U.S. Securities and Exchange Commission
                             Washington, D.C. 20549

                                   FORM 10-KSB

               [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2003

             [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                        For the transition period from to

                        Commission file number 000-24498


                       DIAMOND HILL INVESTMENT GROUP, INC
                 (Name of small business issuer in its charter)


              Ohio                                         65-0190407
---------------------------------------------------------------------------
   (State or other jurisdiction of                           (I.R.S.
Employer incorporation or organization)                 Identification No.)


             375 North Front Street, Suite 300, Columbus, Ohio 43215
             -------------------------------------------------------
               (Address of principal executive offices) (Zip Code)


                    Issuer's telephone number (614) 255-3333
                                              --------------


         Securities registered under Section 12(b) of the Exchange Act:

       -------------------------------------------------------------------
          (Title of Class) (Name of each exchange on which registered)

         Securities registered under Section 12(g) of the Exchange Act:

                           Common Stock, no par value
                           --------------------------
                                (Title of class)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes X No

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [X]

State issuer's revenues for its most recent fiscal year $1,160,584

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates  computed by reference to the price at which the common equity
was sold,  or the average bid and asked  prices of such common  equity,  as of a
specified  date within the past 60 days.  (See  definition  of affiliate in Rule
12b-2 of the Exchange Act.)

As of February 5, 2004:    1,332,908 Shares of Common Stock
        @ Bid of      $7.10 = $9,463,647
        @ Asked of    $8.86 = $11,809,564

State the number of shares outstanding of each of the issuer's classes of common
equity, as of February 5, 2004:

Common Stock: 1,523,999 shares

Transitional Small Business Disclosure Format (check one): Yes  |_| ;  No |X|

<PAGE>

              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                                                                         PAGE
                                                                                                         ----
Part I:
<S>                      <C>                                                                            <C>
             Item 1.     Description of Business                                                          1-4
             Item 2.     Description of Property                                                           4
             Item 3.     Legal Proceedings                                                                 4
             Item 4.     Submission of Matters to a Vote of Security Holders                               4
Part II:

             Item 5.     Market for Common Equity and Related Stockholder Matters                          5
             Item 6.     Management's Discussion and Analysis or Plan of Operation                        6-9
             Item 7.     Financial Statements                                                            10-26
             Item 8.     Changes In and Disagreements With Accountants on Accounting and Financial        27
                         Disclosure

             Item 8A     Controls and Procedures                                                          27
Part III:
             Item 9.     Directors, Executive Officers, Promoters and Control Persons; Compliance         27
                         With Section 16(a) of the Exchange Act
             Item 10.    Executive Compensation                                                           27
             Item 11.    Security Ownership of Certain Beneficial Owners and Management and Related       27
                            Stockholder Matters

             Item 12.    Certain Relationships and Related Transactions                                   27
             Item 13.    Exhibits and Reports on Form 8-K                                                 28
             Item 14.    Principal Accountant Fees and Services                                           28
Signatures                                                                                                29
</TABLE>


<PAGE>

              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES


PART I
ITEM 1: DESCRIPTION OF BUSINESS

GENERAL

Diamond Hill  Investment  Group,  Inc.  ("the  Company") is an Ohio  corporation
reincorporated  in May 2002 and  previously  a Florida  corporation  since April
1990. The Company has two subsidiary operating companies.

Diamond Hill Capital Management, Inc. ("DHCM"), an Ohio corporation, is a wholly
owned subsidiary of the Company and a registered investment adviser. DHCM is the
investment  adviser to the Diamond Hill Focus Fund, Diamond Hill Small Cap Fund,
Diamond  Hill Large Cap Fund,  Diamond  Hill Short  Term Fixed  Income  Fund and
Diamond Hill  Strategic  Income Fund,  open-end  mutual funds,  and Diamond Hill
Investment  Partners,  L.P. DHCM also offers advisory  services to institutional
and individual investors.

Diamond Hill Securities,  Inc. ("DHS"),  an Ohio corporation,  is a wholly owned
subsidiary of DHCM and a NASD registered  broker-dealer.  DHS is registered with
the  Securities and Exchange  Commission  and the securities  commissions of six
states (including  Ohio). DHS trades  securities on a fully-disclosed  basis and
clears customer  transactions  through an unaffiliated  broker-dealer  that also
maintains the customer accounts. DHS is also a registered investment adviser and
offers advisory services to institutional and individual  investors.  DHS is the
investment adviser to the Diamond Hill Bank & Financial Fund.

The Company  operates  primarily as a holding company with  investment  advisory
services provided by DHCM and DHS and underwriting and broker-dealer  operations
conducted  by DHS.  The Company  maintains an  investment  portfolio,  primarily
composed of mutual funds and the  investment  partnership,  which are managed by
DHCM. References to the Company also include references to DHCM and DHS.

In May of 2000, with the change in executive management, the Company shifted its
emphasis  from its  historical  investment  related  activities  through its DHS
subsidiary,  to  the  investment  advisory  services  of  its  DHCM  subsidiary.
Staffing,   other  costs  associated  with  this  shift  and  various  marketing
initiatives  have negatively  impacted the Company in 2002 and 2003.  Management
believes  that  this  process  was  necessary  in order to  achieve  a  critical
threshold  of assets  under  management  to support  operations  in the  future.
However,  there can be no  assurance  the  Company  will be able to achieve  the
critical threshold of assets under management to support future operations.

ASSETS UNDER MANAGEMENT

As of December 31, 2003, assets under management  totaled  $250,072,505,  a 132%
increase  from December 31, 2002.  The table below  provides a summary of assets
under management as of December 31, 2003 and 2002:


                                      12/31/2003       12/31/2002      % CHANGE
                                    ------------     ------------   -----------
Individually Managed Accounts       $142,606,649     $ 55,839,370           155
Mutual Funds                          95,864,575       44,831,827           114
Alternative Investments               11,601,281        7,210,934            61
                                    ------------     ------------   -----------
Total Assets Under Management       $250,072,505     $107,882,131           132


INVESTMENT ADVISORY ACTIVITIES

Diamond Hill Capital Management

DHCM executes its investment strategies through fundamental  research.  Analysts
evaluate a company's  prospects  based upon its current  business and  financial
position,  future growth opportunities,  and management capability and strategy.
The intended result is a reasonably accurate determination of "intrinsic value".
Intrinsic value is the present value of all future cash flows, which we estimate
the investment  will


                                       1
<PAGE>


              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES


generate,  discounted  at a rate  that  reflects  the  required  return  for the
investment  given  the  estimated  level of  risk.  In  other  words,  it is the
estimated  price a  minority  shareholder  should  pay in  order  to  achieve  a
satisfactory or "fair" return on the investment. The estimate of intrinsic value
is then compared to current market prices to evaluate whether, in the opinion of
the  adviser,  an  attractive  investment   opportunity  exists.  A  proprietary
valuation model, which forecasts cash flows for five years including a "terminal
value"  (the  expected  stock  price in five  years),  assists  in many of these
intrinsic  value  estimations.  The adviser  believes that  although  securities
markets  are  competitive,  pricing  inefficiencies  often  exist  allowing  for
attractive  investment  opportunities.  Furthermore,  the adviser  believes that
investing  in  securities  whose  market  prices  are  significantly  below  the
adviser's  estimate of intrinsic value (or selling short securities whose market
prices are above  intrinsic  value) is the most assured  method to achieve above
average returns as well as mitigate risk.

Currently   available  portfolio  products  managed  by  DHCM  include  All  Cap
Concentrated  Equity,  Small Cap Equity,  Large Cap Equity,  Long-Short  Equity,
Short-Term Fixed Income, Strategic Income and Balanced (portfolios consisting of
stocks and bonds). These products are available on a separately managed basis or
through a mutual fund.

Typically,  an account  with less than  $500,000 is  invested in the  applicable
mutual fund.  Clients investing  $500,000 to $1 million typically are managed in
"wrap programs" where the investor pays a fee, based on assets under management,
for a variety of financial  products and for investment  advisory and management
services, brokerage services, including commissions, and other related services.
DHCM  receives a portion of the "wrap fee" for managing the  investor's  assets.
DHCM currently  participates  in wrap programs with DHS and Synovus  Securities,
Inc. Client accounts that are greater than $1 million are separately managed and
may be in a "wrap  program" or  directly  served by DHCM with a variety of banks
and brokerage firms acting as custodian for each client account.

The All Cap Concentrated  Equity product is typically comprised of 20-30 stocks,
which are also  included  in either  the  Small Cap  Equity or Large Cap  Equity
products.  These stocks are selected to comprise the All Cap Concentrated Equity
portfolio  based on the portfolio  manager's view of their  attractiveness.  The
Diamond Hill Focus Fund (Ticker: DIAMX) is constructed in the same manner as the
All Cap  Concentrated  Equity,  with the exception that the adviser also has the
ability  to sell  securities  short.  In a short  sale,  stock is  borrowed  and
immediately sold for the proceeds.  The intention is to be able to buy the stock
later at a lower price, returning the borrowed stock and benefiting from a price
decline.

The Company also offers an alternative  investment,  the Diamond Hill Investment
Partners,  L.P.  ("DHIP"),  a limited  partnership  that  invests  in and trades
securities.  DHCM is the managing  member of the DHIP general partner and offers
interests in the  partnership  to certain high net worth  clients who  typically
invest at least $500,000 in the partnership.

Diamond Hill Securities
-----------------------

Diamond  Hill  Securities  serves  as the  adviser  to the  Diamond  Hill Bank &
Financial  Fund,  a financial  services  sector  fund.  The Diamond  Hill Bank &
Financial  Fund  principally  invests in banks and thrifts as well as  specialty
finance  and  insurance   companies  using  the  same  investment  approach  and
methodology  as DHCM (i.e.,  investing in stocks that are deemed to be available
at a  substantial  discount  to an  estimate of  intrinsic  value).  The Fund is
typically invested in a relatively  concentrated  number,  25-35, of stocks from
the financial services sector. Currently, there are no separate accounts managed
as a bank and financial sector portfolio.

