NORTHERN TAX-EXEMPT FIXED INCOME FUNDS

Transcription

1 NORTHERN TAX-EXEMPT FIXED INCOME FUNDS S EMIANNUAL REPORT SEPTEMBER 30, 2017

2 A MESSAGE FROM BOB BROWNE CHIEF INVESTMENT OFFICER Despite accelerating economic growth and policy tightening by the U.S. Federal Reserve, bonds performed well during the semiannual (six-month) period ended September 30, Both rate- and credit-sensitive market segments participated in the gains, as measured by returns of 2.31% for the Bloomberg Barclays U.S. Aggregate Bond Index and 4.19% for the Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Index. Bonds performance for the six-month period ended September 30, 2017, benefited from favorable timing. When the period began in March 2017, the financial markets were still discounting a substantial shift toward growth-oriented policies in Washington, D.C. However, as spring turned to summer, it became apparent that the Republican Party would have greater difficulty in enacting its agenda than first thought. The result was a gradual decline in the 10-year U.S. Treasury yield from 2.40% on March 31, 2017 to its eventual low of 2.05% on September 7, Much of this positive performance was erased over the remainder of September, 2017 due to revived hopes for U.S. tax reform, but the 10-year issues nonetheless finished the period in positive territory. The yield curve flattened, indicating outperformance for longer-term bonds. Investment-grade corporate bonds posted solid gains and comfortably outpaced U.S. Treasuries. A backdrop of accelerating growth, stronger corporate earnings and improving balance sheets gave investors confidence to take on more risk in order to earn higher yields in corporate issues. High-yield bonds, while benefiting from the same trends, lagged investment-grade corporates. Yield spreads relative to Treasuries moved to the low end of their historical range during late 2016 and early 2017, limiting the potential upside from price appreciation. However, fundamentals remained supportive, with bond default rates trending lower after a temporary increase that followed the downturn in energy prices. In addition, the corporate bond market to function well, with ample liquidity. For their part, municipal bonds registered robust total returns due to a combination of low new-issue supply and improvement in the health of state and local finances. As we move toward 2018, the direction of Federal Reserve policy remains one of the key points of focus for the fixed-income market. On one hand, a persistent lack of U.S. inflation has raised questions as to whether the Federal Reserve will be able to maintain its desired pace for tightening monetary policy. Current estimates of core personal consumption expenditures the Federal Reserve s most important inflation measure show an annual increase of just 1.4%, quite a distance from the central bank s 2% goal. The end result will likely be a very gradual approach to increasing interest rates, which should be positive for fixed-income markets. At the same time, the Federal Reserve has announced its intention to begin shrinking its $4.5 trillion balance sheet. While it is likely to pursue this shift in a gradual fashion, there was no precedent for the scale of previous policy support from quantitative easing meaning that there is also no blueprint for reducing it. As the Federal Reserve begins to reduce its balance sheet, we can expect some fits and starts since turning points are difficult to diagnose. However, central banks are loath to unwind too rapidly after having done the hard work of engineering an enduring recovery. We therefore expect Federal Reserve policy to remain a source of uncertainty, but we also anticipate that the central bank will stay focused on reducing its monetary accommodation in a slow and transparent manner designed to minimize market disruptions. Bob Browne Chief Investment Officer Northern Trust

3 TAX-EXEMPT FIXED INCOME FUNDS TABLE OF CONTENTS 2 STATEMENTS OF ASSETS AND LIABILITIES 4 STATEMENTS OF OPERATIONS 6 STATEMENTS OF CHANGES IN NET ASSETS 8 FINANCIAL HIGHLIGHTS 15 SCHEDULES OF INVESTMENTS 15 ARIZONA TAX-EXEMPT FUND Ticker Symbol: NOAZX This report has been prepared for the general information of Northern Funds shareholders. It is not authorized for distribution to prospective investors unless accompanied or preceded by a current Northern Funds summary prospectus or prospectus, which contains more complete information about the Northern Funds investment objectives, risks, fees and expenses. Investors are reminded to read a summary prospectus or prospectus carefully before investing or sending money. This report contains certain forward-looking statements about factors that may affect the performance of Northern Funds in the future. These statements are based on Northern Funds management predictions and expectations concerning certain future events, such as performance of the economy as a whole and of specific industry sectors, changes in the levels of interest rates, the impact of developing world events, and other factors. Management believes these forwardlooking statements to be reasonable, although they are inherently uncertain and difficult to predict. Actual events may cause adjustments in Northern Funds management strategies from those currently expected to be employed. 19 CALIFORNIA INTERMEDIATE TAX-EXEMPT FUND Ticker Symbol: NCITX 27 CALIFORNIA TAX-EXEMPT FUND Ticker Symbol: NCATX 32 HIGH YIELD MUNICIPAL FUND Ticker Symbol: NHYMX 41 INTERMEDIATE TAX-EXEMPT FUND Ticker Symbol: NOITX 61 SHORT-INTERMEDIATE TAX-EXEMPT FUND Ticker Symbol: NSITX 75 TAX-EXEMPT FUND Ticker Symbol: NOTEX 88 NOTES TO THE FINANCIAL STATEMENTS 96 FUND EXPENSES 98 APPROVAL OF MANAGEMENT AGREEMENT 104 FOR MORE INFORMATION Northern Funds are distributed by Northern Funds Distributors, LLC, Three Canal Plaza, Suite 100, Portland, Maine 04101, not affiliated with Northern Trust. NOT FDIC INSURED May lose value / No bank guarantee NORTHERN FUNDS SEMIANNUAL REPORT 1 TAX-EXEMPT FIXED INCOME FUNDS

4 TAX-EXEMPT FIXED INCOME FUNDS STATEMENTS OF ASSETS AND LIABILITIES Amounts in thousands, except per share data ASSETS: ARIZONA TAX-EXEMPT FUND CALIFORNIA INTERMEDIATE TAX-EXEMPT FUND CALIFORNIA TAX-EXEMPT FUND Investments, at value $106,357 $462,252 $163,526 Investments in affiliates, at value 14,070 11,828 15,390 Interest income receivable 1,069 5,017 1,680 Receivable for securities sold 2,498 3,033 Receivable for fund shares sold Receivable from investment adviser Prepaid and other assets TotalAssets 121, , ,670 LIABILITIES: Payable for securities purchased 7,616 1,499 Payable for when-issued securities 10,449 1,063 1,588 Payable for fund shares redeemed Distributions payabletoshareholders Payable to affiliates: Management fees Custody fees Shareholder servicing fees Transfer agent fees 1 1 Trustee fees Accrued other liabilities Total Liabilities 10,806 8,932 3,237 Net Assets $110,867 $472,748 $180,433 ANALYSIS OF NET ASSETS: Capital stock $108,068 $461,371 $171,372 Accumulated undistributed net investment loss (10) (4) (2) Accumulated undistributed net realized gain (loss) (1,342) (3,947) (2,116) Net unrealized appreciation 4,151 15,328 11,179 Net Assets $110,867 $472,748 $180,433 Shares Outstanding ($.0001 par value, unlimited authorization) 10,390 44,193 15,511 Net Asset Value, Redemption and Offering Price Per Share $10.67 $10.70 $11.63 Investments, at cost $102,206 $446,924 $152,347 Investments in affiliates, at cost 14,070 11,828 15,390 TAX-EXEMPT FIXED INCOME FUNDS 2 NORTHERN FUNDS SEMIANNUAL REPORT

