item 1. Reports to Stockholders.

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Diamond Hill Financial Trends Fund, Inc.

 

 

Semi-Annual Report

June 30, 2012

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		TABLE OF CONTENTS
		Your fund at a glance page 1
		Portfolio Commentary page 2
		Fund’s Investments page 4
		Financial Statements page 8
		Notes to Financial Statements page 12
		Supplemental Information page 18
		Notice of Privacy Policy page 23

 

Welcome

Dear Fellow Shareholders:

Domestic equity markets once again began calendar year 2012 with strong gains only to pull back in the second quarter as numerous macro issues began to resurface around the globe. Still, most U.S. indices ended the first half of the year up nicely with the financial sector leading the way. For the first six months of 2012, the Diamond Hill Financial Trends Fund posted a total return of 13.24% on a net asset value basis while its primary benchmark, the S&P 1500 Super-composite Financials Index, generated a 13.42% total return for the same period.

Much like the previous two years, the economic recovery strengthened late in the prior calendar year and into the early portion of the new year; however, growth began to stall as we moved into the spring of 2012. In addition to renewed concerns regarding European sovereign debt, a combination of stubbornly high unemployment, generally softening export markets, and higher commodity costs seemed to be the primary culprits.

Notwithstanding the challenging macro environment, the overall health of the financial sector continued to improve as balance sheets and general levels of operating profitability strengthened across key areas within the sector. Further capital build, declining credit costs, and continued expense discipline were a few of the key drivers behind the strong recovery.

The aftermath of the credit crisis continues to linger. Most notably, the extreme interest rate environment and the lack of overall economic growth are now the primary cyclical challenges. However, as we have stated to shareholders for a number years now, we remain optimistic regarding the secular outlook for the financial sector in general and the Diamond Hill Financial Trends Fund in particular. As a reminder, the Fund’s 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.

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Your fund at a glance (unaudited)

 

The Fund seeks long-term capital appreciation with current income as a secondary objective by investing at least 80% of its assets in stocks of U.S. financial services companies of any size.

Over the last six months

 

†

The Fund returned 13.24% on a net asset value basis, compared to the S&P 1500 Super-composite Financials Index return of 13.42%.

 

†

After a strong start, U.S. public equity markets sold off during the second quarter but finished the period with reasonably strong annualized returns.

 

†

Renewed fears over economic growth prospects, high unemployment, European sovereign debt issues as well as new capital rules for strategically important financial institutions weighed on the financial sector.

 

†

The Fund’s net long position remained relatively constant during the period.

 

Period Annual Total Returns (%) As of June 30, 2012		One Year				Three Year				Five Year				Ten Year				Fifteen Year				Twenty Year
Diamond Hill Financial Trends Fund, Inc. (Inception Date: July 3, 1989)
Net Asset Value			-0.38				13.49				-6.95				1.95				3.74				6.18
S&P 1500 SuperComposite Financials Index*
			-1.43				10.13				-13.10				-2.00				1.65				NA

 

*	The S&P 1500 SuperComposite Financials Index commenced on 12/30/1994 and therefore does not have a twenty year return figure

The total returns for the Fund are at net asset value and include reinvestment of all distributions. The performance data combined within this material represents past performance, which does not guarantee future results.

Top 10 Holdings

 

Wells Fargo & Co.		8.7%		PNC Financial Services Group, Inc.		4.8%
JPMorgan Chase & Co.		6.4%		Popular, Inc.		4.7%
Assured Guaranty Ltd.		6.1%		iStar Financial, Inc.		4.6%
Prudential Financial, Inc.		5.3%		U.S. Bancorp		4.0%
Hartford Financial Services Group, Inc.		5.0%		Morgan Stanley		3.1%

As a percentage of net assets on June 30, 2012 and excludes any cash equivalents.

 

 

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Portfolio Commentary (unaudited)

 

During the first six months of 2012, the portfolio produced a 13.24% total return at net asset value, compared to a 13.42% increase in the S&P 1500 SuperComposite Financials Index.

During the first quarter of 2012, companies in the financial sector rallied sharply, outperforming the broad market and advancing on an absolute basis. Financial stocks benefited from an improvement in U.S. economic data as well as positive developments related to European sovereign debt. Bank stocks advanced after the Federal Reserve announced the results of the latest stress tests, which cleared the way for several firms to increase dividends and initiate new share repurchase programs. However, during the second quarter of 2012, the financial sector gave back some of the early year gains and underperformed the broader market averages reflecting concerns over sluggish U.S. economic data and the ongoing European sovereign debt situation. Credit sensitive areas within the portfolio were most affected by the downward pressures while the more defensive areas held up relatively well.

