Short-Intermediate U.S. Government
as of March 31, 2014
Fund Commentary
Economic data disappointed the market to start the year, fueling strength in the bond market. U.S. nonfarm payrolls came in below expectations during the frigid months of January and February, while the unemployment rate fell to 6.7%. Fourth-quarter Gross Domestic Product (GDP) rose 2.6% in the third revision, suggesting a slowdown from an inventory-driven third quarter. The Purchasing Managers Index (PMI) also came in below expectations, raising questions regarding the sustainability of economic momentum from the second half of last year.

The evidence of slowing growth benefited long-term Treasuries, as did the “flight-to-quality” that resulted from the conflict between Russia and Ukraine, and volatility in emerging market currencies. At the same time, however, shorter-term Treasuries lagged. While yields on 10- and 30-year issues declined by 31 (0.31%) and 41 basis points (0.41%), respectively, five-year Treasury yields fell just two basis points (0.02%) and two-year Treasury yields rose four basis points (0.04%). One of the key factors in short-term bonds’ underperformance was an unexpected indication from U.S. Federal Reserve Chair Janet Yellen that short-term interest rate hikes could occur just six months after the Fed’s quantitative easing program is complete.

The Fund returned 0.13% during the quarter, slightly underperforming the 0.25% return of its benchmark. Portfolio positioning with respect to both yield curve and duration had a negative effect on performance. However, our tactical exposure to select sectors in mortgage-backed securities helped to offset some of that impact.
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 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.

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