Short-Intermediate U.S. Government Fund

Short-Intermediate U.S. Government

as of March 31, 2013

In a development reminiscent of what occurred during the past several years, economic data came in better than expected during the first quarter. In combination with improved investor risk appetite, signs of stronger growth led investors to question whether the Federal Reserve would have to reverse its highly accommodative monetary policy sooner than they had anticipated. Gross Domestic Product (GDP) estimates were revised upward, and retail sales, housing and employment statistics all came in above expectations. These factors led intermediate- and longer-term rates to climb steadily higher in January and February.

In the final weeks of the period, however, the environment shifted considerably. First, the Italian election surprised the markets with the rise of the anti-euro/anti-austerity Five Star party. Shortly after, Cyprus faced the threat of bank-deposit flight. These developments led investors to reassess the widely held view that Europe was out of the woods. In addition, U.S. economic data began to slip somewhat in the final weeks of the quarter. The 10-year Treasury yield closed March at 1.85%, well off of its early March peak of 2.06%, but above the 1.75% level at which it closed 2012.

The Fund returned -0.41% and underperformed its benchmark due to its yield curve and duration positioning. Our overweight to mortgage-backed securities also detracted from performance.

If you're a conservative investor who prefers the income and quality offered by government securities, you may find this Fund attractive. It is best suited for income-oriented investors who prefer low risk.

Invest primarily in securities issued or guaranteed by the U.S. government or by its agencies.
Select high-quality securities with maturities, under normal circumstances, between two and five years, with risk exposure managed in an effort to achieve reasonable returns.
Buy and sell securities using a relative value approach that employs models that analyze and compare expected returns and assumed risks.

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.