as of June 30, 2014
Fund Commentary
The U.S bond market performed well during the second quarter, building on its gain from the first three months of the year. The Barclays U.S. Aggregate Bond Index — the Fund’s benchmark — returned 2.04%, bringing its year-to-date return to 3.93%. The U.S. Federal Reserve continued to taper the extent of the bond-buying program known as quantitative easing, but it appears that the central bank will not raise interest rates until the middle of next year. U.S. economic growth rebounded from its weather-related first quarter slowdown, but investors remained confident that growth will stay sufficiently restrained for the Fed to maintain its accommodative policies.

The yield curve flattened during the second quarter, indicating outperformance for longer-term bonds. The gap between the two- and 10-year notes fell by 23 basis points (0.23%). The yield on the two-year note increased by four basis points (0.04%), while the yield on the 10-year decreased by 19 basis points (0.19%) and the 30-year yield decreased by 20 basis points (0.20%). Mortgage-backed securities were the top-performing sector within the Index, followed by corporate bonds. Market participants continued to search for yield, fueling heavy inflows of cash into higher risk market segments.

The Fund returned 2.02% during the second quarter, closely tracking the benchmark. We 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.

Philosophy
  • 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 May 27 with a record date of May 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.

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