http://www.sec.gov/Archives/edgar/data/1032423/000119312516525838/d137367d497.htm
497 1 d137367d497.htm 497 - SUPPLEMENT DATED MARCH 31, 2016 TO PROSPECTUS DATED FEBRUARY 28, 2016
DIAMOND HILL FUNDS
Diamond Hill Small Cap Fund
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Diamond Hill Mid Cap Fund
Diamond Hill Large Cap Fund
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Supplement Dated March 31, 2016 to Prospectus Dated February 28, 2016
Effective April 30, 2016 at 4:00 pm Eastern Time, the Diamond Hill Small-Mid Cap Fund (the “Fund”) will close to most new investors.
The Fund will remain open to additional investments under the following circumstances:
•Existing shareholders of the Fund may add to their accounts, including through reinvestment of distributions.
•Qualified defined contribution retirement plans, such as a 401(k), 403(b) or 457 plans, utilizing the Fund as an investment option on April 30, 2016 may continue to establish new participant accounts in the Fund for those Plans.
•Financial Advisors who have clients invested in the Fund as of April 30, 2016 may establish new positions in the Fund for new clients where operationally feasible.
•Investors may purchase the Fund through certain intermediary sponsored fee-based model programs, provided that the sponsor has received permission from Diamond Hill Funds that shares of the Fund may continue to be offered through the program. Approved or recommended lists are not considered model portfolios.
• Trustees, Directors, and employees of Diamond Hill Funds or Diamond Hill Investment Group, Inc. and their immediate family members may open new accounts and purchase shares of the Fund.
In general, the Fund will look to the financial intermediary to prevent a new account from being opened within an omnibus account at that intermediary. The Fund’s ability to monitor new accounts that are opened through omnibus accounts or other nominee accounts is limited and the ability to limit a new account to those that meet the above criteria with respect to financial intermediaries may vary depending upon the capabilities and cooperation of those intermediaries.
The Fund reserves the right to make additional exceptions or otherwise modify the foregoing closure policy at any time. The Fund also reserves the right to reject any purchase or refuse any exception, including those detailed above for any reason.
This Supplement and the Statutory Prospectus dated February 28, 2016, provide the information a prospective investor ought to know before investing and should be retained for future reference.

Who knows, the Baby Boomers drove stocks in the 80s and 90s as they were in the accumulation phase. Maybe they will drive bond funds of all sorts and varieties as they are in the retirement income stage.

Very interesting comment Junkster. Most financial pundits see bonds stagnant or losing money over the next 10 years. But your pondering statement makes sense.

Thanks TSP-Transfer One of PIMCO's TIPs funds is up almost 7% YTD. I have never held so many bond funds preferring to be 100% in either junk munis or junk corporates - whichever is working best. But now holding bond funds in emerging markets, junk corp, junk muni, and bank loan. Might have to look harder at a TIPS fund. Who knows, the Baby Boomers drove stocks in the 80s and 90s as they were in the accumulation phase. Maybe they will drive bond funds of all sorts and varieties as they are in the retirement income stage.

http://www.sec.gov/Archives/edgar/data/357298/000089843216002113/a485apos.htm
"N" class for existing investors.
Excerpt from filing:
Who Can Buy Class N Shares
Class N shares are offered without any sales charge to the following types of investors (see “Opening an Account”):
•Clients of financial intermediaries who: (i) charge such clients a fee for advisory, investment, consulting or similar services; or (ii) have entered into an agreement to offer Class N shares through a no-load program or investment platform.
•Investors who invest directly in a Portfolio.
•Shareholders who owned shares of any Portfolio prior to May 31, 2016 may continue to purchase Class N shares of any Portfolio.
•Retirement and other benefit plans.
•Endowment funds and foundations.
•Any state, county or city, or its instrumentality, department, authority or agency.
•Accounts registered to insurance companies, trust companies and bank trust departments.
•Any entity that is considered a corporation for tax purposes.
•Investment companies.
•Trustees, officers and other individuals who are affiliated with the Trust or the Investment Adviser.