Our long positions in large regional banks were the primary contributors during the first half of 2012 as credit quality continued to improve and capital levels now appear sufficient to support continued organic growth and meaningful increases in dividends and share buybacks . Wells Fargo & Co., U.S. Bancorp and SunTrust Banks, Inc. were the standout performers during the period. Elsewhere in the Fund, real estate investment trust Redwood Trust, Inc. performed well as it gained momentum in all three of its businesses after several slow quarters of investing. Multi-line insurance company United Fire Group, Inc. benefitted from improvements in its risk management and an improved pricing environment for its commercial property and casualty business. Real estate investment trust Winthrop Realty Trust’s stock price increased in response to management’s plans to detail their estimate of net asset value, which should give investors a better understanding of the business’s hidden value. Finally, information-services company CoreLogic, Inc. rebounded sharply as it reported much improved first quarter earnings and increased guidance for the remainder of the year.

In the short portfolio, both regional bank United Bankshares, Inc. and life and health insurer Principal Financial Group, Inc. reported sluggish first quarter results, and we covered these positions on subsequent price weakness. Rating agency Moody’s Corp. suffered as investors debated the relevance of ratings agencies following the downgrade of a number of global investment banks. However, in the second quarter, the company advanced after demonstrating progress toward its goal of diversifying the company’s business model away from its legacy ratings business. This has been accomplished through its growing mix of analytics businesses as well as several recent acquisitions. We expect that the regulatory environment could potentially hurt Moody’s business model and pricing power over the long-term.

Notable additions to the long portfolio during the period included Charles Schwab Corp. , United Fire Group, Inc. and an MGIC Investment Group bond issue. Eliminated positions included Alleghany Corp. , American Express Co. , First Financial Holdings, Inc. and White Mountains Insurance Group Ltd .

 

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Christopher M. Bingaman						Austin Hawley				John Loesch

 

Consistent with our overall investment philosophy, we believe shareholders in the Fund will benefit from a relatively concentrated portfolio. Also, as most of you are aware, we continue to manage the Fund as a long-short portfolio and will continue to do so for the foreseeable future. We do not intend to use our short positions as a “hedge” to mitigate our long exposure/volatility, rather as a way to enhance our performance over time. Our short exposure will typically be much smaller than our long exposure, and therefore, we will have fewer and generally smaller positions. Finally, we continually strive to maintain our disciplined process of evaluating both the fundamentals and valuations of our current and prospective investments.

As always, we would like to thank our shareholders for their continued support of the Fund.

 

Christopher M. Bingaman, CFA		Austin Hawley, CFA		John Loesch, CFA
Portfolio Manager		Assistant Portfolio Manager		Assistant Portfolio Manager

 

		Diamond Hill Financial Trends Fund, Inc.

 

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Diamond Hill Financial Trends Fund, Inc.

Schedule of Investments

June 30, 2012 (unaudited)

 

		Shares				Fair Value
Preferred Stock — 1.4%
REITs & Real Estate Management — 1.4%
iStar Financial, Inc., Series F, 0.49%			34,800			$	615,960
Total Preferred Stocks						$	615,960
Common Stocks — 85.7%
Banking Services — 32.3%
City National Corp.			9,570				464,911
First Niagara Financial Group, Inc.			92,145				704,909
First of Long Island Corp., The			31,256				905,486
First Republic Bank*			12,630				424,368
Huntington Bancshares, Inc.			92,490				591,936
National Penn Bancshares, Inc.			22,895				219,105
PNC Financial Services Group, Inc.			31,725				1,938,715
Popular, Inc.*^			115,056				1,911,080
Sterling Bancorp			71,370				712,273
SunTrust Banks, Inc.			46,800				1,133,964
Tower Financial Corp.*			34,165				346,775
U.S. Bancorp			50,024				1,608,772
Wells Fargo & Co. ¯			104,710				3,501,502
							14,463,796
Capital Markets — 2.3%
Charles Schwab Corp., The			78,260				1,011,902
Consumer Financial Services — 0.6%
Discover Financial Services			7,505				259,523
Financial Services — 12.8%
Bank of America Corp.			36,620				299,552
Bank of New York Mellon Corp., The ¯			51,048				1,120,503
CME Group, Inc.			1,875				502,706
JPMorgan Chase & Co. ¯			72,248				2,581,421
Morgan Stanley			85,780				1,251,530
							5,755,712

