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DIAMOND HILL INVESTMENT GROUP INC
0000909108
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<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 1 - us-gaap:OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-->
<!-- xbrl,ns -->
<!-- xbrl,nx -->
<div style="font-family: Helvetica,Arial,sans-serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 0pt"><b>
</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Note 1 <u>Business and Organization</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Diamond Hill Investment Group, Inc. (the “Company”) derives its consolidated revenues and
net income primarily from investment advisory and fund administration services that it provides to
individual and institutional investors. The Company has four operating subsidiaries.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">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 Funds (the “Funds”), a series of open-end mutual funds, private investment funds (“Private
Funds”), and also offers advisory services to institutional and individual investors.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Diamond Hill GP (Cayman) Ltd. (“DHGP”) was incorporated in the Cayman Islands as an exempted
company on May 18, 2006 for the purpose of acting as the general partner of a Cayman Islands
exempted limited partnership. This limited partnership acts as a master fund for Diamond Hill
Offshore Ltd., a Cayman Islands exempted company; and Diamond Hill Investment Partners II, L.P., an
Ohio limited partnership. DHGP has no operating activity.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Beacon Hill Fund Services, Inc. (“BHFS”), an Ohio corporation, is a wholly owned subsidiary of the
Company incorporated on January 29, 2008. BHFS provides certain compliance, treasury, and fund
administration services to mutual fund companies. BHIL Distributors, Inc. (“BHIL”), an Ohio
corporation, is a wholly owned subsidiary of BHFS incorporated on February 19, 2008. BHIL provides
underwriting and distribution services to mutual fund companies. BHFS and BHIL collectively
operate as Beacon Hill.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 2 - us-gaap:SignificantAccountingPoliciesTextBlock-->
<div style="font-family: Helvetica,Arial,sans-serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Note 2 <u>Significant Accounting Policies</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">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. Certain prior period amounts and disclosures
have been reclassified to conform to the current period financial presentation. Book value per
share is computed by dividing total shareholders’ equity by the number of shares issued and
outstanding at the end of the measurement period. The following is a summary of the Company’s
significant accounting policies:
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><u>Principles of Consolidation</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The accompanying consolidated financial statements include the operations of the Company and its
subsidiaries. All material inter-company transactions and balances have been eliminated in
consolidation.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><u>Segment Information</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Management has determined that the Company operates in one business segment, namely providing
investment management and administration services to mutual funds, separate accounts, and private
investment funds. Therefore, no disclosures relating to operating segments are required in annual
or interim financial statements.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><u>Cash and Cash Equivalents</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Cash and cash equivalents include demand deposits and money market funds.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: Helvetica,Arial,sans-serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 0pt">
<u>
</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><u>Accounts Receivable</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Accounts receivable are recorded when they are due and are presented in the balance sheet, 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 based on the Company’s
historical losses, existing conditions in the industry, and the financial stability of those
individuals or entities that owe the receivable. No allowance for doubtful accounts was deemed
necessary at June 30, 2011 or December 31, 2010.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><u>Valuation of Investment Portfolio</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Investments held by the Company are valued based upon the definition of Level 1 inputs and Level 2
inputs. Level 1 inputs are defined as fair values which use quoted prices in active markets for
identical assets or liabilities that the Company has the ability to access. Level 2 inputs are
defined as quoted prices in markets that are not considered to be active for identical assets or
liabilities, quoted prices in active markets for similar assets or liabilities and inputs other
than quoted prices that are directly observable or indirectly through corroboration with observable
market data. The following table summarizes the Company’s investments valued based upon Level 1
and Level 2 inputs as of June 30, 2011 and December 31, 2010:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">June 30, 2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">December 31, 2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Level 1 Inputs
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,321,634</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,265,998</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Level 2 Inputs
</div></td>
<td> </td>
<td> </td>
<td align="right">9,246,575</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">10,261,062</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Level 1 investments are all registered investment companies (mutual funds). Level 2
investments are all limited partnerships. There were no transfers in or out of the
levels.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The changes in market values on the investments are recorded in the Consolidated Statements of
Income as investment return.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><u>Limited Partnership Interests</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">DHCM is the managing member of Diamond Hill General Partner, LLC, the General Partner of Diamond
Hill Investment Partners, LP (“DHIP”), Diamond Hill Investment Partners II, LP (“DHIP II”), Diamond
Hill Research Partners, LP (“DHRP”), and Diamond Hill Research Partners — International, LP
(“DHRPI”) collectively (the “Partnerships”), each a limited partnership whose underlying assets
consist of marketable securities.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">DHCM, in its role as managing member of the General Partner, has the power to direct the
