TVC Tennessee Valley Authority

Item 1. Report to Shareholders

The views and opinions in this report were current as of December 31, 2013. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and the managers reserve the right to change their views about individual stocks, sectors, and the markets at any time. As a result, the views expressed should not be relied upon as a forecast of the fund’s future investment intent. The report is certified under the Sarbanes-Oxley Act, which requires mutual funds and other public companies to affirm that, to the best of their knowledge, the information in their financial reports is fairly and accurately stated in all material respects.

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Manager’s Letter

Fellow Shareholders

Mid-cap growth stocks produced excellent returns in 2013, despite material federal tax increases and modest spending cuts that took effect in the first quarter and a generally sluggish economy for much of the year. Favorable corporate fundamentals and highly accommodative monetary policies—including $85 billion in monthly Federal Reserve purchases of Treasuries and agency mortgage-backed securities—supported the advance. Fixed income securities lagged significantly and longer-term interest rates rose sharply, as investors anticipated that the Fed would begin to curtail its extraordinary stimulus efforts. When the central bank announced in mid-December that it would start to reduce its asset purchases in January 2014, equity investors were assuaged by the Fed’s pledge to keep short-term interest rates low as long as inflation remains contained.

Your fund returned 19.01% in the second half of 2013 and 34.57% for the entire year. As shown in the Performance Comparison table, the fund fared better than its Russell benchmark in the last six months but lagged it for the year. The fund trailed its peer group index in both periods.

While our full-year absolute performance was excellent, our relative performance reflects our quality bias while the most aggressive investment approaches did best. During 2013, those companies with the highest anticipated earnings growth and the best prior total returns had the best performance. In other words, not owning certain “momentum” stocks with very high valuations limited the fund’s gains versus its benchmarks. We prefer to own stocks of companies that consistently produce solid earnings growth over time but have more reasonable valuations and less earnings variability. We believe these will prove to be better long-term investments than companies whose share prices soar like a rocket for a time but eventually crash because they cannot meet increasingly extreme earnings expectations.

In the last six months, the fund’s performance versus the Russell benchmark benefited from stock selection in the financials, information technology, health care, and energy sectors. Underweighting consumer staples also helped, but stock selection in the consumer discretionary and staples sectors was subpar. For the full year, stock selection among financials, information technology, and health care stocks was advantageous, but our holdings in several sectors, especially consumer staples and materials, hurt our relative performance.

MARKET ENVIRONMENT

The environment for U.S. equity investors remained very favorable throughout 2013. The housing and labor markets have been strengthening, corporate fundamentals—although they have moderated from a short-term recovery level—are still strong, and equity valuations are mostly reasonable. Federal Reserve policies should remain highly stimulative for some time, even as the central bank tapers its asset purchases. Corporate balance sheets are flush with cash, and many companies are initiating or boosting dividends or stock buybacks. Initial public offerings increased dramatically in 2013, as newer companies issued stock to harness investors’ hunger for higher returns, but merger and acquisition activity has remained low, in part because managements are generally cautious. Given all of these positives, it is still a great time for those seeking long-term capital growth to invest in stocks of quality companies.

Mid-cap stocks outperformed large-caps for the full year but lagged small-caps. The Russell Midcap Index returned 34.76% versus 32.39% for the S&P 500 Index and 38.82% for the small-cap Russell 2000 Index. As measured by various Russell indexes, growth stocks outperformed value across all market capitalizations.

All sectors in the Russell Midcap Growth Index produced positive returns. Consumer discretionary, health care, consumer staples, and industrials and business services stocks did best. Energy stocks performed in line with the index, while utilities, financials, information technology, and materials trailed. Telecommunication services lagged significantly.

Companies with the fastest anticipated earnings growth were among the top performers in 2013, as risk-seeking investors gravitated toward headline-grabbing companies that seemed to offer the highest and fastest growth, regardless of lofty valuations. Over longer time spans, these companies tend to disappoint. In contrast, it seemed that companies featuring more reasonable earnings, revenues, valuations, and risk/reward trade-offs were relatively ignored. We favor the latter, as indicated earlier, and we are willing to wait for lasting investment gains to manifest themselves while our holdings deliver solid earnings growth over time.