Business Development
--------------------

The Company  develops  business with clients through direct contact or strategic
alliances.  The primary  geographic areas are Columbus,  Ohio and Georgia,  with
current efforts outside this area on an opportunistic basis.

As of December 31, 2003, the Company managed approximately $77 million in assets
for clients of Synovus Securities,  Inc. ("Synovus"), a broker-dealer located in
Columbus,  Georgia. The Company has a Sub-



                                       2
<PAGE>


              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES


Advisory  Agreement  with Synovus.  These assets which are in both the Company's
managed  account  and mutual  fund  products  make up  approximately  30% of the
Company's assets under management.

The Company  currently relies upon existing  relationships  where prospects have
knowledge sufficient to have confidence in the Company's policies. Many of these
relationships  are with former  clients/contacts  of DHCM  associates.  High net
worth  individuals,   retirement  plans  and  charitable   foundations  are  the
categories  of  clients  DHCM  expects  to  develop.   Alliances  with  brokers,
consultants,  legal and financial advisers and selected individuals constitute a
large part of the business development effort.

MARKET MAKING AND BROKERAGE ACTIVITIES

Historically,  the Company's  brokerage  subsidiary had specialized in community
and regional bank stocks,  selecting  those bank stocks which DHS believes to be
most  likely to show an increase in value over both the short and the long term.
With the change in executive management in May 2000, the Company has shifted its
emphasis from its  traditional  investment  related  activities  through its DHS
subsidiary,  to  the  investment  advisory  services  of  its  DHCM  subsidiary.
Therefore, market-making activities have significantly declined since that date.
DHS continues to transact trades for the separately managed accounts,  which the
Company manages.

COMPETITION

Competition  in the area of investment  management  services and mutual funds is
intense and includes  investment  management  firms,  broker-dealers,  banks and
insurance  companies.  Many  competitors are better known than the Company,  are
better  capitalized,  offer a broader range of investment products and have more
offices, employees and sales representatives.  The Company competes primarily on
the basis of investment philosophy, performance and customer service.

INVESTMENT PORTFOLIO

DHCM holds  positions in the  Company's  fixed income  mutual fund  products and
DHIP, the Company's limited partnership product.

REGULATION

The securities  industry is subject to extensive  regulation  under both federal
and state laws. The principal  purpose of regulation of investment  advisers and
broker-dealers  is the protection of retail investors in the securities  markets
rather  than   protection   of   stockholders   of   investment   advisers   and
broker-dealers. The SEC is the federal agency charged with the administration of
federal  securities  laws.  The Ohio  Division of Securities is charged with the
administration  and  enforcement  of  the  Ohio  Securities  Act.  Much  of  the
regulation of broker-dealers, which do business on an interstate basis, has been
delegated by the SEC to self-regulatory organizations,  principally the National
Association  of  Securities   Dealers  ("NASD")  and  the  national   securities
exchanges. These self-regulatory organizations adopt rules (which are subject to
approval  by  the  SEC),   which  govern  the  industry  and  conduct   periodic
examinations  of member  broker-dealers.  Investment  advisers  are  subject  to
regulation by the SEC and state  securities  commissions  in the states in which
they are registered.

The  regulations  to which  broker-dealers  are subject cover all aspects of the
securities   business,   including  sales  methods,   trading   practices  among
broker-dealers,  capital structure of securities  firms,  record keeping and the
conduct of directors, officers and employees. Additional legislation, changes in
rules promulgated by regulatory  organizations or changes in the  interpretation
or  enforcement  of existing laws and rules often affect  directly the method of
operation  and  profitability  of   broker-dealers.   In  addition,   securities
regulators may conduct administrative proceedings,  which can result in censure,
fine, suspension or expulsion of a broker-dealer, its officers or employees.

DHCM and DHS each operate in this highly  regulated  environment and are subject
to examination and licensing requirements by federal and state authorities.  DHS
is subject to regulation by the SEC and the state


                                       3
<PAGE>


              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES


securities regulatory agencies in the states in which it operates; DHS also is a
member of the NASD. DHCM and DHS are registered  investment advisers and subject
to regulation by the SEC pursuant to the Investment Advisers Act of 1940.

EMPLOYEES

The Company currently has 14 full-time employees,  none of whom are members of a
union. The Company  generally  believes that its relationship  with employees is
good.

SEC FILINGS

This Form  10-KSB  report  includes  financial  statements  for the years  ended
December 31, 2003 and December 31, 2002. The Company files Forms 10-KSB annually
with the SEC and  files  Forms  10-QSB  after  each of the  first  three  fiscal
quarters.

The public may read and copy any materials the Company files with the SEC at the
SEC's Public Reference Room at 450 Fifth Street, N.W.,  Washington,  D.C. 20549.
The public may obtain  information on the operation of the Public Reference Room
by calling the SEC at  1-800-SEC-0330.  The SEC  maintains an Internet site that
contains  reports,  proxy and  information  statements,  and  other  information
regarding issuers that file electronically with the SEC at http://www.sec.gov.

The Company will  distribute  copies of this Form 10-KSB to shareholders in lieu
of preparing a separate annual report.

ITEM 2: DESCRIPTION OF PROPERTY

The Company  sub-leases  approximately  8,500 square feet of office space in the
Arena  Office  Building at 375 North Front  Street,  Suite 300,  Columbus,  Ohio
43215, from an unaffiliated  third party for an aggregate current monthly rental
of $10,000.  This lease expires May 31, 2005. The Company moved on May 13, 2002,
to this more strategic location in downtown Columbus.

ITEM 3: LEGAL PROCEEDINGS

The Company is not engaged in any litigation, other than routine litigation that
is incidental to its business.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters  submitted  during  the most  recent  quarter to a vote of
security holders.


                                       4
<PAGE>

              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES

PART II
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The  Company's  Common  Stock  trades on the NASDAQ  Small Cap Market  under the
symbol DHIL.  The range of high and low prices for each quarter since January 1,
2002, are shown below:

BEGINNING DATE        ENDING DATE                        HIGH           LOW
--------------------- ----------------------------------------- -------------
January 1, 2002       March 31, 2002                     $4.00         $3.91

April 1, 2002         June 30, 2002                      $8.75         $3.92

July 1, 2002          September 30, 2002                 $8.24         $4.10

October 1, 2002       December 31, 2002                  $8.00         $3.61

January 1, 2003       March 31, 2003                     $6.11         $4.00

April 1, 2003         June 30, 2003                      $5.20         $3.90

July 1, 2003          September 30, 2003                 $5.10         $3.52

October 1, 2003       December 31, 2003                  $7.14         $4.51

The source of this bid  information is Bloomberg L.P. These  quotations  reflect
inter-dealer prices, without retail markup,  markdown or commissions and may not
represent actual transactions.  In addition, due to the relatively "thin" market
in the Company's Common Stock, quoted prices cannot be considered  indicative of
any viable  market for such  stock.  During the year ended  December  31,  2003,
approximately 389,400 shares of the Company's Common Stock were traded.

Information  regarding  recent  sales  of  unregistered  Company  securities  is
disclosed in the Company's Form 10-QSB filing for the period ended September 30,
2003, filed with the Securities and Exchange Commission on November 14, 2003.

As of December 31, 2003,  there were  approximately  1,000  holders of record of
common shares. The Company has not paid any dividends during the last two fiscal
years and has no present intention of paying dividends.

Information  with respect to  securities  authorized  for issuance  under equity
compensation plans is disclosed in Item 11 of this Form 10-KSB.


                                       5
<PAGE>


              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES

ITEM 6:         MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Forward-looking Statements
--------------------------

Throughout  this  discussion,  the Company may make  forward-looking  statements
relating  to such  matters  as  anticipated  operating  results,  prospects  for
achieving  the  critical  threshold of assets  under  management,  technological
developments,  economic trends (including interest rates and market volatility),
expected  transactions and  acquisitions and similar matters.  While the Company
believes that the  assumptions  underlying  its  forward-looking  statements are
reasonable, any of the assumptions could prove to be inaccurate and accordingly,
the actual results and  experiences of the Company could differ  materially from
the anticipated  results or other  expectations  expressed by the Company in its
forward-looking  statements.  Factors  that could cause such  actual  results or
experiences to differ from results discussed in the  forward-looking  statements
include,  but are not  limited  to:  the  adverse  effect  from a decline in the
securities  markets; a decline in the performance of the Company's  products;  a
general  downturn in the economy;  changes in government  policy and regulation;
changes in the Company's ability to attract or retain key employees;  unforeseen
costs and other  effects  related  to legal  proceedings  or  investigations  of
governmental and self-regulatory organizations;  and other risks identified from
time-to-time in the Company's other public documents on file with the SEC.

General
-------

With the change in executive  management in May of 2000, the Company has shifted
its emphasis from its traditional  investment related activities through its DHS
subsidiary,  to the investment  advisory  services of its DHCM subsidiary.  DHCM
manages  portfolios of stocks  representing  interests in entities  operating in
various  economic  sectors,  as  opposed to a  portfolio  of bank  stocks  only.
Staffing  and  costs  associated  with  this  shift  and the  various  marketing
initiatives at DHCM negatively impacted the Company in 2002 and 2003. Management
believes  that  this  process  was  necessary  in order to  achieve  a  critical
threshold  of assets  under  management  to support  operations  in the  future.
However,  there can be no assurance that the Company will be able to achieve the
critical threshold of assets under management to support future operations.

Year ended December 31, 2003 compared to Year ended December 31, 2002
---------------------------------------------------------------------

Investment management revenues for the year ended December 31, 2003 increased to
$1,160,584  compared to $669,058  for the year ended  December  31,  2002, a 73%
increase.  This  increase  results  primarily  from the increase in assets under
management from which the Company derives its revenues.

