UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF
REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number: 811-04519
T. Rowe
Price Capital Appreciation Fund
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(Exact name of
registrant as specified in charter)
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100 East Pratt Street,
Baltimore, MD 21202
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(Address of principal
executive offices)
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David Oestreicher
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100 East Pratt Street,
Baltimore, MD 21202
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(Name and address of
agent for service)
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Registrants telephone number, including area
code: (410) 345-2000
Date of fiscal year end: December
31
Date of reporting period: September 30,
2012
Item 1. Schedule of Investments
Capital Appreciation Fund
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September 30, 2012
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T. Rowe Price Capital Appreciation Fund
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Unaudited
The accompanying notes are an
integral part of this Portfolio of Investments.
T. Rowe Price Capital Appreciation
Fund
Unaudited
Notes To
Portfolio of
Investments
T. Rowe Price Capital Appreciation
Fund (the fund), is registered under the Investment Company Act of 1940 (the
1940 Act) as a diversified, open-end management investment company. The fund
seeks long-term capital appreciation by investing primarily in common stocks. It
may also hold fixed-income and other securities to help preserve principal
value.
NOTE 1 - SIGNIFICANT ACCOUNTING
POLICIES
Basis of
Preparation
The accompanying
Portfolio of Investments was prepared in accordance with accounting principles
generally accepted in the United States of America (GAAP), which require the use
of estimates made by management. Management believes that estimates and
valuations are appropriate; however, actual results may differ from those
estimates, and the valuations reflected in the Portfolio of Investments may
differ from the values ultimately realized upon sale or maturity.
Investment
Transactions
Investment transactions
are accounted for on the trade date.
Currency
Translation
Assets, including investments, and
liabilities denominated in foreign currencies are translated into U.S. dollar
values each day at the prevailing exchange rate, using the mean of the bid and
asked prices of such currencies against U.S. dollars as quoted by a major bank.
Purchases and sales of securities are translated into U.S. dollars at the
prevailing exchange rate on the date of the transaction.
New Accounting
Pronouncements
In May 2011, the
Financial Accounting Standards Board (FASB) issued amended guidance to align
fair value measurement and disclosure requirements in U.S. GAAP with
International Financial Reporting Standards. The guidance is effective for
fiscal years and interim periods beginning on or after December 15, 2011.
Adoption had no effect on net assets or results of operations.
In December 2011, the FASB issued
amended guidance to enhance disclosure for offsetting assets and liabilities.
The guidance is effective for fiscal years and interim periods beginning on or
after January 1, 2013. Adoption will have no effect on the funds net assets or
results of operations.
NOTE 2 VALUATION
The funds financial instruments are
reported at fair value as defined by GAAP. The fund values its investments and
computes its net asset value per share at the close of the New York Stock
Exchange (NYSE), normally 4 p.m. ET, each day that the NYSE is open for
business.
Valuation
Methods
Equity securities listed or
regularly traded on a securities exchange or in the over-the-counter (OTC)
market are valued at the last quoted sale price or, for certain markets, the
official closing price at the time the valuations are made, except for OTC
Bulletin Board securities, which are valued at the mean of the latest bid and
asked prices. A security that is listed or traded on more than one exchange is
valued at the quotation on the exchange determined to be the primary market for
such security. Listed securities not traded on a particular day are valued at
the mean of the latest bid and asked prices for domestic securities and the last
quoted sale price for international securities.
Debt securities are generally traded
in the OTC market. Securities with remaining maturities of one year or more at
the time of acquisition are valued at prices furnished by dealers who make
markets in such securities or by an independent pricing service, which considers
the yield or price of bonds of comparable quality, coupon, maturity, and type,
as well as prices quoted by dealers who make markets in such securities.
Securities with remaining maturities of less than one year at the time of
acquisition
generally use amortized cost in local currency to approximate fair value.
