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Small Cap Index

as of 12/31/17

Fund Commentary

In the fourth quarter of 2017, the Russell 2000® Index returned 3.34%. Small cap equities underperformed large cap equities, as measured by the Russell 1000 Index, which returned 6.59% in the fourth quarter.

The top-performing sectors over this time period were consumer discretionary and consumer staples, returning 7.76% and 7.21%, respectively. Telecommunications services and real estate were the worst-performing sectors for the quarter, with returns of -3.50% and -0.50%, respectively.

The top-performing securities over this time period were Verso Corp Class A and AnaptysBio, Inc., returning 245.19% and 188.18%, respectively. Iconix Brand Group, Inc. and Wins Finance Holdings, Inc. were the worst-performing securities for this quarter, with returns of -77.33% and -71.71%, respectively. Small capitalization equities can tend to be more volatile both to the up and down side which can help explain the significant movement in individual names for the quarter.

The Small Cap Index Fund returned 3.32% for the fourth quarter which was in-line with its benchmark, the Russell 2000 Index, which returned 3.34% for the quarter. U.S. equities in the fourth quarter of 2017 continued to rally off of the strong first three quarters of the year. The S&P 500 Index posted, for the first time ever, positive performance in each of the twelve months of a calendar year, pushing the index to new all-time highs for the quarter, and keeping volatility near all-time lows. Market participants continued to shrug off geopolitical turmoil in North Korea and the Middle East, and instead focused on continued global growth. The fourth quarter also saw the Federal Reserve begin the process of unwinding their balance sheet while keeping with intentions for continued gradual interest rate increases. These announcements, coupled with the late year passing of U.S. tax reform, lead to an increase in market optimism and interest rates, benefitting equities on the whole.

Holdings are subject to change and current and future portfolio holdings are subject to risk.

Not FDIC insured | May lose value | No bank guarantee

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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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