##### Table of Contents



United States Securities and Exchange Commission
 Washington, D.C. 20549
 Form 10-K
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2009
 Commission file number 000-24498
 DIAMOND HILL INVESTMENT GROUP, INC.
  Ohio
    
    65-0190407(State of incorporation)
    
    (I.R.S. Employer Identification No.)325 John H. McConnell Blvd., Suite 200, Columbus, Ohio 43215
    
    614-255-3333(Address of principal executive offices) (Zip Code)
    
    (Registrants telephone number)
  Title of each class
    
    Name of each exchange on which registeredCommon shares, no par value
    
    The NASDAQ Stock Market LLC
  Yes o No þ
 Yes o No þ
 Yes þ No o
 Yes o No o
 þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o
 Yes o No þ
 nd




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##### 



Required Information
    
    PagePart IItem 1. Business
    
    
    3Item 1A. Risk Factors
    
    
    8Item 1B. Unresolved Staff Comments
    
    
    9Item 2. Properties
    
    
    9Item 3. Legal Proceedings
    
    
    9Item 4. Submission of Matters to a Vote of Security Holders
    
    
    9Part IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    10Item 6. Selected Financial Data
    
    
    11Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    20Item 8. Financial Statements and Supplementary Data
    
    
    21Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosures
    
    
    36Item 9A. Controls and Procedures
    
    
    36Item 9B. Other Information
    
    
    37Part IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    37Item 11. Executive Compensation
    
    
    37Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    37Item 13. Certain Relationships and Related Transactions, and Director Independence.
    
    
    38Item 14. Principal Accounting Fees and Services
    
    
    38Part IVItem 15. Exhibits, Financial Statement Schedules
    
    
    39Signatures
    
    
    40Exhibit 21.1Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




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##### Table of Contents



PART I
 
 Item 1.
    
    Business
 Forward-Looking Statements
  General
   Investment Advisory Activities
   3




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##### Table of Contents



Marketing
  Assets Under Management
  Assets Under Management by ProductAs of December 31,(in millions)
    
    2009
    
    
    2008
    
    
    2007Mutual funds
    
    $
    3,640
    
    
    $
    3,114
    
    
    $
    2,910Separate accounts
    
    
    2,423
    
    
    
    1,175
    
    
    
    998Private investment funds
    
    
    220
    
    
    
    221
    
    
    
    495Total
    
    $
    6,283
    
    
    $
    4,510
    
    
    $
    4,403
 Assets Under Management by ObjectiveAs of December 31,(in millions)
    
    2009
    
    
    2008
    
    
    2007Small and Small-Mid Cap
    
    $
    771
    
    
    $
    505
    
    
    $
    597Large Cap and Select
    
    
    3,054
    
    
    
    1,524
    
    
    
    1,031Long-Short
    
    
    2,300
    
    
    
    2,331
    
    
    
    2,500Strategic and fixed income
    
    
    158
    
    
    
    150
    
    
    
    275Total
    
    $
    6,283
    
    
    $
    4,510
    
    
    $
    4,403
  4




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Change in Assets Under ManagementFor the Year Ended December 31,(in millions)
    
    2009
    
    
    2008
    
    
    2007AUM at beginning of the period
    
    $
    4,510
    
    
    $
    4,403
    
    
    $
    3,708Net cash inflows (outflows)mutual funds
    
    
    (109
    )
    
    
    1,328
    
    
    
    362separate accounts
    
    
    740
    
    
    
    812
    
    
    
    70private investment funds
    
    
    (52
    )
    
    
    (162
    )
    
    
    170579
    
    
    
    1,978
    
    
    
    602Net market appreciation (depreciation) and income
    
    
    1,194
    
    
    
    (1,871
    )
    
    
    93Increase during the period
    
    
    1,773
    
    
    
    107
    
    
    
    695AUM at end of the period
    
    $
    6,283
    
    
    $
    4,510
    
    
    $
    4,403
 Diamond Hill Funds
  Diamond Hill FundsAssets by Distribution ChannelAs of December 31,(in millions)
    
    2009
    
    
    2008
    
    
    2007Independent registered investment advisors
and broker/dealers
    
    $
    1,986
    
    
    $
    1,792
    
    
    $
    1,405Wirehouse and regional broker/dealers
    
    
    1,116
    
    
    
    951
    
    
    
    1,020Defined contribution (401k)
    
    
    338
    
    
    
    226
    
    
    
    229Institutions
    
    
    12
    
    
    
    8
    
    
    
    105Other
    
    
    
    
    
    
    
    
    
    
    35Total
    
    $
    3,452
    
    
    $
    2,977
    
    
    $
    2,794
 Institutional Accounts
  Growth Prospects
   
    
    adding additional marketing and support staff,
 
    
    attending and sponsoring key industry conferences, and
 
    
    adding systems infrastructure to support client service and portfolio
administration.
   5




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Fund Administration Activities
  Competition
  Corporate Investment Portfolio
  Regulation
    6




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Contractual Relationships with the Diamond Hill Funds
  Employees
  SEC Filings
   7




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##### Table of Contents



ITEM 1A:
    
    Risk Factors
  Poor investment performance of our products could affect our sales or reduce the amount of
assets under management, potentially negatively impacting revenue and net income.
  The Companys AUM, which impact revenue, are subject to significant fluctuations.
  The Companys success depends on its key personnel, and its financial performance could be
negatively affected by the loss of their services.
  The Company is subject to substantial competition in all aspects of its business.
  
    
    asset management firms,
    
    mutual fund companies,
    
    commercial banks and thrift institutions,
    
    insurance companies,
    
    hedge funds, and
    
    brokerage and investment banking firms.
   8




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##### Table of Contents



A significant portion of the Companys revenues are based on contracts with the Diamond Hill
Funds that are subject to termination without cause and on short notice.
  The Companys business is subject to substantial governmental regulation.
   
 ITEM 1B:
    
    Unresolved Staff Comments- None
 
 ITEM 2:
    
    Properties
   
 ITEM 3:
    
    Legal Proceedings
  
 ITEM 4:
    
    Submission of Matters to a Vote of Security Holders
   9




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PART II
 
 ITEM 5:
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 TM TM
 
 12/31/2004
    
    
    12/31/2005
    
    
    12/31/2006
    
    
    12/31/2007
    
    
    12/31/2008
    
    
    12/31/2009Diamond Hill Investment Group, Inc.
    
