Intermediate Tax-Exempt Fund

Intermediate Tax-Exempt

as of March 31, 2013

Municipal bond yields remained relatively stable during the first quarter, which is reflected in the Fund’s return of 0.01% for the period. Longer-intermediate rates rose, while shorter-intermediate rates declined. This market action led to a "steepening" of the municipal yield curve. The technical backdrop for the market was positive, as demand remained steady and supply was limited at times. While there was an abundance of rhetoric from Washington regarding potential changes to laws related to municipal bond tax exemption, higher marginal tax rates for wealthy investors fueled increased demand for municipals. In the current, low-rate environment, the after-tax benefit of tax-free municipal bonds became more pronounced following the rate increases.

Midway through the quarter, we reduced portfolio duration to prepare for upcoming transactions and the potential for increased market volatility. We also maintained a high quality profile, as well as ample liquidity for what we believe will be increased municipal issuance during the second quarter. In addition, we altered the Fund’s broad maturity structure, selling a minor percentage of longer-term and very short-term holdings, and purchasing bonds with seven- to 10-year maturities. We felt that the intermediate-maturity range offered opportunities due to its attractive risk/return characteristics and the potential for rising demand from nontraditional buyers, given that yields of intermediate-term bonds exceeded those of U.S. Treasuries with similar maturities on a pre-tax basis.

Going forward, we may use the second quarter as an opportunity to position the Fund for a potentially positive technical summer period for the municipal bond market.

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.

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.

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 April 24 with a record date of April 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.