@bee: I think such a federal retirement system for all who toil in the public sector would only be possible in a highly-centralized economy. I'm thinking of European countries in which the state is the employer of train drivers, school teachers, and functionaries. In France, for example, the public sector accounts for about 25% of the economy. Over here, we can't even get agreement on a national identity card let alone a single-payer health system. FWIIW, I'm a retiree from a public university with my retirement plans in TIAA-CREF.

http://www.sec.gov/Archives/edgar/data/791107/000093247116013031/ps82042013.htm
497 1 ps82042013.htm PARTIAL CLOSED SUPPLEMENT
Vanguard Convertible Securities Fund
Supplement to the Prospectus and the Summary Prospectus
Important Change to Vanguard Convertible Securities Fund
Vanguard Convertible Securities Fund is now open to new accounts for institutional clients who invest directly with Vanguard.
The Fund will remain closed to prospective financial advisory and intermediary clients (other than clients who invest through a Vanguard brokerage account) until further notice, and there is no specific time frame for when the Fund will reopen for new account registrations by these clients.
During the Fund’s closed period, current shareholders may continue to purchase, exchange, or redeem shares of the Fund online, by telephone, or by mail. Participants in certain qualified retirement plans may continue to invest in accordance with the terms of their plans.
The Fund may modify these transaction policies at any time and without prior notice to shareholders. You may call Vanguard for more detailed information about the Fund’s transaction policies. Participants in employer-sponsored plans may call Vanguard Participant Services at 800-523-1188. Investors in nonretirement accounts and IRAs may call Vanguard’s Investor Information Department at 800-662-7447. Institutional investors may call Vanguard’s Institutional Division at 888-809-8102 or may call their relationship managers directly.
© 2013 The Vanguard Group, Inc. All rights reserved.
Vanguard Marketing Corporation, Distributor. PS 82 042013

A somewhat separate comment:
I have often wonder why state, city workers and non-profit workers aren't offered the government's simple but successful Thrift Savings Plan (TSP) as their sole option, much like Federal workers. Instead, TIAA-CREF and more vulturous investment choices are the norm.
In retirement these "government" and "non-profit" retirees will have their pension and Social Security income offset by government regulations WEP and GPO (ssa.gov/planners/retire/wep). So, as a saver, why are they not eligible for these government investment choices during their working career?
If Federal law is gonna decide what I am eligible to keep in retirement shouldn't I have access to the Federal investment options while working?

Hi, msf.
I've been sort of grouchy with TIAA(-CREF) for a decade. I had a spat with their head P.R. guy about their justification for steadily rising e.r.'s and was not pleased when when of their board members explained some of their maneuvering as "an attempt to find alternate sources of profits" (a curious stand for a non-profit to take, I thought).
When I helped redesign Augustana's retirement plan, I discovered the multiple R-class issue. Each R-class was linked to a specific level of assets in the retirement plan; at base, the more money you gave TIAA(-CREF), the lower your e.r.'s. TIAA famously offers more hand-holding than most providers, so I could easily imagine significant expenses beyond the investment-management part but I don't know enough about their expense structure to say whether there's a neat correspondence between the breakpoints between the various share classes and the actual cost of operation.
Sorry that I couldn't be more definitive,
David

BenWP,
I use it only to check against other LC funds, do not own and did not know about its issues.
I also guess I did not adhere strictly to usual definitions of growth.
I am a large and longtime DSENX owner myself. I try without success to figure out why one set of these named holdings does differently from others, when it does. I should've included FLCEX also.
I look not just for growth but also decline damping. Over 2.5y (and shorter too) it is interesting to me that only NOBL and CAPE do as well as or better than DSENX, although OUSA sure looks like a winner thus far.
In retirement my long historical interest in the broadest diversifications (SC, EM) has become waaay diminished, and in REIT and foreign somewhat reduced as well.

