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: 811-08203
T.
Rowe Price Diversified Small-Cap Growth Fund, Inc.
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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: March 31,
2013
Item 1. Schedule of
Investments
Diversified Small-Cap Growth Fund
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March 31, 2013
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T. Rowe Price
Diversified Small-Cap Growth Fund
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Unaudited
The accompanying notes are an integral
part of this Portfolio of Investments.
T. Rowe Price Diversified Small-Cap Growth
Fund
Unaudited
Notes To
Portfolio of Investments
T. Rowe Price Diversified Small-Cap Growth
Fund, Inc. (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 growth of capital by investing primarily in common stocks
of small growth companies.
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 Guidance
In December 2011, the Financial
Accounting Standards Board issued amended guidance requiring an entity to
disclose information about offsetting and related arrangements to enable users
of its financial statements to understand the effect of those arrangements on
its financial position. 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
valued and its net asset value (NAV) per share is computed at the close of the
New York Stock Exchange (NYSE), normally 4 p.m. ET, each day the NYSE is open
for business.
Fair Value
The funds financial instruments are reported at fair value,
which GAAP defines as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at
the measurement date. The T. Rowe Price Valuation Committee (the Valuation
Committee) has been established by the funds Board of Directors (the Board) to
ensure that financial instruments are appropriately priced at fair value in
accordance with GAAP and the 1940 Act. Subject to oversight by the Board, the
Valuation Committee develops and oversees pricing-related policies and
procedures and approves all fair value determinations. Specifically, the
Valuation Committee establishes procedures to value securities; determines
pricing techniques, sources, and persons eligible to effect fair value pricing
actions; oversees the selection, services, and performance of pricing vendors;
oversees valuation-related business continuity practices; and provides guidance
on internal controls and valuation-related matters. The Valuation Committee
reports to the funds Board; is chaired by the funds treasurer; and has
representation from legal, portfolio management and trading, operations, and
risk management.
Various valuation techniques and inputs
are used to determine the fair value of financial instruments. GAAP establishes
the following fair value hierarchy that categorizes the inputs used to measure
fair value:
Level 1 quoted prices (unadjusted) in
active markets for identical financial instruments that the fund can access at
the reporting date
Level 2 inputs other than Level 1 quoted
prices that are observable, either directly or indirectly (including, but not
limited to, quoted prices for similar financial instruments in active markets,
quoted prices for identical or similar financial instruments in inactive
markets, interest rates and yield curves, implied volatilities, and credit
spreads)
Level 3 unobservable inputs
Observable inputs are developed using
market data, such as publicly available information about actual events or
transactions, and reflect the assumptions that market participants would use to
price the financial instrument. Unobservable inputs are those for which market
data are not available and are developed using the best information available
about the assumptions that market participants would use to price the financial
instrument. GAAP requires valuation techniques to maximize the use of relevant
observable inputs and minimize the use of unobservable inputs. When multiple
inputs are used to derive fair value, the financial instrument is assigned to
the level within the fair value hierarchy based on the lowest-level input that
is significant to the fair value of the financial instrument. Input levels are
not necessarily an indication of the risk or liquidity associated with financial
instruments at that level but rather the degree of judgment used in determining
those values.
Valuation Techniques
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. OTC Bulletin Board securities
are valued at the mean of the closing 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 closing
bid and asked prices for domestic securities and the last quoted sale or closing
price for international securities.
For valuation purposes, the last quoted
prices of non-U.S. equity securities may be adjusted to reflect the fair value
of such securities at the close of the NYSE. If the fund determines that
developments between the close of a foreign market and the close of the NYSE
will, in its judgment, materially affect the value of some or all of its
portfolio securities, the fund will adjust the previous quoted prices to reflect
what it believes to be the fair value of the securities as of the close of the
NYSE. In deciding whether it is necessary to adjust quoted prices to reflect
fair value, the fund reviews a variety of factors, including developments in
foreign markets, the performance of U.S. securities markets, and the performance
of instruments trading in U.S. markets that represent foreign securities and
baskets of foreign securities. The fund may also fair value securities in other
situations, such as when a particular foreign market is closed but the fund is
open. The fund uses outside pricing services to provide it with quoted prices
and information to evaluate and/or adjust those prices. The fund cannot predict
how often it will use quoted prices and how often it will determine it necessary
to adjust those prices to reflect fair value. As a means of evaluating its
security valuation process, the fund routinely compares quoted prices, the next
days opening prices in the same markets, and adjusted prices.
