Global Fixed Income
as of December 31, 2012
Fund Commentary
Policy actions in the fourth quarter, notably by U.S. and eurozone central banks, contributed to an improvement in capital market sentiment. Highlights included additional asset purchases and the implementation of a European Central Bank (ECB) program to bring borrowing costs down for governments requesting aid. The U.S. election took place in November and was immediately followed by protracted partisan negotiations in an attempt to avert the so-called "fiscal cliff" of spending cuts and tax hikes due to come into force January 1. Japan also held elections, returning Abe and the Liberal Democratic Party to power. In Italy, technocratic Prime Minister Monti resigned, prompting a spring election. Against this backdrop, core government bond yields tracked modestly higher, with the exception of German bunds, which experienced continued demand. Risk assets continued their strong performance, while the U.S. dollar was broadly weaker.

The Global Fixed Income Fund returned -2.04% for the fourth quarter, slightly underperforming the -1.84% benchmark return, as major fixed-income markets increased in yield but declined in value during December.

Peripheral European bond markets traded higher, underpinned by the more positive sentiment stemming from ECB policy actions. Despite a deteriorating growth outlook, the euro rallied over the quarter. The U.S. dollar lost ground against most other currencies, with the yen a notable exception, amidst renewed balance sheet expansion by the U.S. Federal Reserve. Toward the end of the quarter there were tentative signs of improvement among global economic indicators.

Investor Profile

If you are an income-oriented investor who is looking for additional diversification and want to take advantage of the interest rate opportunities in the global marketplace, you may find this Fund suitable. It is designed for investors who are comfortable with the additional risks associated with global fixed-income investing.

  • Invest in a broad range of investment-grade international bonds with an average maturity, under normal circumstances, between three and 11 years.
  • Base investments on the investment management team's outlook for the relative economic growth, expected inflation and other economic and political prospects of each country or region.
  • Buy and sell securities using a relative value approach that employs models that analyze and compare expected returns and assumed risks.
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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.

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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