The  Company  increased  its  investment  management  fees from all three of its
investment  products:  mutual funds,  managed accounts and a private  investment
partnership,  Diamond Hill Investment Partners,  L.P. ("DHIP"). Fees from mutual
funds were up 25%,  for the year ended  December  31,  2003,  from  $370,163  to
$465,549. Fees from managed accounts posted the largest dollar increase over the
year ended  December 31, 2002,  with at dollar  increase of $329,779,  or a 119%
increase.  Investment management fees collected from the DHIP improved the most,
relatively,  over the year ended December 31, 2002.  These fees, which include a
performance  incentive fee of  approximately  $30,000,  grew by a multiple of 4,
increasing from $22,505 to 88,866.  In conjunction with the shift in emphasis to
the  investment  advisory  services  of DHCM,  a program has been  initiated  to
attempt to gather new assets under  management at DHCM.  Assets under management
increased  to  $250,072,505  as of December  31,  2003,  a 132%  increase  since
December 31, 2002.  However,  there can be no assurance that the Company will be
able to achieve the critical  threshold of assets  under  management  at DHCM to
support future operations.

Operating  expenses for the year ended December 31, 2003 decreased to $2,184,801
compared to $2,521,421  for the year ended December 31, 2002, a decrease of 13%.
Salaries,  benefits and payroll taxes  decreased  slightly to $1,520,150 in 2003
from  $1,602,243  in 2002, a decrease of 5%. This  decrease  reflects  personnel
changes.  Legal and audit expense  dropped to $70,481 from $185,382 for the year
ended December 31, 2003 versus the year ended December 31, 2002, a 62% decrease.
Since  there  are no  current



                                       4
<PAGE>


              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES


plans for major  administrative  projects or new  products,  management  expects
legal and audit  professional  expense to remain  steady in 2004 as  compared to
2003. General and administrative expenses decreased to $443,802 in 2003 compared
to  $511,689  in  2002,  a  decrease  of 13%.  Management  expects  general  and
administrative  expenses to remain steady in 2004 as compared to 2003. Sales and
marketing  expense  for the year ended  December  31, 2003  decreased  by 32% to
$150,368  from $222,107 for the year ended  December 31, 2002.  This decrease is
primarily due the reduction in expenditures for consulting services.  Management
expects sales and marketing expenses to increase in 2004 as compared to 2003 due
to increased sales efforts.

Mutual fund administration,  which is administrative  services fees collected in
connection  with the  Company's  mutual  fund  products  net of all mutual  fund
administrative  expenses  paid by the Company,  decreased  from a net expense of
$331,425  for the year ended  December  31, 2002 to $258,226  for the year ended
December 31, 2003, a 22% improvement.  Administrative fees collected  increased,
while  administrative  expenses  paid were  relatively  flat for the year  ended
December 31, 2003 versus the year ended December 31, 2002. This increase in fees
is primarily  due to the increase in assets under  management  in the  Company's
mutual fund products.  DHCM has an administrative,  fund accounting and transfer
agency  services  agreement  with the Diamond  Hill Funds,  where DHCM  performs
certain  services for each series of the trust.  These  services  include mutual
fund  administration,  accounting,  transfer agency and other related functions.
For  performing  these  administrative   services,  each  series  of  the  trust
compensates  DHCM a fee at an annual  rate of 0.45% times each  series'  average
daily  net  assets.  DHCM  collected  $268,164  and  $179,647  for  mutual  fund
administration   revenue  for  the  year  ended  December  31,  2003  and  2002,
respectively.  In  fulfilling  its role under this  agreement,  DHCM has engaged
several third-party  providers and the cost for their services are paid by DHCM.
Mutual fund administration expense for the year ended December 31, 2003 and 2002
was $526,390 and $511,072,  respectively. As assets under management grow in the
mutual fund products, the Company expects fees collected to increase,  while the
Company  expects  expenses  paid to remain  steady;  therefore,  causing the net
mutual fund administration expense to continue to decrease.

Mutual  fund  distribution,   which  includes  distribution  fees  collected  in
connection  with sales of the  Company's  mutual  funds net of all  mutual  fund
distribution expenses paid by the Company, increased to a net expense of $93,689
for the year ended  December 31, 2003 from  $69,716 for the year ended  December
31, 2002, a 34% increase.  Mutual fund  distribution fees collected and expenses
paid both  increased  during the year ended  December  31,  2003 versus the year
ended  December 31, 2002.  For  performing  these  distribution  functions,  DHS
collects  front-end  and back-end  sales  loads,  ranging from 1.00% to 5.75% or
underwriting fees of 0.50% on fund investments.  DHS also collects 12b-1 fees at
an annual rate ranging from 0.25% to 1.00% times each series'  average daily net
assets.  Mutual fund  distribution  revenue for the year ended December 31, 2003
and 2002 were  $164,732 and  $114,792,  respectively.  This  increase in fees is
primarily due to the increase in assets under management in the Company's mutual
fund products.  DHS is the principal underwriter for Diamond Hill Funds, an Ohio
business  trust,  and  may  pay  third-party  financial  institutions  a fee for
distribution  or for  performing  certain  servicing  functions  for mutual fund
shareholders.  DHS also pays for the  production of marketing  materials used in
the distribution of the Diamond Hill Funds. Mutual fund distribution expense for
the  year  ended  December  31,  2003  and  2002  were  $258,421  and  $184,508,
respectively.  This increase is the result of increased sales of the mutual fund
shares in 2003 versus  2002,  in which DHS finances the  commissions  paid,  and
decreased  expense  in 2002 due to an  adjustment  made,  during  the year ended
December 31, 2002, for a change in accounting  treatment for commissions paid to
brokers  for the sale of the  Company's  mutual fund C shares.  Previously,  the
commission  was expensed  when paid,  despite the fact that the  revenue,  which
offsets this expense, is collected over a twelve-month  period.  Therefore,  the
portion  of  commission  expense  that has not yet been  offset by the  matching
revenue was  capitalized  and is amortized over twelve  months.  As assets under
management grow in the mutual fund products,  the Company expects fees collected
to  increase,  while the  Company  expects  expenses  paid to  remain  steady or
increase;  therefore, causing the net mutual fund distribution expense to remain
steady or increase.

Broker-dealer  activity,   which  is  revenue  from  security  transactions  and
market-making  activity  net  of  broker-dealer  expenses  which  are  comprised
principally of clearing costs and regulatory fees, decreased to a net expense of
18,062 for the year ended  December  31, 2003 from  $143,924  for the year ended
December  31,  2002,  an  87%  improvement.   DHS,  a  registered   full-service
broker-dealer,  transacts  security  trades through its



                                       5
<PAGE>


              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES


clearing broker under a correspondent agreement. For the year ended December 31,
2003 and 2002,  broker-dealer  activity  expenses  were  $44,449  and  $153,159,
respectively.  This  decrease is largely due to the  reduction  in overhead  and
commission expense from reduced activity. DHS earns commissions and service fees
related to business transacted through its clearing broker, along with gains and
losses from  market-making  activities.  Broker-dealer  activity revenue for the
year ended  December  31, 2003 and 2002 were  $26,387 and $9,235,  respectively.
Commission  revenue  decreased by 62% from 2002 to 2003.  However  market-making
losses  negatively  impacted  the year ended  December  31, 2002 by $60,225.  In
conjunction with the Company's shift in emphasis from its traditional investment
related  activities  through DHS, to the investment  advisory  services of DHCM,
broker dealer  activities  through DHS have  declined.  It is expected for 2004,
that this level of expense in 2003 will decrease.

The  Company's  net operating  loss  decreased to $1,394,194  for the year ended
December 31, 2003 from  $2,397,428  for the year ended  December 31, 2002, a 41%
improvement.

Investment return, net of interest expense,  increased to a gain of $400,660 for
the year  ended  December  31,  2003 from a loss of  $66,195  for the year ended
December 31, 2002.  This  investment  gain results  primarily  from increases in
market  values  of  investments  in the  limited  partnership  interest  and the
Company's fixed income mutual funds.  Management is unable to predict how future
fluctuations  in market  values will  impact the  performance  of the  Company's
investment  portfolios.  Dividend income increased by a multiple of 3 to $89,031
for the year ended  December  31,  2003  compared  to $29,156 for the year ended
December 31, 2002. In 2004,  dividend  income may decrease versus 2003 since the
Company's  investment  in its fixed  income  mutual  funds,  which  pay  monthly
dividends,  may yield an anticipated average of four percent (4%) down from 2003
yields. As a result of positive company portfolio  investment  performance,  the
Company's  net  operating  loss was  reduced  further,  causing  the net loss to
decrease by 60% for the year ended  December 31, 2003  compared to the same time
period for 2002.

Liquidity and Capital Resources
-------------------------------

Nearly  100%  of the  Company's  investment  portfolio  is  readily  marketable.
Investments in securities traded on national  securities  markets and securities
not traded on national securities markets, but with readily ascertainable market
values,  are  valued  at  market  value.  Other  securities,  for  which  market
quotations are not readily  available,  due to infrequency of transactions,  are
valued at fair value as  determined  in good faith by management of the Company.
While management employs objective criteria to ascertain these values,  there is
no  independent  benchmark  by which the values  assigned by  management  can be
judged. Accordingly, the value of these securities may be overstated.

By the end of 2002, the Company reallocated its investment  portfolio to provide
more  liquidity  and  reduce  its  equity  exposure.  In doing so,  the  Company
transferred $2 million out of its investment in the limited  partnership,  DHIP,
and invested  approximately  $1.5 million into the Company's fixed income mutual
funds.  The remaining  cash was used to pay-off the Company's line of credit and
provide short-term  liquidity for current operating expenses.  On July 22, 2003,
the Company sold 110,000  shares of the Company's  Common  Stock,  from Treasury
Stock, to certain directors,  officers and employees through a private placement
at a price of $4.50,  thereby  increasing the liquidity and capital resources by
approximately $495,000.

DHS, under a  correspondent  agreement with its clearing  broker,  has agreed to
indemnify the clearing  broker from damages or losses  resulting from customers'
transactions.  The Company is,  therefore,  exposed to off-balance sheet risk of
loss in the event that customers are unable to fulfill contractual  obligations.
The Company manages this risk by requiring  customers to have sufficient cash in
their account before a buy order is executed and to have the subject  securities
in their account  before a sell order is executed.  The Company has not incurred
any losses from customers being unable to fulfill contractual obligations.