Hi Guys,
The writer makes a case for portfolio diversification during retirement. I don’t object to that conclusion, but I do think that the method used to justify that conclusion was heavy-handed and a little deceitful. He also did not report on the tradeoff that exists with portfolio survival probability and likely median end wealth. These are easily estimated using Monte Carlo codes.
In arriving at his conclusion, the author honestly admits that he selected an especially poor time period for the equity marketplace (like since 2000). That’s an especially weak approach if general conclusions are the goal of the study. His conclusions would be far more convincing if he had done multiple simulations using data from several timeframes. Again, this is easily accomplished using a Monte Carlo tool like from the PortfolioVisualizer website.
I did precisely that. I ran a half dozen reasonable simulations in about 6 minutes.
To get a respectable number of portfolio failures, I assumed a slightly high initial 4.5% drawdown rate, both adjusted for inflation and not so. I made runs using the entire available market data sets and similar runs using only the data starting from the year 2000.
Not unexpectedly, more portfolio failures were predicted for a 100% US Equity portfolio over a 60/40 US Equity/Total Bond portfolio for the more recent 2000 starting point. In a sense, the chosen data timeframe preordained the outcome.
Using the full market data sets, portfolio survival estimates were 80% for the all Equity portfolio and 87% for the 60/40 Mixed portfolio. Using market returns data starting in 2000, portfolio survival rates dropped to 50% and 67% for the all Equity and the Mixed portfolios, respectively.
What the author failed to report is that the end wealth for the surviving all Equities portfolio was always much higher than that for the Mixed portfolio. The differences were substantial. Therein rests the usual tradeoff: More risk; higher rewards.
I did a perturbation case that demonstrated portfolio survival odds would increase substantially if inflation drawdown increases were not needed,
The referenced piece would have been far more complete and more compelling if a simple analysis of the type I just described had been performed. The work required approaches zero. I’m astonished that many folks, including professionals, do not take advantage of this powerful tool when doing investment studies or making investment decisions.
As the writer said: “Sizable bond allocation cushions market volatility”. But there is a price for that cushion.
Best Wishes.

FYI: Stocks have outperformed other investments over almost all 30-year rolling periods. If you’ve got the time and the stomach, nothing else belongs in your portfolio.
Regards,
Ted
http://www.marketwatch.com/story/why-a-100-stock-portfolio-can-ruin-your-retirement-2016-03-22/print

municipalbonds.com
Can You Be Too Safe With Muni Bonds?
Most investors are aware that they can risk too much, but few realize that playing it too safe also has its own set of risks. By taking on less risk, an investor may compromise their ability to achieve their target performance goal, such as a retirement goal, for their portfolio.
Municipal bonds are widely regarded as a safe-haven asset class since government backing provides better credit ratings than most corporate bonds. Exemptions from federal, state, and local income taxes further create a higher after-tax yield than comparable private-sector bonds. These attributes have helped muni bonds perform extremely well over the past couple of years as investors sought out safe-haven asset classes amid the drop in equity prices.
Muni Bonds vs. S&P 500 Figure 1 – Muni Bond v. S&P 500 Returns in 2015 – Source: StockCharts.com
Below, MunicipalBonds.com takes a look at a few common ways investors may be playing it too safe with muni bonds and some key changes they may want to consider.
Overallocating Muni Bonds
The first mistake that investors often make is overallocating their portfolio to municipal bonds during troubled times in order to reduce their risk.
A number of research studies have shown that investors sacrifice between 1.2% and 4.3% of their returns due to attempts at market timing – also known as the behavior gap. According to Betterment’s analysis, investors trying to time the market over 20 years risk losing out on $117,700 in aggregate value for every $100,000 invested over the time period. This calculation was made using one of the more conservative estimates of 1.56%.
Betterment Estimated Growth Figure 2 – Estimated Cost of Timing the Market – Source: Betterment
Investors may be tempted to overallocate their portfolio to muni bonds during an economic downturn, but doing so could cost them money over the long run. Often times, it’s a much better idea to keep a steady allocation that is set up to meet a target goal over time rather than trying to time the market and avoid losses. Research suggests that few people are able to do the latter successfully over the long term.
Short-Duration Mistakes
The second mistake that investors often make is focusing on short-duration municipal bonds during troubled times in order to reduce their risk.
Duration is an important measure of risk when it comes to all types of bonds, including muni bonds. It’s a measures of how long, in years, it takes for the price of a bond to be repaid by internal cash flows. Bonds with longer durations carry greater risk and experience more price volatility than bonds with shorter durations. After all, longer durations mean that bondholders are tied to the bond’s interest rate over a longer period of time.
Interest Rate Effect on Bonds Figure 3 – Impact of Interest Rate Changes Based on Duration – Source: Blackrock
The problem with moving into short-duration as a safer investment than longer-duration muni bonds is that there’s an increased reinvestment risk. In other words, an investor may not be able to reinvest the proceeds of a short-term bond into a comparable bond when it matures. Longer-duration muni bonds have lower reinvestment risk because there’s a longer period of time before the bond matures and the interest rate differential may be minimal.
The Bottom Line
Most investors are aware that their portfolio can be too risky, but playing it safe has its own costs. Often times, investors purchase short-duration municipal bonds as a safe-haven asset. Market timing has a long-term cost known as the behavior gap, while short-duration bonds may pose a reinvestment risk. Investors should carefully consider these risks when evaluating muni bonds – especially during an economic downturn.