 

Diamond Hill Financial Trends Fund, Inc.		See notes to financial statements

 

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		Shares/ Par Value				Fair Value
Insurance — 27.7%
ACE Ltd.^			10,110			$	749,454
Assurant, Inc.^			10,445				363,904
Assured Guaranty Ltd.			175,641				2,476,538
Chubb Corp., The			3,135				228,291
Hartford Financial Services Group, Inc., The^			115,382				2,034,185
HCC Insurance Holdings, Inc.			15,265				479,321
Horace Mann Educators Corp.			31,107				543,750
Old Republic International Corp.			32,710				271,166
Prudential Financial, Inc.			43,895				2,125,835
Selective Insurance Group, Inc.			39,855				693,876
Travelers Cos., Inc., The ¯			12,005				766,399
United Fire Group, Inc.			19,715				420,521
XL Group plc			58,630				1,233,575
							12,386,815
IT Services — 1.2%
CoreLogic, Inc.*			30,590				560,103
REITs & Real Estate Management — 8.8%
iStar Financial, Inc. REIT*^			285,915				1,844,152
Redwood Trust, Inc. REIT^			90,395				1,128,129
Winthrop Realty Trust REIT			78,400				953,344
							3,925,625
Total Common Stocks						$	38,363,476
Corporate Bonds — 2.3%
Banking Services — 0.9%
Synovus Financial Corp., 4.88%, 2/15/13		$	415,000				415,000
Financial Services — 1.4%
MGIC Investment Corp., 5.38%, 11/1/15^			850,000				634,313
Total Corporate Bonds						$	1,049,313

 

See notes to financial statements		Diamond Hill Financial Trends Fund, Inc.

 

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		Shares				Fair Value
Registered Investment Company — 7.6%
Federated Prime Obligations Fund, 0.13% † S			3,418,468			$	3,418,468
Total Investment Securities — 97.0%
(Cost $39,933,308)**						$	43,447,217
Segregated Cash With Brokers — 6.0%							2,678,377
Securities Sold Short — (6.0)%
(Proceeds $2,299,572)							(2,676,435	)
Net Other Assets (Liabilities) — 3.0%							1,332,605
NET ASSETS — 100.0%						$	44,781,764

 

*	Non-income producing security.

**	Represents cost for financial reporting purposes.

^	All or a portion of the security is on loan. The total fair value of the securities on loan, as of June 30, 2012, was $3,369,555.

¯	Security position is either entirely or partially held in a segregated account as collateral for securities sold short and aggregates to a total market value of $2,909,528.

†	This security, which was purchased using cash collateral received from securities on loan, represents collateral for securities loaned as of June 30, 2012.

S	Rate represents the daily yield on June 30, 2012.

REIT	– Real Estate Investment Trust

 

Diamond Hill Financial Trends Fund, Inc.		See notes to financial statements

 

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Diamond Hill Financial Trends Fund, Inc.

Schedule of Securities Sold Short

June 30, 2012 (unaudited)

 

		Shares						Fair Value
Common Stocks — 6.0%
Banking Services — 4.6%
Bank of the Ozarks, Inc.			38,235					$	1,150,109
Home Bancshares, Inc.			17,815						544,783
Lakeland Bancorp, Inc.			20,836						219,195
WesBanco, Inc.			7,040						149,670
									2,063,757
Financial Services — 0.7%
Moody’s Corp.			8,135						297,334
Insurance — 0.7%
Cincinnati Financial Corp.			5,820						221,567
MBIA, Inc.*			8,675						93,777
									315,344
Total Common Stocks Sold Short
(Proceeds $2,299,572)								$	2,676,435

 

*	Non-dividend expense producing security

Percentages disclosed are based on total net assets of the Fund at June 30, 2012.

 

See notes to financial statements		Diamond Hill Financial Trends Fund, Inc.

 

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Financial Statements

 

 

Statement of Assets and Liabilities June 30, 2012 (unaudited)

This Statement of Assets and Liabilities is the Fund’s balance sheet. It shows the value of what the Fund owns, is due and owes. You’ll also find the net asset value for each common share.