    
    100.0
    
    
    
    186.9
    
    
    
    499.9
    
    
    
    436.4
    
    
    
    444.4
    
    
    
    512.1Russell MicrocapTMIndex
    
    
    100.0
    
    
    
    102.6
    
    
    
    119.5
    
    
    
    110.0
    
    
    
    66.2
    
    
    
    84.4Peer Group*
    
    
    100.0
    
    
    
    130.1
    
    
    
    143.9
    
    
    
    151.6
    
    
    
    55.9
    
    
    
    84.7
 
 *
    
    The following companies are included in the Peer Group: Westwood Holdings Group, Inc.; Epoch
Holding Corp.; Eaton Vance Corp.; Waddell & Reed Financial, Inc.; Federated Investors, Inc.; GAMCO
Investors, Inc.; Affiliated Managers Group, Inc.; Legg Mason, Inc.; U.S. Global Investors, Inc.;
Alliance Bernstein Holding L.P.; Janus Capital Group, Inc.; SEI Investments, Co.; Cohen & Steers,
Inc.; Calamos Asset Management, Inc.  10




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##### Table of Contents



2009
    
    
    2008High
    
    
    Low
    
    
    Dividend
    
    
    High
    
    
    Low
    
    
    DividendPrice
    
    
    Price
    
    
    Per Share
    
    
    Price
    
    
    Price
    
    
    Per ShareQuarter ended:March 31
    
    $
    67.74
    
    
    $
    28.51
    
    
    
    
    
    
    $
    82.99
    
    
    $
    66.88June 30
    
    $
    45.50
    
    
    $
    36.26
    
    
    
    
    
    
    $
    100.00
    
    
    $
    72.30September 30
    
    $
    62.00
    
    
    $
    38.48
    
    
    
    
    
    
    $
    100.00
    
    
    $
    73.30December 31
    
    $
    71.95
    
    
    $
    52.33
    
    
    $
    10.00
    
    
    $
    91.00
    
    
    $
    46.25
    
    
    $
    10.00
  Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  
 ITEM 6:
    
    Selected Financial Data
  For the Years Ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Income
Statement Data(in thousands):Total revenues
    
    $
    43,562
    
    
    $
    47,019
    
    
    $
    41,308
    
    
    $
    31,905
    
    
    $
    10,246Net operating income
    
    
    12,112
    
    
    
    13,729
    
    
    
    14,078
    
    
    
    9,769
    
    
    
    1,394Net income
    
    
    11,374
    
    
    
    3,276
    
    
    
    9,932
    
    
    
    8,065
    
    
    
    3,651Per Share Information:Basic earnings
    
    $
    4.40
    
    
    $
    1.36
    
    
    $
    4.61
    
    
    $
    4.51
    
    
    $
    2.21Diluted earnings
    
    
    4.40
    
    
    
    1.36
    
    
    
    4.39
    
    
    
    3.63
    
    
    
    1.83Cash dividend declared
    
    
    10.00
    
    
    
    10.00
    
    
    
    
    
    
    
    
    
    
    
    Weighted Average Shares OutstandingBasic
    
    
    2,582,998
    
    
    
    2,400,142
    
    
    
    2,155,829
    
    
    
    1,787,390
    
    
    
    1,654,935Diluted
    
    
    2,587,751
    
    
    
    2,408,476
    
    
    
    2,264,234
    
    
    
    2,219,580
    
    
    
    1,996,176
 At December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Balance Sheet Data(in thousands):Total assets
    
    $
    40,505
    
    
    $
    44,540
    
    
    $
    53,284
    
    
    $
    37,236
    
    
    $
    12,748Long-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shareholders equity
    
    
    22,981
    
    
    
    30,246
    
    
    
    39,308
    
    
    
    20,483
    
    
    
    10,861Assets Under Management(in millions):
    
    $
    6,283
    
    
    $
    4,510
    
    
    $
    4,403
    
    
    $
    3,708
    
    
    $
    1,531
  11




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ITEM 7:
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    Assets Under Management by ProductAs of December 31,(in millions)
    
    2009
    
    
    2008
    
    
    2007Mutual funds
    
    $
    3,640
    
    
    $
    3,114
    
    
    $
    2,910Separate accounts
    
    
    2,423
    
    
    
    1,175
    
    
    
    998Private investment funds
    
    
    220
    
    
    
    221
    
    
    
    495Total AUM
    
    $
    6,283
    
    
    $
    4,510
    
    
    $
    4,403
 Change in Assets Under ManagementFor the Year Ended December 31,(in millions)
    
    2009
    
    
    2008
    
    
    2007AUM at beginning of year
    
    $
    4,510
    
    
    $
    4,403
    
    
    $
    3,708Net cash inflows (outflows)mutual funds
    
    
    (109
    )
    
    
    1,328
    
    
    
    362separate accounts
    
    
    740
    
    
    
    812
    
    
    
    70private investment funds
    
    
    (52
    )
    
    
    (162
    )
    
    
    170579
    
    
    
    1,978
    
    
    
    602Net market appreciation / (depreciation) and income
    
    
    1,194
    
    
    
    (1,871
    )
    
    
    93Increase during the year
    
    
    1,773
    
    
    
    107
    
    
    
    695AUM at end of year
    
    $
    6,283
    
    
    $
    4,510
    
    
    $
    4,403
  12




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Consolidated Results of Operations
  (in thousands, except per share data)
    
    2009
    
    
    2008
    
    
    % Change
    
    
    2008
    
    
    2007
    
    
    % ChangeNet operating income
    
    $
    12,112
    
    
    $
    13,729
    
    
    
    -12
    %
    
    $
    13,729
    
    
    $
    14,078
    
    
    
    -2
    %Net operating income after tax(a)
    
    $
    8,158
    
    
    $
    9,256
    
    
    
    -12
    %
    
    $
    9,256
    
    
    $
    9,345
    
    
    
    -1
    %Net income
    
    $
    11,374
    
    
    $
    3,276
    
    
    
    247
    %
    
    $
    3,276
    
    
    $
    9,932
    
    
    
    -67
    %Net operating income after tax per share(a)Basic
    
    $
    3.16
    
    
    $
    3.86
    
    
    
    -18
    %
    
    $
    3.86
    
    
    $
    4.33
    
    
    
    -11
    %Diluted
    
    $
    3.15
    
    
    $
    3.84
    
    
    
    -18
    %
    
    $
    3.84
    
    
    $
    4.13
    
    
    
    -7
    %Net income per shareBasic
    
    $
    4.40
    
    
    $
    1.36
    
    
    
    224
    %
    
    $
    1.36
    
    
    $
    4.61
    
    
    
    -70
    %Diluted
    
    $
    4.40
    
    
    $
    1.36
    
    
    
    224
    %
    
    $
    1.36
    
    
    $
    4.39
    
    
    
    -69
    %Weighted average shares outstandingBasic
    
    
    2,583
    
    
    
    2,400
    
    
    
    
    
    
    
    2,400
    
    
    
    2,156Diluted
    
    
    2,588
    
    
    
    2,408
    
    
    
    
    
    
    
    2,408
    
    
    
    2,264
 (a)
    
     Net operating income after tax is a non-GAAP performance measure. See Use of
Supplemental Data as Non-GAAP Performance Measure on page 19 of this report. Year Ended December 31, 2009 compared with Year Ended December 31, 2008
   
    
    Employee compensation expense decreased by 8%, or $2.0 million, reflecting a decrease of
$2.6 million in restricted stock expense due to an overall decrease in the total amount of
long-term equity awards outstanding during 2009 compared to 2008 and a decrease of $700
thousand in incentive compensation during 2009 compared to 2008, partially offset by an
increase in overall staff from 57 to 66, resulting in an increase in overall salaries and
related benefits of $1.3 million.
 
