Global Fixed Income Fund

Global Fixed Income

as of June 30, 2010

Sovereign and banking debt concerns in the euro area continued to dominate financial markets over the quarter. Risk aversion increased despite efforts to put in place a comprehensive package to stabilize markets. Downgrades by the rating agencies over the period heightened fears regarding the fiscal problems in not only Greece but also Spain and Portugal. In the currency markets the euro underperformed, hitting a four-year low against the U.S. dollar before stabilizing toward the end of the period. Government bond performance improved, with the U.S. leading the way, as yields generally moved lower outside of peripheral euro-area countries. In Europe, core bonds benefited from the move out of peripheral countries as investors looked for perceived safe havens.

The Fund's return of 0.79% trailed the benchmark. As yields fell and prices rose, our longer-than-market duration in Japan benefited performance, as did selected positions along European yield curves. With respect to currency exposures, an underweighting in the euro benefited the Fund. Underweight duration positioning as rates declined in the U.S. and the U.K. represented the primary constraint on performance.

Concerns around sovereign default risk and a potential banking crisis have led to deterioration in financial markets. There have also been signs that the momentum of the global recovery has slowed. Against this backdrop central bank monetary policy is most likely to remain accommodative for the rest of the year and into 2011. There have been no significant signs that policy tightening is imminent in the U.S., Europe, Japan or the U.K.

If you are an income-oriented investor who is looking for additional diversification and want to take advantage of the interest rate opportunities in the global marketplace, you may find this Fund suitable. It is designed for investors who are comfortable with the additional risks associated with global fixed-income investing.

Invest in a broad range of investment-grade international bonds with an average maturity, under normal circumstances, between three and 11 years.
Base investments on the investment management team's outlook for the relative economic growth, expected inflation and other economic and political prospects of each country or region.
Buy and sell securities using a relative value approach that employs models that analyze and compare expected returns and assumed risks.

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 July 26 with a record date of July 23. The amount shown represents dividends paid for net investment income and excludes distributions from capital gain income.

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.