5 SEPTEMBER 30, 2017 (UNAUDITED) HIGH YIELD MUNICIPAL FUND INTERMEDIATE TAX-EXEMPT FUND SHORT- INTERMEDIATE TAX-EXEMPT FUND TAX-EXEMPT FUND $455,314 $2,491,474 $978,059 $996,246 4, ,281 94,198 77,998 6,698 25,763 10,347 11,426 12,291 16, , , ,652 2,820,879 1,082,899 1,103,374 17,499 17,889 8,554 63,947 23,627 41, ,299 83,137 42,290 51,046 $465,353 $2,737,742 $1,040,609 $1,052,328 $485,987 $2,707,673 $1,029,927 $1,032,676 (199) (277) (256) (47,274) (14,515) 1,245 (8,371) 26,640 44,783 9,714 28,279 $465,353 $2,737,742 $1,040,609 $1,052,328 52, , ,454 98,496 $8.82 $10.55 $10.36 $10.68 $428,674 $2,446,691 $968,345 $967,967 4, ,281 94,198 77,998 NORTHERN FUNDS SEMIANNUAL REPORT 3 TAX-EXEMPT FIXED INCOME FUNDS

6 TAX-EXEMPT FIXED INCOME FUNDS STATEMENTS OF OPERATIONS Amounts in thousands INVESTMENT INCOME: ARIZONA TAX-EXEMPT FUND CALIFORNIA INTERMEDIATE TAX-EXEMPT FUND Interest income $1,724 $7,107 Dividend income from investments in affiliates Total Investment Income 1,764 7,169 EXPENSES: Management fees 228 1,016 Custody fees Transfer agent fees 8 36 Registration fees 8 6 Printing fees 8 8 Professional fees Shareholder servicing fees Trustee fees 5 5 Other 6 7 Total Expenses 322 1,178 Less expenses reimbursedby investment adviser (76) (108) Net Expenses 246 1,070 Net Investment Income 1,518 6,099 NET REALIZED AND UNREALIZED GAINS (LOSSES): Net realized gains (losses) on: Investments Net changes in unrealized appreciation on: Investments 895 4,944 Net Gains 1,292 5,599 Net Increase in Net Assets Resulting from Operations $2,810 $11,698 TAX-EXEMPT FIXED INCOME FUNDS 4 NORTHERN FUNDS SEMIANNUAL REPORT

7 FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2017 (UNAUDITED) CALIFORNIA TAX-EXEMPT FUND HIGH YIELD MUNICIPAL FUND INTERMEDIATE TAX-EXEMPT FUND SHORT- INTERMEDIATE TAX-EXEMPT FUND TAX-EXEMPT FUND $3,298 $11,223 $34,076 $8,073 $19, ,353 11,279 35,054 8,502 19, ,831 5,826 2,258 2, ,966 6,619 2,501 2,549 (105) (57) (393) (131) (135) 411 1,909 6,226 2,370 2,414 2,942 9,370 28,828 6,132 16, (2,095) 21,288 2,425 6,240 1,698 9,478 18, ,332 2,327 7,383 39,637 2,977 13,572 $5,269 $16,753 $68,465 $9,109 $30,338 NORTHERN FUNDS SEMIANNUAL REPORT 5 TAX-EXEMPT FIXED INCOME FUNDS

8 TAX-EXEMPT FIXED INCOME FUNDS STATEMENTS OF CHANGES IN NET ASSETS ARIZONA TAX-EXEMPT FUND CALIFORNIA INTERMEDIATE TAX-EXEMPT FUND Amounts in thousands SEP 30, 2017 MAR 31, 2017 SEP 30, 2017 MAR 31, 2017 OPERATIONS: Net investment income $1,518 $3,141 $6,099 $12,338 Net realized gains (losses) 397 (897) 655 (1,283) Net change in unrealized appreciation (depreciation) 895 (3,336) 4,944 (16,769) Net Increase (Decrease) in Net Assets Resulting from Operations 2,810 (1,092) 11,698 (5,714) CAPITAL SHARE TRANSACTIONS: Net increase (decrease) in net assets resulting from capital share transactions 6,647 (984) (3,177) (15,044) Net Increase (Decrease) in Net Assets Resulting from Capital Share Transactions 6,647 (984) (3,177) (15,044) DISTRIBUTIONS PAID: From net investment income (1,518) (3,141) (6,099) (12,338) From net realized gains (1,350) (4,730) Total Distributions Paid (1,518) (4,491) (6,099) (17,068) Total Increase (Decrease) in Net Assets 7,939 (6,567) 2,422 (37,826) NET ASSETS: Beginning of period 102, , , ,152 End of period $110,867 $102,928 $472,748 $470,326 Accumulated Undistributed Net Investment Loss $(10) $(10) $(4) $(4) TAX-EXEMPT FIXED INCOME FUNDS 6 NORTHERN FUNDS SEMIANNUAL REPORT

9 FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2017 (UNAUDITED) OR THE FISCAL YEAR ENDED MARCH 31, 2017 SEP 30, 2017 CALIFORNIA TAX-EXEMPT FUND MAR 31, 2017 SEP 30, 2017 HIGH YIELD MUNICIPAL FUND MAR 31, 2017 SEP 30, 2017 INTERMEDIATE TAX-EXEMPT FUND MAR 31, 2017 SEP 30, 2017 SHORT- INTERMEDIATE TAX-EXEMPT FUND MAR 31, 2017 SEP 30, 2017 TAX-EXEMPT FUND MAR 31, 2017 $2,942 $5,795 $9,370 $21,714 $28,828 $61,415 $6,132 $13,124 $16,766 $33, (1,367) (2,095) (9,446) 21,288 (12,112) 2, ,240 (7,235) 1,698 (6,792) 9,478 (18,226) 18,349 (76,755) 552 (14,773) 7,332 (32,918) 5,269 (2,364) 16,753 (5,958) 68,465 (27,452) 9,109 (1,201) 30,338 (6,405) 250 (1,657) (18,866) (71,396) (54,464) (273,666) (9,618) (97,190) (38,500) 53, (1,657) (18,866) (71,396) (54,464) (273,666) (9,618) (97,190) (38,500) 53,760 (2,943) (5,795) (9,369) (21,715) (28,828) (61,415) (6,132) (13,132) (16,766) (33,748) (2,068) (45,383) (1,776) (1,079) (2,943) (7,863) (9,369) (21,715) (28,828) (106,798) (6,132) (14,908) (16,766) (34,827) 2,576 (11,884) (11,482) (99,069) (14,827) (407,916) (6,641) (113,299) (24,928) 12, , , , ,904 2,752,569 3,160,485 1,047,250 1,160,549 1,077,256 1,064,728 $180,433 $177,857 $465,353 $476,835 $2,737,742 $2,752,569 $1,040,609 $1,047,250 $1,052,328 $1,077,256 $(2) $(1) $ $(1) $(199) $(199) $(277) $(277) $(256) $(256) NORTHERN FUNDS SEMIANNUAL REPORT 7 TAX-EXEMPT FIXED INCOME FUNDS