As shown in the table, mid-cap growth stocks surpassed their value counterparts in the second half of 2013, over the last 12 months, and during the five-year period ended December 31, 2013. Mid-caps have strongly outpaced large-caps since 2008. For the five-year period ended December 31, 2013—a mostly favorable period for equities as they recovered from the brutal 2008 downturn—the Russell Midcap Index produced an annualized return of 22.36% versus 17.94% for the S&P 500.

Notably, U.S. stocks have outperformed equities in both emerging and developed non-U.S. markets in that five-year stretch: The MSCI Emerging Markets Index and the MSCI EAFE Index produced annualized returns of 15.15% and 12.96%, respectively. During the same period, U.S. shares have also trounced long-term bonds, as measured by the Citigroup 30-Year Treasury Index, which returned -1.03% on an annualized basis.

We believe that many U.S. mid-cap companies offer superior long-term growth potential and other favorable characteristics. Long-term data indicate that mid-caps offer very favorable reward versus risk dynamics. While we are pleased with their longer-term performance, we should caution our investors that no trend lasts forever and that eventually an outperforming asset class will experience a “mean reversion.” In other words, the outperformance will eventually be followed by a period of below-average returns that offset some of its recent superior performance and bring returns back in line with the long-term average.

INVESTMENT STRATEGY

Before discussing the portfolio’s performance in detail, we would like to welcome new investors and thank all of our longer-term investors for their continuing confidence in our portfolio management abilities. Our reports to shareholders focus on fund activity and performance in the most recent 6- or 12-month periods, but our time horizon for investing is much longer. While the investment landscape is constantly changing and occasionally challenging, we remain committed to the same strategy and principles that have guided our management of the portfolio since its inception 10 years ago. We believe these will help us navigate through a variety of possible market and economic environments and provide patient investors with long-term capital growth:

• The Diversified Mid-Cap Growth Fund invests in stocks of mid-cap companies whose earnings are expected to grow at an above-average rate. We define mid-cap companies as those whose market capitalization at the time of purchase falls within the range of either the S&P MidCap 400 Index or the Russell Midcap Growth Index.
   
• We keep the fund fully invested because we believe that successful market timing is virtually impossible and that the costs associated with frequent trading reduce the likelihood of outperforming the market. We do not worry about short-term performance or try to forecast the direction of the economy or the market. Our focus is to find mid-cap companies with the best long-term growth potential.
   
• We use a number of proprietary quantitative models to identify and evaluate the characteristics of individual mid-cap growth companies and the portfolio as a whole.
   
• Stock selection is based on a combination of fundamental, bottom-up analysis and quantitative strategies in an attempt to identify companies with superior long-term appreciation prospects.
   
• We use a growth approach, looking for companies with a demonstrated ability to increase revenues, earnings, and cash flow consistently; capable management; attractive business niches; and a sustainable competitive advantage. We favor companies with above-average earnings growth and lower earnings variability.
   
• Valuations are also very important. We look for the best relative values among companies with the strongest businesses and managements.
   
• Unlike other mid-cap growth portfolios that are highly concentrated, the Diversified Mid-Cap Growth Fund typically invests in about 300 stocks. A high degree of diversification helps to mitigate the downside risk attributable to any single poorly performing security. We invest in companies that are early in their life cycles, and some will ultimately not be as successful as we hope. Accordingly, we balance risk with potential returns.
   
• Our time horizons are longer than those of other mid-cap growth investors. Our portfolio turnover rate in 2013 was 17.7%, which is substantially less than the 2013 average of 83.6% for mid-cap growth funds, according to data from Morningstar Direct. (Morningstar only calculates portfolio turnover for their averages at year-end, using the most recent year-end portfolio turnover figures provided to Morningstar by each of the underlying funds in the average. The Morningstar data were quoted as of January 21, 2014.) This implies that our holding period for a typical stock is over five years, whereas our average competitor holds a given stock for a little more than one year. Our relatively low turnover, which is desirable from a tax and expense perspective, reflects our long-term commitment to the companies in which we invest. Many of the holdings we have recently eliminated have outgrown the mid-cap universe.

PORTFOLIO REVIEW

The Diversified Mid-Cap Growth Fund’s fundamental characteristics are somewhat similar to those of the Russell Midcap Growth Index, as indicated by the Portfolio Characteristics table. The portfolio’s median market capitalization ($9.8 billion) is a little lower than that of the Russell benchmark, while its price/earnings (P/E) ratio (21.9) and projected earnings growth rate (14.7%) are a little higher. These metrics reflect our commitment to mid-cap companies with excellent long-term growth prospects.