Partnerships’ economic activities and the right to receive investment advisory and performance
incentive fees that are significant to the Partnerships. The Partnerships are subject to
investment company accounting and, as a result, they have not been consolidated in presenting the
accompanying financial statements. DHCM’s investments in these partnerships are reported as a
component of the Company’s investment portfolio, valued at DHCM’s proportionate interest in the net
asset value of the marketable securities held by the Partnerships. Gains and losses attributable to
changes in the value of DHCM’s interests in the Partnerships are included in the Company’s reported
investment return.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Company’s exposure to loss as a result of its involvement with the Partnerships is limited to
the amount of its investments. DHCM is not obligated to provide financial or other support to the
Partnerships, other than its investments to date and its contractually provided investment advisory
responsibilities, and has not provided such support. The Company has not provided liquidity
arrangements, guarantees or other commitments to support the Partnerships’ operations, and the
Partnerships’ creditors and interest holders have no recourse to the general credit of the Company.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: Helvetica,Arial,sans-serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 0pt">
<u>
</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 0pt">
<u>
</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Several board members, officers and employees of the Company invest in the Partnerships through
Diamond Hill General Partner, LLC. These individuals receive no remuneration as a result of their
personal investment in the Partnerships. The capital of Diamond Hill General Partner, LLC is not
subject to a management fee or an incentive fee.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><u>Furniture and Equipment</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Furniture and equipment, consisting of computer equipment, furniture, and fixtures, are carried at
cost less accumulated depreciation. Depreciation is calculated using the straight-line method over
estimated lives of three to seven years.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><u>Revenue Recognition — General</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Company earns substantially all of its revenue from investment advisory, distribution, and fund
administration services. Mutual fund investment advisory and administration fees, generally
calculated as a percentage of assets under management, are recorded as revenue as services are
performed. Managed account and private investment fund clients provide for monthly or quarterly
management fees, in addition to quarterly or annual performance fees.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><u>Revenue Recognition — Performance Incentive Revenue</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Company’s private investment funds and certain managed accounts provide for performance
incentive fees. For management fees based on a formula, there are two methods by which incentive
revenue may be recorded. Under “Method 1”, incentive fees are recorded at the end of the contract
period; under “Method 2”, the incentive fees are recorded periodically and calculated as the amount
that would be due under the formula at any point in time as if the contract was terminated at that
date. Management has chosen Method 1, in which incentive fees are recorded at the end of the
contract period for the specific client in which the incentive fee applies. The table below shows
assets under management (“AUM”) subject to performance incentive fees and the performance incentive
fees, as calculated under each of the above methods:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">As Of June 30,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">AUM — Contractual Period Ends Quarterly
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">102,510,121</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">99,737,213</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">AUM — Contractual Period Ends Annually
</div></td>
<td> </td>
<td> </td>
<td align="right">127,418,326</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">170,047,709</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total AUM Subject to Performance Incentive
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">229,928,447</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">269,784,922</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">For The Three Months Ending June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">For The Six Months Ending June 30,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Performance Incentive Fees —
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">187</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">694</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Method 1
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Performance Incentive Fees —
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">722</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,229</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">56,488</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Method 2
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: Helvetica,Arial,sans-serif; margin-left: 0in; ">
<div style="margin-top: 0pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"></td>
<td width="1%"></td>
<td>
<div style="text-align: justify">
</div>
</td>
</tr>
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><u>Revenue Recognition — Mutual Fund Administration</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">DHCM has an administrative and transfer agency services agreement with the Funds, under which DHCM
performs certain services for each fund. These services include mutual fund administration,
transfer agency and other related functions. For performing these services, each fund compensates
DHCM a fee, which is
calculated using the following annual rates times the average daily net assets of each respective
series and share class:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Prior to February 28,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">After February 28,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Class A and Class C
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">0.30</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">0.26</td>
<td nowrap="nowrap">%</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Class I
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">0.19</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">0.24</td>
<td nowrap="nowrap">%</td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Funds have selected and contractually engaged certain vendors to fulfill various
services to benefit the Funds’ shareholders or to satisfy regulatory requirements of the Funds.
