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Income Equity

as of 12/31/17

Fund Commentary

The S&P 500® Index finished 2017 with the largest quarterly gain of the year, once again making new all-time highs. U.S. tax reform was passed by congress late in the quarter, paving the way for increasing earnings growth expectations for 2018. Increasing inflation expectations and gradual Federal Reserve tightening pushed interested rates slightly higher during the quarter. Higher yielding sectors of the market such as utilities, real estate and telecommunications services lagged the broader market for the quarter. Sectors more sensitive to a decreasing corporate tax rate, such as consumer discretionary and financials outperformed during the quarter.

The Income Equity Fund posted a total return of 7.21% in the fourth quarter, compared with 6.64% for the Fund's benchmark, the S&P 500® Index. We generally invest in high-quality, income-producing stocks, which we believe will generate above-market returns. The Fund's allocation to higher-dividend-yielding securities detracted from performance, as these stocks lagged the market. During the quarter, allocation to high-quality names had a positive effect on Fund performance. Stock selection added to fund performance and was particularly strong in the financials and energy sectors.

Looking ahead, we will continue to focus on identifying high-quality, dividend-paying companies. We will maintain our exposure to companies that exhibit prudent use of shareholder capital, focusing on total return. We believe the Fund is well positioned to provide an elevated level of income, generated from a diversified basket of stocks that offer opportunities to outperform over the long term.

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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