    
    General and administrative expense increase 19%, or $490 thousand, to support the
Companys investment team research effort, continued general growth, and additional legal
expenses.
 
    
    Third party distribution expense decreased by 23%, or $340 thousand due to the decrease
in AUM requiring third party distribution support.
 Year Ended December 31, 2008 compared with Year Ended December 31, 2007
   
    
    Employee compensation expense increased by 31%, or $6.1 million, primarily due to an
increase in overall staff from 42 to 57, long-term equity awards, and an acceleration of
vesting of certain restricted stock awards.
 
    
    Sales and marketing expenses increased by 26%, or $165 thousand, primarily due to an
increase in travel and other marketing expenses related to new business growth during 2008.
Despite only a 2% increase in AUM in 2008 compared to 2007, the Company generated over
$1.9 billion in net new client assets during 2008.
    
    Despite continued growth in mutual fund assets under management during 2008, mutual fund
administration expense decreased by 6%, or $142 thousand, due to a renegotiation of certain
vendor contracts resulting in both expense reductions and a shifting of certain expense
obligations directly to the Diamond Hill Funds.
  13




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##### Table of Contents



Revenue
 (in Thousands)
    
    2009
    
    
    2008
    
    
    % Change
    
    
    2008
    
    
    2007
    
    
    %   ChangeInvestment advisory
    
    $
    37,472
    
    
    $
    40,865
    
    
    
    -8
    %
    
    $
    40,865
    
    
    $
    35,339
    
    
    
    16
    %Mutual fund administration, net
    
    
    6,090
    
    
    
    6,154
    
    
    
    -1
    %
    
    
    6,154
    
    
    
    5,969
    
    
    
    3
    %Total
    
    
    43,562
    
    
    
    47,019
    
    
    
    -7
    %
    
    
    47,019
    
    
    
    41,308
    
    
    
    14
    %
 Revenue for the Year Ended December 31, 2009 compared with Year Ended December 31, 2008
  Investment Advisory Fees.
 Mutual Fund Administration Fees.
 Revenue for the Year Ended December 31, 2008 compared with Year Ended December 31, 2007
  Investment Advisory Fees.
  14




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##### Table of Contents



Mutual Fund Administration Fees.
 Expenses
 (in Thousands)
    
    2009
    
    
    2008
    
    
    %   Change
    
    
    2008
    
    
    2007
    
    
    % ChangeCompensation and related costs
    
    $
    24,114
    
    
    $
    26,120
    
    
    
    -8
    %
    
    $
    26,120
    
    
    $
    20,007
    
    
    
    31
    %General and administrative
    
    
    3,133
    
    
    
    2,643
    
    
    
    19
    %
    
    
    2,643
    
    
    
    2,659
    
    
    
    -1
    %Sales and marketing
    
    
    751
    
    
    
    796
    
    
    
    -6
    %
    
    
    796
    
    
    
    632
    
    
    
    26
    %Third party distribution
    
    
    1,112
    
    
    
    1,452
    
    
    
    -23
    %
    
    
    1,452
    
    
    
    1,512
    
    
    
    -4
    %Mutual fund administration
    
    
    2,340
    
    
    
    2,279
    
    
    
    3
    %
    
    
    2,279
    
    
    
    2,420
    
    
    
    -6
    %Total
    
    
    31,450
    
    
    
    33,290
    
    
    
    -6
    %
    
    
    33,290
    
    
    
    27,230
    
    
    
    22
    %
 Expenses for the Year Ended December 31, 2009 compared with Year Ended December 31, 2008
 Compensation and Related Costs.
 General and Administrative.
 Sales and Marketing.
 Third Party Distribution.
 Mutual Fund Administration.
  15




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##### Table of Contents



Expenses for the Year Ended December 31, 2008 compared with Year Ended December 31, 2007
 Compensation and Related Costs.
  General and Administrative.
 Sales and Marketing.
 Third Party Distribution.
 Mutual Fund Administration.
  16




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##### Table of Contents



Beacon Hill Fund Services
  For the Year EndedDecember 31,2009
    
    
    2008Revenue1
    
    $
    1,023,662
    
    
    $
    116,516Expenses
    
    
    1,999,922
    
    
    
    1,513,731Net loss
    
    $
    (976,260
    )
    
    $
    (1,397,215
    )
 1
    
    Beacon Hills 2009 and 2008 revenue includes $146,067, and $0, respectively, of
inter-company revenue earned from services provided to DHCM. This amount has been eliminated
from the Consolidated Statements of Income. Liquidity and Capital Resources
      17




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##### Table of Contents



Selected Quarterly Information
  At or For the Quarter Ended2009
    
    
    2008(in thousands)
    
    12/31
    
    
    09/30
    
    
    06/30
    
    
    03/31
    
    
    12/31
    
    
    09/30
    
    
    06/30
    
    
    03/31Assets Under Management 
(in millions)
    
    $
    6,283
    
    
    $
    5,489
    
    
    $
    4,733
    
    
    $
    3,909
    
    
    $
    4,510
    
    
    $
    5,548
    
    
    $
    5,486
    
    
    $
    4,665Total revenue
    
    
    13,715
    
    
    
    11,372
    
    
    
    9,592
    
    
    
    8,883
    
    
    
    10,372
    
    
    
    13,348
    
    
    
    12,396
    
    
    
    10,903Total operating expenses
    
    
    9,110
    
    
    
    8,523
    
    
    
    7,061
    
    
    
    6,756
    
    
    
    8,447
    
    
    
    9,126
    
    
    
    8,340
    
    
    
    7,378Operating income
    
    
    4,605
    
    
    
    2,849
    
    
    
    2,531
    
    
    
    2,127
    
    
    
    1,925
    
    
    
    4,222
    
    
    
    4,056
    
    
    