10 TAX-EXEMPT FIXED INCOME FUNDS FINANCIAL HIGHLIGHTS ARIZONA TAX-EXEMPT FUND Selected per share data SIX MONTHS ENDED SEP 30, 2017 (UNAUDITED) FISCAL YEAR ENDED MAR 31, 2017 FISCAL YEAR ENDED MAR 31, 2016 FISCAL YEAR ENDED MAR 31, 2015 FISCAL YEAR ENDED MAR 31, 2014 FISCAL YEAR ENDED MAR 31, 2013 Net Asset Value, Beginning of Period $10.54 $10.96 $10.93 $10.66 $11.03 $10.91 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income Net realized and unrealized gains (losses) 0.13 (0.30) (0.33) 0.26 Total from Investment Operations 0.29 (0.01) LESS DISTRIBUTIONS PAID: From net investment income (0.16) (0.29) (0.34) (0.36) (0.36) (0.35) From net realized gains (0.12) (0.06) (0.03) (0.04) (0.14) Total Distributions Paid (0.16) (0.41) (0.40) (0.39) (0.40) (0.49) Net Asset Value, End of Period $10.67 $10.54 $10.96 $10.93 $10.66 $11.03 Total Return (1) 2.79% (0.17)% 4.06% 6.26% 0.41% 5.63% SUPPLEMENTAL DATA AND RATIOS: Net assets, in thousands, end of period $110,867 $102,928 $109,495 $90,046 $78,914 $120,839 Ratio to average net assets of: (2) Expenses, net of reimbursements and credits 0.46% (3) 0.46% (3) 0.46% 0.46% (3) 0.45% (3) 0.45% (3) Expenses, before reimbursements and credits 0.61% 0.62% 0.59% 0.70% 0.96% 0.93% Net investment income, net of reimbursements and credits 2.86% (3) 2.65% (3) 3.17% 3.32% (3) 3.38% (3) 3.16% (3) Net investment income, before reimbursements and credits 2.71% 2.49% 3.04% 3.08% 2.87% 2.68% Portfolio Turnover Rate 33.99% 83.45% 60.73% 85.31% 30.69% 34.54% (1) (2) (3) Assumes investment at net asset value at the beginning of the period, reinvestment of all dividends and distributions, and a complete redemption of the investment at net asset value at the end of the period. The total return is not annualized for periods less than one year. Annualized for periods less than one year. The net expenses and net investment income ratios include additional reimbursements of management or advisory fees, as applicable, incurred in connection with the investment of uninvested cash in affiliated money market funds of approximately $7,000 which represents less than 0.01 percent of average net assets for the six months ended September 30, 2017, approximately $16,000, which represents less than 0.02 percent of average net assets for the fiscal year ended March 31, 2017, and less than $1,000, which represents less than percent of average net assets for each of the fiscal years ended March 31, 2015 and 2014, and approximately $2,000, which represents less than percent of average net assets for the fiscal year ended March 31, 2013, respectively. Absent the additional reimbursements, net investment income and reimbursements would have been decreased and net expenses would have been increasedbya corresponding amount. TAX-EXEMPT FIXED INCOME FUNDS 8 NORTHERN FUNDS SEMIANNUAL REPORT

11 CALIFORNIA INTERMEDIATE TAX-EXEMPT FUND SIX MONTHS ENDED SEP 30, 2017 Selected per share data (UNAUDITED) FISCAL YEAR ENDED MAR 31, 2017 FISCAL YEAR ENDED MAR 31, 2016 FISCAL YEAR ENDED MAR 31, 2015 FISCAL YEAR ENDED MAR 31, 2014 FISCAL YEAR ENDED MAR 31, 2013 Net Asset Value, Beginning of Period $10.57 $11.03 $10.90 $10.57 $10.84 $10.74 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income Net realized and unrealized gains (losses) 0.13 (0.36) (0.25) 0.23 Total from Investment Operations 0.27 (0.10) LESS DISTRIBUTIONS PAID: From net investment income (0.14) (0.26) (0.28) (0.28) (0.30) (0.33) From net realized gains (0.10) (0.02) (0.02) (0.12) Total Distributions Paid (0.14) (0.36) (0.30) (0.28) (0.32) (0.45) Net Asset Value, End of Period $10.70 $10.57 $11.03 $10.90 $10.57 $10.84 Total Return (1) 2.54% (0.87)% 4.03% 5.84% 0.54% 5.17% SUPPLEMENTAL DATA AND RATIOS: Net assets, in thousands, end of period $472,748 $470,326 $508,152 $476,061 $359,151 $411,822 Ratio to average net assets of: (2) Expenses, net of reimbursements and credits 0.45% (3) 0.45% (3) 0.45% 0.45% (3) 0.45% (3) 0.45% (3) Expenses, before reimbursements and credits 0.50% 0.51% 0.50% 0.58% 0.86% 0.86% Net investment income, net of reimbursements and credits 2.58% (3) 2.42% (3) 2.59% 2.61% (3) 2.90% (3) 2.92% (3) Net investment income, before reimbursements and credits 2.53% 2.36% 2.54% 2.48% 2.49% 2.51% Portfolio Turnover Rate 21.30% 64.62% 81.80% % 98.76% 55.59% (1) (2) (3) Assumes investment at net asset value at the beginning of the period, reinvestment of all dividends and distributions, and a complete redemption of the investment at net asset value at the end of the period. The total return is not annualized for periods less than one year. Annualized for periods less than one year. The net expenses and net investment income ratios include additional reimbursements of management or advisory fees, as applicable, incurred in connection with the investment of uninvested cash in affiliated money market funds of approximately $12,000, which represents less than 0.01 percent of average net assets for the six months ended September 30, 2017, approximately $28,000, which represents less than 0.01 percent of average net assets for the fiscal year ended March 31, 2017, less than $1,000, which represents less than percent of average net assets for the fiscal year ended March 31, 2015, and approximately $3,000 and $6,000, which represent less than percent of average net assets for each of the fiscal years ended March 31, 2014, and 2013, respectively. Absent theadditional reimbursements, net investment income and reimbursements would have been decreased and net expenses would have been increasedbya corresponding amount. NORTHERN FUNDS SEMIANNUAL REPORT 9 TAX-EXEMPT FIXED INCOME FUNDS

