U.S. Treasury Index Fund

U.S. Treasury Index

as of March 31, 2013

The first quarter of 2013 ended with a "flight-to-quality" rally in U.S. Treasuries amid a coordinated bailout of European Union member Cyprus, one that came with stipulations that will cost uninsured large depositors in Cypriot banks a significant portion of their assets. But with the Federal Reserve still on hold, prices in risk assets continued to rise, as the S&P 500® Index gained a robust 10.61% during the quarter, and crude oil rose 5.9%. U.S. nonfarm payrolls increased in February, and the unemployment rate fell to 7.7%, though Gross Domestic Product (GDP) for the fourth quarter of 2012 was lower than expected.

Investor focus has turned to instability in Europe, and to the new Bank of Japan Governor Kuroda, who wasted little time in unveiling an aggressive monetary policy. The Bank of Japan plans to more than double its monthly commitment to purchase Japanese government securities, aiming to double that country’s monetary base in order to return inflation in Japan to 2% within two years.

The Barclays U.S. Treasury Index returned -0.19% during the quarter. As designed, the Portfolio performed in line with the Index, with a total return of -0.25%. The Treasury yield curve steepened during the period, as the five-year rate rose 4 basis points (0.04%), 10-year yields rose 9 basis points (0.09%) and 30-year yields rose 15 basis points (0.15%). We will continue to invest with the goal of providing returns that closely approximate those of the Index.

If you are an income-oriented investor who is looking to diversify your investments by gaining broad exposure to the U.S. Treasury market then this Fund may be right for you. It offers a diversified portfolio of Treasury securities approximating the Barclays U.S. Treasury Index.

Passively managed in an effort to replicate the performance and composition of the Barclays U.S. Treasury Index.
Invest substantially all (and at least 80%) of its assets in a representative sample of the U.S. Treasury obligations included in the Index.
Provide investors with a way to gain broad exposure to U.S. Treasury market.

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 March 25 with a record date of March 22. 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.