Yes David. I sometimes wonder how much better off I'd be had I just given all of my retirement savings to Mr. Danoff and Mr. Tillinghast and stepped away. Too painful to consider.

@Junkster

But I also have that covered as my long time lady friend is my neighbor.

So your not against the idea borrowing (a cup a sugar) in retirement. ;)
I have often wondered how spending habits change in retirement. Interesting how RMD will be your largest expense.
M* has a discussion on what to do with RMD:
morningstar.com/cover/videocenter.aspx?id=671306
One reader comment (end of article) I found educational:
"Unlike Roth IRAs, Roth 401k accounts DO have RMDs. They aren't taxed, of course, but you must deal with those distributions."

I have been a bit obsessed recently with retirement - which means less trading. I have given deferred annuities a close look including the newer QLAC's. As much as I try though, I just can't get into them. For the most part you just get your principal paid back to you until the age at which the longevity tables say you are suppose to expire. They only seem to be of benefit to the insurance companies and those who live to a ripe old age.
When and if rates ever rise, I can see me putting as much as 25% of my nest egg in 5 year CDs to offset part of my living expenses (after allowing of course for any income from SS, CDs, etc.) My biggest expense in retirement will be the taxes paid on my RMD.
As for withdrawal rates. I look at my nest egg and then my estimated annual spending in retirement (and err on the very high side) It's not like I have some huge oversized nest egg. But I don't need Monte Carlo analysis to tell me that even if I were 100% in cash forever, that I better start spending more money now and enjoying life lest I die with too much of a nest egg.
In retirement it helps to be single, live in a very low cost living area of the country, be a frugalist, and be 100% debt free. I have those bases covered. Then again, it isn't fun to be alone in old age. But I also have that covered as my long time lady friend is my neighbor.

Debt is a drag on one's available resources.
If a newly minted retiree has had the discipline to pay off debt prior to retirement more power to them, but using your retirement nest egg to eliminate debt at the start of retirement seems counter intuitive to why these dollars where saved in the first place. If eliminating debt is a priority, keep working, stop saving for retirement and eliminate debt with working income, not your retirement nest egg.
A very wise retiree once told me that prior to retirement try to live on your retirement income...save the extra or use it to pay down debt. One quickly realizes if they are ready to consider living on retirement income. If not, no harm...no foul...keep working.
Also, I'm a big advocate of maintaining a monthly financial spreadsheet. Track everything and you will soon develop a picture that can be very helpful in decision making.