However, if amortized cost is deemed not to reflect fair value or the fund holds
a significant amount of such securities with remaining maturities of more than
60 days, the securities are valued at prices furnished by dealers who make
markets in such securities or by an independent pricing service.
Investments in mutual funds are
valued at the mutual funds closing net asset value per share on the day of
valuation. Purchased and written options, and OTC options with a listed
equivalent, are valued at the mean of the closing bid and asked prices.
Other investments, including
restricted securities and private placements, and those for which the above
valuation procedures are inappropriate or are deemed not to reflect fair value,
are stated at fair value as determined in good faith by the T. Rowe Price
Valuation Committee, established by the funds Board of Trustees (the Board).
Subject to oversight by the Board, the Valuation Committee develops
pricing-related policies and procedures and approves all fair-value
determinations. The Valuation Committee regularly makes good faith judgments,
using a wide variety of sources and information, to establish and adjust
valuations of certain securities as events occur and circumstances warrant. For
instance, in determining the fair value of private-equity instruments, the
Valuation Committee considers a variety of factors, including the companys
business prospects, its financial performance, strategic events impacting the
company, relevant valuations of similar companies, new rounds of financing, and
any negotiated transactions of significant size between other investors in the
company. Because any fair-value determination involves a significant amount of
judgment, there is a degree of subjectivity inherent in such pricing decisions.
Valuation Inputs
Various inputs are used to determine
the value of the funds financial instruments. These inputs are summarized in
the three broad levels listed below:
Level 1 quoted prices in active
markets for identical financial instruments
Level 2 observable inputs other
than Level 1 quoted prices (including, but not limited to, quoted prices for
similar financial instruments, interest rates, prepayment speeds, and credit
risk)
Level 3 unobservable
inputs
Observable inputs are those based on
market data obtained from sources independent of the fund, and unobservable
inputs reflect the funds own assumptions based on the best information
available. The input levels are not necessarily an indication of the risk or
liquidity associated with financial instruments at that level. The following
table summarizes the funds financial instruments, based on the inputs used to
determine their values on September 30, 2012:
NOTE 3 - DERIVATIVE INSTRUMENTS
The fund may invest in derivative
instruments. As defined by GAAP
,
a derivative is a financial instrument
whose value is derived from an underlying security price, foreign exchange rate,
interest rate, index of prices or rates, or other variable; it requires little
or no initial investment and permits or requires net settlement. The fund
invests in derivatives only if the expected risks and rewards are consistent
with its investment objectives, policies, and overall risk profile, as described
in its prospectus and Statement of Additional Information. The fund may use
derivatives for a variety of purposes, such as seeking to hedge against declines
in principal value, increase yield, invest in an asset with greater efficiency
and at a lower cost than is possible through direct investment, or to adjust
credit exposure. The risks associated with the use of derivatives are different
from, and potentially much greater than, the risks associated with investing
directly in the instruments on which the derivatives are based. Investments in
derivatives can magnify returns positively or negatively; however, the fund at
all times maintains sufficient cash reserves, liquid assets, or other
SEC-permitted asset types to cover the settlement obligations under its open
derivative contracts.
The fund values its derivatives at
fair value, as described below and in Note 2, and recognizes changes in fair
value currently in its results of operations. Accordingly, the fund does not
follow hedge accounting, even for derivatives employed as economic hedges. The
fund does not offset the fair value of derivative instruments against the right
to reclaim or obligation to return collateral.
Options
The fund may use options to manage exposure to interest
rates, security prices, foreign currencies, and credit quality; as an efficient
means of adjusting exposure to all or a part of a target market; to enhance
income; as a cash management tool; and/or to adjust credit exposure. Call and
put options give the holder the right, in return for a premium paid, to purchase
or sell, respectively, a security and/or
currency at a specified exercise price
at any time during the period of the option. Risks related to the use of options
include possible illiquidity of the options markets; trading restrictions
imposed by an exchange; movements in underlying security values and/or currency
values; and for written options, potential losses in excess of the funds
initial investment. Options are included in net assets at fair value.