 

Assets
Investments, at fair value (cost 39,933,308) - including $3,369,555 of securities loaned		$	43,447,217
Cash			4,482,143
Deposit with broker for securities sold short			2,678,377
Receivable for investments sold			182,046
Receivable for dividends and interest			69,832
Prepaid expenses			67,591
Total assets			50,927,206
Liabilities
Securities sold short, at value (proceeds $2,299,572)			2,676,435
Return of collateral for securities on loan			3,418,468
Payable to Investment Adviser			22,897
Payable for expenses and fees on securities sold short			1,326
Payable to Administrator			5,284
Payable to Accountant and Custodian			4,527
Other payables and accrued expenses			16,505
Total liabilities			6,145,442
Net Assets
Capital paid-in			39,989,491
Accumulated net investment income			203,075
Accumulated net realized gain on investments			1,452,152
Net unrealized appreciation on investments			3,137,046
Net Assets		$	44,781,764
Net asset value per share
Based on 3,968,124 shares outstanding - 50 million shares authorized with par value of $0.001 per share.		$	11.29

 

Diamond Hill Financial Trends Fund, Inc.		See notes to financial statements

 

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Statement of Operations For the six months ended June 30, 2012 (unaudited)

This Statement of Operations summarizes the Fund’s investment income earned and expenses incurred in operating the Fund. It also shows net gains (losses) for the period stated.

 

Investment Income
Dividends		$	460,180
Interest			49,629
Securities lending income			5,234
Total Investment Income			515,043
Expenses
Investment management fees			143,767
Administration fees			33,177
Accounting and custody fees			20,285
Director’s fees			43,250
Professional fees			43,656
Regulatory fees			165
Transfer agent fees			7,703
Postage and printing fees			9,005
Expenses and fees on securities sold short			45,122
Insurance			9,034
Other expenses			1,634
Total expenses			356,798
Net investment income			158,245
Realized and unrealized gain (loss)
Net realized gain (loss) on
Security sales			1,807,419
Closed short positions			106,360
Change in net unrealized appreciation (depreciation) of
Investments			3,221,919
Securities sold short			(77,384	)
Net realized and unrealized gain			5,058,314
Increase in net assets from operations		$	5,216,559

 

See notes to financial statements		Diamond Hill Financial Trends Fund, Inc.

 

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Statements of Changes in Net Assets

These Statements of Changes in Net Assets show how the value of the Fund’s 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.

 

		Six Months Ended June 30, 2012 (unaudited)				Year Ended December 31, 2011
Increase (decrease) in net assets
From operations
Net investment income		$	158,245			$	179,128
Net realized gain from security sales			1,807,419				1,176,700
Net realized gain from closed short positions			106,360				486,703
Change in net unrealized appreciation (depreciation)			3,144,535				(7,759,608	)
Increase (Decrease) in net assets resulting from operations			5,216,559				(5,917,077	)
Distributions to common shareholders
From net investment income			—				(138,884	)
Decrease in net assets from distributions to common shareholders			—				(138,884	)
Net assets
Beginning of period			39,565,205				45,621,166
End of period		$	44,781,764			$	39,565,205
Accumulated net investment income		$	203,075			$	44,830

 

Diamond Hill Financial Trends Fund, Inc.		See notes to financial statements

 

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Financial Highlights

The Financial Highlights shows how the Fund’s net asset value for a share has changed since the end of the previous period.

 

		For the Six Months Ended June 30, 2012 (unaudited)				Year ended December 31,
						2011				2010				2009				2008				2007
Per share operating performance
Net asset value, beginning of period		$	9.97			$	11.50			$	9.82			$	8.36			$	15.73			$	21.25
Net investment income 1			0.04				0.05				0.04				0.18				0.38				0.28
Net realized and unrealized gain (loss) on investments			1.28				(1.54	)			1.73				1.61				(7.33	)			(3.31	)
Total from investment operations			1.32				(1.49	)			1.77				1.79				(6.95	)			(3.03	)
Less distributions
From net investment income			—				(0.04	)			(0.09	)			(0.33	)			(0.10	)			(0.28	)
From net realized gain			—				—				—				—				(0.32	)			(2.21	)
Total distributions			—				(0.04	)			(0.09	)			(0.33	)			(0.42	)			(2.49	)
Net asset value, end of period		$	11.29			$	9.97			$	11.50			$	9.82			$	8.36			$	15.73
Per share market value, end of period		$	10.01			$	8.27			$	9.81			$	7.88			$	6.35			$	13.75
Total return at net asset value 2  (%)			13.24	3			(12.95	)			18.27				22.67				(44.30	)			(12.50	)
Total return at market value 2  (%)			21.04	3			(15.35	)			25.72				29.60				(51.60	)			(14.50	)
Ratios and supplemental data
Net assets, end of period (in millions)		$	45			$	40			$	46			$	39			$	33			$	63
Ratio of gross expenses to average net assets 4 (%)			1.61				1.40				1.42				1.64				1.53				1.30
Ratio of net expenses to average net assets 4 (%)			1.61				1.40				1.42				1.32				1.26				1.28
Ratio of net expenses to average net assets, excluding expenses and fees on securities sold short 4 (%)			1.41				1.27				1.26				1.15				1.15				—
Ratio of net investment income to average net assets 4 (%)			0.72				0.42				0.38				2.21				3.09				1.36
Portfolio turnover (%)			24	3			42				51				81				65				42

