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Bond Index

as of 12/31/17

Fund Commentary

The fourth quarter saw the rally continue in risk assets. Credit spreads tightened in October, softened somewhat in November, but then resumed tightening for the rest of the quarter. The equity markets set another record high during the quarter and finished the year near record highs. In December, the Federal Reserve (Fed) raised its benchmark rate for a third time this year and also stated that the monthly balance sheet reduction would increase to $20 billion from $10 billion. The quarter ended with the tax reform passing and the markets being optimistic about the New Year.

The U.S. Treasury yield curve flattened during the fourth quarter, with the two-year to 10-year spread flattening by 33 basis points (0.33%) and the 10-year to 30-year spread flattening by 19 basis points (0.19%). The yield on the two-year note increased by 40 basis points (0.40%), while the 10-year increased by 7 basis points (0.07%) and the yield on the 30-year decreased by 12 basis points (0.12%) during the quarter. On a duration adjusted basis, the Bloomberg Barclays U.S. Aggregate Bond Index return of 0.39% outperformed U.S. Treasury securities for the fourth quarter. The credit sector was the best performing sector for the period followed by the commercial mortgage-backed securities sector.

The Fund's return of 0.38% closely tracked the returns of the Index for the fourth quarter. We will continue to invest in a sample of securities that are representative of the Index in an effort to provide returns that closely approximate those of the Index.

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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