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Multi-Manager High Yield Opportunity

as of 9/30/17

Fund Commentary

The high yield corporate bond market generated a return of 2.02% during the third quarter, as measured by the BofA Merrill Lynch U.S. High Yield Master II Constrained Index. Spread compression continued to drive returns, particularly in July and September, though spreads widened modestly in August.

In terms of quality, returns within the high-yield market were led by issues rated CCC and below, followed by BB-rated securities, while B-rated securities lagged modestly. From an industry perspective, energy companies generated the strongest performance during the quarter, as oil prices rebounded. Within energy, oilfield equipment & service, refining and exploration & production companies all fared well. The utility and transportation industries also generated strong performance during the quarter. Conversely, retail and telecommunications services lagged for the period.

The Fund returned 1.94% during the quarter. Exposure to bank loans represented a headwind to the Fund’s relative performance, as loans significantly lagged high yield bonds during the quarter. This exposure is largely driven by sub-advisor DDJ Capital Management, along with fellow sub-advisor Neuberger Berman. The Fund’s positioning within the energy industry, including an overweight to gas distribution, benefited performance. Lastly, the Fund’s yield advantage over the benchmark boosted relative 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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