 

1	Based on the average of the shares outstanding.

2

Total return based on net asset value reflects changes in the Fund’s net asset value during each period. The total return based on market value reflects changes in the 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 Fund’s shares traded during the period.

3	Not annualized for periods less than one year.

4	Annualized for periods less than one year.

 

See notes to financial statements		Diamond Hill Financial Trends Fund, Inc.

 

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Notes to Financial Statements (unaudited)

 

Diamond Hill Financial Trends Fund, Inc.		See notes to financial statements

 

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See notes to financial statements		Diamond Hill Financial Trends Fund, Inc.

 

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Diamond Hill Financial Trends Fund, Inc.		See notes to financial statements

 

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See notes to financial statements		Diamond Hill Financial Trends Fund, Inc.

 

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Diamond Hill Financial Trends Fund, Inc.		See notes to financial statements

 

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See notes to financial statements		Diamond Hill Financial Trends Fund, Inc.

 

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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, 2011.

With respect to the ordinary dividends paid by the Fund for the fiscal year ended December 31, 2011, 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 2011.

Shareholders were mailed a 2011 U.S. Treasury Department Form 1099-DIV in January 2012. This will reflect the total of all distributions that are taxable for calendar year 2011.

 

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NOTICE OF PRIVACY POLICY FOR

DIAMOND HILL FINANCIAL TRENDS FUND

We value you as a shareholder and take your personal privacy seriously. In order to enhance our ability to provide you with the best service possible, Diamond Hill Financial Trends Fund (referred to as “we” or “us” or the “Fund”) collect, use and share 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.

SAFEGUARDING PRIVACY

Diamond Hill Financial Trends Fund maintains physical, electronic and procedural safeguards that comply with federal standards to ensure the safety of non-public personal customer information. In addition, we require service providers to the Fund to maintain policies and procedures designed to assure only appropriate access to, and use of, information about customers and to maintain physical, electronic and procedural safeguards that comply with federal standards to guard 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, such as your name, address, date of birth, social security number and investment information;

 

•

Information about your transactions and experiences with us, such as your account balance, transaction history and investment selections; and

 

•

Information you supply in written, telephonic or electronic communications with the Fund or service providers to the Fund.

INFORMATION WE SHARE

We may disclose all non-public personal information we collect, as described above, to companies 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. We also may disclose non-public personal information as otherwise permitted by law.

QUESTIONS?

Questions regarding this policy may be directed to: 877-254-8583

 

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For more information

 

Proxy Voting

The investment 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 advisor uses in fulfilling this responsibility and information regarding how those proxies were voted during the twelve month period ended June 30 are available without charge upon request by calling toll free 1-614-255-4080 or on the Securities and Exchange Commission’s website at http://www.sec.gov.

A listing of month-end portfolio holdings is available on our website, www.diamond-hill.com. Additionally, the Fund files a complete listing of portfolio holdings as of the end of the first and third quarters of each fiscal year on Form N-Q and each second and fourth quarters of each fiscal year on Form N-CSR. The complete listing (i) is available on the Commission’s website; (ii) may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; and (iii) will be made available to shareholders upon request by calling 1-888-255-4080. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

 

 

How to contact us
Internet		www.diamond-hill.com
Mail		Computershare Shareowner Services LLC
		480 Washington Boulevard
		Jersey City, NJ 07310
Phone		Customer service representatives		1-877-254-8583
		Information Line		1-614-255-4080

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325 John H. McConnell Blvd.

Suite 200

Columbus, Ohio 43215

614.255.3333

www.diamond-hill.com

Investment Adviser

Diamond Hill Capital Management, Inc.

For additional information, call:

Computershare Shareowner Services LLC

TOLL FREE 877.254.8583

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Item 2. Code of Ethics.

Not applicable.

Item 3. Audit Committee Financial Expert.

Not applicable.

Item 4. Principal Accountant Fees and Services.

Not applicable.

Item 5. Audit Committee of Listed Registrants.

Not applicable.

Item 6. Schedule of Investments.

