Ultra-Short Fixed Income Fund

Ultra-Short Fixed Income

as of March 31, 2013

The Federal Reserve’s policy pronouncements supported investor acceptance of risk assets during the first quarter. Thus, demand for investment-grade bonds with maturities of up to three years continued to display strength, with new-issue supply oversubscribed. Domestically, investors once again envisioned economic "green shoots," showing additional confidence that the slow-but-sure recovery remains in place. Although flashes of economic strength caused the yield curve to steepen during the quarter, we saw another buying opportunity. At quarter end, a "flight-to-quality" — and a commensurate Treasury rally — was spurred by eurozone "bad bank" issues in Cyprus.

Overall, the Fund experienced a positive quarter with a total return of 0.28%, versus a return of 0.07% for the benchmark. We continue to emphasize a diversified selection of fixed- and floating-rate investment-grade corporate bonds, supplemented by asset-backed issues and callable U.S. government securities.

The second quarter promises to revisit political questions that impact risk assets, notably the still unresolved domestic spending issues and the looming debt ceiling deadline, which has been pushed back to mid-May. While we anticipate market volatility, we also expect investor appetite for yield to continue unabated. With the overlay of the Fed’s "lower-for-longer" policy on interest rates, we have maintained a duration longer than our one-year neutral target to take advantage of the slope of the yield curve in the current fixed-income environment.

If you're seeking an investment that may generate higher yields than money market funds with less volatility than short duration bond funds, this Fund may be appropriate for you. The Fund, which has a $250,000 initial investment minimum, is intended for investors with an investment horizon of at least one year who are seeking to move a portion of their money market fund assets.

The Fund is not a money market fund, which maintains a $1.00 NAV, and the Fund's share price will fluctuate with its returns.

Seek to yield more than a money market fund with potential for capital appreciation.
Strive to maintain a 6-18 month average maturity, under normal circumstances, with a maximum security maturity of three years.
Manage Fund in an effort to have an average portfolio quality of A or better, with all securities to be investment grade.

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.