In the normal course of business, the Company may sell securities it has not yet
purchased  (short  sales)  for  its own  account,  and may  write  options.  The
establishment  of short  positions and option  contracts  exposes the Company to
off-balance sheet market risks in the event prices change, as the Company may be
obligated to cover such positions at a loss.


                                       8
<PAGE>


              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES


At December  31,  2003,  the Company had no short  security  positions,  had not
written any option contracts,  and did not own any options.  The Company did not
experience  any credit  losses  due to the  failure  of any  counter  parties to
perform  during the year ended  December  31,  2003.  Senior  management  of the
Company is responsible for reviewing trading positions,  exposures,  profits and
losses, trading strategies and hedging strategies on a daily basis.

As of December 31, 2003, the Company had working capital of  approximately  $2.8
million  compared to $3.3 million at December 31, 2002. The decrease  during the
year  ended  December  31,  2003 is  primarily  due to the  net  loss as part of
operating  activities.  The decrease was partly offset by financing  activities,
which  includes the private  placement  that occurred on July 22, 2003.  Working
capital includes cash,  securities owned and accounts and notes receivable,  net
of all liabilities. The Company has no long-term debt.

The  Company's  net cash  balance  decreased  by $638,190  during the year ended
December 31, 2003.  Net cash used by operating  activities was  $1,154,250.  The
primary use of cash flow was the net loss of $993,534. Investing activities used
$3,582 for property and equipment  purchased  during the year ended December 31,
2003.  Financing  activities  provided  $519,642  of cash  during the year ended
December 31, 2003, mostly from the $495,000 private placement on July 22, 2003.

The  Company's  net cash  balance  decreased  by $484,851  during the year ended
December  31,  2002.  Net cash used by operating  activities  was  $73,216.  The
primary use of cash flow was the net loss of $2,463,623, which was offset by the
decrease in the investment portfolio.  Investing activities used $118,935 during
the year ended December 31, 2002 for  furnishings and a new phone system for the
new office space the Company  began  leasing in May 2002.  Financing  activities
used $292,700 of cash during the year ended December 31, 2002, from the purchase
of Company common stock.

Investment  management  fees  primarily  fund  the  operations  of the  Company.
Management believes that the Company's existing  resources,  including available
cash and cash  provided by operating  activities,  will be sufficient to satisfy
its  working  capital  requirements  in  the  foreseeable  future.  However,  no
assurance can be given that additional funds will not be required. To the extent
that returns on investments are less than  anticipated,  or expenses are greater
than  anticipated,  the  Company  may be  required  to  reduce  its  activities,
liquidate the investment portfolio or seek additional  financing.  Further, this
additional  financing  may not be available on acceptable  terms,  if at all. No
significant capital expenditures are expected in the foreseeable future.

Impact of Inflation and Other Factors
-------------------------------------

The Company's operations have not been significantly affected by inflation.  The
Company's  investment  portfolios  of equity and fixed  income  securities,  are
carried at current  market values.  Therefore,  the Company's  profitability  is
affected by general  economic and market  conditions,  the volume of  securities
trading and  fluctuations  in interest  rates.  The  Company's  business is also
subject to government regulation and changes in legal, accounting, tax and other
compliance  requirements.  Changes in these  regulations  may have a significant
effect on the Company's operations.


                                       9
<PAGE>


              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES
                 For the Years Ended December 31, 2003 and 2002


ITEM 7: FINANCIAL STATEMENTS

To the Board of Directors
Diamond Hill Investment Group, Inc.
Columbus, Ohio

We have audited the  consolidated  statement  of financial  condition of Diamond
Hill Investment  Group,  Inc. and its  subsidiaries as of December 31, 2003, and
the related  consolidated  statements of  operations,  changes in  shareholders'
equity and cash flows for the years  ended  December  31,  2003 and 2002.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We have  conducted our audits in accordance  with auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and  perform  the  audits to  obtain  reasonable  assurance  about  whether  the
consolidated  financial statements are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the  consolidated  financial  statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall consolidated  financial statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Diamond
Hill Investment  Group,  Inc. and its  subsidiaries as of December 31, 2003, and
the consolidated  results of their operations and cash flows for the years ended
December 31, 2003 and 2002, in conformity with accounting  principles  generally
accepted in the United States of America.

BKR Longanbach Giusti, LLC
Columbus, Ohio

January 22, 2004



                                       10
<PAGE>


              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
                             As of December 31, 2003


<TABLE>
<CAPTION>
                                  ASSETS

<S>                                                                        <C>
Cash                                                                       $     50,985
Investment portfolio (note 3 and 4):
       Mutual fund shares and limited partnership interests                   2,717,226
       Not readily marketable equity securities, at estimated fair value         15,108
Accounts receivable:

       Investment products                                                      173,070
       Pending settlements and other                                                229
Property and equipment, net of accumulated depreciation of $135,661             129,664
Deposits and other                                                              227,366
                                                                           ------------

            Total assets                                                   $  3,313,648
                                                                           ------------


                                LIABILITIES

Accounts payable to broker-dealers and other                               $      1,589
Accrued expenses                                                                137,245
                                                                           ------------

            Total liabilities                                                   138,834
                                                                           ------------


                           SHAREHOLDERS' EQUITY

Common stock: (note 5)

       No par value, 7,000,000 shares authorized,
            1,827,972 shares issued and 1,523,999 shares outstanding         10,025,711
       Treasury stock, at cost
            (303,973 shares)                                                 (1,739,206)
       Deferred compensation                                                     (3,744)
Accumulated deficit                                                          (5,107,947)
                                                                           ------------

            Total shareholders' equity                                        3,174,814
                                                                           ------------

            Total liabilities and shareholders' equity                     $  3,313,648
                                                                           ------------
</TABLE>



        The accompanying notes are an integral part of these consolidated
                             financial statements.


                                       11
<PAGE>


              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                           December 31, 2003 and 2002


                                     AUDITED

                                                         2003           2002
                                                     -----------    -----------
INVESTMENT MANAGEMENT FEES:

    Mutual funds                                     $   465,549    $   370,163
    Managed accounts                                     606,169        276,390
    Private partnership                                   88,866         22,505
                                                     -----------    -----------

    Total investment management fees                   1,160,584        669,058
                                                     -----------    -----------

OPERATING EXPENSES:

    Salaries, benefits and payroll taxes               1,520,150      1,602,243
    Legal and audit                                       70,481        185,382
    General and administrative                           443,802        511,689
    Sales and marketing                                  150,368        222,107
                                                     -----------    -----------

    Total operating expenses                           2,184,801      2,521,421
                                                     -----------    -----------

OTHER OPERATING ACTIVITIES

   Mutual fund administration, net (Note 8)             (258,226)      (331,425)
                                                     -----------    -----------

   Mutual fund distribution, net (Note 9)                (93,689)       (69,716)
                                                     -----------    -----------

   Broker-dealer, net (Note 10)                          (18,062)      (143,924)
                                                     -----------    -----------

NET OPERATING LOSS                                    (1,394,194)    (2,397,428)
                                                     -----------    -----------

    Investment return, net of interest expense           400,660        (66,195)

LOSS BEFORE TAXES                                       (993,534)    (2,463,623)
                                                     -----------    -----------

    Income tax provision (credit)                             --             --
                                                     -----------    -----------

NET LOSS                                             $  (993,534)   $(2,463,623)
                                                     ===========    ===========

  BASIC EARNINGS (LOSS) PER SHARE                    $     (0.68)   $     (1.73)
                                                     ===========    ===========
  DILUTED EARNINGS (LOSS) PER SHARE                  $     (0.68)   $     (1.73)
                                                     ===========    ===========


        The accompanying notes are an integral part of these consolidated
                             financial statements.


                                       12
<PAGE>


              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                           December 31, 2003 and 2002


                                     AUDITED

<TABLE>
<CAPTION>
                                                                                               Retained
                                 Shares                        Treasury        Deferred        Earnings
                              Outstanding       Amount           Stock       Compensation      (Deficit)        Total
                             ------------    ------------    ------------    ------------    ------------    ------------
<S>                             <C>          <C>             <C>             <C>             <C>             <C>
Balance at
December 31, 2001               1,479,767    $ 10,023,703    ($ 2,101,810)   ($    36,793)   ($ 1,513,120)   $  6,371,980

Amortization of deferred
Compensation                           --              --              --          21,619              --          21,619

Purchase of treasury stock        (71,300)             --        (292,700)             --              --        (292,700)

Net loss                               --              --              --              --      (2,463,623)     (2,463,623)

                             ------------    ------------    ------------    ------------    ------------    ------------
Balance at
December 31, 2002               1,408,467      10,023,703      (2,394,510)        (15,174)     (3,976,743)      3,637,276

Exercise of stock options           1,000           3,910              --              --              --           3,910

Amortization of deferred
Compensation                           --              --              --          11,430              --          11,430

Sale of treasury stock            114,532          (1,902)        655,304              --        (137,670)        515,732

Net loss                               --              --              --              --        (993,534)       (993,534)
                             ------------    ------------    ------------    ------------    ------------    ------------
Balance at
December 31, 2003               1,523,999    $ 10,025,711    ($ 1,739,206)   ($     3,744)   ($ 5,107,947)   $  3,174,814
                             ============    ============    ============    ============    ============    ============
</TABLE>



        The accompanying notes are an integral part of these consolidated
                             financial statements.