The fund’s return on equity (ROE), which measures how effectively and efficiently a company and its management are using stockholder investments, is 17.7% versus 20.3% for the benchmark. We consider a high ROE to be desirable, and we look for businesses that can sustain high profitability. One positive not shown by the data in the table is that our holdings have lower debt than businesses represented in the Russell index, based on certain long-term debt-to-equity measures.

At the end of December, our largest commitments were to consumer discretionary, information technology, health care, and industrials and business services. We have very little exposure to utilities and telecommunication services because there are few businesses in those sectors that meet our growth criteria. Relative to the Russell index, we had underweights in the consumer discretionary, financials, and consumer staples sectors and overweights in information technology and health care.

Consumer discretionary stocks—an eclectic assortment of retailers, restaurants, and media companies, among others—were our top contributors to absolute performance in 2013. We favor leading companies with good business models and excellent cash flow in their respective niches. Specialty retailers, ranging from Tiffany to discounter Ross Stores , advanced strongly. Restaurant and hotel stocks also did quite well, led by Chipotle Mexican Grill and Wynn Resorts , respectively. Another significant contributor was Michael Kors Holdings . This rapidly growing maker of women’s apparel and accessories has been a very successful investment for us—we made a private investment before the company went public and purchased additional shares at the time of the IPO in late 2011. However, its valuation has become quite aggressive and expectations are very high. We expect a period of underperformance, so we decided to harvest our gains and seek more sustainable growth opportunities and more reasonable valuations elsewhere. (Please refer to the fund’s portfolio of investments for a complete list of holdings and the amount each represents in the portfolio.)

Our health care investments produced excellent returns in 2013. We overweight biotechnology companies but have broad company, as well as industry, diversification to reduce risks. We also emphasize providers and services companies given demographic factors and growing demand for access to health care services. Biotech stocks contributed substantially to performance, with gains concentrated in Incyte , Regeneron Pharmaceuticals , and Alexion Pharmaceuticals . Our providers and services companies advanced broadly but were less robust; still, drug distributor AmerisourceBergen did extremely well thanks to superior revenue growth. Other health care industry allocations, such as pharmaceuticals and life sciences tools and services, generally made milder contributions to performance. Equipment and supply companies lagged for the year. During the fourth quarter, we reestablished a position in Intuitive Surgical , a maker of a very successful robotic surgery system whose shares we sold some time ago as the company moved into the large-cap universe. The company experienced a period of moderating growth that caused its shares to underperform and its market capitalization to drop back into the mid-cap range.

Our information technology stocks produced strong absolute returns and outperformed their peers in the Russell index over the last year. We favor companies with strong business models in industries with high barriers to entry and lower risk of commoditization. We consider technology to be a “winner take all” space in which an industry leader emerges and thrives because its products and services are broadly embraced (think of Google’s search engine) while smaller competitors are overlooked and struggle to stay relevant. As a result, selectivity is essential to avoid inexpensive companies with intractable disadvantages. Software industry stocks collectively did best, led by ServiceNow , while three of our IT services companies— Alliance Data Systems , Gartner , and Vantiv —produced excellent 12-month returns. Among Internet software stocks, LinkedIn , which operates a social media site for business professionals, and Chinese Internet portal Sina fared well. Communications equipment companies were lackluster.

Our industrials and business services stocks performed well over the last year. While some may have wide earnings variance due to the cyclical nature of their businesses, we tend to favor higher-quality industrials that are world-class in their niches and have greater earnings stability throughout the business cycle. Wabtec and Flowserve led the machinery industry. Our three airline stocks— Southwest Airlines , Panama-based Copa Holdings , and Alaska Air Group —produced excellent returns amid lower jet fuel costs stemming from brisk U.S. oil production. Also, shares of regional railroad company Kansas City Southern , which operates in the U.S. and Mexico, surged and were helped by increased U.S. shipping and expectations for stronger Mexican economic growth stemming from energy reforms.

Financials are a small part of the mid-cap growth universe, but our holdings outperformed their peers in the Russell benchmark—by a magnitude that we do not typically experience—due to broadly favorable capital markets and interest rate trends. Operators of securities exchanges IntercontinentalExchange and CBOE Holdings were outstanding. Online brokers E*TRADE Financial and TD Ameritrade Holding rose sharply as retail trading activity picked up. Regional banks SVB Financial Group and BankUnited also did well.