These services include, among others, required fund shareholder mailings, federal and state
registrations, and legal and audit services. DHCM, in fulfilling a portion of its role under the
administration agreement with the Funds, acts as agent to pay these obligations of the Funds. Each
vendor is independently responsible for fulfillment of the services it has been engaged to provide
and negotiates fees and terms with the management and board of trustees of the Funds. The fee that
the Funds pay to DHCM is reviewed annually by the Funds’ board of trustees and specifically takes
into account the contractual expenses that DHCM pays on behalf of the Funds. As a result, DHCM is
not involved in the delivery or pricing of these services and bears no risk related to these
services. Revenue has been recorded net of these Fund related expenses, in accordance with the
appropriate accounting treatment for this agency relationship. In addition, DHCM finances the
upfront commissions which are paid by the Fund’s principal underwriter to brokers who sell Class C
shares of the Funds. As financer, DHCM advances to the underwriter the commission amount to be
paid to the selling broker at the time of sale. These advances are capitalized and amortized over
12 months to correspond with the repayments DHCM receives from the principal underwriter to recoup
this commission advancement.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Beacon Hill has underwriting and administrative service agreements with certain clients, including
registered mutual funds. The fee arrangements vary from client to client based upon services
provided and are recorded as revenue under Mutual Fund Administration on the Consolidated
Statements of Income. Part of Beacon Hill’s role as underwriter is to act as an agent on behalf of
its mutual fund clients to receive 12b-1/service fees and commission revenue and facilitate the
payment of those fees and commissions to third parties who provide services to the funds and their
shareholders. The amount of 12b-1/service fees and commissions are determined by each mutual fund
client and Beacon Hill bears no financial risk related to these services. As a result,
12b-1/service fees and commission revenue has been recorded net of the expense payments to third
parties, in accordance with the appropriate accounting treatment for this agency relationship.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: Helvetica,Arial,sans-serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 0pt">
</div>
<div align="justify" style="font-size: 10pt; margin-top: 0pt">
<u>
</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Mutual fund administration gross and net revenue are summarized below:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Three Months Ended June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Six Months Ended June 30,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Mutual fund administration:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Administration revenue, gross
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">3,031,607</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">2,756,455</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">5,972,920</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">5,562,566</td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">12b-1/service fees and commission revenue
received from fund clients
</div></td>
<td> </td>
<td> </td>
<td align="right">1,876,633</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,092,674</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,773,805</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,319,661</td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">12b-1/service fees and commission expense
payments to third parties
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(1,876,633</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(2,092,674</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(3,773,805</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(4,319,661</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Fund related expense
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(1,014,851</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(948,869</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(1,957,895</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(1,876,074</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Revenue, net of fund related expenses
</div></td>
<td> </td>
<td> </td>
<td align="right">2,016,756</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,807,586</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,015,025</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,686,492</td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">DHCM C-Share financing:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Broker commission advance repayments
</div></td>
<td> </td>
<td> </td>
<td align="right">91,876</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">162,423</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">207,110</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">321,364</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Broker commission amortization
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(82,566</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(149,120</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(184,189</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(276,584</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Financing activity, net
</div></td>
<td> </td>
<td> </td>
<td align="right">9,310</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">13,303</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">22,921</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">44,780</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:30px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Mutual fund administration revenue, net
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">2,026,066</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,820,889</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">4,037,946</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,731,272</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><u>Third Party Distribution Expense</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Third party distribution expenses are earned by various third party financial services firms based
on sales and/or assets of the Company’s investment products generated by the respective firms.
