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as of 9/30/17

Fund Commentary

The Fund returned 0.97% for the quarter, raising its year-to-date return in 2017 to 3.84%. During the period, the Federal Reserve (Fed) left short-term rates unchanged but sent strong signals that it would begin to reduce its balance sheet in October. The Fed also stated that another rate hike in December was possible. The technical environment for municipal bonds completed a favorable summer period that saw cash from reinvestment greatly exceed new supply. Issuance thus far in 2017 has declined more than 15% from the previous year. This beneficial market dynamic, in addition to the Fund’s income flow, led to the positive return for the quarter.

Midway through the quarter, we reduced the Fund’s duration by approximately 10% in light of “overbought” market conditions, low nominal yields and expectations for an uptick in municipal issuance. The Fund also reduced its California holdings amid strong market demand, and purchased higher yielding and high quality issues from New York, Texas and Wisconsin. Credit quality remained high, with over 80% of portfolio assets rated AAA or AA. During the quarter, the Fund added one-year bonds rather than two- to five-year issues as yields on one-year bonds approached 1% and municipals out to five years did not offer a yield premium. At the same time, we looked to capture attractive yields from eight- to 10-year as well as 20-year municipals.

Going forward, we expect a high level of activity during the fourth quarter, as an uptick in supply should provide opportunities to boost the Fund’s income and total return.

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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