    3,525Investment Return
    
    
    881
    
    
    
    2,064
    
    
    
    4,032
    
    
    
    (1,579
    )
    
    
    (4,180
    )
    
    
    (2,319
    )
    
    
    (1,331
    )
    
    
    (375
    )Net income (loss)
    
    $
    3,504
    
    
    $
    3,204
    
    
    $
    4,315
    
    
    $
    351
    
    
    $
    (1,713
    )
    
    $
    1,224
    
    
    $
    1,779
    
    
    $
    1,986Diluted EPS
    
    $
    1.34
    
    
    $
    1.23
    
    
    $
    1.66
    
    
    $
    0.14
    
    
    $
    (0.70
    )
    
    $
    0.50
    
    
    $
    0.73
    
    
    $
    0.82Diluted shares outstanding
    
    
    2,621
    
    
    
    2,612
    
    
    
    2,603
    
    
    
    2,516
    
    
    
    2,455
    
    
    
    2,444
    
    
    
    2,447
    
    
    
    2,426
  Contractual Obligations
  Payments Due by PeriodTotal
    
    
    2010
    
    
    2011-2012
    
    
    2013-2014
    
    
    LaterOperating lease obligations
    
    $
    2,331,000
    
    
    $
    358,000
    
    
    $
    688,000
    
    
    $
    714,000
    
    
    $
    571,000Purchase obligations
    
    
    3,008,000
    
    
    
    2,946,000
    
    
    
    62,000
    
    
    
    
    
    
    
    Total
    
    $
    5,339,000
    
    
    $
    3,304,000
    
    
    $
    750,000
    
    
    $
    714,000
    
    
    $
    571,000
  18




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##### Table of Contents



Use of Supplemental Data as Non-GAAP Performance Measure
 Net Operating Income After Tax
   Year Ended December 31,2009
    
    
    2008
    
    
    2007Net Operating Income, GAAP basis
    
    $
    12,112,352
    
    
    $
    13,728,814
    
    
    $
    14,078,489Non-GAAP Adjustments:Tax Provision excluding impact of Investment Return
    
    
    3,954,536
    
    
    
    4,473,170
    
    
    
    4,733,329Net operating income after tax, non-GAAP basis
    
    
    8,157,816
    
    
    
    9,255,644
    
    
    
    9,345,160Net operating income after tax per basic share, non-GAAP basis
    
    $
    3.16
    
    
    $
    3.86
    
    
    $
    4.33Net operating income after tax per diluted share, non-GAAP basis
    
    $
    3.15
    
    
    $
    3.84
    
    
    $
    4.13Basic weighted average shares outstanding, GAAP basis
    
    
    2,582,998
    
    
    
    2,400,142
    
    
    
    2,155,829Diluted weighted average shares outstanding, GAAP basis
    
    
    2,587,751
    
    
    
    2,408,476
    
    
    
    2,264,234
 Off-Balance Sheet Arrangements
  Critical Accounting Policies and Estimates
 Provisions for Income Taxes.
 Revenue Recognition on Incentive-Based Advisory Contracts.
  19




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##### Table of Contents



Revenue Recognition when Acting as an Agent vs. Principal.
  
 ITEM 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    Fair Value Assuming a
    
    
    Fair Value Assuming aFair Value as of
    
    
    Hypothetical 10%
    
    
    Hypothetical 10%December 31, 2009
    
    
    Increase
    
    
    DecreaseEquity investments
    
    $
    15,814,536
    
    
    $
    17,395,990
    
    
    $
    14,233,082Bond fund investments
    
    
    615,431
    
    
    
    676,974
    
    
    
    553,888Total
    
    $
    16,429,967
    
    
    $
    18,072,964
    
    
    $
    14,786,970
  20




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##### Table of Contents



ITEM 8.
    
    Financial Statements and Supplementary Data
 Report of Independent Registered Public
 Accounting Firm on Consolidated Financial Statements
 
     21




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##### Table of Contents



22




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##### Table of Contents



Diamond Hill Investment Group, Inc.
Consolidated Balance Sheets
 December 31,2009
    
    
    2008ASSETSCash and cash equivalents
    
    $
    11,513,194
    
    
    $
    15,788,560Investment portfolio
    
    
    16,429,967
    
    
    
    17,185,611Accounts receivable
    
    
    10,144,004
    
    
    
    5,339,558Prepaid expenses
    
    
    724,825
    
    
    
    1,067,388Fixed assets, net of depreciation, and other assets
    
    
    1,171,670
    
    
    
    835,314Income tax receivable
    
    
    
    
    
    
    2,334,836Deferred taxes
    
    
    520,965
    
    
    
    1,989,016Total assets
    
    $
    40,504,625
    
    
    $
    44,540,283LIABILITIES AND SHAREHOLDERS EQUITYLiabilitiesAccounts payable and accrued expenses
    
    $
    4,465,011
    
    
    $
    1,294,396Accrued incentive compensation
    
    
    12,300,650
    
    
    
    13,000,000Income tax payable
    
    
    758,257
    
    
    
    Total liabilities
    
    
    17,523,918
    
    
    
    14,294,396Commitments and contingencies
    
    
    
    
    
    
    Shareholders EquityCommon stock, no par value7,000,000 shares authorized;2,677,577 issued and outstanding at December 31, 2009;2,447,299 issued and outstanding at December 31, 2008
    
    
    26,922,484
    
    
    
    16,233,501Preferred stock, undesignated, 1,000,000 shares
authorized and unissued
    
    
    
    
    
    
    Deferred compensation
    
    
    (8,070,697
    )
    
    
    (4,908,215
    )Retained earnings
    
    
    4,128,920
    
    
    
    18,920,601Total shareholders equity
    
    
    22,980,707
    
    
    
    30,245,887Total liabilities and shareholders equity
    
    $
    40,504,625
    
    
    $
    44,540,283Book value per share
    
    $
    8.58
    
    
    $
    12.36
   23




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##### Table of Contents



Diamond Hill Investment Group, Inc.
Consolidated Statements of Income
 Year Ended December 31,2009
    
    
    2008
    
    
    2007REVENUES:Investment advisory
    
    $
    37,472,407
    
    
    $
    40,865,296
    
    
    $
    35,339,335Mutual fund administration, net
    
    
    6,089,979
    
    
    
    6,153,919
    
    
    
    5,968,603Total revenue
    
    
    43,562,386
    
    
    
    47,019,215
    
    
    
    41,307,938OPERATING EXPENSES:Compensation and related costs
    
    
    24,113,631
    
    
    
    26,120,040
    
    
    
    20,006,542General and administrative
    
    
    3,133,359
    
    
    
