Intermediate Tax-Exempt
as of June 30, 2014
Fund Commentary
During the second quarter of 2014, a constructive technical backdrop continued to support the municipal market. Specifically, demand from individual investors has been growing, with higher taxes and demographics both contributing positively to this environment. In addition to individual demand, institutional demand from insurance companies, banks and nontraditional buyers continued to expand. Supply conditions have also been supportive, as state and local governments have been issuing debt at a significantly slower pace versus 2013.

The Fund returned 1.86% in the second quarter, building on a strong first quarter for a year-to-date return of 4.45%. The Fund was well-positioned for the rally in municipals from both a duration and yield curve positioning standpoint. In particular, the Fund benefited from a broad maturity structure as the yield curve flattened and longer-term issues outperformed. Going forward, we expect to maintain a more neutral duration in the four-year range, with new purchases focused in the seven-year segment.

New York-domiciled issuers continue to offer attractive spreads and remain a focus of the Fund for their total return potential. The strong rally so far in 2014 has tightened credit spreads in the municipal market. Given current spreads, the Fund is predominantly positioned in higher investment-grade holdings, with over 90% of holdings rated AAA or AA. An uptick in supply late in the second quarter and potential transactions upcoming may offer opportunities to add quality single-A holdings in sectors such as airports and public power.
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.

  • 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 June 24 with a record date of June 23. 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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