FYI:
Regards,
Ted
March 17, 2016
Dear WEALTHTRACK Subscriber,
“Caution is appropriate.” So said Federal Reserve Chairwoman Janet Yellen in a press conference Wednesday after the Fed decided to halve the number of rate hikes planned this year, from four to two. With the Fed Funds’ target remaining between 0.25% and 0.50% another two increases would leave the benchmark rate below 1% by year-end.
There were other significant developments this week. Donald Trump won four of the five Super Tuesday Republican primary races, including Senator Marco Rubio’s home state of Florida, causing Rubio to drop out. Despite a loss in Ohio’s primary to its Governor John Kasich, Trump has a comfortable delegate lead over his major challenger, Senator Ted Cruz. On the Democratic side, Hillary Clinton pulled well ahead of Senator Bernie Sanders.
Also this week, U.S. crude-oil futures closed above $40 a barrel, the highest since December of last year and the Dow Industrials turned positive for the year in Thursday’s trading, after being down more than 10% in early February.
New this week on our website, we’ll have a link to a report on how much workplace diversity affects the bottom line. It will be available to PREMIUM members tonight and to everyone else over the weekend. According to research published by McKinsey & Company, companies in the top quartile of racial and ethnic diversity are 35 percent more likely to have financial returns above their respective national industry medians. And companies in the top quartile for gender diversity are 15 percent more likely. Food for thought for management and investors!
I have always been a big believer in meritocracy. I like to think that in America, people of equal skills, talent and education will be judged on their merits, not by who they are or where they come from, which is why I couldn’t figure out why more women were not advancing in the financial services industry. Women are certainly well represented on air, online and in print in financial journalism. But why are there still so few women in executive and management roles on Wall Street?
Last week I got some surprising answers while emceeing a fascinating and enlightening conference on increasing gender diversity in the financial services industry. “Beyond Talk: Taking Action to Achieve Gender Balance in the Financial World” was co-sponsored by The California State Teachers’ Retirement System, known as CalSTRS and State Street Global Advisors.
Leaders at both organizations have gone “beyond talk” and initiated practices to recruit, promote and mentor women in the industry. They are putting substantial resources into the effort.
SSGA just launched the SSGA Gender Diversity Index ETF, symbol SHE, comprised of more than 140 U.S. companies which have greater numbers of women in leadership positions than other companies in their sectors. CalSTRS invested $250 million in SHE at its launch.
On the television show this week, are you better off with a robot? That is the topic we are revisiting during this final weekend of winter fund-raising on public television. We are interviewing an under the radar value investor who created a robot portfolio to test the theory that statistically cheap stocks will outperform the market over time – and lo and behold they have.
As a long-time financial journalist I have seen investment theories and strategies come and go. Wall Street firms have devoted billions in their quest to find proprietary magic formulas for outperformance.
Michael Lewis’ best-selling book, now a movie, “The Big Short” did a masterful job of describing various mathematical and computer science algorithms that contributed to the financial crisis. They were so complex and arcane that even their creators and certainly their customers had little idea of what was in them and how they would really work in the real world.
This week’s guest has a much simpler approach, which much to his surprise when he first tried it 17 years ago does work, but it comes with a large caveat: it is not appropriate in the vast majority of portfolios. He only applies some of it himself.
He is John Dorfman, Chairman of Dorfman Value Investments, an investment management firm he founded in 1999 that manages money in separate accounts for high net worth individuals, family offices and a few institutions.
He is a deep value investor who runs concentrated stock portfolios that have outperformed the S&P 500 by a wide margin over the years. Dorfman is also a journalist. I knew him at The Wall Street Journal and even though he switched to money management full time in 1997 he still writes financial columns.
One of his most popular, which has been his first column of the year for the last 17 years, is devoted to his 10 stock robot portfolio.
Dorfman starts with all U.S. stocks with a market value of $500 million or more. Then he eliminates those with debt greater than equity. He then picks the ten stocks selling for the lowest price earnings multiples of the past year’s earnings.
The result is the “Robot Portfolio” has had a compound average annual return, with dividends included, of nearly 16%, compared to just over 4% for the S&P 500.
Given the spectacular performance of his robot portfolio why doesn’t Dorfman just use that method for all of his accounts? He will tell us.
If WEALTHTRACK isn’t showing on your local station this week due to local station fund-raising campaigns, you can always watch it on our website. You will also find a link to Dorfman’s 2016’s Robot Portfolio there.
Thank you for watching. Have a great weekend and make the week ahead a profitable and productive one.
Best Regards,
Consuelo
John Dorfman Website:
http://dorfmanvalue.com/

Many retirees choose to take the lump sum option with the thought in mind to pay off all debt because they say it is impossible to do with the annuity option. Therefore reduced principal right out of the gate. Many are not sophisticated investors, many retired before the great recession, many have withdrawal rates too high...approved by financial advisers who know they will not get the assets unless they approve the high withdrawal rate. So they are way down the wrong path within two weeks of retirement.

