Welcome to Diamond Hill First Quarter 2013 Portfolio Manager Conference Call. My name is Allen and I will be your operator for today’s call. (Operator Instructions) Please note this conference is being recorded. I would now turn the call over to Julie McConnell. Ms. McConnell, you may begin.

Great. Thanks Allen. Good afternoon everyone and welcome to the Diamond Hill first quarter portfolio manager conference call. We certainly thank you for all for joining us this afternoon. Like Allen mentioned, my name is Julie McConnell and I will be moderating the call today. To start our call this afternoon, Igor Golalic who was one of our research analysts will discuss the current environment in the healthcare industry and also discuss the relative attractiveness of this sector. Igor’s comments will be followed by our portfolio manager reviews of all of our strategies. Each portfolio manager will go into detail about his respective strategy. But I will just mention that we are very pleased to report what was a very strong quarter in that all of our funds exceeded their benchmarks. And in addition, Diamond Hill crossed $10 billion in assets under management for the first time in January. So we really appreciate all of your support in helping our firm reach this important milestone. After our portfolio managers review their strategies we will open the call for a question and answer session. At that time the operator will provide instructions if you’d like to ask a question over the phone or you can also type your question on the screen any time during the call and all of our portfolio managers as well as Igor will be available to answer any questions you may have. As always, there are few important compliance statements to go over before we begin. The opinions expressed by portfolio managers are their own and are subject to change at any time as circumstances change. Any discussion of specific portfolio holdings will be as of March 31, 2013. Portfolio holdings are subject to change without notice and finally, a complete list of portfolio holdings as of March 31 is available on our website. The next two slides provide additional important disclosures and we would just ask that you review these at your convenience. So with that, I will go ahead and turn the call over to Igor who again is going to provide his thoughts on the healthcare industry.

Thank you, Julie very much. My name is Igor Golalic. I am a member of the healthcare team at Diamond Hill. I am going to try to, in the next five to six minutes, give you an overview of the sector and sort of tell you how we got to the point where we are today and sort of where the sector is heading going forward. And I will try to wrap it up with our positioning and discuss how we (inaudible) portfolio at the moment. Healthcare reform was announced a couple years ago but officially signed into law (inaudible) summer of last year when the US Supreme Court gave it a green light. It was sort of a perfect storm of sort that forced the sector into the growth areas of public policy initiatives and debates over the last couple of years. If you look at the slide seven you will see that we witnessed steep annual price increases for healthcare premiums over the last decade or so. It’s come down partially for cyclical reasons but generally they have been higher in other consumer and producer pricing as you’ve seen. We’ve also seen a growing share of deductibles and finally increasing share of public spending that's gone on to healthcare almost every dollar in the economy. At this point it’s going to healthcare. This has sort of forced the debate around the sector in terms of what should be done to try to give it a more sustainability long term. If you move further – on the slide eight and sort of look at the aggregate level of spending in the sector and compare that to sort of what is being spent on healthcare elsewhere in the world. Certainly U.S. spent the most and the performance of the reform…

Great, thanks Igor. So we will now turn to our strategy update and to get us started, Tom Schindler will provide an update on the small cap strategy.

Thank you, Julie. The Diamond Hill Small Cap Fund Class I returned 16.5% during the quarter compared to 12.4% for the Russell 2000, a difference of about 415 basis points. The trailing one-year return of 20.36% is about a positive 400 basis point spread versus the Russell 2000. The three year annualized return of 12.1% trailed the Russell 2000 by 135 basis points annualized. Five-year return annualized of 8.2% is about in line with the Russell 2000 Index and the 10-year annualized return of 13.8% is about 230 basis points ahead of Russell 2000 Index. Looking at the five-year risk statistics, it’s very similar to past quarters. Looking at portfolio statistics, there are two things that stand out. The first, the portfolio turnover rate did tick up this quarter to a more normalized 26% on a trailing 12 month basis. Last quarter this was reported as 13% and the percent of net assets and cash was up to 15% at quarter end, up from 10% at year-end. Looking at the sector allocations, the major sectors that were down in the quarter from previous quarter end were financials where significant reductions in Assured Guaranty and (inaudible), industrials where there were significant reductions in the positions, (inaudible) and consumer staples where there were reductions in the Energizer, (inaudible). Most of those have gone into raising the sector allocation with cash. Looking at top 10 holdings, there has been some shuffling as a result of relative performance as well as some additions and deletions. Following out of the top 10 holdings were Kennametal, Berry and Old Republic all due to reductions in the position sizes. Joining the list were (inaudible) and Simrex (ph) which were next in line. In addition, we substantially reduced some of the top 10 holdings particularly Assured Guaranty, Energizer…

Great, thanks Tom. And next we will hear from Chris Welch to comment on the small-mid cap strategy.