Expenses recognized represent actual payments made to the third party firms and are recorded in the
period earned based on the terms of the various contracts.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><u>Income Taxes</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Company accounts for income taxes through an asset and liability approach. A net deferred tax
asset or liability is determined based on the tax effects of the various temporary differences
between the book and tax bases of the various balance sheet assets and liabilities and gives
current recognition to changes in tax rates and laws.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Company has analyzed its tax positions taken on federal income tax returns for all open tax
years (tax years ended December 31, 2007 through 2010) to determine any uncertainty in income taxes
and has recognized no adjustment in the net asset or liability.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><u>Earnings Per Share</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income by the
weighted average number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution of EPS that could occur if outstanding warrants were exercised. At June 30,
2011, there were no warrants outstanding.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: Helvetica,Arial,sans-serif; margin-left: 0in; ">
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 3 - us-gaap:InvestmentsInDebtAndMarketableEquitySecuritiesAndCertainTradingAssetsDisclosureTextBlock-->
<div style="font-family: Helvetica,Arial,sans-serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Note 3 <u>Investment Portfolio</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">As of June 30, 2011, the Company held investments worth $10.6 million and an estimated cost
basis of $7.2 million. The following table summarizes the market value of these investments as of
June 30, 2011 and December 31, 2010:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">December 31,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Diamond Hill Small Cap Fund
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">219,831</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">211,301</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Diamond Hill Small-Mid Cap Fund
</div></td>
<td> </td>
<td> </td>
<td align="right">230,703</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">217,915</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Diamond Hill Large Cap Fund
</div></td>
<td> </td>
<td> </td>
<td align="right">223,049</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">210,413</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Diamond Hill Select Fund
</div></td>
<td> </td>
<td> </td>
<td align="right">233,253</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">221,491</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Diamond Hill Long-Short Fund
</div></td>
<td> </td>
<td> </td>
<td align="right">213,851</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">206,312</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Diamond Hill Strategic Income Fund
</div></td>
<td> </td>
<td> </td>
<td align="right">200,947</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">198,566</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Diamond Hill Investment Partners, L.P.
</div></td>
<td> </td>
<td> </td>
<td align="right">1,211,255</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,177,098</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Diamond Hill Investment Partners II, L.P.
</div></td>
<td> </td>
<td> </td>
<td align="right">1,186,292</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,155,022</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Diamond Hill Research Partners, L.P.
</div></td>
<td> </td>
<td> </td>
<td align="right">5,918,262</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">7,928,942</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Diamond Hill Research Partners International, L.P.
</div></td>
<td> </td>
<td> </td>
<td align="right">930,766</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total Investment Portfolio
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">10,568,209</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">11,527,060</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">DHCM is the managing member of the Diamond Hill General Partner LLC, which is the General
Partner of the Partnerships. The underlying assets of the Partnerships are cash and marketable
equity securities. Summary financial information, including the Company’s carrying value and
income from the Partnerships is as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">As of</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">June 30, 2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">December 31, 2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total partnership assets
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">159,446,822</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">173,007,238</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Total partnership liabilities
</div></td>
<td> </td>
<td> </td>
<td align="right">29,959,618</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">32,855,190</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Net partnership assets
</div></td>
<td> </td>
<td>$</td>
<td align="right">129,487,204</td>
<td> </td>
<td> </td>
<td>$</td>
<td align="right">140,152,048</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">DHCM’s portion of net assets
</div></td>
<td> </td>
<td>$</td>
<td align="right">9,246,575</td>
<td> </td>
<td> </td>
<td>$</td>
<td align="right">10,261,062</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">For the</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">For the</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Six Months Ended</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Year Ended</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">June 30, 2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">December 31, 2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Net partnership income
</div></td>
<td> </td>
<td>$</td>
<td align="right">3,480,918</td>
<td> </td>
<td> </td>
<td>$</td>
<td align="right">4,486,719</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">DHCM’s portion of net income
</div></td>
<td> </td>
<td>$</td>
<td align="right">393,515</td>
<td> </td>
<td> </td>
<td>$</td>
<td align="right">939,265</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">DHCM’s income from the Partnerships includes its pro-rata capital allocation and its share
of an incentive allocation, if any, from the limited partners.