Our holdings in the energy sector performed in line with their peers in the Russell benchmark over the last year. We favor differentiated service companies or those that are skilled at finding underlying resources, particularly the lowest-cost producers; we do not attempt to predict commodity price movements. Gains were concentrated in several exploration companies, led by Pioneer Natural Resources , which enjoyed great success in U.S. oil drilling in 2013. Several of our equipment and services companies also did well, especially Core Laboratories and Oceaneering International .

Our consumer staples holdings produced good absolute returns but lagged their benchmark peers, which hurt our relative results. We continue to believe that most companies in the sector are fairly valued, if not overvalued; hence, we underweight the sector. Most of our positions are makers of food and beverage products with strong brands that we have owned for several years. Hershey Foods , bakery products maker Flowers Foods , and organic grocery store operator Whole Foods Market were among our top performers in the sector. Not owning some multilevel marketing companies that had monstrous returns for the year hurt our relative performance. These are tough business models, as demonstrated by the struggles of Avon for the last several years.

Our materials stocks also lagged their Russell benchmark peers over the year. We favor differentiated companies—primarily in the chemicals and metals and mining industries—that can add value to a commodity or are well positioned for the long term. Although several chemicals companies did extremely well, poor performance of fertilizer company Sociedad Quimica y Minera de Chile following the breakup of a global potash cartel offset some of these gains. We maintain a modest exposure to gold mining, and 2013 was a very challenging year for the commodity as well as the miners.

OUTLOOK

Stocks performed very well in 2013 and over the last five years, despite a weaker-than-average economic recovery. Equity valuations, while higher than they have been for several years, remain quite reasonable. If the sluggish economy persists, it would be highly unlikely, though not impossible, for the market to achieve 30% gains again in 2014. We believe investors should expect more modest equity returns in the near term.

While there are some pockets of speculation and excessive valuations, we believe the core of the market is reasonably valued. The most attractive companies in the market, in our opinion, are the ones we favor: companies with solid earnings growth and reasonable valuations. In fact, they have become somewhat easier to identify because they have significantly lagged the short-term performance of companies with the fastest anticipated growth.

Our basic outlook has not changed in the last six months. We believe the current environment continues to provide patient investors who are willing to take prudent risks with a great opportunity to invest in equities for long-term capital growth. Consider the positives: The U.S. economy and corporate earnings are growing; the Federal Reserve is likely to keep short-term interest rates very low for some time, even as it tapers its asset purchases; corporations have substantial cash reserves on their strong balance sheets and have generally been responsible stewards of capital. In addition, bond returns are likely to be negative as interest rates return to normal levels in the years ahead, while stocks, which are under-owned by individual investors, have much more potential for long-term capital growth.

Thank you for your confidence in T. Rowe Price.

Respectfully submitted,

Donald J. Peters
Cochairman of the fund’s Investment Advisory Committee

Donald J. Easley
Cochairman of the fund’s Investment Advisory Committee

January 21, 2014

The committee cochairmen have day-to-day responsibility for managing the portfolio and work with committee members in developing and executing the fund’s investment program.

RISKS OF INVESTING

As with all equity funds, this fund’s share price can fall because of weakness in the broad market, a particular industry, or specific holdings. The market as a whole can decline for many reasons, including adverse political or economic developments here or abroad, changes in investor psychology, or heavy institutional selling. The prospects for an industry or company may deteriorate because of a variety of factors, including disappointing earnings or changes in the competitive environment. In addition, our assessment of companies held in the fund may prove incorrect, resulting in losses or poor performance even in a rising market. Finally, the fund’s investment approach could fall out of favor with the investing public, resulting in lagging performance versus other types of stock funds.

The stocks of mid-cap companies entail greater risk and are usually more volatile than the shares of large companies. In addition, growth stocks can be volatile for several reasons. Since they usually reinvest a high proportion of earnings in their own businesses, they may lack the dividends usually associated with value stocks that can cushion their decline in a falling market. Also, since investors buy these stocks because of their expected superior earnings growth, earnings disappointments often result in sharp price declines.

Diversification cannot protect against loss in a declining market or assure a profit.

GLOSSARY

Earnings growth rate—current fiscal year: Measures the annualized percent change in earnings per share from the prior fiscal year to the current fiscal year.

Lipper indexes: Fund benchmarks that consist of a small number (10 to 30) of the largest mutual funds in a particular category as tracked by Lipper Inc.