12 TAX-EXEMPT FIXED INCOME FUNDS FINANCIAL HIGHLIGHTS C ALIFORNIA TAX-EXEMPT FUND Selected per share data SIX MONTHS ENDED SEP 30, 2017 (UNAUDITED) FISCAL YEAR ENDED MAR 31, 2017 FISCAL YEAR ENDED MAR 31, 2016 FISCAL YEAR ENDED MAR 31, 2015 FISCAL YEAR ENDED MAR 31, 2014 FISCAL YEAR ENDED MAR 31, 2013 Net Asset Value, Beginning of Period $11.48 $12.06 $11.86 $11.26 $11.78 $11.57 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income Net realized and unrealized gains (losses) 0.15 (0.45) (0.31) 0.53 Total from Investment Operations 0.34 (0.10) LESS DISTRIBUTIONS PAID: From net investment income (0.19) (0.35) (0.38) (0.38) (0.40) (0.35) From net realized gains (0.13) (0.21) (0.32) Total Distributions Paid (0.19) (0.48) (0.38) (0.38) (0.61) (0.67) Net Asset Value, End of Period $11.63 $11.48 $12.06 $11.86 $11.26 $11.78 Total Return (1) 2.98% (0.83)% 4.97% 8.84% 0.97% 7.73% SUPPLEMENTAL DATA AND RATIOS: Net assets, in thousands, end of period $180,433 $177,857 $189,741 $145,831 $119,640 $164,113 Ratio to average net assets of: (2) Expenses, net of reimbursements and credits 0.46% (3) 0.46% (3) 0.46% 0.46% (3) 0.45% (3) 0.45% (3) Expenses, before reimbursements and credits 0.57% 0.61% 0.60% 0.71% 0.99% 0.97% Net investment income, net of reimbursements and credits 3.27% (3) 2.95% (3) 3.18% 3.29% (3) 3.55% (3) 2.93% (3) Net investment income, before reimbursements and credits 3.16% 2.80% 3.04% 3.04% 3.01% 2.41% Portfolio Turnover Rate 30.02% 97.34% % % % % (1) (2) (3) Assumes investment at net asset value at the beginning of the period, reinvestment of all dividends and distributions, and a complete redemption of the investment at net asset value at the end of the period. The total return is not annualized for periods less than one year. Annualized for periods less than one year. The net expenses and net investment income ratios include additional reimbursements of management or advisory fees, as applicable, incurred in connection with the investment of uninvested cash in affiliated money market funds of approximately $10,000, which represents approximately 0.01 percent of average net assets for the six months ended September 30, 2017, approximately $16,000, which represents less than 0.01 percent of average net assets for the fiscal year ended March 31, 2017, less than $1,000, which represents less than percent of average net assets for the fiscal year ended March 31, 2015, and approximately $1,000 and $6,000, which represent less than percent of average net assets for each of the fiscal years ended March 31, 2014, and 2013, respectively. Absent theadditional reimbursements, net investment income and reimbursements would have been decreased and net expenses would have been increasedbya corresponding amount. TAX-EXEMPT FIXED INCOME FUNDS 10 NORTHERN FUNDS SEMIANNUAL REPORT

13 HIG H YIELD MUNICIPAL FUND Selected per share data SIX MONTHS ENDED SEP 30, 2017 (UNAUDITED) FISCAL YEAR ENDED MAR 31, 2017 FISCAL YEAR ENDED MAR 31, 2016 FISCAL YEAR ENDED MAR 31, 2015 FISCAL YEAR ENDED MAR 31, 2014 FISCAL YEAR ENDED MAR 31, 2013 Net Asset Value, Beginning of Period $8.69 $9.02 $8.93 $8.49 $9.04 $8.66 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income Net realized and unrealized gains (losses) 0.13 (0.33) (0.55) 0.38 Total from Investment Operations 0.31 (0.01) (0.15) 0.78 LESS DISTRIBUTIONS PAID: From net investment income (0.18) (0.32) (0.33) (0.38) (0.40) (0.40) Total Distributions Paid (0.18) (0.32) (0.33) (0.38) (0.40) (0.40) Net Asset Value, End of Period $8.82 $8.69 $9.02 $8.93 $8.49 $9.04 Total Return (1) 3.51% (0.10)% 4.80% 9.79% (1.51)% 9.10% SUPPLEMENTAL DATA AND RATIOS: Net assets, in thousands, end of period $465,353 $476,835 $575,904 $336,608 $240,728 $327,321 Ratio to average net assets of: (2) Expenses, net of reimbursements and credits 0.80% (3) 0.80% (3) 0.80% 0.80% (3) 0.80% (3) 0.80% (3) Expenses, before reimbursements and credits 0.83% 0.82% 0.83% 0.89% 0.98% 0.97% Net investment income, net of reimbursements and credits 3.95% (3) 3.60% (3) 3.67% 4.29% (3) 4.73% (3) 4.42% (3) Net investment income, before reimbursements and credits 3.92% 3.58% 3.64% 4.20% 4.55% 4.25% Portfolio Turnover Rate 4.21% 39.67% 7.20% 8.16% 10.66% 6.29% (1) (2) (3) Assumes investment at net asset value at the beginning of the period, reinvestment of all dividends and distributions, and a complete redemption of the investment at net asset value at the end of the period. The total return is not annualized for periods less than one year. Annualized for periods less than one year. The net expenses and net investment income ratios include additional reimbursements of management or advisory fees, as applicable, incurred in connection with the investment of uninvested cash in affiliated money market funds of approximately $6,000, which represents less than 0.01 percent of average net assets for the six months ended September 30, 2017, approximately $42,000, which represents less than 0.01 percent of average net assets for the fiscal year ended March 31, 2017, less than $1,000, which represents less than percent of average net assets for the fiscal year ended March 31, 2015, and approximately $1,000 and $2,000, which represent less than percent of average net assets for each of the fiscal years ended March 31, 2014 and 2013, respectively. Absent theadditional reimbursements, net investment income and reimbursements would have been decreased and net expenses would have been increasedby a corresponding amount. NORTHERN FUNDS SEMIANNUAL REPORT 11 TAX-EXEMPT FIXED INCOME FUNDS

14 TAX-EXEMPT FIXED INCOME FUNDS FINANCIAL HIGHLIGHTS INTERMEDIATE TAX-EXEMPT FUND Selected per share data SIX MONTHS ENDED SEP 30, 2017 (UNAUDITED) FISCAL YEAR ENDED MAR 31, 2017 FISCAL YEAR ENDED MAR 31, 2016 FISCAL YEAR ENDED MAR 31, 2015 FISCAL YEAR ENDED MAR 31, 2014 FISCAL YEAR ENDED MAR 31, 2013 Net Asset Value, Beginning of Period $10.40 $10.82 $10.71 $10.44 $10.70 $10.69 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income Net realized and unrealized gains (losses) 0.15 (0.26) (0.21) 0.23 Total from Investment Operations 0.26 (0.05) LESS DISTRIBUTIONS PAID: From net investment income (0.11) (0.21) (0.22) (0.21) (0.23) (0.23) From net realized gains (0.16) (0.04) (0.03) (0.05) (0.22) Total Distributions Paid (0.11) (0.37) (0.26) (0.24) (0.28) (0.45) Net Asset Value, End of Period $10.55 $10.40 $10.82 $10.71 $10.44 $10.70 Total Return (1) 2.51% (0.48)% 3.54% 4.90% 0.26% 4.33% SUPPLEMENTAL DATA AND RATIOS: Net assets, in thousands, end of period $2,737,742 $2,752,569 $3,160,485 $3,142,905 $2,369,509 $2,537,342 Ratio to average net assets of: (2) Expenses, net of reimbursements and credits 0.45% (3) 0.45% (3) 0.45% 0.45% (3) 0.44% (3) 0.43% (3) Expenses, before reimbursements and credits 0.48% 0.49% 0.49% 0.57% 0.85% 0.86% Net investment income, net of reimbursements and credits 2.09% (3) 1.94% (3) 2.04% 1.95% (3) 2.27% (3) 2.10% (3) Net investment income, before reimbursements and credits 2.06% 1.90% 2.00% 1.83% 1.86% 1.67% Portfolio Turnover Rate 79.35% % % % % % (1) (2) (3) Assumes investment at net asset value at the beginning of the period, reinvestment of all dividends and distributions, and a complete redemption of the investment at net asset value at the end of the period. The total return is not annualized for periods less than one year. Annualized for periods less than one year. The net expenses and net investment income ratios include additional reimbursements of management or advisory fees, as applicable, incurred in connection with the investment of uninvested cash in affiliated money market funds of approximately $106,000, which represents less than 0.01 percent of average net assets for the six months ended September 30, 2017, approximately $261,000, $6,000, $38,000, and $170,000, which represent less than 0.01, 0.005, 0.005, and 0.01 percent of average net assets for each of the fiscal years ended March 31, 2017, 2015, 2014 and 2013, respectively. Absent the additional reimbursements, net investment income and reimbursements would have been decreased and net expenses would have been increased by a corresponding amount. TAX-EXEMPT FIXED INCOME FUNDS 12 NORTHERN FUNDS SEMIANNUAL REPORT

