Short-Intermediate U.S. Government
as of June 30, 2014
Fund Commentary
The Federal Reserve (Fed) continued the tapering of its asset purchase program when it met in mid-June, and continued to suggest that rate hikes would follow not long after quantitative easing ends, even as it sharply lowered its gross domestic product (GDP) forecast for 2014. Fed Chair Janet Yellen continued to promise a smooth path to reach a lower-than-normal target federal funds rate. The yield curve maintained its flattening trend amid robust demand at the long end, and tepid inflation, while the market’s risk appetite remained strong. Stocks as measured by the S&P 500® Index gained 5.23% over the quarter, while crude oil rose 3.7% and Treasury inflation protected securities (TIPS) prices reflected higher inflation expectations across the curve.

U.S. nonfarm payrolls continued to slowly improve, averaging 272,000 jobs added for March, April and May, while the unemployment rate fell to 6.1%. First-quarter GDP was revised down from -1.0% to -2.9% as the harsh winter weather conditions took their toll on the economy. However, economic data for the second quarter showed signs of stabilizing.

The Fund’s return of 0.75% for the second quarter outperformed its benchmark. The main drivers of outperformance were the Fund’s tactical exposure to mortgage-backed issues and security selection within the sector.
Investor Profile

If you're a conservative investor who prefers the income and quality offered by government securities, you may find this Fund attractive. It is best suited for income-oriented investors who prefer low risk.

  • Invest primarily in securities issued or guaranteed by the U.S. government or by its agencies.
  • Select high-quality securities with maturities, under normal circumstances, between two and five years, with risk exposure managed in an effort to achieve reasonable returns.
  • 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.

©2014 Northern Funds | Northern Funds are distributed by Northern Funds Distributors, LLC, not affiliated with Northern Trust.