</div>
</div>
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<div style="font-family: Helvetica,Arial,sans-serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Note 4 <u>Capital Stock</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><u>Common Shares</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Company has only one class of securities, Common Shares.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><u>Authorization of Preferred Shares</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Company’s Articles of Incorporation authorize the issuance of 1,000,000 shares of “blank check”
preferred shares 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 authorized, without
shareholder approval, to issue preferred stock with dividend, liquidation, conversion, voting, or
other rights, which could adversely affect the voting or other rights of the holders of the Common Shares. There were no shares of
preferred stock issued or outstanding at June 30, 2011 or December 31, 2010.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: Helvetica,Arial,sans-serif; margin-left: 0in; ">
</div>
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<!-- Begin Block Tagged Note 5 - us-gaap:DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-->
<div style="font-family: Helvetica,Arial,sans-serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Note 5 <u>Stock-Based Compensation</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><u>Equity Incentive Plans</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><i>2011 Equity and Cash Incentive Plan</i>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">At the Company’s annual shareholder meeting on April 26, 2011, shareholders approved the 2011
Equity and Cash Incentive Plan (“2011 Plan”). The 2011 Plan is intended to facilitate the
Company’s ability to attract and retain staff, provide additional incentive to employees, directors
and consultants, and promote the success of the Company’s business. The 2011 Plan authorizes the
issuance of 600,000 Common Shares of the Company in various forms of equity awards. As of June 30,
2011, there were 499,625 Common Shares available for issuance under the 2011 Plan. The 2011 Plan
provides that the Board of Directors, or a committee appointed by the Board, may grant awards and
otherwise administer the 2011 Plan. Restricted stock grants issued under the 2011 Plan, which
vest over time, are recorded as deferred compensation in the equity section of the balance sheet on
the grant date and then recognized as compensation expense based on the grant date price over the
vesting period of the respective grant.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><i>2005 Employee and Director Equity Incentive Plan</i>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">At the Company’s annual shareholder meeting on May 12, 2005, shareholders approved the 2005
Employee and Director Equity Incentive Plan (“2005 Plan”). With the approval of the 2011 Plan,
there are no longer any Common Shares available for future issuance under the 2005 Plan.
Outstanding grants under the 2005 Plan are unaffected and remain issued and outstanding.
Restricted stock grants issued under the 2005 Plan, which vest over time, are recorded as deferred
compensation in the equity section of the balance sheet on the grant date and then recognized as
compensation expense based on the grant date price over the vesting period of the respective grant.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><u>401(k) Plan</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Company sponsors a 401(k) plan under which all employees participate. Employees may
contribute a portion of their compensation subject to certain limits based on federal tax laws.
The Company makes matching contributions of Common Shares of the Company with a value equal to 200
percent of the first six percent of an employee’s compensation contributed to the plan. Employees
become fully vested in the matching contributions after six plan years of employment. The
following table summarizes the Company’s expenses attributable to the plan during the three and six
months ended June 30, 2011 and 2010:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Three Months Ended
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">238,597</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">215,711</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Six Months Ended
</div></td>
<td> </td>
<td> </td>
<td align="right">479,442</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">426,992</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: Helvetica,Arial,sans-serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 0pt">
<u>
</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><u>Stock Options and Warrants</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">There were no stock options outstanding during the periods presented in these financial
statements. There were no warrants outstanding as of June 30, 2011 and 2010. Warrant transactions
during the periods presented in these financial statements are summarized below:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Warrants</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Weighted Average</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Shares</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Exercise Price</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Outstanding December 31, 2009
</div></td>
<td> </td>
<td> </td>
<td align="right">6,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">10.42</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Exercisable December 31, 2009
</div></td>
<td> </td>
<td> </td>
<td align="right">6,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">10.42</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Granted
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Expired / Forfeited
</div></td>
<td> </td>
<td> </td>
<td align="right">4,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">10.00</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Exercised
</div></td>
<td> </td>
<td> </td>
<td align="right">2,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">10.00</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Outstanding June 30, 2010
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Exercisable June 30, 2010
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
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<div style="font-family: Helvetica,Arial,sans-serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Note 6 <u>Operating Leases</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Company leases approximately 25,500 square feet of office space at two locations. The
following table summarizes the total lease and operating expenses for the three and six months
ended June 30, 2011 and 2010:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
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<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Three Months Ended
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">140,796</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">138,848</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Six Months Ended
</div></td>
<td> </td>
<td> </td>
<td align="right">287,021</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">283,005</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The approximate future minimum lease payments under the operating leases are as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="1%"> </td>
<td width="9%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td nowrap="nowrap" align="center" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2012</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2013</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2014</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2015</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Thereafter</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td> </td>
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>$</td>
<td align="right">
<div style="margin-left:15px">212,000
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">440,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">417,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">397,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">401,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">234,000</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">In addition to the above rent, the Company will also be responsible for normal operating expenses
of the properties. Such operating expenses were approximately $9.97 per square foot in 2010, on a
combined basis, and are expected to be approximately $9.60 per square foot in 2011.