15 S HORT-INTERMEDIATE TAX-EXEMPT FUND Selected per share data SIX MONTHS ENDED SEP 30, 2017 (UNAUDITED) FISCAL YEAR ENDED MAR 31, 2017 FISCAL YEAR ENDED MAR 31, 2016 FISCAL YEAR ENDED MAR 31, 2015 FISCAL YEAR ENDED MAR 31, 2014 FISCAL YEAR ENDED MAR 31, 2013 Net Asset Value, Beginning of Period $10.33 $10.48 $10.46 $10.46 $10.58 $10.65 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income Net realized and unrealized gains (losses) 0.03 (0.13) 0.02 (0.12) (0.03) Total from Investment Operations 0.09 (0.01) LESS DISTRIBUTIONS PAID: From net investment income (0.06) (0.12) (0.12) (0.14) (0.15) (0.19) From net realized gains (0.02) (1) (1) (0.02) Total Distributions Paid (0.06) (0.14) (0.12) (0.14) (0.15) (0.21) Net Asset Value, End of Period $10.36 $10.33 $10.48 $10.46 $10.46 $10.58 Total Return (2) 0.88% (0.10)% 1.41% 1.33% 0.33% 1.27% SUPPLEMENTAL DATA AND RATIOS: Net assets, in thousands, end of period $1,040,609 $1,047,250 $1,160,549 $1,392,725 $1,329,074 $1,178,323 Ratio to average net assets of: (3) Expenses, net of reimbursements and credits 0.45% (4) 0.45% (4) 0.45% 0.45% (4) 0.45% (4) 0.45% (4) Expenses, before reimbursements and credits 0.48% 0.48% 0.48% 0.55% 0.79% 0.79% Net investment income, net of reimbursements and credits 1.17% (4) 1.18% (4) 1.18% 1.32% (4) 1.45% (4) 1.58% (4) Net investment income, before reimbursements and credits 1.14% 1.15% 1.15% 1.22% 1.11% 1.24% Portfolio Turnover Rate 27.25% 21.23% 20.01% 23.13% 20.44% 16.14% (1) (2) (3) (4) Per share amount from distributions paid from net realized gains was less than $0.01 per share. Assumes investment at net asset value at the beginning of the period, reinvestment of all dividends and distributions, and a complete redemption of the investment at net asset value at the end of the period. The total return is not annualized for periods less than one year. Annualized for periods less than one year. The net expenses and net investment income ratios include additional reimbursements of management or advisory fees, as applicable, incurred in connection with the investment of uninvested cash in affiliated money market funds of approximately $62,000 which represents approximately 0.01 percent of average netassets for the six months ended September 30, 2017, approximately $46,000, $1,000, $13,000, and $28,000 which represent less than 0.01, 0.005, and percent of average net assets for the fiscal years ended March 31, 2017, 2015, 2014, 2013, respectively. Absent the additional reimbursements, net investment income and reimbursements would have been decreased and net expenses would have been increased by a corresponding amount. NORTHERN FUNDS SEMIANNUAL REPORT 13 TAX-EXEMPT FIXED INCOME FUNDS

16 TAX-EXEMPT FIXED INCOME FUNDS FINANCIAL HIGHLIGHTS TAX-EXEMPT FUND Selected per share data SIX MONTHS ENDED SEP 30, 2017 (UNAUDITED) FISCAL YEAR ENDED MAR 31, 2017 FISCAL YEAR ENDED MAR 31, 2016 FISCAL YEAR ENDED MAR 31, 2015 FISCAL YEAR ENDED MAR 31, 2014 FISCAL YEAR ENDED MAR 31, 2013 Net Asset Value, Beginning of Period $10.55 $10.89 $10.80 $10.44 $10.95 $10.92 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income Net realized and unrealized gains (losses) 0.13 (0.33) (0.37) 0.31 Total from Investment Operations 0.30 (0.02) LESS DISTRIBUTIONS PAID: From net investment income (0.17) (0.31) (0.36) (0.38) (0.38) (0.32) From net realized gains (0.01) (0.14) (0.28) Total Distributions Paid (0.17) (0.32) (0.36) (0.38) (0.52) (0.60) Net Asset Value, End of Period $10.68 $10.55 $10.89 $10.80 $10.44 $10.95 Total Return (1) 2.83% (0.16)% 4.29% 7.16% 0.30% 5.85% SUPPLEMENTAL DATA AND RATIOS: Net assets, in thousands, end of period $1,052,328 $1,077,256 $1,064,728 $864,091 $746,780 $1,174,598 Ratio to average net assets of: (2) Expenses, net of reimbursements and credits 0.45% (3) 0.45% (3) 0.45% 0.45% (3) 0.45% (3) 0.45% (3) Expenses, before reimbursements and credits 0.48% 0.48% 0.48% 0.58% 0.86% 0.85% Net investment income, net of reimbursements and credits 3.14% (3) 2.91% (3) 3.37% 3.53% (3) 3.62% (3) 2.85% (3) Net investment income, before reimbursements and credits 3.11% 2.88% 3.34% 3.40% 3.21% 2.45% Portfolio Turnover Rate 53.22% 99.52% % % % % (1) (2) (3) Assumes investment at net asset value at the beginning of the period, reinvestment of all dividends and distributions, and a complete redemption of the investment at net asset value at the end of the period. The total return is not annualized for periods less than one year. Annualized for periods less than one year. The net expenses and net investment income ratios include additional reimbursements of management or advisory fees, as applicable, incurred in connection with the investment of uninvested cash in affiliated money market funds of approximately $32,000, which represents less than 0.01 percent of average net assets for the six months ended September 30, 2017, approximately $103,000, $1,000, $13,000 and $63,000, which represent less than 0.01,0.005, and 0.01 percent of average net assets for the fiscal years ended March 31, 2017, 2015, 2014 and 2013, respectively. Absent the additional reimbursements, net investment income and reimbursements would have been decreased and net expenses would have been increased by a corresponding amount. TAX-EXEMPT FIXED INCOME FUNDS 14 NORTHERN FUNDS SEMIANNUAL REPORT