Getting back to the question as to "where" should retirement withdrawals come from this study researched a number of options and I liked this quote enough to pass it along:
In virtually all the scenarios, "it pays to eat your bonds first, equities later."
Withdrawal scenarios studied:
1. Withdraw money from either stocks or bonds and then rebalance the portfolio annually to the initial stock/bond proportion. This harvesting rule will be referred to as “Rebalance.”
2. Withdraw money from the asset that had the highest return during the year and do not rebalance. This will be referred to as “High First.”
3. Withdraw money from the asset that had the lowest return during the year and do not rebalance. This will be referred to as “Low First.” To the extent that historical rates of return on bonds tend to be lower than historical rates of return on stocks, the following two additional methods of harvesting withdrawals will be referred to as “Bonds First” and “Stocks First.”
4. Take withdrawals from bonds first and do not rebalance.
5. Take withdrawals from stocks first and do not rebalance.

Study:
time-diversification-vs-rebalancing-in-retirement-portfolios/

Yes, that was the Spitzer and Singh study cited ...

Interesting Read using a three fund portfolio (VFINX, VUSTX, VSGBX or VFITX) and a 200 mda filter.
From the link:
"The popular 60/40 Stocks/Bond portfolio performs well over the past 24 years, but adding a simple moving average to this portfolio has increased returns, reduced the duration of draw downs, and substantially reduced portfolio draw down. Adding in an intermediate term bond fund as the cash fund accomplished even more, it increased annual returns more than 10% over the buy and hold portfolio, while having close to 1/3 of the daily draw down numbers. Avoiding draw down and still being involved in market upswings was the goal of this strategy, and it worked well in this instance. There were a few concerns, namely being involved in the cash filter fund for too much duration, not being diverse enough to capitalize on gains across different markets, and the potential of missing out on some of the market upsides. However, these concerns did not prevent us from accomplishing the goals of reducing draw down and risk along with increasing return in this particular example."
iema-blog.com/2016/02/6040-stockbonds-portfolio-with-market.html

They could probably run a 10 period monthly moving average on the prices of the assets as to reduce daily generated "whipsaws" ( as many "needless" whipsaws occurring in the past have been contained "within" the monthly data ) and reduce the amount of "management" time, ie. looking at the calculations daily / subjecting oneself too frequently to market data - leading to possible cognitive investing biases ...
Also, using healthcare for the 60% allocation has produced alpha ( appreciably ) above VFINX ( 13% CAGR, Sharpe 1.0 -21% max DD with non MA strategy / rebalance annually 1986 - 2015 )

Getting back to the question as to "where" should retirement withdrawals come from this study researched a number of options and I liked this quote enough to pass it along:
In virtually all the scenarios, "it pays to eat your bonds first, equities later."
Withdrawal scenarios studied:
1. Withdraw money from either stocks or bonds and then rebalance the portfolio annually to the initial stock/bond proportion. This harvesting rule will be referred to as “Rebalance.”
2. Withdraw money from the asset that had the highest return during the year and do not rebalance. This will be referred to as “High First.”
3. Withdraw money from the asset that had the lowest return during the year and do not rebalance. This will be referred to as “Low First.” To the extent that historical rates of return on bonds tend to be lower than historical rates of return on stocks, the following two additional methods of harvesting withdrawals will be referred to as “Bonds First” and “Stocks First.”
4. Take withdrawals from bonds first and do not rebalance.
5. Take withdrawals from stocks first and do not rebalance.

Study:
time-diversification-vs-rebalancing-in-retirement-portfolios/