International Equity Fund

International Equity

as of March 31, 2013

Non-U.S. stocks continued to rally during the first quarter, driven primarily by strong results in Japan, where efforts to reverse two decades of deflation by expanding the money supply and weakening the yen boosted local market stock returns. Economic conditions in the eurozone remained fragile. European Central Bank programs that brought some stabilization to the region’s bond and banking markets were offset by Cyprus’s banking crisis. In China, rising consumer prices dragged down stock market results, while elsewhere in the emerging markets, Brazil’s continued economic slowdown dragged down performance in Latin America.

The International Equity Fund posted a total return of 4.02% for the quarter, compared with 5.13% for the Fund’s benchmark, the MSCI EAFE® Index. Stock selection in the financial services and consumer discretionary sectors and an underweight in consumer staples detracted from relative results. Stock selection in the industrials, telecommunications services and energy sectors contributed positively. In terms of industries, our positions in European aerospace companies and select Japan-based exporters led the way, while steel manufacturers and iron ore producers were among the largest detractors.

We expect the world’s leading central banks to continue to ease funding pressures and stimulate economic growth. We also believe company-specific fundamentals should regain prominence, leading to less “risk-on/risk-off” trading. These factors should help create a more favorable environment for our stock selection efforts, which emphasize fundamental research to identify stocks the market has mispriced. We seek to hold these undervalued stocks until they reach what our research identifies as their intrinsic value.

If you are a growth-oriented investor who is interested in the opportunities and portfolio diversification international investing offers, you may find this Fund suitable. You should have a more aggressive risk profile and be able to tolerate the above-average volatility and special risks that investing in foreign markets entails.

Seek outstanding companies through fundamental research that is based on a deep understanding of industry and sector dynamics.
Combine creativity in stock analysis and selection with intelligent portfolio construction.
Seek to provide consistent results through disciplined risk management.

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.