                                       13
<PAGE>

              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           December 31, 2003 and 2002

                                     AUDITED

<TABLE>
<CAPTION>
                                                                        2003           2002
                                                                    -----------    -----------
<S>                                                                 <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
       Net loss                                                     $  (993,534)   $(2,463,623)
       Adjustments to reconcile net loss
       to net cash used in operating activities:
           Depreciation and amortization                                 38,336
           Loss on disposal of property and equipment                       732         40,176
           Amortization of deferred compensation                         11,430
           Unrealized (gain) loss                                      (401,794)       209,686
           (Increase) decrease in certain assets-
              Investment portfolio                                      459,942      1,930,591
              Accounts receivable
                  Investment products                                   (83,211)         4,941
                  Pending settlements and other                            (111)        (3,727)
                  Refundable income taxes                                    --        414,251
              Deposits and other                                        (68,678)       (44,905)
           Increase (decrease) in certain liabilities-
              Accounts payable to broker-dealers and other                1,589             --
              Accrued expenses and other                               (118,951)      (235,571)
                                                                    -----------    -----------
                 Net cash used in operating activities               (1,154,250)       (73,216)
                                                                    -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
       Purchase of property and equipment                                (3,582)      (122,567)
       Proceeds from sale of property and equipment                          --          3,632
                                                                    -----------    -----------
                 Net cash used in investing activities                   (3,582)      (118,935)
                                                                    -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
       Exercise of stock options                                          3,910             --
       Purchase of treasury stock                                            --       (292,700)
       Sale of treasury stock                                           515,732             --
                                                                    -----------    -----------
                 Net cash provided (used) in financing activities       519,642       (292,700)
                                                                    -----------    -----------

NET DECREASE IN CASH                                                   (638,190)      (484,851)

CASH, BEGINNING OF PERIOD                                               689,175      1,174,026
                                                                    -----------    -----------

CASH, END OF PERIOD                                                 $    50,985    $   689,175
                                                                    ===========    ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

       Cash paid during the period for:
           Interest                                                 $       758    $     1,569
           Income taxes                                                      --             --
</TABLE>


        The accompanying notes are an integral part of these consolidated
                             financial statements.


                                       14
<PAGE>

              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002


Note 1       ORGANIZATION AND NATURE OF BUSINESS

Diamond  Hill  Investment  Group,  Inc.  (the  Company)  is an Ohio  corporation
incorporated in May 2002, previously a Florida corporation since April 1990. The
Company has two subsidiary operating companies.

Diamond Hill Capital Management,  Inc. (DHCM), an Ohio corporation,  is a wholly
owned subsidiary of the Company and a registered investment adviser. DHCM is the
investment  adviser to the Diamond Hill Focus Fund, Diamond Hill Small Cap Fund,
Diamond  Hill Large Cap Fund,  Diamond  Hill Short  Term Fixed  Income  Fund and
Diamond Hill  Strategic  Income Fund,  open-end  mutual funds,  which are each a
series in the Diamond Hill Funds trust.  DHCM is also the investment  adviser to
the Diamond  Hill  Investment  Partners,  L.P. and offers  advisory  services to
institutional and individual investors.

Diamond Hill  Securities,  Inc.  (DHS), an Ohio  corporation,  is a wholly owned
subsidiary of DHCM and a NASD registered  broker-dealer.  DHS is registered with
the  Securities and Exchange  Commission  and the securities  commissions of six
states (including  Ohio). DHS trades  securities on a fully-disclosed  basis and
clears customer  transactions  through an unaffiliated  broker-dealer  that also
maintains the customer accounts. DHS is also a registered investment adviser and
offers advisory services to institutional and individual  investors.  DHS is the
investment  adviser to the Diamond Hill Bank & Financial Fund, which is a series
in the Diamond Hill Funds trust.

Note 2       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the reported  amounts of assets and liabilities and the reported  amounts
of revenues and expenses for the periods. Actual results could differ from those
estimates.  The following is a summary of the Company's  significant  accounting
policies:

Principles of Consolidation
---------------------------

The accompanying consolidated financial statements include the operations of the
Company, DHCM and DHS. All material inter-company transactions and balances have
been eliminated in consolidation.

Cash
----

The Company has defined  cash as demand  deposits,  certificate  of deposits and
money market accounts. The Company maintains its cash in seven accounts with two
financial institutions.

Accounts Receivable
-------------------

Accounts  receivable  are  recorded  when they are due and are  presented in the
statement of financial  condition net of any  allowance  for doubtful  accounts.
Accounts   receivable   are  written  off  when  they  are   determined   to  be
uncollectible. Any allowance for doubtful accounts is estimated on the Company's
historical  losses,  existing  conditions  in the  industry,  and the  financial
stability  of  those  individuals  that owe the  receivable.  No  allowance  for
doubtful accounts was deemed necessary at December 31, 2003.

Valuation of Investment Portfolio
---------------------------------

Securities  and  related  options  traded on  national  securities  markets  and
securities  not  traded  on  national  securities  markets,   but  with  readily
ascertainable  market values, are valued at market value. Other securities,  for
which  market  quotations  are not  readily  available,  due to  infrequency  of
transactions,  are  valued  at fair  value as  determined  in good  faith by the
management of the Company. Realized and unrealized gains and losses are included
in investment profits and losses.


                                       15
<PAGE>

              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002


Note 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Limited Partnership Interests
-----------------------------

DHCM is the managing  member of Diamond Hill General  Partner,  LLC, the General
Partner of Diamond Hill Investment Partners,  L.P. (DHIP), a limited partnership
whose underlying assets consist of marketable  securities.  DHCM's investment in
DHIP is accounted for using the equity  method,  under which DHCM's share of the
net earnings or losses of the  partnership  is reflected in income as earned and
distributions  received  are  reflected as  reductions  of the  investment.  The
Company is actively seeking additional  unaffiliated investors for DHIP. Several
board members, officers and employees of the Company are members in Diamond Hill
General Partner,  LLC. The capital of Diamond Hill General  Partner,  LLC is not
subject to a management fee or an incentive fee.

Property and Equipment
----------------------

Property  and  equipment,  consisting  of  computer  equipment,  furniture,  and
fixtures,  is carried at cost less  accumulated  depreciation.  Depreciation  is
calculated using the straight-line  method over estimated lives of five to seven
years.

Reclassifications
-----------------

The  consolidated  statement of operations for the year ended December 31, 2002,
has  been  reclassified  to  conform  to the  presentation  of the  consolidated
statement  of  operations   for  the  year  ended   December  31,  2003.   These
reclassifications have had no effect on the operating results for the year ended
December 31, 2002.

Revenues
--------

Securities  transactions  and  commissions  are  accounted for on the trade date
basis.  Dividend income is recorded on the ex-dividend  date and interest income
is accrued as earned.  Realized  gains and losses from sales of  securities  are
determined utilizing the first-in, first-out method (FIFO).

Earnings Per Share
------------------

Basic and diluted  earnings  per common share are  computed in  accordance  with
Statement of Financial  Accounting  Standards  No. 128,  "Earnings per Share." A
reconciliation of the numerators and denominators used in these  calculations is
shown below:

For the year ended December 31, 2003:

                                  Numerator      Denominator    Amount
                                 -----------     -----------    ------
Basic Earnings                   $  (993,534)     1,458,264     $(0.68)
Diluted Earnings                 $  (993,534)     1,458,264     $(0.68)


For the year ended December 31, 2002:

                                  Numerator      Denominator    Amount
                                 -----------     -----------    ------
Basic Earnings                   $(2,463,623)     1,424,602     $(1.73)
Diluted Earnings                 $(2,463,623)     1,424,602     $(1.73)


Stock  options and warrants  have not been  included in the  denominator  of the
diluted  per-share  computations  because the effect of their inclusion would be
anti-dilutive.


                                       16

<PAGE>

              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002


Note 2       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fair Value of Financial Instruments

Substantially  all of the Company's  financial  instruments  are carried at fair
value  or  amounts   approximating  fair  value.   Assets,   including  accounts
receivable,  notes and interest  receivable and securities  owned are carried at
amounts that approximate fair value. Similarly, liabilities,  including accounts
payable and accrued expenses are carried at amounts approximating fair value.

Note 3       INVESTMENT PORTFOLIO

Investment  portfolio  balances,  which  consist  of  securities  classified  as
trading, are comprised of the following at December 31, 2003:

<TABLE>
<CAPTION>
                                                           Unrealized   Unrealized
                                   Market        Cost         Gains       Losses
                                 ----------   ----------   ----------   ----------
<S>                              <C>          <C>          <C>          <C>
Mutual fund shares and limited
partnership interest             $2,717,226   $2,290,260   $  428,171   $   (1,205)

Not readily marketable equity
securities                           15,108      195,125           --     (180,017)
                                 ----------   ----------   ----------   ----------
Total                            $2,732,334   $2,485,385   $  428,171   $ (181,222)
                                 ==========   ==========   ==========   ==========
</TABLE>


Investment  portfolio  balances,  which  consist  of  securities  classified  as
trading, are comprised of the following at December 31, 2002:

<TABLE>
<CAPTION>
                                                           Unrealized   Unrealized
                                   Market        Cost         Gains       Losses
                                 ----------   ----------   ----------   ----------
<S>                              <C>          <C>          <C>          <C>
Mutual fund shares and limited
partnership interest             $2,612,555   $2,577,989   $  116,584   $  (82,018)

Marketable equity securities         40,519       31,638       23,525      (14,644)

Not readily marketable equity
securities                          137,409      335,700          900     (199,191)
                                 ----------   ----------   ----------   ----------
Total                            $2,790,483   $2,945,327   $  141,009   $ (295,853)
                                 ==========   ==========   ==========   ==========
</TABLE>


Marketable  equity  securities at December 31, 2002,  consist  primarily of bank
stocks, at market value, which are traded on national  securities markets. As of
December 31, 2002, the Company had two individual  equity  security  investments
representing 77% and 23% of its marketable equity securities.


                                       17
<PAGE>


              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002


Note 3       INVESTMENT PORTFOLIO (Continued)

DHCM is the  managing  member the  General  Partner of Diamond  Hill  Investment
Partners,   L.P.,  whose  underlying  assets  consist  primarily  of  marketable
securities.   The  General  Partner  is  contingently  liable  for  all  of  the
partnership's liabilities.