Thanks Julie. The small mid-cap strategy was up 16.5% in the first quarter and that exceeded the 12.85% return of the benchmark Russell 2500 Index. Over a longer period of time the strategy is roughly in line slightly behind the benchmark for three-year performance over five years and since inception which is now7.25 years, the strategy is ahead of the benchmark. Looking at the next slide, foreclosure statistics, on the lower left there, the turnover rate of 32% that is fairly consistent with what the turnover has been for the past two or three years after having a very elevated levels of turnover during the financial crisis. It’s been towards that lower end of the 30% to 50% turnover range outside of this sort of expectation over time. In terms of sector allocation, there have been some changes over the past quarter and year. I will highlight a few of those. Financials is up a little over two percentage points from the end of the year and up about 3.5 percentage points from a year ago. And consumer discretionary is up about the same amount about two percentage points from last quarter and 3.5 percentage points from last year. On the negative side, industrials was reduced between two and three percentage points both on a quarter over quarter and year-over-year basis, and energy is down 160 basis points from 11% at the end of the year and over four percentage points from the end the first quarter 2012. So the energy weighed at about 9.5% of the portfolio, it’s the lowest weight that we’ve had in energy since the inception of this mid strategy. And cash level of 8.7% is modestly up from the end of the year and slightly down from what it was a year ago. Looking at…

Great, thanks Chris. Next we will turn the call to Chuck Bath for an update on the large cap strategy.

Yes, thanks Julie. For the first quarter the large-cap bond was up – just a little over 11.5% compared to 11% for the Russell 1000 Index and for the one year period as well through the months that exceeded the benchmark. About 3 and 5 years its trail significantly exceeded 10-year benchmark and since inception which (inaudible) well ahead of its benchmark. In terms of the portfolio there has been a reasonable amount of change recently, so I thought I’d review it. The financial services sector has increased in weight in the portfolio. We’ve found several names in the last two quarters, it seems we have meaningful discounts to its intrinsic value in part due to what I feel is a residual discount these shares sell out due to the negative goodwill developed out of the financial services crisis of the 2008-09. But for the most part those issues are behind us. The balance sheets have been rebuilt. Fundamental conditions have improved and I think there is reason or hope to see that fundamental improvement -- fundamentals will get better still. So there has been some new names in the portfolio and I will get to that but the sector is now about the 25% of the portfolio and several are the top 10 holdings are financial services names. Another large area is consumer stable, it’s probably the most meaningfully overweight in the portfolio and it’s been that way for a while. I guess one other area that Chris mentioned in his mid-fund, energy while it is probably underweight is in fact underweight in the portfolio and I can't remember the last time this portfolio has been underweight energy probably going back to 2003. So that represents sort of changes in fundamentals there as well as some names like HollyFrontier…

Great. Thanks Chuck. And next we have Bill Dierker and Austin Hawley who are co-portfolio managers for our select strategy.

Thank you, Julie. As you can see on page 33 that the select fund had a good first quarter outperforming the benchmark by 14.67% versus 11.07%. That also carried over to improve the one-year number. The five-year number we've made progress on that. We reduced the gap between the fund and the benchmark by 19 basis points in the first quarter. And on the next slide the only thing I would draw to your attention is the turnover rate which is 60% which is much larger than I'm usually coming in. But I think most of that the turnover was basically selling stocks that are approaching intrinsic – we’re selling stocks that were approaching their idea or selling positions for better ideas. We had three buys and 13 buys and 13 sales in the last fourth quarter and I think that is the driver of that the turnover rate. With that, I am going to turn the rest of the presentation over to one of my co-managers Austin Hawley for the rest of the presentation.

