U.S. Treasury Index
as of June 30, 2014
Fund Commentary
The U.S. Treasury market continued to post gains during the second quarter, reflecting investor confidence in the direction of the economy and U.S. Federal Reserve (Fed) policy. While the Fed continued to taper its quantitative easing program, Fed Chair Janet Yellen emphasized that the process of raising interest rates will be smooth and gradual. The Fed continued to suggest that rate hikes will begin once quantitative easing ends, even as it adjusted its forecast for 2014 gross domestic product sharply lower. Confident that rates will remain low for at least another year, investors were comfortable buying U.S. Treasuries.

While second-quarter data showed signs of stabilizing, the slower-than-expected growth trends provided a tailwind for Treasuries. U.S. nonfarm payrolls continued to improve slowly — averaging 272,000 for the months of March through May — while the unemployment rate fell to 6.1%. First-quarter gross domestic product (GDP) was revised down to -2.9% from initial estimates at -1.0% as the harsh weather conditions took a larger toll on the economy than first thought. The yield curve continued its flattening trend amid stubbornly tepid inflation and strong demand for longer-term bonds. Two-year Treasury yields rose four basis points (0.04%) in the second quarter, while five-year Treasury yields fell nine basis points (0.09%); 10-year yields fell 19 basis points (0.19%); and 30-year yields fell 20 basis points (0.20%).

The Barclays U.S. Treasury Index returned 1.35% during the quarter. As designed, the Fund performed in line with the Index with a total return of 1.31%. We 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 May 27 with a record date of May 23. The amount shown represents dividends paid for net investment income and excludes distributions from capital gain income.

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