U.S. stocks produced solid gains for the quarter, with small-caps outperforming large- and mid-caps. Despite increased volatility, the S&P 500 Index reached new highs shortly before the end of the period. The market was supported by steady U.S. economic growth and new stimulus efforts in the eurozone and Japan. Sharply falling oil prices were a positive factor for U.S. consumers and oil-importing nations, but they contributed to steep declines in energy stocks and currencies and assets of major oil producing and exporting countries.
The Extended Equity Market Index Fund returned 6.59% in the quarter compared with 6.39% for the S&P Completion Index and 5.22% for the Lipper Mid-Cap Core Funds Index. For the 12 months ended December 31, 2014, the fund returned 7.59% versus 7.50% for the S&P Completion Index and 8.89% for the Lipper Mid-Cap Core Funds Index. The fund's average annual total returns were 7.59%, 16.82%, and 9.25% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2014. The fund's expense ratio was 0.45% as of its fiscal year ended December 31, 2013.
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Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
Share price, principal value, and return will vary and you may have a gain or loss when you sell your shares.
The Extended Equity Market Index Fund charges a 0.5%
redemption fee on shares held 90 days or less.
The performance information shown does not reflect the deduction of the redemption fee;
if it did, the performance would be lower.
The portfolio tracks the Standard & Poor's Completion Index, which offers investors exposure to small- and mid-cap U.S. stocks. Nearly all sectors in the portfolio produced positive returns, and most beat the wider benchmark. Health care, information technology, utilities and consumer discretionary sectors generated double-digit gains. Materials and consumer staples sectors also produced good returns. Information technology was mostly in line with the benchmark, and materials was modestly positive The energy sector declined about 30% as oil prices fell to their lowest level in five years. Telecommunications services lagged slightly.
While overall inflation has remained tame, T. Rowe Price managers expect that rising wage costs in the U.S. will squeeze record profit margins. Nevertheless, they think the pace of labor cost increases would be manageable, as companies also enjoy modest sales gains. They note that fourth-quarter earnings reports should provide greater clarity on the overall impact on profits of the decline in oil prices, as some firms benefit from increased discretionary spending, particularly on the part of lower-income consumers.