Fixed Income Fund

Fixed Income

as of March 31, 2013

Investor sentiment was supported by a variety of factors during the quarter. The United States avoided the worst of the much-touted "fiscal cliff," and U.S. growth accelerated as the recovery in the housing market gained traction. Seemingly endless policy accommodation by global central banks, the reduced chance of a breakup of the European Monetary Union and lessening fears of recession in China also contributed to the optimistic backdrop.

Risk assets performed well for the quarter, building on their gains of 2012. The Fund’s return of -0.10% for the quarter slightly outperformed its benchmark. An overweight position in corporate bonds was the largest contributor to performance. In addition, fundamental research added value through security selection, as the Fund’s corporate holdings appreciated significantly more than those in the Index. Our generally neutral-to-long duration relative to the benchmark during the quarter represented the largest detractor from performance.

We believe that entering the second quarter, fixed-income markets are largely focused on whether global central bank policy accommodation will continue throughout 2013. A key aspect of our constructive view on global economic growth has been the ongoing monetary policy accommodation in developed economies. Federal Reserve Chairman Ben Bernanke has made it clear that low rates and additional policy accommodation will continue until he sees a substantial improvement in the labor market. We continue to believe that corporate debt with five- to 10-year maturities offers significant value in the low interest rate environment we expect.

If you're a conservative, income-oriented investor who wants higher current income than that generally offered by the U.S. Government Fund and you're willing to assume moderately more risk in exchange, you may find this Fund suitable. This Fund can also be an appropriate choice for investors who want to broaden and diversify their fixed income portfolio.

Invest primarily in investment-grade domestic debt obligations with an average maturity, under normal circumstances, between three and 15 years, but may own, to a limited extent, securities of foreign issuers and non-investment-grade debt.
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, 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 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.