Intermediate Tax-Exempt
as of December 31, 2013
Fund Commentary
The Fund returned 0.18% for the quarter as interest rate levels were mixed and the Federal Reserve announced its long-awaited tapering of bond purchases. Longer-term tax-free yields rose slightly while shorter rates declined during the quarter. These rate moves combined to push the municipal yield curve to near-record steepness. However, the rise in rates for tax-exempts was substantially smaller than for their taxable counterparts as technical factors — low new-issue supply in particular — and institutional purchases benefited the municipal asset class. In January, the Fed will be adding $75 billion in bonds to its holdings each month compared with its previous pace of $85 billion, as the U.S. central bank’s monetary policy remains highly accommodative.

During the past three months, the Fund benefited from its high quality and ample liquidity characteristics. Higher-coupon positions continued to reduce volatility in the Fund.

The portfolio’s broad maturity structure had a neutral effect for the quarter, but we believe that the Fund is well positioned to capitalize on any yield curve flattening that 2014 may bring. As we expect market volatility to remain high, we will continue to employ an active relative-value management style.
Investor Profile

If you are an investor who favors current income exempt from regular federal income tax, this Fund may be ideal for you. It is particularly well suited for income-oriented investors in higher tax brackets willing to assume some risk. Income from the Fund may be subject to federal alternative minimum tax (AMT), state and local taxes.

Philosophy
  • Maintain a dollar-weighted average maturity range, under normal circumstances, between three and 10 years.
  • Invest in high-quality securities, primarily investment-grade debt.
  • Select investments on the basis of their relative value with a focus on total return.
 
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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 March 24 with a record date of March 21. The amount shown represents dividends paid for net investment income and excludes distributions from capital gain income.

Past performance is not indicative of future results. Institutional investor award winners are chosen by the editorial staff of Institutional Investor magazine based on their market intelligence, performance data and additional information received from the industry following a public call for nominations. Manager winners are also selected by the editors of the magazine based on the results of a survey conducted of U.S. institutional investors.

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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