Multi-Manager Small Cap Fund

Multi-Manager Small Cap

as of March 31, 2013

U.S small-cap equities delivered strong performance during the quarter, with the Russell 2000® Index returning 12.39%. Healthcare and industrials were the two best-performing sectors, each advancing over 14%. The telecommunications services sector was by far the worst area, up approximately 1%. In a reversal from last year, growth outperformed value during the quarter, with the Russell 2000® Growth Index returning 13.21% compared with the Russell 2000® Value Index return of 11.63%.

The Multi-Manager Small Cap Fund underperformed during the quarter with a return of 11.81%, compared with the benchmark return of 12.39%. The Fund’s underperformance was largely due to stock selection in the consumer staples and materials sectors. Performance in the financial sector was particularly strong.

Sub-adviser performance was within expectations during the quarter. Hotchkis & Wiley was notably strong, benefiting from exceptional results in the consumer and technology areas. Following a very strong year, Riverbridge underperformed during the quarter as some of their higher-quality investments were unable to keep pace with the market’s rapid move upward. During the quarter, Allianz Global Investors Capital was removed as a sub-adviser to the Fund. Summit Creek Advisors, LLC was funded as a new sub-adviser to the Fund. Summit Creek focuses on companies with consistent and sustainable revenue and earnings growth, low financial leverage, high return on equity, strong cash flow and significant management ownership.

If you're a long-term investor looking to diversify your investments by pursuing the growth potential of small-company stocks, then this Fund may be right for you. It is intended for investors who are aware that small-company stocks are generally riskier than large-company stocks due to greater volatility and less liquidity.

Invest in small-cap stocks through a variety of external small-cap managers who have distinct investment styles and strategies.
Select complementary managers from a broad universe of investment managers.
Blend managers into a single fund in an effort to provide an attractive combination of risk and return.

Not FDIC insured | May lose value | No bank guarantee

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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.