Price-to-earnings (P/E) ratio—12 months forward: A valuation measure calculated by dividing the price of a stock by the analysts’ forecast of the next 12 months’ expected earnings. The ratio is a measure of how much investors are willing to pay for the company’s future earnings. The higher the P/E, the more investors are paying for a company’s earnings growth in the next 12 months.

Projected earnings growth rate (IBES): A company’s expected earnings per share growth rate for a given time period based on the forecast from the Institutional Broker’s Estimate System, which is commonly referred to as IBES.

Return on equity (ROE)—current fiscal year: A valuation measure calculated by dividing the company’s current fiscal year net income by shareholders’ equity (i.e., the company’s book value). ROE measures how much a company earns on each dollar that common stock investors have put into the company. It indicates how effectively and efficiently a company and its management are using stockholder investments.

Russell Midcap Growth Index: An index that tracks the performance of mid-cap stocks with higher price-to-book ratios and higher forecast growth values.

Russell Midcap Index: An unmanaged index that tracks the performance of the 800 smallest companies in the Russell 1000 Index.

Russell Midcap Value Index: An index that tracks the performance of mid-cap stocks with lower price-to-book ratios and lower forecast growth values.

S&P 500 Index: An unmanaged index that tracks the stocks of 500 primarily large-cap U.S. companies.

S&P MidCap 400 Index: An unmanaged index that tracks the stocks of 400 U.S. mid-cap companies.

Note: MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI.

Note: Russell Investment Group is the source and owner of the trademarks, service marks, and copyrights related to the Russell indexes. Russell ^® is a trademark of Russell Investment Group.

Performance and Expenses

This chart shows the value of a hypothetical $10,000 investment in the fund over the past 10 fiscal year periods or since inception (for funds lacking 10-year records). The result is compared with benchmarks, which may include a broad-based market index and a peer group average or index. Market indexes do not include expenses, which are deducted from fund returns as well as mutual fund averages and indexes.

As a mutual fund shareholder, you may incur two types of costs: (1) transaction costs, such as redemption fees or sales loads, and (2) ongoing costs, including management fees, distribution and service (12b-1) fees, and other fund expenses. The following example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the most recent six-month period and held for the entire period.

Actual Expenses
The first line of the following table (Actual) provides information about actual account values and expenses based on the fund’s actual returns. You may use the information on this line, together with your account balance, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number on the first line under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes
The information on the second line of the table (Hypothetical) is based on hypothetical account values and expenses derived from the fund’s actual expense ratio and an assumed 5% per year rate of return before expenses (not the fund’s actual return). You may compare the ongoing costs of investing in the fund with other funds by contrasting this 5% hypothetical example and the 5% hypothetical examples that appear in the shareholder reports of the other funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.

Note: T. Rowe Price charges an annual account service fee of $20, generally for accounts with less than $10,000. The fee is waived for any investor whose T. Rowe Price mutual fund accounts total $50,000 or more; accounts electing to receive electronic delivery of account statements, transaction confirmations, prospectuses, and shareholder reports; or accounts of an investor who is a T. Rowe Price Preferred Services, Personal Services, or Enhanced Personal Services client (enrollment in these programs generally requires T. Rowe Price assets of at least $100,000). This fee is not included in the accompanying table. If you are subject to the fee, keep it in mind when you are estimating the ongoing expenses of investing in the fund and when comparing the expenses of this fund with other funds.

You should also be aware that the expenses shown in the table highlight only your ongoing costs and do not reflect any transaction costs, such as redemption fees or sales loads. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. To the extent a fund charges transaction costs, however, the total cost of owning that fund is higher.

The accompanying notes are an integral part of these financial statements.

The accompanying notes are an integral part of these financial statements.

The accompanying notes are an integral part of these financial statements.

The accompanying notes are an integral part of these financial statements.

The accompanying notes are an integral part of these financial statements.

Notes to Financial Statements

T. Rowe Price Diversified Mid-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 commenced operations on December 31, 2003. The fund seeks to provide long-term capital growth by investing primarily in the common stocks of mid-cap growth companies.

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation The fund is an investment company and follows accounting and reporting guidance in the Financial Accounting Standards Board Accounting Standards Codification Topic 946 (ASC 946). The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP), including but not limited to ASC 946. GAAP requires 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 accompanying financial statements may differ from the value ultimately realized upon sale or maturity.