Actively traded domestic equity securities
generally are categorized in Level 1 of the fair value hierarchy. Non-U.S.
equity securities generally are categorized in Level 2 of the fair value
hierarchy despite the availability of quoted prices because, as described above,
the fund evaluates and determines whether those quoted prices reflect fair value
at the close of the NYSE or require adjustment. OTC Bulletin Board securities,
certain preferred securities, and equity securities traded in inactive markets
generally are categorized in Level 2 of the fair value hierarchy.
Investments in mutual funds are valued at
the mutual funds closing net asset value per share on the day of valuation and
are categorized in Level 1 of the fair value hierarchy.
Assets and liabilities other than
financial instruments, including short-term receivables and payables, are
carried at cost, or estimated realizable value, if less, which approximates fair
value.
Thinly traded financial instruments 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 Valuation Committee. The objective of any fair value pricing
determination is to arrive at a price that could reasonably be expected from a
current sale. Financial instruments fair valued by the Valuation Committee are
primarily private placements, restricted securities, warrants, rights, and other
securities that are not publicly traded.
Subject to oversight by the Board, the
Valuation Committee regularly makes good faith judgments to establish and adjust
the fair valuations of certain securities as events occur and circumstances
warrant. For instance, in determining the fair value of an equity investment
with limited market activity, such as a private placement or a thinly traded
public company stock, the Valuation Committee considers a variety of factors,
which may include, but are not limited to, the issuers business prospects, its
financial standing and performance, recent investment transactions in the
issuer, new rounds of financing, negotiated transactions of significant size
between other investors in the company, relevant market valuations of peer
companies, strategic events affecting the company, market liquidity for the
issuer, and general economic conditions and events. In consultation with the
investment and pricing teams, the Valuation Committee will determine an
appropriate valuation technique based on available information, which may
include both observable and unobservable inputs. The Valuation Committee
typically will afford greatest weight to actual prices in arms length
transactions, to the extent they represent orderly transactions between market
participants; transaction information can be reliably obtained; and prices are
deemed representative of fair value. However, the Valuation Committee may also
consider other valuation methods such as market-based valuation multiples; a
discount or premium from market value of a similar, freely traded security of
the same issuer; or some combination. Fair value determinations are reviewed on
a regular basis and updated as information becomes available, including actual
purchase and sale transactions of the issue. Because any fair value
determination involves a significant amount of judgment, there is a degree of
subjectivity inherent in such pricing decisions and fair value prices determined
by the Valuation Committee could differ from those of other market participants.
Depending on the relative significance of unobservable inputs, including the
valuation technique(s) used, fair valued securities may be categorized in Level
2 or 3 of the fair value hierarchy.
Valuation Inputs
The following table summarizes the funds financial
instruments, based on the inputs used to determine their fair values on March
31, 2013:
There were no material transfers between
Levels 1 and 2 during the period.
NOTE 3 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.
Securities Lending
The fund lends its
securities to approved brokers to earn additional income. It receives as
collateral cash and U.S. government securities valued at 102% to 105% of the
value of the securities on loan. Collateral is maintained over the life of the
loan in an amount not less than the value of loaned securities as determined at
the close of fund business each day; any adjustments to collateral balances
resulting from changes in security values are settled the next business day.
Cash collateral is invested by the funds lending agent(s) in accordance with
investment guidelines approved by management. Although risk is mitigated by the
collateral, the fund could experience a delay in recovering its securities and a
possible loss of income or value if the borrower fails to return the securities
or if collateral investments decline in value. In accordance with GAAP,
investments made with cash collateral are reflected in the accompanying
Portfolio of Investments, but collateral received in the form of securities is
not. At March 31, 2013, the value of loaned securities was $31,621,000; the
value of cash collateral and related investments was $32,570,000.
NOTE 4 - FEDERAL INCOME
TAXES
At March 31, 2013, the cost of investments
for federal income tax purposes was $442,193,000. Net unrealized gain aggregated
$103,746,000 at period-end, of which $114,922,000 related to appreciated
investments and $11,176,000 related to depreciated investments.
NOTE 5 - 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.
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 Diversified Small-Cap Growth
Fund, Inc.
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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 May 20, 2013
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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 May 20, 2013
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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 May 20, 2013
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