    2,643,274
    
    
    
    2,658,649Sales and marketing
    
    
    751,040
    
    
    
    796,438
    
    
    
    631,911Third party distribution
    
    
    1,112,460
    
    
    
    1,452,087
    
    
    
    1,512,095Mutual fund administration
    
    
    2,339,544
    
    
    
    2,278,562
    
    
    
    2,420,252Total operating expenses
    
    
    31,450,034
    
    
    
    33,290,401
    
    
    
    27,229,449NET OPERATING INCOME
    
    
    12,112,352
    
    
    
    13,728,814
    
    
    
    14,078,489Investment return
    
    
    5,398,636
    
    
    
    (8,205,051
    )
    
    
    909,134INCOME BEFORE TAXES
    
    
    17,510,988
    
    
    
    5,523,763
    
    
    
    14,987,623Income tax provision
    
    
    (6,137,045
    )
    
    
    (2,247,685
    )
    
    
    (5,055,308
    )NET INCOME
    
    $
    11,373,943
    
    
    $
    3,276,078
    
    
    $
    9,932,315Earnings per shareBasic
    
    $
    4.40
    
    
    $
    1.36
    
    
    $
    4.61Diluted
    
    $
    4.40
    
    
    $
    1.36
    
    
    $
    4.39Weighted average shares outstandingBasic
    
    
    2,582,998
    
    
    
    2,400,142
    
    
    
    2,155,829Diluted
    
    
    2,587,751
    
    
    
    2,408,476
    
    
    
    2,264,234
   24




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##### Table of Contents



Diamond Hill Investment Group, Inc.
Consolidated Statements of Shareholders Equity
 RetainedShares
    
    
    Common
    
    
    Treasury
    
    
    Deferred
    
    
    EarningsOutstanding
    
    
    Stock
    
    
    Stock
    
    
    Compensation
    
    
    (Deficit)
    
    
    TotalBalance at January 1, 2007
    
    
    1,838,435
    
    
    $
    16,515,256
    
    
    $
    (95,736
    )
    
    $
    (2,355,499
    )
    
    $
    6,419,236
    
    
    $
    20,483,257Deferred compensation
    
    
    36,000
    
    
    
    3,089,280
    
    
    
    
    
    
    
    (3,089,280
    )
    
    
    
    
    
    
    Recognition of current year
deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,388,764
    
    
    
    
    
    
    
    1,388,764Issuance of stock grants
    
    
    57,254
    
    
    
    5,628,641
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,628,641Issuance of stock related to
401k plan match
    
    
    2,582
    
    
    
    202,019
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    202,019FAS 123R compensation expense
    
    
    
    
    
    
    8,152
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,152Tax benefit from options and
warrants exercised
    
    
    
    
    
    
    6,015,186
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,015,186Payment of taxes withheld related
to option exercises
    
    
    (85,518
    )
    
    
    (8,020,273
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,020,273
    )Purchase of treasury stock related
to option exercises
    
    
    (15,797
    )
    
    
    
    
    
    
    (1,344,958
    )
    
    
    
    
    
    
    
    
    
    
    (1,344,958
    )Sale of treasury stock for
issuance of stock grant
    
    
    614
    
    
    
    25,874
    
    
    
    38,903
    
    
    
    
    
    
    
    
    
    
    
    64,777Sale of treasury stock for
401k plan match
    
    
    2,423
    
    
    
    57,061
    
    
    
    177,435
    
    
    
    
    
    
    
    
    
    
    
    234,496Sale of treasury stock related
to option exercises
    
    
    22,585
    
    
    
    57,084
    
    
    
    1,224,356
    
    
    
    
    
    
    
    (707,028
    )
    
    
    574,412Exercise of options/warrants for
common stock
    
    
    390,017
    
    
    
    4,500,478
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,500,478Repurchase of common stock
    
    
    (4,942
    )
    
    
    (359,734
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (359,734
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,932,315
    
    
    
    9,932,315Balance at December 31, 2007
    
    
    2,243,653
    
    
    $
    27,719,024
    
    
    $
    
    
    
    $
    (4,056,015
    )
    
    $
    15,644,523
    
    
    $
    39,307,532Deferred compensation
    
    
    63,450
    
    
    
    5,184,801
    
    
    
    
    
    
    
    (5,184,801
    )
    
    
    
    
    
    
    Recognition of current year
deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,332,601
    
    
    
    
    
    
    
    4,332,601Issuance of stock grants
    
    
    85,796
    
    
    
    6,021,482
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,021,482Issuance of common stock related
to 401k plan match
    
    
    8,506
    
    
    
    638,796
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    638,796FAS 123R compensation expense
    
    
    
    
    
    
    2,233
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,233Tax benefit from equity transactions
    
    
    
    
    
    
    3,997,348
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,997,348Payment of taxes withheld
related to employee stock transactions
    
    
    (33,991
    )
    
    
    (2,777,545
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,777,545
    )Purchase of common stock
related to option exercises
    
    
    (4,452
    )
    
    
    (381,843
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (381,843
    )Exercise of options/warrants
for common stock
    
    
    95,500
    
    
    
    1,132,204
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,132,204Repurchase of common stock
    
    
    (11,163
    )
    
    
    (862,115
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (862,115
    )Dividend Paid of $10.00 per share
    
    
    
    
    
    
    (24,440,884
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,440,884
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,276,078
    
    
    
    3,276,078Balance at December 31, 2008
    
    
    2,447,299
    
    
    $
    16,233,501
    
    
    $
    
    
    
    $
    (4,908,215
    )
    
    $
    18,920,601
    
    
    $
    30,245,887Deferred compensation
    
    
    78,092
    
    
    
    4,836,595
    
    
    
    
    
    
    
    (4,836,595
    )
    
    
    
    
    
    
    Recognition of current year
deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,674,113
    
    
    
    
    
    
    
    1,674,113Issuance of stock grants
    
    
    135,313
    
    
    
    5,032,290
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,032,290Issuance of common stock related
to 401k plan match
    
    
    15,610
    
    
    
    758,459
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    758,459Tax benefit from equity transactions
    
    
    
    
    
    
    134,741
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    134,741Payment of taxes withheld
related to employee stock transactions
    
    
    (2,737
    )
    
    
    (140,602
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (140,602
    )Exercise of options/warrants
for common stock
    
    
    4,000
    
    
    
    67,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,500Dividend Paid of $10.00 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,165,624
    )
    
    
    (26,165,624
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,373,943
    
    
    
    11,373,943Balance at December 31, 2009
    
    
    2,677,577
    
    
    $
    26,922,484
    
    
    $
    
    
    
    $
    (8,070,697
    )
    
