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as of 12/31/17

Fund Commentary

Tax reform discussions dominated the market throughout the fourth quarter. December issuance totaled $64 billion, an all-time record, as issuers rushed to market ahead of tax law changes affecting municipal issuers. In 2018 the tax exemption for advance refunding debt will be eliminated. This led to a rush of tax-free refinancing in December. Supply was both priced to sell and in a sense borrowed from 2018 so investors' demand was high. Individual demand for municipals going forward will be mostly unaffected by tax reform as status quo treatment of tax-free municipal income was preserved.

The Fund returned 0.95% for the quarter and returned 4.83% for calendar year 2017. Longer maturity bonds, 15 years or more, led the returns for the quarter and the calendar year. The Fund's duration was 5 to 10 percent lower than normal due to the heavy supply but the Fund still actively participated in deals to benefit shareholders. It was quite a bifurcated market, new supply was priced in the primary market at a meaningful discount to the secondary market in order to attract buyers as broker-dealers/underwriters had very little interest in adding risk near year end.

The Fund maintains a high credit quality profile as we start 2018 with over 80 percent of holdings being AAA- or AA-rated. Supply should be light to start the year then build into February and March. The Fund will look to add attractive intermediate tax free yields at that time. In the meantime, elevated short term yields, 3 years or less, provide a reasonable conservative tax-free income stream.

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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