Investment Transactions, Investment Income, and Distributions Income and expenses are recorded on the accrual basis. Dividends received from mutual fund investments are reflected as dividend income; capital gain distributions are reflected as realized gain/loss. Earnings on investments recognized as partnerships for federal income tax purposes reflect the tax character of such earnings. Dividend income and capital gain distributions are recorded on the ex-dividend date. Income tax-related interest and penalties, if incurred, would be recorded as income tax expense. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Distributions to shareholders are recorded on the ex-dividend date. Income distributions are declared and paid annually. Capital gain distributions, if any, are generally declared and paid by the fund annually.

Rebates and Credits Subject to best execution, the fund may direct certain security trades to brokers who have agreed to rebate a portion of the related brokerage commission to the fund in cash. Commission rebates are reflected as realized gain on securities in the accompanying financial statements. Additionally, the fund earns credits on temporarily uninvested cash balances held at the custodian, which reduce the fund’s custody charges. Custody expense in the accompanying financial statements is presented before reduction for credits.

New Accounting Guidance On January 1, 2013, the fund adopted new accounting guidance, issued by the Financial Accounting Standards Board, that requires 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. Adoption had no effect on the fund’s net assets or results of operations.

NOTE 2 - VALUATION

The fund’s 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 fund’s 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 fund’s 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 fund’s Board; is chaired by the fund’s 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. Actively traded domestic equity securities generally are categorized in Level 1 of the fair value hierarchy. OTC Bulletin Board 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 fund’s closing NAV 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 issuer’s 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 arm’s 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 fund’s financial instruments, based on the inputs used to determine their fair values on December 31, 2013:

There were no material transfers between Levels 1 and 2 during the year.

Following is a reconciliation of the fund’s Level 3 holdings for the year ended December 31, 2013. Gain (loss) reflects both realized and change in unrealized gain/loss on Level 3 holdings during the period, if any, and is included on the accompanying Statement of Operations. The change in unrealized gain/loss on Level 3 instruments held at December 31, 2013, totaled $330,000 for the year ended December 31, 2013.

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 fund’s prospectus and Statement of Additional Information.

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.

Securities Lending The fund lends its securities to approved brokers to earn additional income. Its securities lending activities are administered by a lending agent in accordance with a securities lending agreement. It receives collateral in the form of cash or 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; any additional collateral required due to changes in security values is delivered to the fund the next business day. Cash collateral is invested by the lending agent(s) in accordance with investment guidelines approved by fund management. Additionally, the lending agent indemnifies the fund against losses resulting from borrower default. Although risk is mitigated by the collateral and indemnification, 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, collateral investments decline in value and the lending agent fails to perform. Securities lending revenue consists of earnings on invested collateral and borrowing fees, net of any rebates to the borrower, compensation to the lending agent, and other administrative costs. In accordance with GAAP, investments made with cash collateral are reflected in the accompanying financial statements, but collateral received in the form of securities is not. At December 31, 2013, the value of loaned securities was $11,398,000; the value of cash collateral and related investments was $11,562,000.

Other Purchases and sales of portfolio securities other than short-term securities aggregated $83,733,000 and $44,126,000, respectively, for the year ended December 31, 2013.

NOTE 4 - FEDERAL INCOME TAXES

No provision for federal income taxes is required since the fund intends to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code and distribute to shareholders all of its taxable income and gains. Distributions determined in accordance with federal income tax regulations may differ in amount or character from net investment income and realized gains for financial reporting purposes. Financial reporting records are adjusted for permanent book/tax differences to reflect tax character but are not adjusted for temporary differences.

The fund files U.S. federal, state, and local tax returns as required. The fund’s tax returns are subject to examination by the relevant tax authorities until expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return but which can be extended to six years in certain circumstances. Tax returns for open years have incorporated no uncertain tax positions that require a provision for income taxes.

Reclassifications to paid-in capital relate primarily to the current net operating loss. Reclassifications between income and gain relate primarily to per share rounding of distributions. For the year ended December 31, 2013, the following reclassifications were recorded to reflect tax character (there was no impact on results of operations or net assets):

Distributions during the years ended December 31, 2013 and December 31, 2012, totaled $206,000 and $592,000, respectively, and were characterized as ordinary income for tax purposes. At December 31, 2013, the tax-basis cost of investments and components of net assets were as follows:

The difference between book-basis and tax-basis net unrealized appreciation (depreciation) is attributable to the deferral of losses from wash sales for tax purposes. The fund intends to retain realized gains to the extent of available capital loss carryforwards. Net realized capital losses may be carried forward indefinitely to offset future realized capital gains. During the year ended December 31, 2013, the fund utilized $6,869,000 of capital loss carryforwards.