    $
    4,128,920
    
    
    $
    22,980,707
   25




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##### Table of Contents



Diamond Hill Investment Group, Inc.
Consolidated Statements of Cash Flow
 Year Ended December 31,2009
    
    
    2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net Income
    
    $
    11,373,943
    
    
    $
    3,276,078
    
    
    $
    9,932,315Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Depreciation on property and equipment
    
    
    268,572
    
    
    
    181,908
    
    
    
    147,059Amortization of deferred compensation
    
    
    1,674,113
    
    
    
    4,332,601
    
    
    
    1,388,764(Increase) decrease in accounts receivable
    
    
    (4,804,446
    )
    
    
    354,716
    
    
    
    1,229,734Increase (decrease) in deferred income taxes
    
    
    1,438,658
    
    
    
    (2,535,960
    )
    
    
    (1,352,162
    )Stock option expense
    
    
    
    
    
    
    2,233
    
    
    
    8,152Noncash director fee expense
    
    
    180,074
    
    
    
    167,281
    
    
    
    Investment gain/loss, net
    
    
    (4,055,840
    )
    
    
    3,298,360
    
    
    
    389,771Increase (decrease) in accrued liabilities
    
    
    7,323,481
    
    
    
    8,281,581
    
    
    
    (1,424,647
    )Other changes in assets and liabilities
    
    
    3,599,790
    
    
    
    48,340
    
    
    
    (246,227
    )Net cash provided by operating activities
    
    
    16,998,345
    
    
    
    17,407,138
    
    
    
    10,072,759CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment
    
    
    (604,928
    )
    
    
    (362,722
    )
    
    
    (304,262
    )Cost of investments purchased and other portfolio activity
    
    
    (9,149,453
    )
    
    
    (10,076,234
    )
    
    
    (15,317,252
    )Proceeds from sale of investments
    
    
    13,960,937
    
    
    
    23,628,426
    
    
    
    Net cash provided by (used in) investing activities
    
    
    4,206,556
    
    
    
    13,189,470
    
    
    
    (15,621,514
    )CASH FLOWS FROM FINANCING ACTIVITIES:Payment for repurchase of common shares
    
    
    
    
    
    
    (862,115
    )
    
    
    (359,734
    )Payment of taxes withheld on employee stock transactions
    
    
    (140,602
    )
    
    
    (2,777,545
    )
    
    
    (8,020,273
    )Proceeds from common stock issuance
    
    
    825,959
    
    
    
    1,489,218
    
    
    
    15,779,315Payment of dividends
    
    
    (26,165,624
    )
    
    
    (24,440,884
    )
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (1,344,958
    )Sale of treasury stock
    
    
    
    
    
    
    
    
    
    
    1,440,694Net cash provided by (used in) financing activities
    
    
    (25,480,267
    )
    
    
    (26,591,326
    )
    
    
    7,495,044CASH AND CASH EQUIVALENTSNet change during the period
    
    
    (4,275,366
    )
    
    
    4,005,282
    
    
    
    1,946,289At beginning of period
    
    
    15,788,560
    
    
    
    11,783,278
    
    
    
    9,836,989At end of period
    
    $
    11,513,194
    
    
    $
    15,788,560
    
    
    $
    11,783,278Cash paid during the period for:Interest
    
    $
    
    
    
    $
    
    
    
    $
    Income taxes
    
    
    2,625,900
    
    
    
    3,005,000
    
    
    
    435,682Noncash Transactions during the period for:Common Stock Issued as Incentive Compensation
    
    
    4,852,216
    
    
    
    5,754,140
    
    
    
    5,478,718
  
  26




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##### Table of Contents



Diamond Hill Investment Group, Inc.
Notes to Consolidated Financial Statements
 Business and Organization
     Significant Accounting Policies
  Principles of Consolidation
  Segment Information
  Cash and Cash Equivalents
   27




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##### Table of Contents



Significant Accounting Policies (Continued)
 Accounts Receivable
  Valuation of Investment Portfolio
   Limited Partnership Interests
  Furniture and Equipment
  Revenue Recognition  General
   28




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##### Table of Contents



Significant Accounting Policies (Continued)
 Revenue Recognition  Performance Incentive Revenue
  As Of December 31,2009
    
    
    2008
    
    
    2007AUM  Contractual Period Ends Quarterly
    
    $
    108,974,458
    
    
    $
    218,503,205
    
    
    $
    193,342,530AUM  Contractual Period Ends Annually
    
    
    196,469,025
    
    
    
    159,514,591
    
    
    
    387,466,713Total AUM Subject to Performance Incentive
    
    $
    305,443,483
    
    
    $
    378,017,796
    
    
    $
    580,809,243
 For The Period Ending December 31,2009
    
    
    2008
    
    
    2007Performance Incentive Fees  Method 1
    
    $
    1,050,895
    
    
    $
    378,881
    
    
    $
    174,292Performance Incentive Fees  Method 2
    
    
    1,262,922
    
    
    
    378,881
    
    
    
    174,292
 Revenue Recognition  Mutual Fund Administration
    29




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##### Table of Contents



Revenue Recognition  Mutual Fund Administration (Continued)
   Year Ended December 31,2009
    
    
    2008
    
    
    2007Mutual fund administration:Administration Revenue, gross
    
    $
    9,257,464
    
    
    $
    9,194,973
    
    
    $
    8,226,43812b-1/service fees and commission
revenue received from Fund clients
    
    
    5,260,383
    
    
    
    
    
    
    
    12b-1/service fees and commission expense payments to third parties
    
    
    (5,260,383
    )
    
    
    
    
    
    
    Fund related expense
    
    
    (3,141,229
    )
    
    
    (3,061,646
    )
    
    
    (2,393,732
    )Revenue, net of fund related expenses
    
    
    6,116,235
    
    
    
    6,133,327
    
    
    
    5,832,706DHCM C-Share financing:Broker commission advance repayments
    
    
    763,383
    
    
    
    1,776,206
    
    
    
    1,970,006Broker commission amortization
    
    
    (789,639
    )
    
    
    (1,755,614
    )
    
    
    (1,834,109
    )Financing activity, net
    
    
    (26,256
    )
    
    
    20,592
    
    
    
    135,897Mutual fund administration revenue, net
    
    $
    6,089,979
    
    
    $
    6,153,919
    
    
    $
    5,968,603
 Third Party Distribution Expense
  Income Taxes
   Earnings Per Share
   30




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##### Table of Contents



Investment Portfolio
  Year Ended December 31,2009
    
    
    2008Diamond Hill Small Cap Fund
    
    $
    709,881
    
    
    $
    Diamond Hill Small-Mid Cap Fund
    
    
    785,714
    
    
    
    Diamond Hill Large Cap Fund
    
    
    684,554
    
    
    
    Diamond Hill Select Fund
    
    
    705,790
    
    
    
    Diamond Hill Long-Short Fund
    
    
    606,800
    
    
    
    Diamond Hill Strategic Income Fund
    
    
    615,431
    
    
    
    Diamond Hill Investment Partners, L.P.
    