Summary financial information, including the Company's carrying value and income
from this  partnership  at  December  31,  2003 and 2002 and for the years  then
ended, is as follows:

                                                2003                2002
                                            ------------        ------------
   Total assets                             $ 21,505,686        $ 12,534,274
   Total liabilities                           9,904,405           5,323,340
   Net assets                                 11,601,281           7,210,934
   Net fair market value of earnings           1,967,729             168,073

   DHCM's carrying value                       1,363,450           1,109,708
   DHCM's income                                 223,852              45,273
   Incentive Fee                                  29,890                   0

DHCM  withdrew  $2,000,000  of  capital  from its  investment  in  Diamond  Hill
Investment Partners, L.P. during the year ended December 31, 2002. DHCM's income
from this partnership  includes its pro-rata capital allocation and its share of
an incentive  allocation from the limited partners.  In addition,  DHCM earns an
administrative  fee  payable  quarterly  at the rate of .25% of the value of the
limited partners' capital accounts.

Note 4       LINE OF CREDIT

The  Company  renewed a line of credit loan with a maximum  principal  amount of
$325,000 on August 28, 2003 at an annual percentage  interest rate of prime plus
0.50%,  which is currently  4.50%. The balance due on the line of credit loan at
December 31, 2003 was zero ($0).  The Company has pledged  $390,000 of its fixed
income mutual fund  investments  to secure this line. The line of credit loan is
due to mature on August 28, 2004, at which time management  intends to renew the
line.

Note 5       CAPITAL STOCK

Common Stock
------------

The Company has only one class of securities, Common Stock.

Treasury Stock
--------------

On July 17, 2000,  the Company  announced a program to  repurchase up to 400,000
shares  of  its  Common  Stock  through  open  market  purchases  and  privately
negotiated  transactions.  From July 17, 2000 through  December  31,  2001,  the
Company  purchased  281,597 shares of its Common Stock for  $1,716,407.  For the
year ended December 31, 2002, the Company  purchased 71,300 shares of its Common
Stock for $292,700.  For the year ended  December 31, 2003,  the Company did not
purchase any of its shares of Common Stock. As of December 31, 2003, the Company
has  purchased  352,897  shares for  $2,009,107  pursuant to the  aforementioned
400,000 share repurchase  program.  On July 22, 2003, the Company issued 110,000
shares  out of  Treasury  Stock in a private  placement  to  certain  directors,
officers and employees of the Company.  The shares were sold at $4.50 per share,
and  Treasury  Stock was  reduced  by an  average  cost of $5.72 per  share.  On
December 31, 2003, the Company issued 4,532 shares out of Treasury Stock to fund
the Company match portion of the Company's  401(k)  retirement  plan. The shares
were  issued at an average  price of $5.15 per  share,  and  Treasury  Stock was
reduced by an average  cost of $5.72 per share.  The  Company's  total  Treasury
Stock share balance as of December 31, 2003 is 303,973.


                                       18
<PAGE>


              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002


Note 5       CAPITAL STOCK (Continued)

Authorization of Preferred Stock
--------------------------------

The  Company's  Articles of  Incorporation  authorize  the issuance of 1,000,000
shares of "blank  check"  preferred  stock  with such  designations,  rights and
preferences,  as may be determined  from time to time by the Company's  Board of
Directors. The Board of Directors is empowered, without shareholder approval, to
issue preference stock with dividend, liquidation,  conversion, voting, or other
rights,  which could adversely  affect the voting or other rights of the holders
of the  Common  Stock.  There  were no  shares  of  preferred  stock  issued  or
outstanding at December 31, 2003 or 2002.

Note 6       INCOME TAXES

The Company files a consolidated  Federal income tax return. It is the policy of
the Company to allocate the  consolidated  tax provision to  subsidiaries  as if
each subsidiary's tax liability or benefit were determined on a separate company
basis. As part of the consolidated group,  subsidiaries  transfer to the Company
their current Federal tax liability or assets.

                                                         2003           2002
                                                     -----------    -----------
Current income tax provision (benefit)               $        --    $        --
Deferred income tax provision (benefit)                       --             --
                                                     -----------    -----------
Provision (benefit) for income taxes                 $        --    $        --
                                                     ===========    ===========


A  reconciliation  of income tax expense at the statutory  rate to the Company's
effective rate is as follows:

                                                         2003           2002
                                                     -----------    -----------
Income tax expense expected statutory rate xxx                34%            34%
Prior year provision adjustment                                0              0
Dividends received deduction                                   0              0
Unrealized gain                                                0              0
Valuation allowance                                          (34)           (34)
                                                     -----------    -----------
Income tax expense effective rate                              0%             0%
                                                     ===========    ===========


   Deferred tax assets and liabilities  consist of the following at December 31,
2003 and 2002:

                                                         2003           2002
                                                     -----------    -----------
Deferred tax benefit of NOL carryforward             $ 1,819,000    $ 1,441,000
Stock options and warrants                                    --             --
Investment write down                                         --             --
Unrealized (gains) losses                                (62,000)        36,000
Other liabilities                                        (14,000)       (14,000)
Valuation allowance                                   (1,743,000)    (1,463,000)
                                                     -----------    -----------

Net deferred tax assets (liabilities)                $        --    $        --
                                                     ===========    ===========

As of December 31, 2003, the Company and its subsidiaries had net operating loss
(NOL) carry forwards for tax purposes of approximately  $7,274,000.  These NOL's
will  expire  from 2016 to 2023.  Any future  changes  in control  may limit the
availability of NOL carryforwards.


                                       19
<PAGE>

              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002


Note 7       OPERATING LEASES

The Company  leases  office space under an operating  lease.  Under the previous
operating   lease,   which  expired  July  2002,   total  lease   expenses  were
approximately  $85,500 for the seven  months  ended July 31,  2002.  The Company
entered into a new lease agreement  effective May 1, 2002,  which  terminates on
May 31, 2005. Under this new lease agreement, total lease expenses for the years
ended  December 31, 2002 and 2003 were $50,000 and $120,000,  respectively.  The
future minimum lease payments under the operating lease are as follows:

                     Year Ended             Amount
                    ------------           --------
                        2004               120,000
                        2005                50,000

Note 8       MUTUAL FUND ADMINISTRATION

DHCM  has an  administrative,  fund  accounting  and  transfer  agency  services
agreement  with Diamond Hill Funds,  an Ohio  business  trust,  under which DHCM
performs certain  services for each series of the trust.  These services include
mutual  fund  administration,  accounting,  transfer  agency  and other  related
functions.  For performing these services,  each series of the trust compensates
DHCM a fee at an annual  rate of 0.45%  times  each  series'  average  daily net
assets.  DHCM  collected  $268,164 and  $179,647 for mutual fund  administration
revenue  for the year  ended  December  31,  2003  and  2002,  respectively.  In
fulfilling its role under this agreement,  DHCM has engaged several  third-party
providers,  and the cost for  their  services  are  paid by  DHCM.  Mutual  fund
administration  expense  for the  year  ended  December  31,  2003  and 2002 was
$526,390 and $511,072, respectively.

Note 9       MUTUAL FUND DISTRIBUTION

DHS is the principal underwriter for Diamond Hill Funds, an Ohio business trust,
and may pay  third-party  financial  institutions a fee for  distribution or for
performing  certain  servicing  functions  for  mutual  fund  shareholders.  For
performing  distribution  functions,  DHS collects  front-end and back-end sales
loads,  ranging  from  1.00%  to  5.75%  or  underwriting  fees of 0.50% on fund
investments.  DHS also collects  12b-1 fees at an annual rate ranging from 0.25%
to 1.00% times each series' average daily net assets.  Mutual fund  distribution
revenue for the year ended December 31, 2003 and 2002 was $164,732 and $114,792,
respectively.  DHS also pays for the  production of marketing  materials used in
the distribution of the Diamond Hill Funds. Mutual fund distribution expense for
the  year  ended   December  31,  2003  and  2002  was  $258,421  and  $184,508,
respectively.

Note 10      BROKER-DEALER

DHS is a  registered  full-service  broker-dealer  transacting  security  trades
through its clearing broker under a correspondent  agreement. For the year ended
December  31,  2003  and  2002,  broker-dealer  activity  expenses,  principally
clearing   charges  and   regulatory   fees,   totaled   $44,449  and  $153,159,
respectively.  DHS earns  commissions  and  service  fees  related  to  business
transacted  through  its  clearing  broker,  along with  gains and  losses  from
market-making  activities.  Broker-dealer  activity  revenue  for the year ended
December 31, 2003 and 2002 was $26,387 and $9,235, respectively.


                                       20
<PAGE>

              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002


Note 11 EMPLOYEE INCENTIVE PLANS

Incentive Compensation Plan
---------------------------

All  full-time  employees  of the Company are  eligible  to  participate  in the
Diamond Hill  Investment  Group Incentive  Compensation  Plan. The Plan provides
that a bonus fund will be  established  in an amount equal to 20% of the pre-tax
realized profits of the Company in excess of a 15% pre-tax return on equity. The
amount of the bonus fund is  calculated  each  fiscal  quarter  on a  cumulative
basis.  The  allocation  of the bonus fund is to be made by the President of the
Company.  The  Company  did not incur any  expense  under the Plan for the years
ended December 31, 2003 and 2002.

Stock Option Plan
-----------------

The Company has a Non-Qualified  and Incentive Stock Option Plan that authorizes
the grant of options to purchase an aggregate of 500,000 shares of the Company's
Common Stock.  The Plan  provides  that the Board of  Directors,  or a committee
appointed by the Board,  may grant options and otherwise  administer  the Option
Plan. The exercise price of each incentive stock option or  non-qualified  stock
option must be at least 100% of the fair market value of the Common Stock at the
date of grant,  and no such  option may be  exercisable  for more than ten years
after the date of grant.  However,  the exercise price of each  incentive  stock
option  granted  to any  shareholder  possessing  more than 10% of the  combined
voting power of all classes of capital stock of the Company on the date of grant
must not be less than 110% of the fair  market  value on that date,  and no such
option may be  exercisable  more than five years  after the date of grant.  This
Plan was  adopted in 1993 and  expired by its terms in  November  2003.  Options
issued under this Plan are not affected by the Plan's expiration.