17 S C HEDULE O F INVESTMEN T S ARIZONA TAX-EXEMPT FUND SEPTEMBER 30, 2017 (UNAUDITED) MUNICIPAL BONDS 93.8% Arizona 93.8% Arizona Board of Regents State University System Revenue Bonds, Series D, 5.00%, 7/1/26 $500 $606 Arizona Board of Regents State University System Revenue Refunding Bonds, Series A, Green Bonds, 5.00%, 7/1/35 1,000 1, %, 7/1/41 1,000 1,150 Arizona Board of Regents State University System Revenue Refunding Bonds, Series B, 5.00%, 7/1/28 1,860 2,229 Arizona Board of Regents University System Revenue Bonds, Series A, 5.00%, 6/1/ Arizona Board of Regents University System Revenue Refunding Bonds, 5.00%, 6/1/33 3,710 4,385 ArizonaState School Facilities Board COPS, 5.25%, 9/1/18 (1) 2,000 2,079 Buckeye Unified School District No.201 G.O. Unlimited Refunding & School Improvement Bonds (BAM Insured), 5.00%, 7/1/ ,045 Coconino & Yavapai Counties Joint Unified School District No. 9 G.O. Unlimited Bonds, Series B, School Improvement Project of 2007 (AGC Insured), 5.00%, 7/1/22 1,345 1,438 Gilbert Public Facilities Municipal Property Corp. Revenue Bonds, 5.50%, 7/1/28 1,000 1,075 Glendale Water & Sewer Revenue Bonds, Subordinate Lien (AGM Insured), 5.00%, 1/1/18 (1) 2,000 2,021 Goodyear Public Improvement Corp. Municipal Facilities Revenue Bonds, 6.00%, 7/1/18 (1) 1,000 1,038 GoodyearWater&SewerRevenue Bonds, Subordinate Lien Obligations (AGM Insured), 5.25%, 7/1/31 1,000 1,119 MUNICIPAL BONDS % Arizona 93.8% Greater Development Authority Infrastructure Revenue Bonds, Series 2, Santa Cruz County Jail, 5.00%, 8/1/18 (1) $2,000 $2, %, 8/1/18 (1) 1,005 1,041 Marana Municipal Property Corp. Facilities Revenue Bonds, Series A, 5.25%, 7/1/18 (1) 1,970 2,034 Maricopa County Elementary School District No. 1 Phoenix G.O. Unlimited Bonds, Series B, School Improvement Project of 2006, 4.50%, 7/1/19 (1) 1,190 1,262 Maricopa County Elementary School District No. 14 Creighton G.O. Unlimited Bonds, Series A, School Improvement Project of 2016 (BAM Insured), 5.00%, 7/1/ Maricopa County Elementary School District No. 28 Kyrene G.O. Unlimited Bonds, Series B, School Improvement Project of 2010, 5.25%, 7/1/28 (2) 940 1, %, 7/1/29 (2) %, 7/1/30 (2) Maricopa County High School District No. 210 Phoenix G.O. Unlimited Refunding Bonds (AGM Insured), 5.25%, 7/1/ Maricopa County IDA Revenue Bonds, Series A, 1/1/41 (3) 2,500 2,578 1/1/41 (3) 1,735 1,997 Maricopa County IDA Revenue Bonds, Series C, 10/18/24 (4) (5) 4,945 5,882 Maricopa County IDA Revenue Refunding Bonds, Series A, Banner Health Obligation Group, 5.00%, 1/1/38 1,000 1,155 NORTHERN FUNDS SEMIANNUAL REPORT 15 TAX-EXEMPT FIXED INCOME FUNDS

18 S C HEDULE O F INVESTMEN T S ARIZONA TAX-EXEMPT FUND MUNICIPAL BONDS % Arizona 93.8% Maricopa County School District No. 3 Tempe Elementary G.O. Unlimited Bonds, Series A, School Improvement Project, 5.00%, 7/1/26 $2,250 $2, %, 7/1/29 1,000 1,223 Maricopa County School District No. 6 Washington Elementary G.O. Unlimited Bonds, Series A, 5.00%, 7/1/25 1,000 1,213 Maricopa County Unified School District No. 11 Peorias G.O. Unlimited Bonds, School Improvement Project, 5.00%, 7/1/ Maricopa County Unified School District No. 60 Higley G.O. Unlimited Bonds, Series C, School Improvement Project of 2006, 5.00%, 7/1/27 1,000 1,031 Maricopa County Unified School District No. 69 Paradise Valley G.O. Unlimited Bonds, Series D, School Improvement Project of 2011, 4.50%, 7/1/27 1,700 1,917 Maricopa County Unified School District No. 80 Chandler G.O. Unlimited Bonds, School Improvement, 5.00%, 7/1/ Maricopa County Unified School District No. 80 Chandler G.O. Unlimited Bonds, Series A-1, School Improvement Project of 2010, 4.00%, 7/1/22 1,040 1,129 Maricopa County Unified School District No. 80 Chandler G.O. Unlimited Bonds, Series B, School Improvement Project of 2015, 4.00%, 7/1/35 3,445 3,725 Maricopa County Unified School District No. 95 Queen Creek G.O. Limited Refunding Bonds, 5.00%, 7/1/ MUNICIPAL BONDS % Arizona 93.8% Maricopa County Unified School District No. 95 Queen Creek G.O. Unlimited Bonds, School Improvement Projects of 2010 & 2014, 2.25%, 7/1/26 $800 $814 Maricopa County Union High School District No. 216 Agua Fria G.O. Unlimited Bonds, Series A, School Improvement Project of 2015, 3.00%, 7/1/ Maricopa County Union High School District No. 216 Agua Fria G.O. Unlimited Bonds, Series B, School Improvement Project, 5.00%, 7/1/29 1,440 1,760 Mesa G.O. Limited Refunding Bonds, 4.00%, 7/1/29 2,000 2,250 Mesa G.O. Limited Refunding Bonds, Series A, 4.00%, 7/1/27 1,000 1,157 Mesa Street & Highway Revenue Refunding Bonds (AGM Insured), 5.00%, 7/1/23 1,000 1,180 Mesa Utility System Revenue Bonds, 3.25%, 7/1/40 5,000 4,908 Mohave County Unified School District No. 20 Kingman G.O. Unlimited Bonds, Series C, School Improvement Project of 2006 (AGC Insured), 5.50%, 7/1/21 1,000 1, %, 7/1/23 1,000 1,069 Phoenix Civic Improvement Corp. Subordinated Excise Tax Revenue Refunding Bonds, Series A, 5.00%, 7/1/28 1,125 1,352 Phoenix Civic Improvement Corp. Wastewater System Revenue Refunding Bonds, Senior Lien, 5.50%, 7/1/20 1,690 1, %, 7/1/21 1,080 1,117 Phoenix Civic Improvement Corp. Water System Revenue Bonds, Series A, Junior Lien, 5.00%, 7/1/39 1,000 1,157 TAX-EXEMPT FIXED INCOME FUNDS 16 NORTHERN FUNDS SEMIANNUAL REPORT