    
    2,653,856
    
    
    
    7,494,929Diamond Hill Investment Partners II, L.P.
    
    
    2,649,665
    
    
    
    3,767,480Diamond Hill Research Partners, L.P.
    
    
    7,018,276
    
    
    
    Other marketable equity securities
    
    
    
    
    
    
    5,923,202Total Investment Portfolio
    
    $
    16,429,967
    
    
    $
    17,185,611
  December 31,2009
    
    
    2008
    
    
    2007Total partnership assets
    
    $
    188,716,374
    
    
    $
    196,021,226
    
    
    $
    360,372,685Total partnership liabilities
    
    
    40,583,059
    
    
    
    33,056,747
    
    
    
    80,007,267Net partnership assets
    
    
    148,133,315
    
    
    
    162,964,479
    
    
    
    280,365,418Net partnership income (loss)
    
    
    35,193,357
    
    
    
    (75,625,562
    )
    
    
    6,581,829DHCMs portion of net assets
    
    
    12,321,797
    
    
    
    11,262,409
    
    
    
    15,128,723DHCMs portion of net income (loss)
    
    
    4,634,391
    
    
    
    (3,866,314
    )
    
    
    562,469
   31




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##### Table of Contents



Capital Stock
 Common Shares
  Authorization of Preferred Shares
  Stock-Based Compensation
 Equity Incentive Plans
 2005 Employee and Director Equity Incentive Plan
  Equity Compensation Grants
  Accelerated Vesting of Certain Equity Incentive Plans and Compensation Grants
  401(k) Plan
   32




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##### Table of Contents



Stock-Based Compensation (Continued)
 Stock Options and Warrants
   Options
    
    
    WarrantsWeighted Average
    
    
    
    
    
    
    Weighted AverageShares
    
    
    Exercise Price
    
    
    Shares
    
    
    Exercise PriceOutstanding December 31, 2006
    
    
    283,102
    
    
    $
    14.60
    
    
    
    249,400
    
    
    $
    12.57Exercisable December 31, 2006
    
    
    243,102
    
    
    $
    16.26
    
    
    
    249,400
    
    
    $
    12.57Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired / Forfeited
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    
    Exercised
    
    
    190,602
    
    
    
    16.64
    
    
    
    222,000
    
    
    
    8.65Outstanding December 31, 2007
    
    
    92,500
    
    
    $
    10.40
    
    
    
    25,400
    
    
    $
    47.00Exercisable December 31, 2007
    
    
    72,500
    
    
    $
    12.03
    
    
    
    25,400
    
    
    $
    47.00Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired / Forfeited
    
    
    
    
    
    
    
    
    
    
    12,400
    
    
    
    72.09Exercised
    
    
    92,500
    
    
    
    10.40
    
    
    
    3,000
    
    
    
    56.67Outstanding December 31, 2008
    
    
    
    
    
    $
    
    
    
    
    10,000
    
    
    $
    13.00Exercisable December 31, 2008
    
    
    
    
    
    $
    
    
    
    
    10,000
    
    
    $
    13.00Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired / Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    4,000
    
    
    
    16.88Outstanding December 31, 2009
    
    
    
    
    
    $
    
    
    
    
    6,000
    
    
    $
    10.42Exercisable December 31, 2009
    
    
    
    
    
    $
    
    
    
    
    6,000
    
    
    $
    10.42
  WarrantsRemainingNumber
    
    
    Life
    
    
    NumberOutstanding
    
    
    In Years
    
    
    Exercisable
    
    
    Exercise Price4,000
    
    
    
    0.16
    
    
    
    4,000
    
    
    $
    11.252,000
    
    
    
    0.36
    
    
    
    2,000
    
    
    $
    8.756,000
    
    
    
    0.23
    
    
    
    6,000
   33




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##### Table of Contents



Operating Leases
  2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    Thereafter$
    358,000
    
    
    $
    340,000
    
    
    $
    348,000
    
    
    $
    356,000
    
    
    $
    358,000
    
    
    $
    571,000
  Income Taxes
  2009
    
    
    2008
    
    
    2007Current city income tax provision
    
    $
    266,711
    
    
    $
    375,821
    
    
    $
    197,760Current state income tax provision
    
    
    44,000
    
    
    
    11,000
    
    
    
    Current federal income tax provision
    
    
    4,358,283
    
    
    
    4,396,824
    
    
    
    Deferred federal income tax provision (benefit)
    
    
    1,468,051
    
    
    
    (2,535,960
    )
    
    
    4,857,548Provision for income taxes
    
    $
    6,137,045
    
    
    $
    2,247,685
    
    
    $
    5,055,308
  2009
    
    
    2008
    
    
    2007Income tax computed at statutory rate
    
    $
    5,990,509
    
    
    $
    1,898,479
    
    
    $
    5,095,792City and state income taxes, net of federal benefit
    
    
    204,417
    
    
    
    255,302
    
    
    
    197,760Other
    
    
    (57,881
    )
    
    
    93,904
    
    
    
    (238,244
    )Income tax expense
    
    $
    6,137,045
    
    
    $
    2,247,685
    
    
    $
    5,055,308
  2009
    
    
    2008Stock-based compensation
    
    $
    926,222
    
    
    $
    515,914Unrealized (gains) losses
    
    
    (1,742,009
    )
    
    
    316,249Capital loss carry forward
    
    
    1,547,804
    
    
    
    1,182,044Other assets and liabilities
    
    
    (211,052
    )
    
    
    (25,191
    )Net deferred tax assets
    
    $
    520,965
    
    
    $
    1,989,016
   34




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##### Table of Contents



Earnings Per Share
  Year Ended December 31,2009
    
    
    2008
    
    
    2007Basic and Diluted net income
    
    $
    11,373,943
    
    
    $
    3,276,078
    
    
    $
    9,932,315Weighted average number of outstanding sharesBasic
    
    
    2,582,998
    
    
    
    2,400,142
    
    
    
    2,155,829Diluted
    
    
    2,587,751
    
    
    
    2,408,476
    
    
    
    2,264,234Earnings per shareBasic
    
    $
    4.40
    
    
    $
    1.36
    
    
    $
    4.61Diluted
    
    $
    4.40
    
    
    $
    1.36
    
    
    $
    4.39
 Regulatory Requirements
  Commitments and Contingencies
   35




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##### Table of Contents



ITEM 9:
    