As Bill mentioned, we had higher than normal activity in the select fund during the quarter. Several of our holdings approached our estimate of intrinsic value and we were also able to identify handful of attractive new ideas across a variety of sectors and market caps. Looking at the top 10 holdings for the fund and there were three new names during the quarter. Medtronic which was in addition to an existing position in the fund, IBM which moved into the top 10 as a result of relative price-performance and Morgan Stanley which is a new position for the fund. These three names reflect financial holdings, Assured Guaranty, Charles Schwab, and Wells Fargo. Assured Guaranty and Schwab were trimmed as their prices appreciated during the quarter. Wells Fargo was eliminated from the fund to help fund new positions and Popular and Morgan Stanley and also to increase our weight in iStar Financial. Morgan Stanley as you see is needed a top 10 holding in the fund. We purchased Morgan Stanley below tangible book value of valuation that we do not think adequately reflects the improved capital level of the firm and also an evolving business mix that we increasingly weighted towards more profitable wealth management and advisory segments. Looking at other new additions to the fund during the quarter, we added a position in Popular which is the largest bank in Puerto Rico. Popular has approximate 40% of deposits on the island. Over the past couple of years Popular has had elevated credit costs stemming from the financial crisis and also weak Puerto Rican economy. Recently those costs have started to decline and the company has very strong capital levels. We think Popular is extremely cheap when thinking about normalized level of credit cost and normalized earnings. As Chuck mentioned,…

Thank you, Bill and Austin. And next Ric Dillon, co-portfolio manager for our long-short strategy will provide an update on recent proposal.

Thank you, Julie. As you’ve heard from the previous portfolio managers, similar to other strategies the long-short strategy had a good quarter. Being in a long short strategy we wouldn’t expect to keep up with a long only benchmark like the Russell 1000 in total for such a short period of time. However our goal over a long period of time is provide that long only benchmark with a lot less risk. All of the positive results are explained by the long portfolio naturally. And if you turn to slide 39 you'll see our net exposure at the end of the quarter was 62%. That exposure was the highest 75, 74% I think on September 30, 2011. And so fortunately we were at our sort of high-end of our range and as the market has appreciated the last 18 months, we have sort of sold into the strength and we’re now down to 62% closer to the middle of our 40% to 75% typical range. The financials are our largest exposure like our other strategies as probably in later Chris Bingaman will talk in detail about financials but as you heard already this is the area that we think is most attractive in the US markets. Turning to slide 49 you'll see four of our top-five holdings are financials surprisingly. Now on the short side, we continue to be cautious on the US consumer, and you see three of our top-five short positions are consumer discretionary companies. New positions added, you’ve heard Morgan Stanley and Popular mention, both financial names Chris Bingaman, he brought into the portfolio. On the short side we added several new names in the portfolio, and on the eliminated side, we eliminated – on the short position MBIA it's a beneficiary of some of the same…

Thanks Ric. And next we will hear from Chris Bingaman with an update on our financial long short strategy.

Thanks Julie. Just going to spend a minute or two on this – the financial fund at a good, not surprisingly as you’ve heard good quarter, Class I shares were up about 14.5% versus I guess 11.75% for the S&P 1500. Cap weighted indices, again similar to be the diversified long short fund net exposure down during the quarter, I guess not surprisingly as a lot of these stocks performed very, very well especially since the fall of 2011 market low in late September, early October. Also I think we paced in the mid-80s in terms of our net exposure then and we are now down into the -- below 75 now. So long exposure down, short exposure up and net was down I think 7.5% quarter to quarter to 74. Most of the reduction is coming out of the insurance and banking industries within the sector. On page 45 top holdings, little bit of turnover, Assured Guaranty has been mentioned numerous times and Wells Fargo, those positions is as the discounts narrowed fairly substantially and Istar and Popular appreciated nicely very substantially really during the quarter and relative performance pushed them into the top five. On the short side, principal financial, a name that we have been in and out in the past since we have established is a 1% position. Other new positions I think have generally been mentioned in eliminations as well. Most of those performing reasonably well and getting close to our estimate of intrinsic value and very small positions generally speaking at elimination. Same thing, best performers, if I go through all these, it’s going to be largely redundant I think what we have already heard. So I will leave it there and turn it back to July and I am glade to answer questions later.