(a) Not applicable.

(b) Not applicable.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Not applicable.

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

Not applicable.

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

There were no purchases of shares of the registrant’s equity securities during the period January 1, 2012 to June 30, 2012.

Item 10. Submission of Matters to a Vote of Security Holders.

At a quarterly meeting held on August 14, 2012, the registrant’s Board of Directors adopted amendments to the registrant’s bylaws amending or updating some of the procedures and requirements by which shareholders may make nominations to the registrant’s Board and propose business to be considered at shareholder meetings. Some of the procedures are summarized below. A copy of the registrant’s amended and restated bylaws is filed as an exhibit to this form and is also available upon request to the secretary of the registrant.

Special meetings of the stockholders, unless otherwise provided by law or by the registrant’s charter, may be called for any purpose or purposes by a majority of the Board of Directors, the President, or, subject to the requirements of the bylaws, a special meeting of stockholders shall also be called by the Secretary of the registrant to act on any matter that may properly be considered at a meeting of stockholders upon the written request of stockholders entitled to cast not less than a majority of all the votes entitled to be cast on such matter at such meeting.

Any stockholder of record seeking to have stockholders request a special meeting shall, by sending written notice to the Secretary (the “Record Date Request Notice”) by registered mail, return receipt requested, request the Directors to fix a record date to determine the stockholders entitled to request a special meeting (the “Requested Record Date”). The Record Date Request Notice shall set forth the purpose of the meeting and the matters proposed to be acted on at it, shall be signed by one or more stockholders of record as of the date of signature (or their agents duly authorized in a writing accompanying the Record Date Request Notice), shall bear the date of signature of each such stockholder (or such agent) and shall set forth all information relating to each such stockholder, each individual whom the stockholder proposes to nominate for election or reelection as a director, and each matter proposed to be acted on at the meeting that would be required to be disclosed in connection with the solicitation of proxies for the election of directors in an election contest (even if an election contest is not involved), or would otherwise be required in connection with such a solicitation, in each case pursuant to Regulation 14A (or any successor provision) under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the “Exchange Act”). Upon receiving the Record Date Request Notice, the Directors may fix a Requested Record Date.

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In order for any stockholder to request a special meeting, one or more written requests for a special meeting signed by stockholders of record (or their agents duly authorized in a writing accompanying the request) as of the Requested Record Date entitled to cast not less than a majority (the “Special Meeting Percentage”) of all votes entitled to be cast on such matter at the meeting (the “Special Meeting Request”) shall be delivered to the Secretary. In addition, the Special Meeting Request shall (a) set forth the purpose of the meeting and the matters proposed to be acted on at it (which shall be limited to the matters set forth in the Record Date Request Notice received by the Secretary), (b) bear the date of signature of each such stockholder (or other agent) signing the Special Meeting Request, (c) set forth (i) the name and address, as they appear in the registrant’s books, of each stockholder signing such request (or on whose behalf the Special Meeting Request is signed), (ii) the class, series and number of all shares of stock of the registrant which are owned (beneficially or of record) by each such stockholder and (iii) the nominee holder for, and number of, shares of stock of the registrant owned beneficially but not of record by such stockholder, (d) be sent to the Secretary by registered mail, return receipt requested, and (e) be received by the Secretary within sixty (60) days after the Request Record Date. Any requesting stockholder (or agent duly authorized in a writing accompanying the revocation of the Special Meeting Request) may revoke his, her or its request for a special meeting at any time by written revocation delivered to the Secretary.

The Secretary shall inform the requesting stockholders of the reasonably estimated cost of preparing and mailing or delivering the notice of meeting (including the registrant’s proxy materials). The Secretary shall not be required to call a special meeting upon stockholder request and such meeting shall not be held unless, in addition to the documents required, the Secretary receives payment of such reasonably estimated cost prior to the preparation and mailing or delivery of any such notice of the meeting.

If at any time as a result of written revocations of requests for the special meeting, stockholders of record (or their duly authorized agents) as of the Request Record Date entitled to cast less than the Special Meeting Percentage shall have delivered and not revoked requests for a special meeting, the Secretary may refrain from mailing the notice of the meeting or, if the notice of the meeting has been mailed, the Secretary may revoke the notice of the meeting at any time before ten (10) days prior to the meeting if the Secretary has first sent to all other requesting stockholders written notice of such revocation and of intention to revoke the notice of the meeting. Any request for a special meeting received after a revocation by the Secretary of a notice of a meeting shall be considered a request for a new special meeting.

