Multi-Manager High Yield Opportunity Fund

Multi-Manager High Yield Opportunity

as of June 30, 2010

Risk aversion returned to markets during the second quarter of 2010 as Europe's sovereign debt crisis and credit tightening within China cast a pall over global economic recovery. During the second half of the period, spreads generally drifted wider. Though spreads tightened slightly at quarter end, they finished at levels just above the 10-year average for high yield.

The Multi-Manager High Yield Opportunity Fund returned -0.22%, compared with the Merrill Lynch High Yield Master II Constrained Index return of -0.04%. The Fund's slight underperformance originated during June, when the Fund underperformed the benchmark by 39 basis points (0.39%), driven by sub-adviser Loomis Sayles. The portfolio's increasing exposure to specific industrial convertibles detracted from relative performance given weak underlying equity returns. This led to convertible securities' valuations trending lower, particularly in the automotive, communications and pharmaceutical sectors.

Despite unfavorable recent performance and weakened technical factors for the high yield market, market fundamentals are improving: The default rate within high yield continues to decline, while credit rating upgrades are outpacing downgrades.

If you're looking for a total-return-oriented high yield fund that's designed to provide competitive performance in a broad range of market environments, you may want to consider the Multi-Manager High Yield Opportunity Fund. The highly diversified, multi-style Fund can invest in high yield corporate securities as well as foreign bonds, emerging markets, bank loans, convertibles, preferreds, mortgages, REITs, equities, munis and closed-end high yield funds. Despite the Fund's opportunistic investment strategy, it can be used as the primary high yield allocation in portfolios.

Strive to maintain a highly diversified, opportunistic investment strategy that can invest in high yield corporate securities as well as foreign bonds, emerging markets, bank loans, convertibles, preferreds, mortgages, REITs, equities, munis and closed-end high yield funds.
Select complementary manager from a broad universe of investment managers.
Blend managers into a single fund in an effort to provide the best combination of risk and return.

Not FDIC insured | May lose value | No bank guarantee

†Northern tax-exempt fixed income funds' Average Duration is calculated using the modified duration formula. Other Northern fixed income funds show the option-adjusted duration. Duration is a measure of a bond fund's sensitivity to changes in interest rates.

*Distribution rate and tax-equivalent distribution rate represent the annualization of the Fund's distributions for the prior month ending on the date shown, including capital gain distributions. The 30-day SEC yield and tax-equivalent 30-day SEC yield represent the annualization of the Fund's net investment income, excluding capital gain income. The tax-equivalent distribution rate and tax-equivalent 30-day SEC yield are based on an assumed tax rate of 38.0% for Arizona, 41.0% for California and 35.0% for national municipal funds.

**Per share paid out June 24 with a record date of June 23. The amount shown represents dividends paid for net investment income and excludes distributions from capital gain income.

*View investment term definitions

Please carefully read the prospectus and consider the investment objectives, risks, charges and expenses of Northern Funds before investing. Call 800-595-9111 to obtain a prospectus, which contains this and other information about the funds.