Short Bond Fund

Short Bond

as of March 31, 2013

The Fund returned 0.29% in the first quarter and outpaced its benchmark. The largest contribution to the outperformance came from an overweight to corporate bonds. We also added value through security selection, as corporate holdings in the Fund appreciated significantly more than those represented within the Index. Our generally long duration relative to the benchmark during the quarter detracted from performance.

We continue to believe that corporate bonds with five- to 10-year maturities offer significant value in the low interest rate environment that we expect will continue for the next several years. We believe corporations are in excellent financial condition, having used the low interest rate environment of the past several years to refinance their balance sheets. However, the uncertain economic backdrop is making corporate leaders reluctant to make additional investments in their businesses, with the result that corporations are holding a large amount of cash. This set of circumstances provides fixed-income investors with additional assurance that their investments will be repaid.

A key aspect of our positive view of global economic growth has been the seemingly unending monetary policy accommodation in developed economies. Within the United States, the Federal Reserve has now made further policy accommodation contingent on inflation holding below 2.5% and unemployment remaining above 6.5%. While the Fed believes that their recent statement is consistent with a previous assertion that rates would remain at low levels until mid-2015, it also subjects the Fed to the risk of conjecture by market watchers if either variable closes in on these targets.

If you are an income-oriented investor who is looking to diversify your investments by gaining broad exposure to the U.S. bond market, through shorter-term maturities, then this Fund may be right for you. It offers a diversified portfolio of bond securities invested primarily in U.S. investment-grade debt.

Invest primarily in domestic investment-grade debt obligations with an average maturity, under normal circumstances, between one and three years.
Buy and sell securities using a relative value approach that employs models that analyze and compare expected returns and assumed risks.
Emphasize securities and types of securities (such as Treasury, agency, asset-backed, mortgage-related and corporate securities) that we believe have the potential to provide a favorable return.

Not FDIC insured | May lose value | No bank guarantee

†Northern tax-exempt fixed income funds' 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, 53.7% for California and 43.4% for national municipal funds.

**Per share paid out April 24 with a record date of April 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.