Nominations of persons for election as a Director and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (i) pursuant to the registrant’s notice of meeting, (ii) by or at the direction of the Directors or (iii) by any stockholder of the registrant who was a stockholder of record both at the time of giving of notice described herein and at the time of the annual meeting, who is entitled to vote at the meeting and who complied with the notice procedures set forth in the bylaws. For nominations for election to the Directors or other business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the registrant and such other business must otherwise be a proper matter for action by stockholders. To be timely, a stockholder’s notice must be delivered to the Secretary at the principal executive office of the registrant by not later than the close of business on the 90th day prior to the first anniversary of the date of mailing of the notice for the preceding year’s annual meeting nor earlier than the close of business on the 120th day prior to the first anniversary of the date of mailing of the notice for the preceding year’s annual meeting; provided, however, that in the event that the date of the mailing of the notice for the annual meeting is advanced or delayed by more than thirty (30) days from the anniversary date of the mailing of the notice for the preceding year’s annual meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to the date of mailing of the notice for such annual meeting and not later than the close of business on the later of the 90th day prior to the date of mailing of the notice for such annual meeting or the 10th day following the day on which public announcement of the date of mailing of the notice for such meeting is first made by the registrant.

A stockholder’s notice to be proper must set forth:

(i) as to each individual whom the stockholder proposes to nominate for election or reelection as a director (each, a “Proposed Nominee”), all information relating to the Proposed Nominee that would be required to be disclosed in connection with the solicitation of proxies for the election of the Proposed Nominee as a director in an election contest (even if an election contest is not involved), or would otherwise be required in connection with such solicitation, in each case pursuant to Regulation 14A (or any successor provision) under the Exchange Act;

(ii) as to any other business that the stockholder proposes to bring before the meeting, a description of such business, the stockholder’s reasons for proposing such business at the meeting and any material interest in such business of such stockholder or any Stockholder Associated Person (as defined below), individually or in the aggregate, including any anticipated benefit to the stockholder or a Stockholder Associated Person therefrom. “Stockholder Associated Person” of any stockholder shall mean (1) any person acting in concert with such stockholder, (2) any beneficial owner of shares of stock of the Corporation owned of record or beneficially by such stockholder (other than a stockholder that is a depositary) and (3) any person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such stockholder or such Stockholder Associated Person;

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(iii) as to the stockholder giving the notice, any Proposed Nominee and any Stockholder Associated Person,

(A) the class, series and number of all shares of stock or other securities of the registrant (collectively, the “Company Securities”), if any, which are owned (beneficially or of record) by such stockholder, Proposed Nominee or Stockholder Associated Person, the date on which each such Company Security was acquired and the investment intent of such acquisition, and any short interest (including any opportunity to profit or share in any benefit from any decrease in the price of such stock or other security) in any Company Securities of any such person,

(B) the nominee holder for, and number of, any Company Securities owned beneficially but not of record by such stockholder, Proposed Nominee or Stockholder Associated Person,

(C) whether and the extent to which such stockholder, Proposed Nominee or Stockholder Associated Person, directly or indirectly (through brokers, nominees or otherwise), is subject to or during the last six months has engaged in any hedging, derivative or other transaction or series of transactions or entered into any other agreement, arrangement or understanding (including any short interest, any borrowing or lending of securities or any proxy or voting agreement), the effect or intent of which is to (I) manage risk or benefit of changes in the price of Company Securities for such stockholder, Proposed Nominee or Stockholder Associated Person or (II) increase or decrease the voting power of such stockholder, Proposed Nominee or Stockholder Associated Person in the registrant disproportionately to such person’s economic interest in the Company Securities;

(D) any substantial interest, direct or indirect (including, without limitation, any existing or prospective commercial, business or contractual relationship with the Corporation), by security holdings or otherwise, of such stockholder, Proposed Nominee or Stockholder Associated Person, in the Corporation or any affiliate thereof, other than an interest arising from the ownership of Company Securities where such stockholder, Proposed Nominee or Stockholder Associated Person receives no extra or special benefit not shared on a pro rata basis by all other holders of the same class or series; and

(E) whether such stockholder believes any such Proposed Nominee is, or is not, an “interested person” of the Corporation, as defined in the Investment Company Act and information regarding such individual that is sufficient, in the discretion of the Board of Directors or any committee thereof or any authorized officer of the Corporation, to make such determination;

(iv) as to the stockholder giving the notice, any Stockholder Associated Person with an interest or ownership referred to in clauses (ii) or (iii) of this paragraph (2) of this Article II, Section 8(a) and any Proposed Nominee,