NOTE 5 - RELATED PARTY TRANSACTIONS

The fund is managed by T. Rowe Price Associates, Inc. (Price Associates), a wholly owned subsidiary of T. Rowe Price Group, Inc. (Price Group). The investment management agreement between the fund and Price Associates provides for an annual investment management fee, which is computed daily and paid monthly. The fee consists of an individual fund fee, equal to 0.35% of the fund’s average daily net assets, and a group fee. The group fee rate is calculated based on the combined net assets of certain mutual funds sponsored by Price Associates (the group) applied to a graduated fee schedule, with rates ranging from 0.48% for the first $1 billion of assets to 0.275% for assets in excess of $400 billion. The fund’s group fee is determined by applying the group fee rate to the fund’s average daily net assets. At December 31, 2013, the effective annual group fee rate was 0.29%.

In addition, the fund has entered into service agreements with Price Associates and two wholly owned subsidiaries of Price Associates (collectively, Price). Price Associates computes the daily share price and provides certain other administrative services to the fund. T. Rowe Price Services, Inc., provides shareholder and administrative services in its capacity as the fund’s transfer and dividend-disbursing agent. T. Rowe Price Retirement Plan Services, Inc., provides subaccounting and recordkeeping services for certain retirement accounts invested in the fund. For the year ended December 31, 2013, expenses incurred pursuant to these service agreements were $90,000 for Price Associates; $280,000 for T. Rowe Price Services, Inc.; and $6,000 for T. Rowe Price Retirement Plan Services, Inc. The total amount payable at period-end pursuant to these service agreements is reflected as Due to Affiliates in the accompanying financial statements.

The fund may invest in the T. Rowe Price Reserve Investment Fund, the T. Rowe Price Government Reserve Investment Fund, or the T. Rowe Price Short-Term Reserve Fund (collectively, the Price Reserve Investment Funds), open-end management investment companies managed by Price Associates and considered affiliates of the fund. The Price Reserve Investment Funds are offered as short-term investment options to mutual funds, trusts, and other accounts managed by Price Associates or its affiliates and are not available for direct purchase by members of the public. The Price Reserve Investment Funds pay no investment management fees.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of
T. Rowe Price Diversified Mid-Cap Growth Fund, Inc.

In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of T. Rowe Price Diversified Mid-Cap Growth Fund, Inc. (the “Fund”) at December 31, 2013, and the results of its operations, the changes in its net assets and the financial highlights for each of the periods indicated therein, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2013 by correspondence with the custodian and brokers, and confirmation of the underlying funds by correspondence with the transfer agent, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Baltimore, Maryland
February 14, 2014

Tax Information (Unaudited) for the Tax Year Ended 12/31/13

We are providing this information as required by the Internal Revenue Code. The amounts shown may differ from those elsewhere in this report because of differences between tax and financial reporting requirements.

The fund’s distributions to shareholders included $26,000 from long-term capital gains, subject to the 15% rate gains category.

Information on Proxy Voting Policies, Procedures, and Records

A description of the policies and procedures used by T. Rowe Price funds and portfolios to determine how to vote proxies relating to portfolio securities is available in each fund’s Statement of Additional Information. You may request this document by calling 1-800-225-5132 or by accessing the SEC’s website, sec.gov.

The description of our proxy voting policies and procedures is also available on our website, troweprice.com. To access it, click on the words “Social Responsibility” at the top of our corporate homepage. Next, click on the words “Conducting Business Responsibly” on the left side of the page that appears. Finally, click on the words “Proxy Voting Policies” on the left side of the page that appears.

Each fund’s most recent annual proxy voting record is available on our website and through the SEC’s website. To access it through our website, follow the above directions to reach the “Conducting Business Responsibly” page. Click on the words “Proxy Voting Records” on the left side of that page, and then click on the “View Proxy Voting Records” link at the bottom of the page that appears.

How to Obtain Quarterly Portfolio Holdings

The fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available electronically on the SEC’s website (sec.gov); hard copies may be reviewed and copied at the SEC’s Public Reference Room, 100 F St. N.E., Washington, DC 20549. For more information on the Public Reference Room, call 1-800-SEC-0330.