</div>
</div>
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<div style="font-family: Helvetica,Arial,sans-serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Note 7 <u>Income Taxes</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The provision for income taxes for the three and six months ended June 30, 2011 and 2010 consists
of federal, state and city income taxes. As of June 30, 2011, the Company and its subsidiaries had
a capital loss carry forward of approximately $1.9 million. The capital loss carry forward is
available to offset capital gains in future years.
</div>
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</div>
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<div style="font-family: Helvetica,Arial,sans-serif; margin-left: 0in; ">
</div>
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<div style="font-family: Helvetica,Arial,sans-serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Note 8 <u>Earnings Per Share</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The following table sets forth the computation for basic and diluted earnings per share
(“EPS”):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Three Months Ended June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Six Months Ended June 30,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Basic and Diluted net income
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">3,728,889</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,829,858</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">7,360,624</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">4,500,178</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Weighted average number of
outstanding shares
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Basic
</div></td>
<td> </td>
<td> </td>
<td align="right">2,967,002</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,773,533</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,902,788</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,746,455</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Diluted
</div></td>
<td> </td>
<td> </td>
<td align="right">2,967,002</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,774,318</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,902,788</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,748,775</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Earnings per share
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Basic
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1.26</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">0.66</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">2.54</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1.64</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Diluted
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1.26</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">0.66</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">2.54</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1.64</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
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</table>
</div>
</div>
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<div style="font-family: Helvetica,Arial,sans-serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Note 9 <u>Regulatory Requirements</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">BHIL, a wholly owned subsidiary of the Company and principal underwriter for mutual funds,
is subject to the U.S. Securities and Exchange Commission (“SEC”) uniform net capital rule, which
requires the maintenance of minimum net capital. BHIL’s net capital exceeded its minimum net
capital requirement at June 30, 2011 and December 31, 2010. The net capital balances, minimum net
capital requirements, and ratio of aggregate indebtedness to net capital for BHIL are summarized
below as of June 30, 2011 and December 31, 2010:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">December 31,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Net Capital
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">244,296</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">86,107</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Minimum Net Capital Requirement
</div></td>
<td> </td>
<td> </td>
<td align="right">43,141</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">35,667</td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Ratio of Aggregate Indebtedness
to Net Capital
</div></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right">2.65 to 1</td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right">8.79 to 1</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
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<div style="font-family: Helvetica,Arial,sans-serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Note 10 <u>Commitments and Contingencies</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Company indemnifies its directors and certain of its officers and employees for certain
liabilities that might arise from their performance of their duties to the Company. Additionally,
in the normal course of business, the Company enters into agreements that contain a variety of
representations and warranties and which provide general indemnifications. Certain agreements do
not contain any limits on the Company’s liability and would involve future claims that may be made
against the Company that have not yet occurred. Therefore, it is not possible to estimate the
Company’s potential liability under these indemnities. Further, the Company maintains insurance
policies that may provide coverage against certain claims under these indemnities.
</div>
</div>
7000000
7000000