(A) the name and address of such stockholder, as they appear on the Corporation’s stock ledger, and the current name and business address, if different, of each such Stockholder Associated Person and any Proposed Nominee and

(B) the investment strategy or objective, if any, of such stockholder and each such Stockholder Associated Person who is not an individual and a copy of the prospectus, offering memorandum or similar document, if any, provided to investors or potential investors in such stockholder and each such Stockholder Associated Person;

(v) the name and address of any person who contacted or was contacted by the stockholder giving the notice or any Stockholder Associated Person about the Proposed Nominee or other business proposal prior to the date of such stockholder’s notice; and

(vi) to the extent known by the stockholder giving the notice, the name and address of any other stockholder supporting the nominee for election or reelection as a director or the proposal of other business on the date of such stockholder’s notice.

Such stockholder’s notice shall, with respect to any Proposed Nominee, be accompanied by a certificate executed by the Proposed Nominee (i) certifying that such Proposed Nominee (a) is not, and will not become, a party to any agreement, arrangement or understanding with any person or entity other than the registrant in connection with service or action as a director that has not been disclosed to the registrant and (b) will serve as a director of the registrant if elected; and (ii) attaching a completed Proposed Nominee questionnaire (which questionnaire shall be provided by the registrant, upon request, to the stockholder providing the notice and shall include all information relating to the Proposed Nominee that would be required to be disclosed in connection with the solicitation of proxies for the election of the Proposed Nominee as a director in an election contest (even if an election contest is not involved), or would otherwise be required in connection with such solicitation, in each case pursuant to Regulation 14A (or any successor provision) under the Exchange Act and the rules thereunder, or would be required pursuant to the rules of any national securities exchange on which any securities of the registrant are listed or over-the-counter market on which any securities of the registrant are traded).

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If information submitted by any stockholder proposing a nominee for election as a director or any proposal for other business at a meeting of stockholders shall be inaccurate in any material respect, such information may be deemed not to have been provided in accordance with the bylaws. Any such stockholder shall notify the registrant of any inaccuracy or change (within two Business Days of becoming aware of such inaccuracy or change) in any such information. Upon written request by the secretary or the Board of Directors, any such stockholder shall provide, within five Business Days of delivery of such request (or such other period as may be specified in such request), (A) written verification, satisfactory, in the discretion of the Board of Directors or any authorized officer of the registrant, to demonstrate the accuracy of any information submitted by the stockholder, and (B) a written update of any information (including, if requested by the registrant, written confirmation by such stockholder that it continues to intend to bring such nomination or other business proposal before the meeting) submitted by the stockholder as of an earlier date. If a stockholder fails to provide such written verification or written update within such period, the information as to which written verification or a written update was requested may be deemed not to have been provided in accordance with the bylaws.

Notwithstanding the provisions of the bylaws, a stockholder shall also comply with all applicable requirements of state law and of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in the bylaws. Nothing in the bylaws shall be deemed to affect any right of a stockholder to request inclusion of a proposal in, nor the right of the registrant to omit a proposal from, the registrant’s proxy statement pursuant to Rule 14a-8 (or any successor provision) under the Exchange Act.

This summary is qualified in its entirety be reference to the full text of the registrant’s bylaws as this summary neither restates the bylaws in its entirety nor summarizes all of the procedures applicable to shareholders meetings.

Item 11. Controls and Procedures.

(a)The registrant’s principal executive officer and principal financial officer have concluded, based on their evaluation of the registrant’s disclosure controls and procedures as conducted within 90 days of the filing date of this report, that these disclosure controls and procedures are adequately designed and are operating effectively to ensure that information required to be disclosed by the registrant on Form N-CSR is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

(b)There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d))) that occurred during the second fiscal quarter of the period covered by this report that have materially affected or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 12. Exhibits.

 

(a)(1)		Not applicable.
(a)(2)		Certifications required by Item 12(a) of Form N-CSR are filed herewith.
(a)(3)		Not applicable.
(b)		Certifications required by Item 12(b) of Form N-CSR are furnished herewith.
(c)		Copy of the registrant’s amended and restated bylaws.

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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)		/s/ James F. Laird, Jr.
		James F. Laird, Jr., President

Date September 05, 2012

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By (Signature and Title)		/s/ James F. Laird, Jr.
		James F. Laird, Jr., President

Date September 05, 2012

 

By (Signature and Title)		/s/ Gary R. Young
		Gary R. Young, Treasurer

Date September 05, 2012