    Changes In and Disagreements With Accountants on Accounting and Financial Disclosures
  
 ITEM 9A:
    
    Controls and Procedures
    Managements Annual Report on Internal Control Over Financial Reporting
      36




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##### Table of Contents



ITEM 9B:
    
    Other Information
  
 PART III
 
 ITEM 10:
    
    Directors, Executive Officers and Corporate Governance
  
 ITEM 11:
    
    Executive Compensation
  
 ITEM 12:
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
  Equity Compensation Plan Information
 (a)1
    
    
    (b)
    
    
    (c)2Number of securitiesremaining available forNumber of securities to
    
    
    
    
    
    
    future issuance underbe issued upon the
    
    
    Weighted-average
    
    
    equity compensationexercise of outstanding
    
    
    exercise price of
    
    
    plans (excludingoptions, warrants and
    
    
    outstanding options,
    
    
    securities reflected inPlan category
    
    rights
    
    
    warrants and rights
    
    
    column (a))Equity compensation plans approved
by security holders
    
    
    
    
    
    
    
    
    
    
    394,358Equity compensation plans not approved
by security holders
    
    
    6,000
    
    
    $
    10.42
    
    
    
    Total
    
    
    6,000
    
    
    $
    10.42
    
    
    
    394,358
 1
    
    The amount appearing under the Number of securities to be issued upon the exercise of
outstanding options, warrants and rights represents shares underlying warrants issued to
former members of the Board of Directors for compensatory purposes.2
    
    The amount appearing under Number of securities remaining available for future issuance
under equity compensation plans relates to our 2005 Employee and Director Equity Incentive
Plan. The maximum aggregate number of shares that may be granted and/or sold under our 2005
Employee and Director Equity Incentive Plan is annually increased on December 31 by an amount
equal to the lesser of (i) 100,000 shares, (ii) 5% of the Companys total outstanding shares
on such date, or (iii) a lesser amount determined by the Board of Directors.   37




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##### Table of Contents



ITEM 13:
    
    Certain Relationships and Related Transactions, and Director Independence
  
 ITEM 14:
    
    Principal Accounting Fees and Services
   38




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##### Table of Contents



PART IV:
 
 ITEM 15:
    
    Exhibits, Financial Statement Schedules
 (1)
    
    Financial Statements: See Part II. Item 8, Financial Statements and Supplementary
Data.(2)
    
    Financial Statement Schedules are omitted because they are not required or the required
information is included in the financial statements or notes thereto.(3)
    
    Exhibits
 3.1
    
    Amended and Restated Articles of Incorporation of the Company. (Incorporated by reference from Form 8-K
Current Report for the event on May 2, 2002 filed with the SEC on May 7, 2002; File No. 000-24498.)3.2
    
    Code of Regulations of the Company. (Incorporated by reference from Form 8-K Current Report for the
event on May, 2002 filed with the SEC on May 7, 2002; File No. 000-24498.)10.1
    
    Representative Investment Management Agreement between Diamond Hill Capital Management, Inc. and the
Diamond Hill Funds. (Incorporated by reference from Exhibit 23d(viii) to Post-Effective Amendment Nos.
22 and 23 to Registration Statement on Form N1-A (File Nos. 333-22075 and 811-08061) filed by Diamond
Hill Funds on December 30, 2005)10.2
    
    Seventh Amended and Restated Administrative and Transfer Agency Services Agreement dated as of May 31,
2002, as amended, between Diamond Hill Capital Management, Inc. and the Diamond Hill Funds.
(Incorporated by reference from Exhibit 28h(ix) to Post-Effective Amendment Nos. 28 and 29 to
Registration Statement on Form N1-A (File Nos. 333-22075 and 811-08061) filed by Diamond Hill Funds on
April 30, 2009)10.3
    
    2005 Employee and Director Equity Incentive Plan, as amended January 1, 2008. (Incorporated by
reference from Exhibit 10.6 to Form 10-K filed with the SEC on March 14, 2008; File No. 000-24498.)10.4
    
    2006 Performance-Based Compensation Plan, as amended January 1, 2008. (Incorporated by reference from
Exhibit 10.7 to Form 10-K filed with the SEC on March 14, 2008; File No. 000-24498.)10.5
    
    Employment Agreement between the Company and Roderick H. Dillon, Jr. dated August 10, 2006, as amended
February 28, 2008. (Incorporated by reference from Exhibit 10.8 to Form 10-K filed with the SEC on
March 14, 2008; File No. 000-24498.)10.6
    
    First Amendment to the Amended and Restated Employment Agreement between the Company and Roderick H.
Dillon, Jr. dated December 2, 2008. (Incorporated by reference from Exhibit 10.6 to Form 10-K filed with
the SEC on March 13, 2009; File No. 000-24498.)14.1
    
    Amended Code of Business Conduct and Ethics. (Incorporated by reference from Exhibit 14.1 to Form 10-K
filed with the SEC on March 13, 2009; File No. 000-24498.)21.1
    
    Subsidiaries of the Company. (Filed herewith)23.1
    
    Consent of Independent Registered Public Accounting Firm, Plante & Moran, PLLC. (Filed herewith)31.1
    
    Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a). (Filed herewith)31.2
    
    Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a). (Filed herewith)32.1
    
    Section 1350 Certifications. (Furnished herewith)
  39




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##### Table of Contents



SIGNATURES
  DIAMOND HILL INVESTMENT GROUP, INC.By:
    
    /S/ R. H. DillonR. H. Dillon,
    
    March 5,
2010President, Chief Executive Officer and a Director
  Signature
    
    Title
    
    Date/S/ R. H. Dillon

R. H. Dillon
    
    President, Chief Executive Officer, 
and a Director
    
    March 5, 2010/S/ James F. Laird

James F. Laird
    
    Chief Financial Officer, Treasurer, 
and Secretary
    
    March 5, 2010/S/ Gary R. Young

Gary R. Young
    
    Controller
    
    March 5, 2010/S/ Lawrence E. Baumgartner

Lawrence E. Baumgartner
    
    Director
    
    March 5, 2010/S/ David P. Lauer

David P. Lauer
    
    Director
    
    March 5, 2010/S/ James G. Mathias

James G. Mathias
    
    Director
    
    March 5, 2010/S/ David R. Meuse

David R. Meuse
    
    Director
    
    March 5, 2010/S/ Diane D. Reynolds

Diane D. Reynolds
    
    Director
    
    March 5, 2010/S/ Donald B. Shackelford

Donald B. Shackelford
    
    Director
    
    March 5, 2010
  40