NOTE 4 OTHER INVESTMENT
TRANSACTIONS
Consistent with its investment
objective, the fund engages in the following practices to manage exposure to
certain risks and/or to enhance performance. The investment objective, policies,
program, and risk factors of the fund are described more fully in the funds
prospectus and Statement of Additional Information.
Noninvestment-Grade Debt
Securities
The fund may invest,
either directly or through its investments in T. Rowe Price institutional funds,
in noninvestment-grade debt securities, commonly referred to as high yield or
junk bonds. The noninvestment-grade bond market may experience sudden and
sharp price swings due to a variety of factors, including changes in economic
forecasts, stock market activity, large sustained sales by major investors, a
high-profile default, or a change in the markets psychology. These events may
decrease the ability of issuers to make principal and interest payments and
adversely affect the liquidity or value, or both, of such securities.
Restricted
Securities
The fund may invest in
securities that are subject to legal or contractual restrictions on resale.
Prompt sale of such securities at an acceptable price may be difficult and may
involve substantial delays and additional costs.
Bank Loans
The fund may invest in bank loans, which represent an
interest in amounts owed by a borrower to a syndication of lenders. Bank loans
may involve multiple loans with the same borrower under a single credit
agreement (each loan, a tranche) and each tranche may have different terms and
associated risks. A bank or other financial institution typically acts as the
agent and administers a bank loan in accordance with the associated credit
agreement. Bank loans are generally noninvestment grade and often involve
borrowers whose financial condition is troubled or uncertain and companies that
are highly leveraged. The fund may buy and sell bank loans in the form of either
loan assignments or loan participations. A loan assignment transfers all legal,
beneficial, and economic rights to the buyer. Although loan assignments continue
to be administered by the agent, the buyer acquires direct rights against the
borrower. In many cases, a loan assignment requires the consent of both the
borrower and the agent. In contrast, a loan participation generally entitles the
buyer to receive the cash flows from principal, interest, and any fee payments
that the seller is entitled to receive from the borrower; however, the seller
continues to hold legal title to the loan. As a result, with loan
participations, the buyer generally has no right to enforce compliance with the
terms of the credit agreement against the borrower and the buyer is subject to
the credit risk of both the borrower and the seller. Bank loans often have
extended settlement periods, during which the fund is subject to nonperformance
by the counterparty. A portion of the funds bank loans may require additional
principal to be funded at the borrowers discretion at a later date (unfunded
commitments) and bank loans usually may be repaid at any time at the option of
the borrower. The fund reflects both the funded portion of the bank loan as well
as any unfunded commitment on the loan in the Portfolio of Investments.
Counterparty Risk and
Collateral
The fund has entered into
collateral agreements with certain counterparties to mitigate counterparty risk
associated with certain over-the-counter (OTC) financial instruments, including
swaps, forward currency exchange contracts, TBA purchase commitments, and OTC
options (collectively, covered OTC instruments). Subject to certain minimum
exposure requirements (which typically range from $100,000 to $500,000),
collateral requirements generally are determined and transfers made based on the
net aggregate unrealized gain or loss on all OTC instruments covered by a
particular collateral agreement with a specified counterparty. At any point in
time, the funds risk of loss from counterparty credit risk on covered OTC
instruments is the aggregate unrealized gain on appreciated covered OTC
instruments in excess of collateral, if any, pledged by the counterparty to the
fund. Further, in accordance with the terms of the relevant agreements,
counterparties to certain OTC instruments may be able to terminate the contracts
prior to maturity upon the occurrence of certain stated events, such as a
decline in net assets above a certain percentage or a failure by the fund to
perform its obligations under the contract. Upon termination, all transactions
would typically be liquidated and a net amount would be owed by or payable to
the fund.