During the year ended  December 31, 2003,  options to purchase  20,000 shares of
Common  Stock were issued to employees  at an exercise  price of $4.50,  vesting
immediately.  Additionally,  options to purchase  100,000 shares of Common Stock
were issued to  employees at an exercise  price of $4.50,  vesting 20% each year
over five years.  All of the options have ten-year terms. No options to purchase
shares of Common Stock were granted during the year ended December 31, 2002.

The  Company  applies  Accounting   Principles  Board  Opinion  25  and  related
Interpretations  (APB 25) in accounting for stock options and warrants issued to
employees and Directors.  Accordingly,  compensation  cost is  recognized,  when
appropriate, based on the intrinsic value of the stock options or warrants.




                                       21
<PAGE>

              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002


Note 11      EMPLOYEE INCENTIVE PLANS (Continued)

Stock Option Plan (Continued)
-----------------

Had  compensation  cost  for  all  of  the  Company's  stock-based  awards  been
determined in accordance with FAS 123, the Company's net income and earnings per
share would have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                    Year Ended          Year Ended
                                                December 31, 2003    December 31, 2002
                                                -----------------    -----------------
<S>                              <C>              <C>                  <C>
   Net income (loss)             As reported      $   (993,534)        $ (2,463,623)
                                 Pro forma        $ (1,205,998)        $ (2,894,517)

   Basic earnings per share      As reported      $      (0.68)        $      (1.73)
                                 Pro forma        $      (0.83)        $      (2.03)

   Diluted earnings per share    As reported      $      (0.68)        $      (1.73)
                                 Pro forma        $      (0.83)        $      (2.03)
</TABLE>

To make the  computations  of pro forma results under FAS 123, the fair value of
each option  grant is  estimated  on the date of grant  using the  Black-Scholes
option-pricing  model  with  the  following  weighted-average   assumptions:  no
dividend yield for all years and expected lives of ten years. For the year ended
December 31, 2003, the average expected  volatility was  approximately  27%, and
the average assumed risk-free  interest rate was 1.06%. The options and warrants
granted  under  these plans are not  registered  and,  accordingly,  there is no
quoted market price.

A summary of the status of the Company's  stock option and warrants  plans as of
December 31, 2003 and December 31, 2002 and changes during the periods ending on
those dates is presented below:

                                              Options              Warrants
                                       --------------------  -------------------
                                                   Exercise             Exercise
                                        Shares      Price     Shares     Price
                                       --------    -------   --------   -------
Outstanding January 1, 2002             186,902    $17.245    280,400   $12.897
Granted                                      --         --         --        --
Expired unexercised                     (10,350)    23.583         --        --
Forfeited                               (10,650)    12.803         --        --
                                       --------              --------
Outstanding December 31, 2002           165,902     17.124    280,400    12.897
                                       ========              ========

Exercisable December 31, 2002           100,762    $23.759    200,400   $14.852
                                       ========              ========

Outstanding January 1, 2003             165,902    $17.124    280,400   $12.897
Granted                                 120,000      4.500         --        --
Exercised                                (1,000)     3.910         --
Expired unexercised                     (11,510)    28.983         --        --
Forfeited                               (13,190)    22.008         --        --
                                       --------              --------
Outstanding December 31, 2003           260,202     10.581    280,400    12.897
                                       ========              ========

Exercisable December 31, 2003           116,202    $17.465    240,400   $13.712
                                       ========              ========

Weighted-average fair value of options
granted during the year ended
December 31, 2003, computed in
accordance with FAS 123                                                 $ 1.340



                                       22
<PAGE>


              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002


Note 11      EMPLOYEE INCENTIVE PLANS (Continued)

Stock Option Plan (Continued)
-----------------

The  following  table  summarizes  information  about  fixed  stock  options and
warrants outstanding at December 31, 2003:

                                            Options                Warrants
                                        ---------------        ----------------

   Range of exercise prices                   $ 73.750                $ 73.750
   Number outstanding                           16,202                  14,000
   Weighted-average remaining
   Contractual life in years                     4.367                   4.359
   Weighted-average exercise price            $ 73.750                $ 73.750
   Number exercisable                           16,202                  14,000


   Range of exercise prices             $ 7.950 - $ 14.375     $ 22.20 - $ 22.50
   Number outstanding                           54,000                  16,400
   Weighted-average remaining
   Contractual life in years                     3.854                   5.361
   Weighted-average exercise price            $ 11.461                $ 22.495
   Number exercisable                           46,000                  16,400


   Range of exercise prices             $ 5.250 - $ 8.450      $ 8.00 - $ 14.375
   Number outstanding                           70,000                 250,000
   Weighted-average remaining
   Contractual life in years                     7.504                   5.794
   Weighted-average exercise price             $ 5.707                  $8.860
   Number exercisable                           34,000                 210,000


   Range of exercise prices                    $ 4.500
   Number outstanding                          120,000
   Weighted-average remaining
   Contractual life in years                     9.436
   Weighted-average exercise price              $4.500
   Number exercisable                           20,000




                                       23
<PAGE>

              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002


Note 12      REGULATORY REQUIREMENTS

DHS is subject to the uniform net capital  rule of the  Securities  and Exchange
Commission   (Rule  15c3-1),   which  requires  that  the  ratio  of  "aggregate
indebtedness" to "net capital" not exceed 15 to 1 (as those terms are defined by
the Rule). DHS had net capital of $107,386 as of December 31, 2003, which was in
excess of its  required  minimum net capital of $50,000.  The ratio of aggregate
indebtedness  to net capital was 0.16 to 1 as of December 31, 2003.  DHS is also
subject to  regulations  of six states in which it is  registered  as a licensed
broker-dealer.

DHCM and DHS are registered investment advisers and subject to regulation by the
SEC pursuant to the Investment Advisors Act of 1940.

Note 13      CONCENTRATIONS OF CREDIT RISK AND FINANCIAL INSTRUMENTS WITH
             OFF-BALANCE SHEET RISK

DHS, under a  correspondent  agreement with its clearing  broker,  has agreed to
indemnify  the clearing  broker from damages or losses  resulting  from customer
transactions.  The Company is,  therefore,  exposed to off-balance sheet risk of
loss in the event that customers are unable to fulfill contractual  obligations.
The Company manages this risk by requiring  customers to have sufficient cash in
their account before a buy order is executed and to have the subject  securities
in their account  before a sell order is executed.  The Company has not incurred
any losses from customers unable to fulfill contractual obligations.

In the normal course of business,  the Company periodically sells securities not
yet  purchased  (short  sales)  for its own  account  and  writes  options.  The
establishment  of short  positions and option  contracts  exposes the Company to
off-balance sheet market risks in the event prices change, as the Company may be
obligated to cover such  positions at a loss. At December 31, 2003,  the Company
had no short security  positions,  had not written any option  contracts and did
not own any options. The Company did not experience any credit losses due to the
failure of any  counterparties  to perform  during the year  December  31, 2003.
Senior management of the Company is responsible for reviewing trading positions,
exposures,  profits and losses,  trading  strategies and hedging strategies on a
daily basis.

Note 14      SEGMENT INFORMATION

Types of services from which each reportable segment derives its revenues
-------------------------------------------------------------------------

The  Company  has  three  reportable  segments:  Investment  Advisory  Services,
Broker-Dealer Services and Corporate Portfolio. The Investment Advisory Services
segment provides  investment  advisory  services to the Diamond Hill Focus Fund,
Diamond Hill Small Cap Fund,  Diamond  Hill Large Cap Fund,  Diamond Hill Bank &
Financial  Fund,  Diamond  Hill Short Term Fixed  Income Fund and  Diamond  Hill
Strategic Income Fund, open-end mutual funds,  Diamond Hill Investment Partners,
L.P., an investment limited partnership, and offers investment advisory services
and  accounts  to  institutional  and  individual  investors,   specializing  in
diversified,  domestic  securities.  The  Broker-Dealer  Services segment offers
brokerage  services to institutional  and individual  investors and underwriting
services to the Company's  mutual  funds.  The  Corporate  Portfolio  segment is
represented by revenue generating  investments  unrelated to the other operating
segments.

Measurement of segment profit or loss and segment assets
--------------------------------------------------------

The accounting  policies of the segments are the same as those  described in the
summary of significant  accounting policies.  The Company evaluates  performance
based on profit or loss from operations before income taxes. The Company focuses
its attention on providing services to external customers.



                                       24
<PAGE>


              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002


Note 14      SEGMENT INFORMATION (Continued)

Factors management used to identify the enterprises' reportable segments

The Company's  reportable  segments are primarily defined by legal entities that
specialize in different  financial  products and services.  Investment  Advisory
Services are provided by DHCM. Brokerage Services are provided primarily by DHS.
The Company manages the Corporate Portfolio segment.  These segments are managed
separately because each entity operates in a different regulatory environment.

Financial  information for each reportable  segment is shown below.  The Company
does not operate,  or hold assets, in any foreign country.  The Company does not
have any single customer generating 10% or more of revenue.

