as of March 31, 2014
Fund Commentary
The first quarter of 2014 began with choppy markets as mixed economic numbers and a rise in geopolitical risk added to uncertainty. However, optimism soon returned and the quarter would see credit spreads tighten and equity markets rise. Janet Yellen took over as Chair of the U.S. Federal Reserve (Fed) and continued the tapering of bond purchases that Ben Bernanke started. At its March meeting, the Fed announced that it would reduce monthly bond purchases by $10 billion to $55 billion. The Fed also dropped its pledge to tie any increase in the benchmark federal funds rate to a 6.5% unemployment rate; instead, a wide range of data will be evaluated.

While short-term rates rose modestly, interest rates finished the quarter significantly lower farther out along the U.S. Treasury curve. To illustrate, the two-year Treasury yield went from 0.38% to 0.44%, the five-year from 1.75% to 1.73%, the 10-year from 3.04% to 2.73% and the 30-year from 3.96% to 3.56%. Overall, on a duration-adjusted basis, the Barclays U.S. Aggregate Bond Index return of 1.84% outperformed U.S. Treasury securities for the quarter. Investment-grade corporate bonds were the best-performing sector, followed by commercial mortgage-backed securities.

The Fund’s return of 1.84% matched the return of the Index for the quarter. We will continue to invest in a sample of securities that are representative of the Index in an effort to provide returns that closely approximate those of the Index.
Investor Profile

If you are a long-term, income-oriented investor who is looking to diversify your investments by gaining broad exposure to the U.S. bond market, then this Fund may be right for you. It offers a diversified portfolio of bond securities approximating the Lehman Brothers U.S. Aggregate Index.

  • Passively managed in an effort to replicate the performance and composition of the Barclays U.S. Aggregate Bond Index.
  • Gain broad exposure to the U.S. Treasury, government agency, investment-grade corporate bond, mortgage- and asset-backed sectors of the fixed income markets.
  • Provide investors with a way to gain broad exposure to U.S. bond 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 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.

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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