Multi-Manager Emerging Markets Equity Fund

Multi-Manager Emerging Markets Equity

as of June 30, 2010

Emerging market stocks declined more than 8% during the second quarter, as Europe's sovereign debt crisis and further credit tightening within China cast doubt on the pace of global economic growth. The majority of markets fell, although some smaller markets in Asia and Latin America posted gains. Energy and materials stocks helped to drag down returns as the prices of most commodities declined. Consumer-related stocks held up best, in particular Asian automakers.

The Multi-Manager Emerging Markets Fund finished the quarter ahead of the benchmark, returning -7.72% versus the benchmark return of -8.37%. On a relative basis, the Fund benefited from both favorable stock selection and sector positioning. Stock selection was particularly strong within Brazil and the Pacific region. From a sector perspective, results in the technology and financials sectors exceeded the benchmark. Sub-adviser Westwood Global Investments registered notable relative strength, outperforming the benchmark by more 300 basis points (3.0%). Much of their outperformance came from technology and consumer discretionary holdings. At period end, the Fund was underweight China and overweight the Middle East and Africa.

During the three-month period, markets displayed heightened investor caution. Following robust returns in 2009, the MSCI Emerging Markets Index is down more than 6% year-to-date. Markets have become more discriminating, making a sound investment process more critical than ever. Year-to-date, the Fund has outperformed its benchmark by over 70 basis points (0.70%), demonstrating the benefits of diversification in difficult markets.

If you're a long-term investor looking to diversify your investments by pursuing the growth potential of emerging and frontier market equities, then this Fund may be right for you. It is intended for investors who are aware that foreign markets may involve additional risks, such as social and political instability, reduced market liquidity and currency volatility.

Investing in emerging markets entails extra risk. The securities markets of emerging countries are less liquid, more volatility, and less regulated than the markets of more developed countries. This risk is magnified in frontier countries since they generally have smaller economies or less developed capital markets than traditional emerging markets.

Invest at least 80% of net assets in equity securities of emerging and frontier markets—emerging and frontier markets are defined as markets in MSCI Emerging Markets Index and MSCI Frontier Markets Index.
Select complementary managers 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

*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.