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High Yield Municipal

as of 9/30/17

Fund Commentary

Global economic growth accelerated during the third quarter, but low inflation levels allowed major central banks to keep short-term interest rates near all-time lows. Despite modest growth and quiescent inflation in the United States, the U.S. Federal Reserve announced plans to continue removing policy accommodation by gradually reducing the size of its balance sheet and possibly raising the federal funds rate in December. U.S. Treasury yields moved slightly higher across the maturity spectrum.

Strong supply/demand factors helped municipal bonds to post positive returns in July and August, but the market edged lower in September due to an increase in U.S. Treasury yields and slower inflows into the tax-exempt market. Municipal yields ended the quarter flat-to-slightly higher and high-yield issues outperformed investment-grade municipals. Key news headlines included Illinois’ passage of a budget, continued budget impasses in Connecticut and Pennsylvania, and the significant damage from Hurricanes Harvey, Irma and Maria. Puerto Rico credits moved dramatically lower in price given the island’s precarious financial position and the devastation rendered by Hurricane Maria.

The Fund returned 1.33% and outperformed the 1.21% return of its benchmark for the quarter. The Fund benefited from the positive performance of the higher education, healthcare and transportation sectors, as well as holdings that were refinanced and prerefunded to their call dates. The Fund’s weightings in A, BBB and BB bonds posted the highest returns. A lack of exposure to Puerto Rico and an underweight in the tobacco sector also boosted performance.

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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