U.S. Treasury Index
as of December 31, 2013
Fund Commentary
At its December 18 meeting, the Federal Reserve announced that it would begin to taper its bond purchases under quantitative easing beginning in January. The result was upward pressure on longer-term interest rates that took 10-year Treasury yields above 3.00% by the end of 2013. The yield curve steepened, with the middle portion of the curve most impacted by rising rates while short-term rates remained more or less anchored.

The economic backdrop was generally supportive of higher rates as well. U.S. equities closed a stellar year with another strong quarter to reach all-time highs, and overall inflation expectations as reflected in Treasury Inflation-Protected Securities (TIPs) prices increased. U.S. non-farm payrolls came in above expectations despite a partial government shutdown to start the quarter that impacted government jobs, while the unemployment rate fell to 7.0%. Third-quarter Gross Domestic Product (GDP) growth was revised upward to 4.1%, well ahead of initial estimates of 3.6%.

The Barclays U.S. Treasury Index returned -0.75% during the fourth quarter. As designed, the Fund performed in line with the Index, with a total return of -0.82%, net of fees. The Treasury yield curve was mixed, with the middle portion selling off more than the long end. Specifically, two-year Treasury yields rose six basis points (0.06%), while the five-year yield rose 36 basis points (0.36%) and the 10-year rose 42 basis points (0.42%). The 30-year Treasury yield increased 28 basis points (0.28%). We will continue to invest with the goal of providing returns that closely approximate those of the Index.
Investor Profile

If you are an income-oriented investor who is looking to diversify your investments by gaining broad exposure to the U.S. Treasury market then this Fund may be right for you. It offers a diversified portfolio of Treasury securities approximating the Barclays U.S. Treasury Index.

  • Passively managed in an effort to replicate the performance and composition of the Barclays U.S. Treasury Index.
  • Invest substantially all (and at least 80%) of its assets in a representative sample of the U.S. Treasury obligations included in the Index.
  • Provide investors with a way to gain broad exposure to U.S. Treasury market.
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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 February 24 with a record date of February 21. The amount shown represents dividends paid for net investment income and excludes distributions from capital gain income.

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