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Income Equity

as of 9/30/17

Fund Commentary

The S&P 500® Index posted another quarter of solid gains, pushing the Index to new all-time highs. Market participants shrugged off geopolitical turmoil in North Korea and a series of devastating hurricanes in the U.S., instead focusing on continued global growth. The Federal Reserve announced plans to start unwinding their balance sheet along with intentions for continued gradual interest rate increases. These announcements, coupled with further progress toward U.S. tax reform, lead to an increase in inflation expectations and interest rates, benefitting financials in the quarter. Technology stocks, led by the semiconductor industry, were the strongest performers as growth stocks continued to outpace value stocks. In addition, a rebound in oil prices helped energy and materials sectors outperform the overall market.

The Income Equity Fund posted a total return of 4.74% in the third quarter, compared with 4.48% 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 while non-dividend-paying stocks outperformed. During the quarter, allocation to high-quality names had a slight negative effect on Fund performance. Stock selection more than offset the drag from yield and quality exposures and was particularly strong in the industrials, real estate and consumer discretionary 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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