19 SEPTEMBER 30, 2017 (UNAUDITED) MUNICIPAL BONDS % Arizona 93.8% Phoenix Civic Improvement Corp. Water System Revenue Bonds, Series A, Junior Lien, 5.00%, 7/1/19 (1) $530 $567 Phoenix Civic Improvement Corp. Water System Revenue Refunding Bonds, 5.00%, 7/1/30 1,200 1,447 Pima County Sewer Revenue Bonds, Series B, 5.00%, 7/1/21 (1) 1,000 1,137 Pima CountySewer System Revenue Bonds, 5.00%, 7/1/25 1,000 1,181 Pima County Sewer System Revenue Bonds (AGM Insured), 5.00%, 7/1/20 (1) 1,350 1,491 Pima County Street & Highway Revenue Bonds, 4.00%, 7/1/19 (1) 1,970 2,070 Pima County Unified School District No. 10 Amphitheater G.O. Unlimited Bonds, Series D, School Improvement Project of 2007, 5.00%, 7/1/24 1,005 1,176 Pinal County Community College District Revenue Bonds, Central Arizona Collage (BAM Insured), 5.00%, 7/1/ %, 7/1/ Pinal County Unified School District No. 43 Apache Junction G.O. Unlimited Refunding Bonds (AGM Insured), 5.00%, 7/1/22 1,000 1,149 Prescott Valley Municipal Property Corp. Facilities Revenue Refunding Bonds, 5.00%, 1/1/24 1,835 2,019 Salt River Project Agricultural Improvement & Power District Electric Revenue Bonds, Series A, 5.00%, 1/1/39 1,225 1,282 Santa Cruz County Jail District Pledged Revenue Refunding Bonds (AGM Insured), 5.00%, 7/1/25 1,000 1, %, 7/1/27 2,290 2,808 (1) (2) MUNICIPAL BONDS % Arizona 93.8% 5.00%, 7/1/31 $1,285 $1,521 Santa Cruz County Pledged Revenue Refunding Bonds (AGM Insured), 3.13%, 7/1/ Scottsdale Municipal Property Corp. Excise Tax Revenue Refunding Bonds, 5.00%, 7/1/30 2,675 3,265 Tucson Airport Authority, Inc. Revenue Bonds (AMT), Subordinate Lien (NATL Insured), 5.00%, 12/1/23 1,135 1,139 Tucson COPS (AGC Insured), 5.00%, 7/1/19 (1) 2,000 2,139 Tucson Water System Revenue Bonds, 5.00%, 7/1/21 (1) 1,825 2, ,971 Total Municipal Bonds (Cost $99,819) 103,971 NUMBER OF SHARES INVESTMENT COMPANIES 12.7% Northern Institutional Funds - U.S. Government Portfolio, 0.84% (6) (7) 14,070,287 $14,070 Total Investment Companies (Cost $14,070) 14,070 SHORT-TERM INVESTMENTS 2.1% Maricopa County Community College District G.O. Unlimited Bonds, 3.00%, 7/1/18 $2,350 $2,386 Total Short-Term Investments (Cost $2,387) 2,386 Total Investments 108.6% (Cost $116,276) 120,427 Liabilities less Other Assets (8.6%) (9,560) NET ASSETS 100.0% $110,867 Maturity date represents the prerefunded date. Security has converted to a fixed rate as of July 1, 2015, and will be going forward. NORTHERN FUNDS SEMIANNUAL REPORT 17 TAX-EXEMPT FIXED INCOME FUNDS

20 SCHEDULE OF INV ESTMENTS ARIZONA TAX-EXEMPT FUND SEPTEMBER 30, 2017 (UNAUDITED) (3) (4) (5) (6) (7) When-Issued Security. Coupon rate is not in effect at September 30, These securities are remarketedbyanagent,and the interest rate is determinedby general market conditions and supply&demand. When-Issued Security. Coupon rate is not in effect at September 30, Maturity date represents the puttable date. Investment in affiliated Portfolio. Northern Trust Investments, Inc. is the investment adviser to thefund and theinvestment adviser to Northern Institutional Funds. 7-day current yield as of September 30, 2017 is disclosed. Percentages shown are based on Net Assets. At September 30, 2017, the credit quality distribution for the Fund as a percentage of investments including cash was: QUALITY DISTRIBUTION* %OFINVESTMENTS AAA 4.7% AA 73.5 A 10.1 Cash Equivalents 11.7 Total 100.0% * Credit quality ratings are based on converting theavailable Moody s, S&P Global, and/or Fitch ratings to a common numerical basis and averaging that result. If none of these three rating agencies has assigned a rating, the Fund will assign a rating of not rated. The ratings, expressed in S&P Global s nomenclature, range from AAA (extremely strong capacity to meet its financial commitment) to D (in default). Short-term ratings, expressed in S&P Global s nomenclature, range from A-1 (obligor s capacity to meet its financial commitment on the obligation is strong) to D (in default). The S&P Global s short-term municipal rating of SP1 reflects a strong capacity to pay principal and interest (an issue determined to possess a very strong capacity to pay debt service is given a plus (+) designation). The Moody s short-term municipal rating of MIG1 denotes superior credit quality (excellent protection is afforded by established cash flows, highly reliable liquidity support or demonstrated broad-based access to the market for refinancing). The ratings represent the rating agencies opinions of the quality of the securities they rate. Ratings are relative and subjective and are not absolute standards of quality. At September 30, 2017, the industry sectors for the Fund were: INDUSTRY SECTOR %OFINVESTMENTS Facilities 8.9% Financials 11.7 General 10.6 Higher Education 8.8 Medical 9.6 School District 23.5 Utilities 5.0 Water 11.6 All other sectors less than 5% 10.3 Total 100.0% Various inputs are used in determining the value of the Fund s investments. These inputs are summarized in three levels listed below: Level1-Unadjusted quoted market prices in active markets for identical securities on the measurement date. Level2-Otherobservable inputs (e.g., quoted prices in active markets for similar securities, securities valuations based on commonly quotedbenchmark interest rates and yield curves, maturities, ratings and/or securities indices). Level 3 - Significant unobservable inputs (e.g., information about assumptions, including risk, market participants would use in pricing a security). The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities and other financial instruments, if any. The following table summarizes the valuations of the Fund s investments by the above fair value hierarchy as of September 30, 2017: INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL Municipal Bonds (1) $ $103,971 $ $103,971 Investment Companies 14,070 14,070 Short-Term Investments 2,386 2,386 Total Investments $14,070 $106,357 $ $120,427 (1) Classifications as defined in the Schedule of Investments. The Fund discloses all transfers between levels based on valuations at the end of each reporting period. At September 30, 2017, there were no transfers between Level 1, Level 2 or Level 3 classifications based on levels assigned to the securities on March 31, EXPLANATION OF ABBREVIATIONS AND ACRONYMS USED THROUGHOUT THE SCHEDULE OF INVESTMENTS: AGC - Assured Guaranty Corporation AGM - Assured Guaranty Municipal Corporation AMT-Alternative Minimum Tax BAM - Build America Mutual COPS - Certificates of Participation G.O. - General Obligation IDA-Industrial Development Authority NATL - National Public Finance Guarantee Corporation TAX-EXEMPT FIXED INCOME FUNDS 18 NORTHERN FUNDS SEMIANNUAL REPORT

