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Multi-Manager High Yield Opportunity

as of 12/31/17

Fund Commentary

The high yield market ended 2017 on a positive note, returning 0.41% during the fourth quarter as measured by the ICE BofA Merrill Lynch U.S. High Yield Master II Constrained Index. Positive market sentiment was driven by lessening macro concerns and optimism about tax reform; this was offset somewhat by sector-specific issues that occurred in November.

In terms of quality, all high yield segments generated positive returns. Issues rated CCC and below led performance returning 0.89%, followed by the B-rated and BB-rated securities returning 0.39% and 0.35%, respectively. From an industry perspective, utilities, energy and banking led performance during the fourth quarter. Conversely, telecommunications services was the bottom performer as a much anticipated merger fell through. Consumer goods and media were also weaker performing industries.

The Fund returned 0.61% for the quarter, outperforming the 0.41% return of the ICE BofA Merrill Lynch U.S. High Yield Master II Constrained Index. Exposure to bank loans was a modest benefit to the Fund's relative performance, as loans outperformed bonds during the quarter. This exposure was largely driven by sub-adviser DDJ Capital Management, along with fellow sub-adviser Neuberger Berman. The Fund's overweight to CCC and below rated bonds also boosted performance. Conversely, an overweight to the healthcare industry detracted from relative returns.

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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