as of March 31, 2014
Fund Commentary
Global economic data was mixed during the first quarter. U.S. economic data consistently disappointed, due in part to the most severe winter weather in many years. Consistently weak economic numbers drove long-term interest rates lower in the quarter, despite the U.S. Federal Reserve’s (Fed) tapering of its asset purchase program. As the Fed moves away from this program and relies more on forward guidance, we believe that investors will increasingly focus on the traditional drivers of long-term interest rates, such as economic data, inflation and fiscal policy.

In the investment-grade corporate bond market, new issuance soared to an all-time first-quarter high as companies took advantage of tight credit spreads and declining interest rates. The flood of new supply was well received, as large inflows of cash into fixed-income funds provided managers with money that needed to be put to work. Strong demand helped corporate bond yield spreads tighten versus Treasuries even as the yield on the 10-year U.S. Treasury note fell 30 basis points (0.30%).

Against this backdrop, the Fund returned 0.45%, outperforming its benchmark. The largest contribution to performance came from security selection, as Fund holdings appreciated significantly more as a group than those held in the Index. Overweight positions in corporate bonds and commercial mortgage-backed securities, along with underweights to mortgages and U.S. Treasuries, also contributed significantly to performance. The Fund’s yield curve positioning represented the largest detractor from returns.
Investor Profile

If you are an income-oriented investor who is looking to diversify your investments by gaining broad exposure to the U.S. bond market, through shorter-term maturities, then this Fund may be right for you. It offers a diversified portfolio of bond securities invested primarily in U.S. investment-grade debt.

  • Invest primarily in domestic investment-grade debt obligations with an average maturity, under normal circumstances, between one and three years.
  • Buy and sell securities using a relative value approach that employs models that analyze and compare expected returns and assumed risks.
  • Emphasize securities and types of securities (such as Treasury, agency, asset-backed, mortgage-related and corporate securities) that we believe have the potential to provide a favorable return.
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Not FDIC insured | May lose value | No bank guarantee

†Northern tax-exempt fixed income funds' and Northern High Yield Fixed Income Fund's Average Duration is calculated using the modified duration formula. Other Northern fixed income funds show the option-adjusted duration. Duration is a measure of a bond fund's sensitivity to changes in interest rates.

*Distribution rate and tax-equivalent distribution rate represent the annualization of the Fund's distributions for the prior month ending on the date shown, including capital gain distributions. The 30-day SEC yield and tax-equivalent 30-day SEC yield represent the annualization of the Fund's net investment income, excluding capital gain income. The tax-equivalent distribution rate and tax-equivalent 30-day SEC yield are based on an assumed tax rate of 47.9% for Arizona, 55.7% for California and 43.4% for national municipal funds.

**Per share paid out March 24 with a record date of March 21. The amount shown represents dividends paid for net investment income and excludes distributions from capital gain income.

Please carefully read the prospectus and summary prospectus and consider the investment objectives, risks, charges and expenses of Northern Funds before investing. Call 800-595-9111 to obtain a prospectus and summary prospectus, which contains this and other information about the funds.

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