Thanks Chris. And next we will hear from Rick Snowdon with an update on our research opportunity strategy.

Thanks Julie. In the first quarter of the class our shares of the research opportunity fund returned 12.96% versus 11.07% for Russell 3000. Since inception four years ago, research opportunities have generated strong absolute returns with an average net exposure of 69%. But during this strong period for equities the fund has modestly trail along on the benchmark. Over four market cycle however we expect to have value relevant to our path of long only benchmark. Now turning to the next page, number of long names into the portfolio decreased 62 from 65 a quarter ago. Number of short names increased to 20 from 12. Consequently our net exposure declined to 67% from 78%. In terms of sector allocation, the financial sector continues to represent our largest long exposure, consumer discretionary represents our largest short exposure. No significant change, sector weights in the quarter was within the industrial sector, declining on the long side for roughly 400 basis points from 14.5% to 10.5% due to the elimination of the airline holdings. Turning to next page, our top 10 holdings are fairly consistent in the last quarter and with change being Assured Guaranty was replaced by IStar Financial, this was caused by turning the Assured position based upon it having appreciated towards estimate of intrinsic value. During the quarter we had 8 new names, AIG, Dollar General, discount retailer, United Health, the health insurer which has been owned elsewhere (inaudible) and five of the names have already been mentioned, the new ones were Aaron’s, Orthofix, First American, Principal Financial and Warner Chilcott. In terms of eliminations during the quarter we eliminated 8 names, Alaska Air, Leisure Travel, Hi-Tech HiTech Pharma, HollyFrontier, Imax, Medtronic, Redwood Trust and Excel Group. The hope of Medtronic remains appreciated considerably toward our estimate of intrinsic value. Medtronic was eliminated to freed up capital for other opportunities in the healthcare team. Turning to next page, focus on one top performer and one poor performer, I think the long top performers have already each been addressed, so I will talk about Occupy which is one of my -- short holding stock sold off after earnings and after analyst day, meeting its (inaudible) largely to some kind of pressure due to increased operating expenses for (inaudible). In terms of the bottom performer I mention financial services, assist corporations and government entities in the disposal and monetization of surplus scrap inventory. The company reported in line earnings but 13 times was below expectations, as well as below previously issued guidance. Despite this near term softness the analysts companies name, at least the company is strong with opportunities and the stock is undervalued relative to its intrinsic value. With that, I will hand back over to you.

Great, thanks Rick. To wrap our strategy update this afternoon we will hear from Bill Zox for an update on our strategic income strategies.

Thanks Julie. For the quarter the fund was up 1.57% that compares to a positive 0.6% total return for our primary benchmark which is the Merrill Lynch US corporate and high-yield index and negative 0.14% for the secondary benchmark which is the broad Merrill Lynch US corporate government mortgage index. For the trailing five year period the fund generated total return of 8.74% per year compared to 8.43% for our primary benchmark and 5.48% for our secondary benchmark. I’ve added a new slide to this quarter. The fund was moved from the MorningStar multisector bond category to the MorningStar high-yield bond category in January. As most of you know, we do not manage the fund against the high-yield index or any other index. In fact, 30% of the fund is in investment grade corporate bonds as of the end of the quarter and our duration is about that of the high-yield index. Instead we manage the fund against our primary objective of generating a cash distribution and total return of inflation plus 3% over rolling five-year periods while minimizing the risk of a negative real return. Therefore to compare the performance of the fund to other fixed income funds it is important to risk-adjust the returns. As unleveraged investors with the five-year time horizon we are not focused on shorter term volatility, but standard deviation and short ratio are the most common quantitative measures of risk and risk-adjusted returns. At a minimum this data shows that the risk profile of the fund is much lower than that of the high-yield category and our returns relative to our volatility at a much higher than the category average. Turning to the next page. I'll just highlight that the duration of the fund is 2.14 based on spreads which are now below average…

Thanks Bill. That concludes our prepared remarks. Allen, we are now ready to begin the question and answer segment of the call.

(Operator Instructions)

We do have one question that we received prior to the call that we will get started with, it’d be probably best answered by Chris Bingaman. Your exposure to the financial sector has increased across most of your strategies. Are you concerned about a rise in interest rate and what will be the impact on your financial holdings if rates increase?