Counterparty risk related to
exchange-traded futures and options contracts is minimal because the exchanges
clearinghouse provides protection against counterparty defaults. Generally, for
exchange-traded derivatives such as futures and options, each broker, in its
sole discretion, may change margin requirements applicable to the fund.
Collateral can be in the form of cash
or debt securities issued by the U.S. government or related agencies.
For OTC instruments, collateral both
pledged by the fund to a counterparty and pledged by a counterparty to the fund,
is held in a segregated account by a third-party agent. For exchange-traded
instruments, margin posted by the fund is held by the broker. Securities posted
by the fund as collateral or to meet margin requirements are so noted in the
accompanying Portfolio of Investments and remain in the funds assets.
Collateral pledged by counterparties is not included in the funds assets
because the fund does not obtain effective control over those assets. As of
September 30, 2012, no collateral was pledged by either the fund or
counterparties for covered OTC instruments. As of September 30, 2012, no margin
had been posted by the fund to the broker for exchange-traded derivatives.
NOTE 5 - FEDERAL INCOME
TAXES
At September 30, 2012, the cost of
investments for federal income tax purposes was $12,214,973,000. Net unrealized
gain aggregated $1,687,466,000 at period-end, of which $1,868,220,000 related to
appreciated investments and $180,754,000 related to depreciated
investments.
NOTE 6 - RELATED PARTY
TRANSACTIONS
The fund may invest in the T. Rowe
Price Reserve Investment Fund and the T. Rowe Price Government Reserve
Investment Fund (collectively, the T. Rowe Price Reserve Investment Funds),
open-end management investment companies managed by T. Rowe Price Associates,
Inc. (Price Associates) and considered affiliates of the fund. The T. Rowe Price
Reserve Investment Funds are offered as cash management options to mutual funds,
trusts, and other accounts managed by Price Associates and/or its affiliates and
are not available for direct purchase by members of the public. The T. Rowe
Price Reserve Investment Funds pay no investment management fees.
The fund may
also invest in
certain T. Rowe Price institutional funds (underlying institutional funds) as a
means of gaining efficient and cost-effective exposure to certain markets. The
underlying institutional funds are open-end management investment companies
managed by Price Associates and are considered affiliates of the fund. Each
underlying institutional fund pays an all-inclusive management and
administrative fee to Price Associates. To ensure that the fund does not incur
duplicate fees, Price Associates has agreed to permanently waive a portion
of
its management fee charged to the fund in an amount sufficient to fully
offset the management fees paid by the
underlying institutional funds related
to
fund assets invested therein.
Item 2. Controls and Procedures.
(a) The registrants principal
executive officer and principal financial officer have evaluated the
registrants disclosure controls and procedures within 90 days of this filing
and have concluded that the registrants disclosure controls and procedures were
effective, as of that date, in ensuring that information required to be
disclosed by the registrant in this Form N-Q was recorded, processed,
summarized, and reported timely.
(b) The registrants principal
executive officer and principal financial officer are aware of no change in the
registrants internal control over financial reporting that occurred during the
registrants most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over
financial reporting.
Item 3. Exhibits.
Separate certifications by the
registrant's principal executive officer and principal financial officer,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and required by Rule
30a-2(a) under the Investment Company Act of 1940, are attached.
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934 and the Investment Company
Act of 1940, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
T. Rowe Price Capital Appreciation
Fund
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By
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/s/ Edward C.
Bernard
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Edward C.
Bernard
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Principal
Executive Officer
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Date November 21, 2012
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Pursuant to the
requirements of the Securities Exchange Act of 1934 and the Investment Company
Act of 1940, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
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By
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/s/ Edward C.
Bernard
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Edward C.
Bernard
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Principal
Executive Officer
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Date November 21, 2012
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By
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/s/ Gregory K.
Hinkle
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Gregory K.
Hinkle
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Principal
Financial Officer
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Date November 21, 2012
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