21 S CHEDULE OF INV ESTMENTS CALIFORNIA INTERMEDIATE TAX-EXEMPT FUND SEPTEMBER 30, 2017 (UNAUDITED) MUNICIPAL BONDS 97.8% California 97.8% Alameda County Joint Powers Authority Lease Revenue Bonds, Series A, Multiple Capital Projects, 4.00%, 12/1/24 $850 $955 Antelope Valley-East Kern Water Agency Water Revenue Refunding Bonds, 5.00%, 6/1/ %, 6/1/ BayAreaToll Bridge Authority Revenue Refunding Bonds, Series E, 2.00%, 4/1/21 (1) (2) BayAreaToll Bridge Authority Variable Revenue Bonds, Series C, 1.90%, 4/1/19 (1) (2) Butte-Glenn Community College District G.O. Unlimited Refunding Bonds, 5.00%, 8/1/ California State Department of Water Resources Central Valley Project Revenue Bonds, Series AR, 4.00%, 12/1/34 1,795 1,930 California State Department of Water Resources Power Supply Revenue Bonds, Series L, 5.00%, 5/1/19 5,000 5,322 California State Department of Water Resources Power Supply Revenue Refunding Bonds, Series O, 5.00%, 5/1/ California State Economic Recovery G.O. Unlimited Refunding Bonds, Series A, Escrowed to Maturity, 5.00%, 7/1/19 5,000 5,356 California State G.O. Unlimited Bonds, 5.00%, 3/1/26 1,250 1, %, 11/1/40 8,500 9,534 California State G.O. Unlimited Bonds, Series 2007 (FGIC Insured), Partially 5.40%, 6/1/26 2,220 2,237 California State G.O. Unlimited Bonds, Unrefunded Balance (NATL Insured), 4.80%, 2/1/ MUNICIPAL BONDS % California 97.8% California State G.O. Unlimited Refunding Bonds, 5.00%, 8/1/25 $5,000 $6, %, 8/1/28 4,000 4,954 California State G.O. Unlimited Refunding Bonds, Bid Group C, 5.00%, 8/1/27 5,000 6, %, 8/1/28 7,000 8,553 California State G.O. Unlimited Refunding Bonds, Group C, 5.00%, 8/1/26 1,000 1,204 California State G.O. Unlimited Refunding Bonds, Series B, 5.00%, 9/1/23 3,375 4,025 California State G.O. Unlimited Refunding Bonds, Series C, 5.00%, 9/1/26 3,500 4,264 California State Health Facilities Financing Authority Revenue Bonds, Series A, Sutter Health, 5.00%, 11/15/32 1,200 1,409 California State Health Facilities Financing Authority Revenue Refunding Bonds, Cedars-Sinai Medical Center, 5.00%, 11/15/ California State Health Facilities Financing Authority Revenue Refunding Bonds, Providence St. Joseph Health System, 2.00%, 10/1/25 (1) (2) 1, California State Health Facilities Financing Authority Revenue Refunding Bonds, Series B, Sutter Health, 5.00%, 11/15/35 2,500 2,925 California State Infrastructure & Economic Development Bank Revenue Refunding Bonds, Academy Motion Picture Arts, 5.00%, 11/1/34 1,290 1,498 California State Infrastructure & Economic Development Bank Revenue Refunding Bonds, Series E, Pacific Gas & Electric, 1.80%, 6/1/22 (1) (2) 2,000 2,008 NORTHERN FUNDS SEMIANNUAL REPORT 19 TAX-EXEMPT FIXED INCOME FUNDS

22 S C HEDULE O F INVESTMEN T S CALIFORNIA INTERMEDIATE TAX-EXEMPT FUND MUNICIPAL BONDS % California 97.8% California State Infrastructure & Economic Development Bank Revenue Refunding Bonds, The Salvation Army Western, 5.00%, 9/1/28 $575 $ %, 9/1/29 1,000 1,193 California State Public Works Board Lease Revenue Bonds, Series D, Judicial Council Projects, 4.30%, 12/1/20 1,000 1,097 California State Public Works Board Lease Revenue Bonds, Subseries I-1, Various Capital Projects, 6.40%, 11/1/19 (3) 2,500 2,779 California State University Revenue Refunding Bonds, Series A, 5.00%, 11/1/32 1,000 1,195 California State University Systemwide Revenue Refunding Bonds, Series B-3, 4.00%, 11/1/23 (1) (2) 5,750 6,483 California State Various Purpose G.O. Unlimited Bonds, 5.00%, 9/1/18 2,980 3, %, 4/1/19 1,000 1, %, 9/1/19 4,720 5, %, 10/1/19 2,990 3, %, 9/1/20 1,690 1, %, 10/1/20 6,000 6, %, 4/1/21 2,000 2, %, 10/1/ %, 5/1/23 1,485 1, %, 10/1/ %, 12/1/23 5,000 5, %, 5/1/24 1,450 1, %, 11/1/28 4,000 4, %, 3/1/30 1,500 1, %, 4/1/33 5,260 5,688 California State Various Purpose G.O. Unlimited Refunding Bonds, 5.00%, 9/1/23 1,500 1, %, 12/1/23 2,450 2, %, 10/1/26 2,750 3, %, 11/1/28 1,000 1,242 MUNICIPAL BONDS % California 97.8% California Statewide Communities Development Authority Student Housing Revenue Refunding Bonds, Chf-Irvine LLC, 5.00%, 5/15/27 $1,000 $1,200 Carlsbad Unified School District G.O. Unlimited CABS, 0.00%, 5/1/19 (4) 1,250 1,227 Carlsbad Unified School District G.O. Unlimited Refunding Bonds, 5.00%, 8/1/ Centinela Valley Union High School District G.O. Unlimited Bonds, Series B, Election of 2008, 5.80%, 8/1/23 (3) 1,000 1,241 Chabot-Las Positas Community College District, G.O. Unlimited Bonds, Series A, Election of 2016, 8/1/42 (5) 1,000 1,058 East Bay Municipal Utility District Water System Revenue Refunding Bonds, Series B, 5.00%, 6/1/22 1,745 2, %, 6/1/30 3,000 3,767 Eastern California Municipal Water District Water & Sewer COPS, Series H, 5.00%, 7/1/18 (3) 2,000 2,062 El Camino Community College District G.O. Unlimited CABS, Series C, Election of 2002, 0.00%, 8/1/23 (4) 9,940 8,911 El Dorado Irrigation District COPS, Series A (AGC Insured), 4.00%, 8/1/18 1,915 1,965 Foothill Eastern Transportation Corridor Agency Toll Road Revenue CABS, Series A, Senior Lien, Escrowed to Maturity, 0.00%, 1/1/20 (4) 2,150 2,089 Foothill-De Anza Community College District G.O. Unlimited Refunding Bonds, 5.00%, 8/1/28 2,250 2,723 TAX-EXEMPT FIXED INCOME FUNDS 20 NORTHERN FUNDS SEMIANNUAL REPORT