Thanks Julie. Yeah, I think in general the interest rate environment right now is really tough for most of the sector, if you look at spread based lenders, the life insurance companies and even to some degree the insurance companies in terms of reinvestment rates and their bond portfolios, the current rate environment is basically a drag and pretty tough. So general increase in the overall level of rates especially – it was also a modest steepening of the yield curve I think would be really helpful for the sector. Of course, what's driving the increase might also be an important part of the equation, obviously the scenario where the economy continues to come back together and growth exceeds on the upside a bit and it looks like maybe the Fed needs to increase your rate to some degree, I think that would be the ideal scenario, and in an event as the Fed increasing I think the yield curve would steepen nicely so. That would be the ideal scenario but I think in general an increase in rates would actually be really helpful for the sector.

We have no questions at this time. (Operator Instructions)

We do have an additional question that we received for Rick Dillon. Rick, I notice that all of your new short positions in the long short fund this quarter were 30 basis points. Is that a typical position size for a new short position and how do you decide the position weeks?

Yes, we do initiate positions typically with smaller weights, 30 basis points of course that’s rounded to the nearest decimal point. But that would be a typical size for a new position and as we get confident in the position we will quickly build it p from there. But liquidity reasons are probably the chief among the reasons why we start with relatively small weights. Our median weight on the portfolio is probably a little less than 100 basis points. And of course our largest weight is up to 200 basis points. So we have had a position even smaller than 30, where borrowing shares has been a challenge. But you can expect going forward initiating positions similar to that 30 basis points rate.

Chris, what specific metric is for Apple cheap?

Thanks for the question. There's a couple of points to the thesis for Apple is the lock-in provided by their iTunes and app environment and then specifically to the question of metric, we aren’t really looking at the free cash flow that the company can generate. So given the high intention of people who currently have iPhone, iPhones are 70% of the value of the company and people who currently have iPhone have indicated that by and large they tend to continue getting iPhones for their next phone and with the telecom carriers subsidy model people tend to get new phones every couple of years. We think that the company can generate roughly $40 billion in free cash flow annually and the time we purchase this their market cap was a little bit about $400 billion with over $100 billion cash on the balance sheet. So around $300 billion enterprise value, now some of that cash on the balance sheet is overseas but even adjusting for that slightly over $300 billion enterprise value generated $40 million in free cash flow. If they can continue to generate anywhere near that $40 billion in free cash flow that makes for a very inexpensive stock going forward and even given some of the recent news that we've seen about potential slowdown the demand for iPad and type of news, things like that, we still feel comfortable that, that $40 billion in free cash flow is a number we think that they can hit.

We have a question for Chuck. Chuck, in large cap strategy, has increased turnover (inaudible) higher transaction model and if so, has there been a material impact on performance?

Thanks Julie. Portfolio, the turnover has increased but we are talking maybe a 26% portfolio turnover which is in the trailing 12 months versus 20% they have been more of the norm. So I don’t really think that that’s major an increase and I think our portable turnover is low compared to other mutual funds out there. Having said that, there is zero cost on transaction costs. So we’ve worked hard to minimize those, certainly the commission costs are very minimal in terms of trade we execute and our traders work hard also to minimize any market impact we were to have in any trade and we try to keep that as minimal as possible too. But all those costs would flow through the former chambers, and we just had in the first quarter the fund did comparably outperformed its benchmark. So I don’t think an increase from a very low rate of 20% to a low rate of 26% would have that meaningful of an impact in transaction costs in the portfolio. And as part of our discipline, we are at – we have to basically sell to redress this intrinsic value. So our discipline sort of requires us that action, I think in the long-term I think the minimal transaction costs are an important aspect to make sure we continue the positive discipline to maximum the returns of the portfolio.

It doesn’t look like we have any additional questions. Allen, have you received any questions in the queue?

We have no questions at this time.

So we are coming up on the full hour. So we will go ahead and wrap up the call. For those of you how missed parts of the call or would like to listen to it again we will post a replay on our website in a few days. Once again thanks for joining us this afternoon and for your continued support of Diamond Hill and we look forward to speaking with you again next quarter.

Thank you ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.