Bond Index Fund

Bond Index

as of March 31, 2013

The year started off on a positive note, with equity markets rallying and credit spreads tightening. Housing and autos continued to show signs of recovery, and several economic statistics came in above expectations. Toward the end of the quarter, the bank crisis in Cyprus cooled some of that optimism; however, U.S. markets remained upbeat. At its March meeting, the U.S. Federal Reserve left its benchmark short-term rate unchanged at 0.25%, and announced that it will continue its bond buying program of $85 billion each month.

After rising sharply early in 2013, interest rates eased to finish the quarter somewhat higher along most of the U.S. Treasury yield curve. The curve steepened as the two-year yield finished unchanged at 0.25%, the five-year went from 0.72% to 0.77%, the 10-year from 1.78% to 1.87% and the 30-year from 2.95% to 3.10%. On a duration-adjusted basis, the Barclays U.S. Aggregate Bond Index return of -0.12% narrowly outperformed U.S. Treasury securities for the first quarter. The credit sector was the leading performer within the Index, followed by U.S. agencies.

The Fund’s return of -0.18% closely tracked the return of the Index for the first quarter, with the difference in returns driven largely by management fees and expenses. 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.

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.

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.