Financial information for the year ended December 31, 2003

<TABLE>
<CAPTION>
                                              Investment      Broker-
                                               Advisory       Dealer        Corporate
                                               Services      Services       Portfolio       Combined
                                             --------------------------------------------------------
<S>                                          <C>            <C>            <C>            <C>
Investment Management Fees:
    Mutual funds                             $   465,549    $        --    $        --    $   465,549
    Managed accounts                             606,169             --             --        606,169
    Private partnership                           88,866             --             --         88,866
                                             --------------------------------------------------------
Total investment management fees               1,160,584             --             --      1,160,584
                                             --------------------------------------------------------

Operating Expenses:
    Salaries, benefits & payroll taxes         1,303,892         73,227        143,031      1,520,150
    Legal and audit                                2,300          1,664         66,517         70,481
    General and administrative                   300,773         38,794        104,235        443,802
    Sales and marketing                          123,746            819         25,803        150,368
                                             --------------------------------------------------------
      Total operating expenses                 1,730,711        114,504        339,586      2,184,801
                                             --------------------------------------------------------
Mutual fund administration                      (258,226)            --             --       (258,226)
                                             --------------------------------------------------------
Mutual fund distribution                              --        (93,689)            --        (93,689)
                                             --------------------------------------------------------
Broker-dealer activity                                --        (18,062)            --        (18,062)
                                             --------------------------------------------------------
Net Operating Loss                              (828,353)      (226,255)      (339,586)    (1,394,194)
                                             --------------------------------------------------------
Investment return, net of interest expense            --             --        400,660        400,660
                                             --------------------------------------------------------
Loss Before Taxes                               (828,353)      (226,255)        61,074       (993,534)
Income Tax Provision (Credit)                         --             --             --             --
                                             --------------------------------------------------------
Net Loss                                     $  (828,353)   $  (226,255)   $    61,074    $  (993,534)
                                             ========================================================

Total Assets                                 $   198,734    $   264,497    $ 2,850,417    $ 3,313,648
                                             ========================================================
</TABLE>



                                       25
<PAGE>


              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002


Note 14      SEGMENT INFORMATION (Continued)

   Financial information for the year ended December 31, 2002

<TABLE>
<CAPTION>
                                                 Investment      Broker-
                                                  Advisory       Dealer        Corporate
                                                  Services      Services       Portfolio       Combined
                                                --------------------------------------------------------
<S>                                             <C>            <C>            <C>            <C>
   Investment Management Fees:
       Mutual funds                             $   370,163    $        --    $        --    $   370,163
       Managed accounts                             276,390             --             --        276,390
       Private partnership                           22,505             --             --         22,505
                                                --------------------------------------------------------
   Total investment management fees                 669,058             --             --        669,058
                                                --------------------------------------------------------
   Operating Expenses:
       Salaries, benefits & payroll taxes         1,107,001        374,842        120,400      1,602,243
       Legal and audit                                4,307         47,969        133,106        185,382
       General and administrative                   353,672         96,110         61,907        511,689
       Sales and marketing                          149,462         50,618         22,027        222,107
                                                --------------------------------------------------------
         Total operating expenses                 1,614,442        569,539        337,440      2,521,421
                                                --------------------------------------------------------
   Mutual fund administration                      (331,425)            --             --       (331,425)
                                                --------------------------------------------------------
   Mutual fund distribution                              --        (69,716)            --        (69,716)
                                                --------------------------------------------------------
   Broker-dealer activity                                --       (143,924)            --       (143,924)
                                                --------------------------------------------------------
   Net Operating Loss                            (1,276,809)      (783,179)      (337,440)    (2,397,428)
                                                --------------------------------------------------------
   Investment return, net of interest expense            --             --        (66,195)       (66,195)
                                                --------------------------------------------------------
   Loss Before Taxes                             (1,276,809)      (783,179)      (403,635)    (2,463,623)
   Income Tax Provision (Credit)                         --             --             --             --
                                                --------------------------------------------------------
   Net Loss                                     $(1,276,809)   $  (783,179)   $  (403,635)   $(2,463,623)
                                                ========================================================

   Total Assets                                 $   133,915    $   140,801    $ 3,618,756    $ 3,893,472
                                                ========================================================
</TABLE>




                                       26
<PAGE>

              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002


ITEM 8:        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OR ACCOUNTING AND
               FINANCIAL DISCLOSURES - None

ITEM 8A:     CONTROLS AND PROCEDURES

Our Chief  Executive  Officer and Chief  Financial  Officer have  evaluated  the
effectiveness  of our  disclosure  controls and  procedures (as defined in Rules
13a-15(e)  and  15d-15(e)  under the  Exchange  Act) as of the end of the period
covered by this annual report (the "Evaluation Date"). Based on such evaluation,
such officers have  concluded  that, as of the  Evaluation  Date, our disclosure
controls  and  procedures  are  effective  to ensure that  material  information
relating  to the  Company  would be made  hereon  to them by others  within  the
Company and would be disclosed on a timely basis.

As of the Evaluation  Date,  there have been no changes in our internal  control
over financial reporting that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.

PART III

ITEM 9:      DIRECTORS,  EXECUTIVE OFFICERS,  PROMOTERS AND CONTROL PERSONS;
             COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Information  regarding  this Item 9 is  incorporated  by  reference to our proxy
statement for our year 2004 annual meeting of  shareholders to be filed with the
Securities  and Exchange  Commission  pursuant to Regulation 14A of the Exchange
Act, under the Captions:  "Directors and Executive  Officers",  "Compliance with
Section  16(a) of the Exchange  Act",  "Audit  Committee"  and "Code of Business
Conduct and Ethics".

ITEM 10:     EXECUTIVE COMPENSATION

Information  regarding  this Item 10 is  incorporated  by reference to our proxy
statement for our year 2004 annual meeting of shareholders, to be filed with the
Securities  and Exchange  Commission  pursuant to Regulation 14A of the Exchange
Act, under the Caption: "Executive Compensation".

ITEM 11:     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information  regarding  this Item 11 is  incorporated  by reference to our proxy
statement for our year 2004 annual meeting of shareholders, to be filed with the
Securities  and Exchange  Commission  pursuant to Regulation 14A of the Exchange
Act, under the Captions:  "Security  Ownership of Certain  Beneficial Owners and
Management" and "Executive Compensation".

ITEM 12:     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information regarding this Item 12 is incorporated by reference to our proxy
statement for our year 2004 annual meeting of shareholders, to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A of the Exchange
Act, under the Caption: " Certain Relationships and Related Transactions".



                                       27
<PAGE>


              DIAMOND HILL INVESTMENT GROUP, INC. AND SUBSIDIARIES


ITEM 13:     EXHIBITS AND REPORTS ON FORM 8-K

(a) Index of Exhibits

       *3.1  Amended and Restated Articles of Incorporation of the Company.

       *3.2  Code of Regulations of the Company.

     **10.1  Diamond   Hill   Investment   Group   (fka   Heartland)   Incentive
             Compensation Plan.

    ***10.2  1993 Non-Qualified and Incentive Stock Option Plan.

   ****10.3  Synovus Securities,  Inc.,  Sub-Advisory Agreement with the Diamond
             Hill Capital Management, Inc. dated January 30, 2001.

     **10.4  Employment  Agreement  between the Company and  Roderick H. Dillon,
             Jr. dated May 11, 2000.

     **10.5  Employment  Agreement  between the Company and James F. Laird dated
             October 24, 2001.

  *****10.6  Form of  Subscription  Agreement  for Common Shares of Diamond Hill
             Investment  Group,  Inc.  executed  by  subscribers  as part of the
             private placement on July 22, 2003.

       21.1  Subsidiaries of the Company.

       31.1  Certification of Chief Executive Officer required by Rule 13a-14(a)
             or Rule 15d-14(a).

       31.2  Certification of Chief Financial Officer required by Rule 13a-14(a)
             or Rule 15d-14(a).

       32.1  Certification  of  Chief  Executive  Officer  and  Chief  Financial
             Officer  required by Rule 13a-14(b) or Rule 15(d)-14(b) and Section
             1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C.
             1350).

    * Filed with the  Securities  and Exchange  Commission  as an exhibit to the
      Company's  Form  8-K  filed  on May 8,  2002 and  incorporated  herein  by
      reference.

   ** Filed with the  Securities  and Exchange  Commission  as an exhibit to the
      Company's Form 10-KSB filed on March 28, 2003 and  incorporated  herein by
      reference.

  *** Filed with the  Securities  and Exchange  Commission  as an exhibit to the
      Company's Proxy Statement filed on July 21, 1998 and  incorporated  herein
      by reference.

 **** Filed with the  Securities  and Exchange  Commission  as an exhibit to the
      Company's  Form 10-KSB filed on March 1, 2001 and  incorporated  herein by
      reference.

***** Filed with the  Securities  and Exchange  Commission  as an exhibit to the
      Company's Form 10-QSB filed on November 14, 2003 and  incorporated  herein
      by reference.

(b) Reports on Form 8-K

     A Form 8-K was filed on November 18, 2003 to report the Company's  earnings
     for the nine months and three months ended September 30, 2003.

ITEM 14:     PRINCIPAL ACCOUNTANT FEES AND SERVICES

For the years ended December 31, 2003 and 2002, the following fees apply:

                                           Year Ended        Year Ended
                                           12/31/2003        12/31/2002
                                           ----------        ----------
              Audit                        $   30,200        $   24,993
              Audit related                         -                 -
              Tax                               5,500             5,000
              Other                                 -                 -
                                           ----------        ----------
              Total                        $   35,700        $   29,993
                                           ==========        ==========

It is the policy of the Audit  Committee  to  pre-approve  the  services  of the
independent accountants and present that approval to the Board of Directors. For
the years ended December 31, 2003 and 2002, 100% of the independent accountants'
fees were pre-approved by the Audit Committee.


                                       28
<PAGE>


                                   SIGNATURES


In  accordance  with  Section 13 or 15(d) of the Exchange  Act,  the  registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized:

DIAMOND HILL INVESTMENT GROUP, INC.

/S/ R. H. Dillon
-------------------------------
By R. H. Dillon, President and Director                 March 29, 2004


In  accordance  with the Exchange  Act, this report has been signed below by the
following  persons on behalf of the  registrant and in the capacities and on the
dates indicated.

Signature                          Title                          Date
--------------------------------------------------------------------------------
/S/ R. H. Dillon                   President and Director         March 29, 2004
--------------------------
R. H. Dillon

/S/ James F. Laird                 Chief Financial Officer        March 29, 2004
--------------------------
James F. Laird

/S/ Dr. Roger D. Blackwell         Director                       March 29, 2004
--------------------------
Dr. Roger D. Blackwell

/S/ David P. Lauer                 Director                       March 29, 2004
--------------------------
David P. Lauer

/S/ James G. Mathias               Director                       March 29, 2004
--------------------------
James G. Mathias

/S/ David R. Meuse                 Director                       March 29, 2004
--------------------------
David R. Meuse

/S/ William G. Perkins             Director                       March 29, 2004
--------------------------
William G. Perkins

/S/ Diane D. Reynolds              Director                       March 29, 2004
--------------------------
Diane D. Reynolds




                                       29